I Struck Toto!

Yes! Yes! Somebody won $8 million today with Toto. But no, it's not me. I wished. Sigh. All I got out of throwing $10 on this was a prize of $10. So technically, I did win something. It's break even. No progress whatsoever. Guess I should take consolation there was no loss. Pun intended.

On the market front, the poor market conditions have continued to rue/rule. No excitement there. Actually there is, it's so bad, it's time for more buying!? With PE ratio so low and dividend yield so high, how not to experience a new high?

Interested.

It seems more and more companies are going offline, taken private. More signs of an unappreciated market and underrated stocks?

Excited.

Meanwhile, dividends continue to come in. And I'm plowing everything back into the market to plant new padis. It'll take awhile. I am patient.

Delighted.

Retail bonds have been launching non-stop of late. Interestingly, these are all from overstretched companies with mountains of debt. Junk bonds? Might as well give it a go with P2P loans. Lagi junk bonds. I'm starting out with Moolahsense. But alamak, there is no funding campaign going on right now!? Have to wait.

Bore.

Meanwhile, I shall continue to be entertained by Viu, the best freebie app of the year. First, it was Descendants of the Sun, and now it's Entertainer and The Flower in Prison. Absolutely zero knowledge of Korean, so the English sub-titles help, lots. I think I'm beginning to speak a bit of Korean?

Entertained.

Time to tell wifey, "salanghae". I gave it a go. She didn't get it. Nevermind.

Anti-climax.

Aspial 5-year 5.25% Retail Bonds - Leveraging from the Market

Aspial started offering a 5-year 5.25% retail bonds to raise $75 million. It is nice to see more of such high yielding bonds appearing for the retail investors.

More:
Aspial to roll out 5-year 5.25% retail bonds (Straits Times)
Aspial issues a 5.25% bond with minimum $2000 (Investment Moats)
Aspial 5.25% retail bond thoughts (Got Money, Got Honey)

Aspial bond 2015 (Martin Lee)

Clearly, the bond is being offered with a higher coupon rate than compared to the upcoming Singapore Savings Bond (for the definitive collection of articles on SSB, check out GiraffeValue's 71 resources on Singapore Savings Bonds).

Some wondered why Aspial would be raising money from the market instead of borrowing from the banks. Checking against POEM's data on Aspial itself, we see some interesting data that can shed some insights:

Stock Data
Market Capitalization (SGD 'mil)	703.66
Common Shares Outstanding ('mil)	1,882.6200
52 Week High (SGD) (07/08/2014)	0.455
52 Week Low (SGD) (03/07/2015)	0.265
52 Week Return (%)	-15.940
Average Volume ('mil)	0.0148
Beta	0.56

Financial strength
Current Ratio	3.25
Quick Ratio	0.99
Long Term Debt to Equity (%)	247.97
Total Debt to Equity (%)	342.82
Interest Coverage Ratio (TTM)	1.28
Free Cash Flow to Firm (TTM) (SGD 'mln)	-34.97

Margin
Gross Margin (TTM) (%)	24.14
Operating Profit Margin (TTM) (%)	-1.39
Net Profit Margin (TTM) (%)	3.08

Dividend §
Annual Dividend per share (SGD)	0.0180
Dividend Yield (TTM) (%)	2.16
Dividend Yield (Annual) (%)	4.86
Payout Ratio (TTM) (%)	95.22
3-Year Growth Rate (%)	28.57

Valuation
Historical P/E Ratio	15.37
P/E Ratio (TTM)	43.53
P/BV (latest interim)	2.22
BVPS (latest interim) (SGD)	0.1669
EPS TTM (SGD)	0.0085

[Source: POEMS; as at 20 Aug 2015]

Aspial's debt-to-equity is more than 340%, with a short term debt of 95% due! This is way above my threshold of 40% that I use to screen for stocks to consider. It has apparently been exercising a very high level of leverage as it expands its business. These are numbers that would raise an eyebrow, or two. It possibly explains why Aspial has resorted to raising cash from the market to refinance borrowings, increase its working capital and to fund future business investments.

I am not buying nor own any shares in Aspial. But I'm going ahead to put in a small bid for this bond tranche.

24 Tales in the Journey to Wealth

RETIREMENT

"Financial Independence, Retire Early" (FIRE) - that seems like a wonderful catch phrase to set the flames going. What does it take to achieve this burning desire? I think it boils down to a magic number.
[1. http://lizardorealm.blogspot.sg/2015/05/light-fire-can-i-retire-now.html]

STOCKS

To achieve this outcome, I invest in the market, diversified across market regions, namely Asia Pacific (except Japan), global emerging markets, the US, Europe and Japan. 

Unit Trust.

I use funds from the Supplementary Retirement Scheme (SRS) and CPF OA and SA funds to invest into Unit Trust on the Fundsupermart platform. Since each year I can contribute up to to $12,750 into SRS, that is the capital injection that goes into this portfolio. This unit trust portfolio is further complemented by ETFs. Fees in Unit Trusts are relatively higher compared to ETFs, but the latter tends to be less liquid.

[http://lizardorealm.blogspot.sg/2015/01/the-performance-of-unit-trusts-in-2014.html]

Singapore Stocks.

A value investment approach in dividend paying stocks can be most rewarding. I diversify across the Singapore stock market by buying a dozen stocks (or two!) to spread the risks. The wonderful part of this is that I can happily collect dividends to reinvest while waiting as well. Of late, the dividends can run into an average of $1,000 a month. This will be the means by which I intend to generate the eventual passive income for retirement. The dividends would have been more, except that I typically take up the script offer (i.e. collect more units of stocks in lieu of cash), so as to continue to build up my portfolio, and at a discount from the market value.

[2. http://lizardorealm.blogspot.sg/2015/04/my-singapore-team-of-dividend-stocks.html]

US Stocks.

Likewise, for US stocks. I invest through POEMS which hold the US stocks as a custodian account. US stocks (if you pick carefully!) have a practice of steady dividend growth. So even if you do nothing, the dividends tend to hold stead or growth with each passing year. The only problem is the 30% withholding tax on the dividends. The custodian fee that POEMS charge is quite minimal really, so that I can live with.

[3. http://lizardorealm.blogspot.sg/2015/06/my-us-team-of-dividend-stocks-2015.]

Exchange Traded Funds (ETF).
Since I already hold diversified portfolios of Singapore and US stocks, the rest of the market regions are held via ETF, which complements the Unit Trust portfolio mentioned earlier. I prefer to hold ETFs that pay out dividends - or what I refer to as an Income ETF Portfolio.

[4. http://lizardorealm.blogspot.sg/2015/01/2-portfolios-of-etfs-growth-vs-income.html]

BONDS

The stock portfolios are complemented by bonds and cash. While my plan was to maintain only 10% in bonds and cash (or bond-like instruments), it has typically reached 20%. In addition, I maintain 6 to 9 months worth of expenses in cash instruments.

Preference Shares and Retail Bonds. 

These can be bought off the SGX. The coupon payments, usually half-yearly, provides yet another income stream.

[5. http://lizardorealm.blogspot.sg/2015/01/non-convertible-preference-shares.]

Bondsupermart.
More recently, a wider spread of bonds can also be bought through Fundsupermart. Aside from the few retail bonds, the majority will require hefty $250,000+ investments. Something beyond my reach and need for now, so it's something to keep in view as a future option. As an income stream, perpetual bonds can be quite attractive.

[6. http://lizardorealm.blogspot.sg/2015/05/bondsupermart.html]

Singapore Savings Bond.
This offering from the Singapore Government will be available to retail investor soon. While not a inflation-linked bond, it has some semblance of it. I will most certainly park some of my cash components here. That will serve as an emergency buffer that can be cashed out if needed.
[7. http://lizardorealm.blogspot.sg/2015/04/singapore-savings-bond-as-safe-as-it.html]

Central Provident Fund (CPF).
The compulsory savings into CPF actually is another bond component, offering steady and fairly risk-free growth. The only problem is the lock-in. The lock-in becomes less of a worry for someone like me who is reaching the half-century mark. CPF funds has serveed many useful purposes thus far, especially to fund housing (used), support the kids' education (an option not yet used), or invested into stock or unit trust funds if I prefer to take more risks.
[8. http://lizardorealm.blogspot.sg/2015/02/a-great-retirement-offer-from-cpf.html]

Bank Savings Accounts.
Even the traditional banks can offer interesting saving accounts with higher interest rates. But a bit of acrobatics need to be done. This is the other component of my cash funds.
[9. http://lizardorealm.blogspot.sg/2015/06/how-can-we-stretch-interest-on-our-bank.html]

MAXIMISING SAVINGS, REDUCING EXPENSES

Even as the investment portfolios are being built up, it is also worthwhile to examine options to reduce 'leakages'.

Supplementary Retirement Scheme (SRS).
Taxation is such a killer, especially at higher incomes. One sure way to reduce the tax burden is to contribute to the SRS (and invest the money sitting in SRS!).
[10. http://lizardorealm.blogspot.sg/2015/02/one-way-to-avoid-paying-more-tax-srs.html]

Donations.
And if you have a charitable heart, donation is another way of reducing the tax burden while doing some good deeds.
[11. http://lizardorealm.blogspot.sg/2015/02/another-way-to-avoid-paying-more-tax.html]

Credit Cards.
Some people view credit cards as an evil thing. But used wisely, it can actually help reduce our expenses.
[12. http://lizardorealm.blogspot.sg/2015/06/4-credit-cards-with-great-cashbacks-and.html]

EXOTICS & ALTERNATIVES

There are many exotic options and alternatives to grow that investment pie. But be very careful! Perhaps, it suffices to keep things simple.

Crowdfunding.
A recent trend has been the growth of crowd-funding platforms. These have arrived on our shores, offering the lure of 12% returns or more. In reality, they are even more risky than junk bonds. I am keeping this in view for now.
[13. http://lizardorealm.blogspot.sg/2015/02/moolahsense-embarks-on-new-fundraising.html]

Starting a Business.
This requires more careful considerations. I'm not quite ready for that leap.
[14. http://lizardorealm.blogspot.sg/2015/01/running-cafes-as-business-owner.html]

Inheritance.
One could wait for an inheritance, if there is any to be had! But I wouldn't bet on this.
[15. http://lizardorealm.blogspot.sg/2014/12/20-years-and-200000-mothers-savings.html]

Exciting Bank Offers.
This is an oxymoron. With the exception of the aforementioned special savings accounts, what can they offer that can do better than all the self-help options mentioned earlier given their exorbitant charges?
[16. http://lizardorealm.blogspot.sg/2015/05/a-fantastic-investment-deal-at-bank-or.html]

STAY HEALTHY

Be Healthy.
Most importantly, is to stay healthy. What's the point of an early retirement, if one is in bade health? Or worse, expired early!
[17. http://lizardorealm.blogspot.sg/2014/07/investing-and-dieting-wealth-and-health.html]

Medical Insurance.
But we can never be certain of good health. So medical insurance is a must in my view. Without this, all the savings and investments can be easily wiped out in no time. Sometimes, we really have to spend money to save money.
[18. http://lizardorealm.blogspot.sg/2015/04/thank-goodness-we-had-medical-insurance.html]

Staying Healthy on Cruise.
One can still enjoy life, even while on a food binge on a cruise. It's not that difficulty to stay healthy, really.
[19. http://lizardorealm.blogspot.sg/2015/04/not-too-difficult-to-stay-healthy-on.html]

ANTHOLOGY OF DISASTERS

Con Jobs.
These are just plentiful and are happening everyday. Always worth repeating the mantra, "if it sounds too good to be true, it probably is too good to be true". Greed is our greatest enemy. And the enemy is that person in the mirror.
[20. http://lizardorealm.blogspot.sg/2015/05/rags-to-riches-riches-to-rags.html]
[21. http://lizardorealm.blogspot.sg/2015/02/the-allure-of-gold-treachery-of-glitter.html]

Job Loss.
This can really be painful and disastrous. A family unit that has multiple wage earner helps diversify the risk. But for the single-income family, there really isn't any room. Best to move on and deal with the realities.
[22. http://lizardorealm.blogspot.sg/2015/05/what-do-you-do-if-you-get-laid-off.html]

Extravagance.
A lifestyle of living beyond one's means is a sure road to disaster. Live within your means. What you can't save isn't yours.
[23. http://lizardorealm.blogspot.sg/2015/05/a-millionaire-and-yet-completely-broke.html]

Careless Decisions.
Sometimes, we will make bad decisions and lose money. Hopefully, this doesn't happen too often and too painfully.
[24. http://lizardorealm.blogspot.sg/2015/06/sumiko-tans-money-no-enough.html]

--
"Good health, great wealth!"
Or should it be, "Good wealth, great health!"

Light the FIRE! Can I Retire Now?

This was the first time I came across the term: FIRE (by Googirl). Or to elaborate, that's Financial Independence, Retire Early.

Quite a catchy tag line. Achieving the left gives the option to exercise the right.

I view Financial Independence as the situation when my passive income can support a desired lifestyle.

For me, it works out to be an investment portfolio of $2.5m if before age 65, or $1.8m if at statutory retirement age of 65. The reason for that difference is the additional payout from CPF Life payout by then, and because parts of my current investments are using CPF funds and Supplementary Retirement Scheme (SRS) that are locked up till age 55 (the excess beyond the minimum sum from CPF Retirement Account can be withdrawn) and statutory retirement age respectively.

Alternatively, if I strip away these, I could likewise retire on a portfolio of $1.8m anytime if they were all using fluid cash based investments. Why $1.8m? Because at a 4% dividend/coupon payout or withdrawal rate, a $1.8m portfolio would give me $72,000 per year. That's $6,000 a month. I think it's enough for my wife and I.

Howzabout $1.8m in bonds from Bonds@FSM (see Bondsupermart)? That's like 6 blocks of bonds at about $250,000 each. A bit too much for me to stomach for now. I prefer wider diversification at this accumulation stage. But it is certainly one way.

If I were nearer retirement age, it might still prove to be attractive. A yield-to-maturity of about 4% seems achievable based on the various Singapore corporate bonds presently available.

A search on Bonds@FSM based on a yield-to-maturity above 4% with a time span of above 10 years threw up 17 options. Most are familiar names from the Singapore Stock Exchange. Many of these had yield-to-maturity in the region of 5% to 7%. Obviously, there are higher risks for the higher yield end of the scale (e.g. Olam and Hyflux). And interestingly, all are "perpetuals".

Another way of thinking about above is that every $300,000 worth of bonds at 4% yield would generate $1,000 of income per month.

What's your magic number?

Related:
The Good News About Retirement

Bondsupermart

From Fundsupermart comes a new offering: Bondsupermart (or Bonds@FSM). Now we have another avenue to buy government and corporate bonds directly without having to go to the banks.

I like FSM's application interface. They tend to spot pretty clean and intuitive user interfaces.

I was initially pretty excited as I thought they were offering these bonds within reach of retail investors. Alas, not quite. They still require that the bonds be purchased in lots of at least 250,000 units (~$250K) per bond (typically).

So it is available to retail, but would require hefty investments to buy into. Nonetheless, it is an option. Need to understand their sales charges. These are documented on the website.

Saliva drip drip. For an investment of $250,000 at 4% (assuming yield to maturity of 4%), that's $10,000 per year. There are several perpetuals from blue chip companies.

Wish there was some way that those bonds can be retailed in lots of 10,000 units instead. I would definitely want it for my 10-20% bond component of my investment portfolio. But at $250,000 or more per pop, it's a bit over my head for now.

Related:
Singapore Savings Bond

Singapore Savings Bond - As safe as it can be [updated]

Plenty has been said about the Singapore Savings Bond (SSB), so enough said on the general idea. We will have to wait till the second half of the year however to understand better how do we, as lay peons, go about investing into it, and if there are limits for each investor. Is this yet another Singapore-only innovation?

Interestingly, it was in fact announced during the week of the most momentous event in Singapore's history. But it probably went low key because of it. The blogging community largely also respectfully abstained from publishing during that week.

It looks like this is a manifestation of the idea previously mooted about an inflation-linked bond. Though not quite the same, it does offer semblances of it. With its pegging against the prevailing Singapore Government Securities (SGS) Bond, the current rates range from the low end of 1% to 3%. These rates would of course vary over time depending on how SGS Bonds fair. The prevailing sentiments is that bond rates are likely to go up over time as interest rates rise.

[This is not to be confused with bond "yield" which has an inverse relationship.]

While it doesn't yet hit the above 4% that I was looking for, nor was it the mechanics that I thought would materialise, still, it's a positive move forward. There is hope.

From casual chats with relatives and friends, many still do not understand. Some think it's a one-off affair, like the sale of the special series of Singtel shares when it was first publicly listed. Others, who belong to the the-government-is-out-to-con-me-no-matter-what-they-do camp viewed it as yet another scam that will take away their money. One simply asked, which bank is this?

Personally, I have yet to understand how SSB works from the government point of view. How is it self-sustainable and implemented to support the system? I would vaguely guess that it rides on the underlying SGS Bond as an implementation.

What can I use such a scheme for? Some personal views:

• The 6-month salary worth of cash reserves to deal with unexpected emergencies, assuming liquidation is straightforward and fast enough.
• Part of the 10% component of my investment portfolio that I want to keep - i.e. with a lower risk profile.
• Kids education fund as it runs into the final 5-10 years, depending on how risk adverse I am.
• A safe fund being built-up for some mid-term but uncertain intentions (e.g. buy house, car, etc), for which plans may not unfold over a 5-10 year horizon.

Some of my relatives are so risk adverse, they will never ever ever want to invest in shares and such. For them, the SSB is definitely a better solution than leaving their cash collecting flakes of particles (otherwise known as "dust") in a bank savings account and in fixed deposits.

By the way, a Central Depository (CDP) account is needed. Do you have one yet?

On a separate note, SGS Bonds (not to be confused with SSB!) can also be bought directly by retail investors through the local banks, but require $250,000 at par ($1 per unit). Alternatively, they can also be bought off the secondary markets via Fundsupermart or from the Singapore Stock Exchange in lots of 1000 units at the traded price.

p/s: We really love our Three Letter Abbreviations (TLA).

4 Financial Options in 4 Months

It's only been 4 months since the start of the year. But if one were to reflect back, it seems like a roaring year with lots of significant changes affecting our personal financial options.

Consider:

• Reduction of lot size for shares from 1000 to 100. So some of the high value shares become accessible.
• Changes to CPF. Interest rates to go up.
• Singapore Savings Bond. Comparatively risk-free bond for the conservative.
• Review of ETF (related: Navigating ETFs) so that more ETFs can be invested by entry level investors.

Seems progressive.

Another One Bites the Dust - Olam B180129 6.75%

Olam B180129 was a bond that gave out 6.75% per year that was supposed to mature on 29 Jan 2018. Olam has done an early redemption.  There goes another good deal.  Sigh.

Looks like either Olam is in better financial shape or it is now able to secure a cheaper financial package to replace this bond.

Non Convertible Preference Shares & Retail Bonds IV

[This is an update of a previous post.]

Traded on the SGX, NCPS are traded like shares (which means the bid-ask price fluctuates), but gives out dividend/coupon payments like bonds.  There aren't that many such NCPS, and they're mostly from the 3 big banks in Singapore. So long as the issuers don't call back their NCPS, they will continue to pay out the dividends at the stated rate.  However, some of these have 'maturity' dates where the coupon rate reverts to a floating rate thereafter.  Prior to the maturity date, the bank cannot call back the NCPS.

The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks.  But then again, we've seen also big banks in the US going down under in recent history!

If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream.  So long as the issuer doesn't call back the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually.  If they do call back the NCPS, you will get back the par value anyway.

Below are the respective NCPS.  Read as such:
[NCPS]
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])

Hyflux 6.0% - Cumulative NCPS

- 25 Apr 2018 @ 6% (25 Apr, 25 Oct)

- Thereafter @ 8% (25 Apr, 25 Oct)

DBS 4.7%
- 22 Nov 2020 @ 4.7% (22 May, 22 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)

OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)

OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)

OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec) [re-callable anytime]

SOR refers to the Swap Offer Rate. This would be one case where as an investor, we actually be happy to see the SOR soaring.

For the latest, refer to SGX List of Preference Shares.

For an elaboration to understand about these preference shares, you may want to examine this talk on Comparing Bonds from an SIAS MyMoney investor education programme.

You may also be interested in SGX List of Retail Bonds.  As an example, "LTA n4.17% 160510" means that the bond issuer is LTA at a coupon rate of 4.17% per annum and matures on 10 May 2016.  See also My Name is Bond.

Retail Bonds for Retirement Income (My Name is Bond)

I had previously griped about the lack of access for retail investors to invest into bonds in 5 Wishes for X'mas 2014.

"Why can't those 5%, 6%, 7% coupon paying bonds be made available to retail investors? At $250,000 a pop, they're completely out of reach for most. Why the exclusivity when bonds could really lower the risk profile of an investor's portfolio? Imagine all those education and retirement portfolios aiming to get a reasonably safe yield or 4% extraction for retirement?"

Well, the good news is that the Consultation Paper on Facilitating Bond Offerings to Retail Investors (MAS) is out! Looks like there is a good possibility that retail investors would in due course be able to invest in bonds at smaller lot sizes.

Yet another of my early X'mas wish list being realised.

Unfortunately, if the smaller lot size for bonds is only offered through retailing in the secondary market, retail investors may not gain the full benefit of the bond coupon rates as it could very well normalise back to the risk-free level of the prevailing risk-free market rates of SGS bonds, padded with a difference based on the risk profile of the underlying company?

It is after all a consultation paper and the final form could still evolve. In any case, it is an interesting development.

Wouldn't it be great to be able to take $100,000 (excess above minimum sum from CPF at age 55) and invest in a range of bonds at $10,000 per series, giving >4% coupons (i.e. >$4,000 per annum or >$330 per month)? That's a personal bond unit trust!

5 Wishes for X'mas 2014

X'mas is coming. It's always coming what, right? At worst, it's 364 days away. Darned good excuse either way to make a wish list. So here's my greedy list ... (never know if it might come true!)

Chaos and order begin with the flutter of a butterfly.

1. Give me real ETFs!

Enough of those exotic synthetics already. Then we can have less problems about the average investor not being allowed to invest in ETFs. Let's have real index ETFs and give investor the real means to diversify across market regions with real stocks backing the ETFs. Generate the liquidity as well please. Please?

2. Can I buy just 15 shares of Jardine Matheson Holdings?

It's really a pain given that it's at a price of US$59.84/share in lots of 400 shares. That's quite a fortune at one go. Of course there is the means to buy small lots on the Unit Share board on POEMS. But it doesn't have the same liquidity wor. The spread is even worse.

3. Repeat my order if not transacted.

How hard is it to provide such a feature? Can I have the function on the basic POEMS application for a validity period for my buy/sell orders if it is not transacted within the day? It's a pain to submit a fresh order each day until it happens. That's a lot of mouse clicks you know?

4. To hell with the penny stocks! 

Can we get rid of them for gawd sake? I really hate people selling 1,000 shares at $0.10 when I'm trying to buy 50,000 shares of it. That's just $100. Come on! You're killing me with the sales charges. Enough already. Creep.

5. Bonds galore! 

Why can't those 5%, 6%, 7% coupon paying bonds be made available to retail investors? At $250,000 a pop, they're completely out of reach for most. Why the exclusivity when bonds could really lower the risk profile of an investor's portfolio? Imagine all those education and retirement portfolios aiming to get a reasonably safe yield or 4% extraction for retirement?

Retiring single and on $2,000 per month

The Case

One of my sister is only a fistful of years away from retirement. Her lifestyle is generally a frugal (if not miserly!) one. She has no mobile phone, no cable TV, no aircon, no car (in fact, no license!). Single and hence no kids either. Zilch. Simple lifestyle, doesn't cost much. A Mustachio lifestyle!

She lives in a HDB flat that has been fully paid for. My mother has in fact set aside a sum of money that will pay for all the utilities (water and electricity) for at least another 20 years. Maybe less if the price of utilities inflate.

She has some 'vice' though. She likes to travel. Occasionally, she also seems to splurge quite a bit on geomancy ornaments and temple offerings. Hobby and beliefs.

Retirement Income - The Current Situation

She said she expects to receive about $800 per month from CPF Life. I figured she would probably survive on under $2,000 a month. With $800 already coming from CPF Life, that's a shortfall of only $1,200. That doesn't seem difficult. I figured if she could invest a sum of $360,000 at a 4% yield, she would have a perpetual income to meet that gap. Didn't seem difficult at all since she had not touched her CPF for anything her entire life.

Out of curiousity, I asked her how she planned to make the difference. Turns out she had invested in some insurance scheme that would also generate a sum at the end of 10 years to grow her retirement pot. I don't know what she specifically bought, but I'm sure there must be an insurance component within. So I asked her, what the coverage was for since she didn't need to protect anyone else upon her death? There was a bit of awful silence as the realisation sank in.

Never mind. At least, the money wasn't sitting in a bank account rotting away. Hopefully it's not a Lehman Brothers sob story all over again. On the other hand, she did make a reasonable decision to leave the bulk of her money in CPF as she didn't know what to do with it otherwise. At least that would still compound at 2.5 to 5%.

Interestingly, she does buy stocks. But she's the kind that dabble in trading by buying on rumours, analyst buy calls, and get a hearth-thumping fillip from 3 cents changes in stock prices. You can pretty much guess that she's really into those penny stocks. Risky. Guess that counts as another vice?

Retirement Income - Alternative Options

I thought about this over the rest of the weekend and wondered how that 4% yield could be achieved.  I came up with a couple of possibilities, constrained by the desire to keep a lower risk profile:

Dividend-Yielding Stocks.

Buy a number of dividend yielding stocks and live off their dividends. I suggested she examine several stocks like Vicom, SATS, SPH, HourGlass, Boustead, and complement these with a bunch of REITs. I figured the stocks would generate 3-5% while the REITS would generate 4.5-7%. The upside is that some of these stocks could appreciate in value. Of course, that also come with the downside that the reverse could also happen.

Perpetuals and Bonds.

Presently, there are a few publicly traded perpetuals and high-yield bonds on the SGX - e.g. Hyflux6%CPS10, GentingSP5.125%Perp and Olam6.75%b180129US$. At 5.125% to 6.75%, seems like a combination of these could be a viable option. The yield-to-maturity (YTM) would be a little lower given that these are currently trading at above par (e.g. Hyflux's perpetual is trading at $106.8 for $100 par value on 23 Jun 14). Can't see the downside other than the underlying company folding or becoming unprofitable and hence unable to pay the coupon. The payout is otherwise fixed and would not fluctuate.

Bonds ETF.

What about buying a whole market of bonds instead? Was checking out iShares J.P. Morgan Asia Credit Bond Index ETF ("IS ASIA BND 10S$D") and noted that it holds bonds weighted towards Corporate bonds, with some sprinkling of Government bonds of Asia Pacific countries. Looks like at least 70% are investment grade. The yield seems to be about 4-5%. I believe its Expense Ratio is 0.5%. Seems doable.

Bonds Unit Trust

I also explored Bonds Unit Trust that provide regular dividend payout. But none seems suitable for the desired profile. Either dividend payouts would be too low (<4%), or risks seem high. Did I miss something?

A Matter of Choice

What would you choose?  Are there alternatives?  I greatly welcome any views and insights.

Maximising returns with minimal risks - for the ultra conservative investor

Most of us probably are guilty of unnecessary 'expenses' that could have been avoided with a little bit more education and interest.  And you don't have to avoid that cup of Starbucks coffee to do so!

Tax Avoidance


Not the illegal kind of course!  But one could easily avoid paying tons of tax by establishing a Supplementary Retirement Scheme (SRS) account and maxing out the annual contribution of $12,750.  Contibutions to your SRS are tax deductible.  If you were at a tax bracket of 17% for instance, this translates into a tax avoidance of $2,167.50!  In addition, that $12,750 should be further invested to achieve higher returns. 

The catch: SRS cannot be withdrawn till after retirement age (62-65 years old), and has to be extracted over a period within 10 years thereafter, taxable at half the amount.  That means that if one had no other sources of income by then, withdrawal of $40,000 annually would be tax free since the first $20,000 of taxable income enjoys 0% tax.  This assumes the taxation system remains unchanged.

Caveat: My take on the subject of SRS is that it may not be meaningful to do so if your tax bracket is still very low.

More Tax Avoidance

If your spouse is earning less than $2,000 a year, you could contribute up to $7,000 to your spouse CPF-SA (Speical Account) which is then tax deductible for you!  That's a further $1,190 of tax avoidance at the 17% tax bracket - i.e. an immediate 17% yield!  Consider in addition that the $7,000 in your spouse's CPF-SA would be benefiting from 4% returns as well.  Of course, there is no guarantee the interest rate for CPF-SA would continue to be 4%, since officially it is now benchmarked against SGS 10-year bond + 1%.

The catch: CPF-SA is of course not withdrawable till after 55 years of age, subject to any balance left after the minimum required transfer to CPF-RA (Retirement Account).  Check out the CPF website for more information.

Risk-free Investments

Aside from low risk but rather hopeless options of putting our money into savings account (earning a pittance of a return) or fixed deposits (equally miserable returns), other options would be Singapore Government Securities (SGS) Bonds and Money Market Funds. 

SGS Bonds can be bought off secondary markets such as from Fundsupermart. The yield is in the region of 2-3% for 10-20 year maturity. Not bad, compared to 0.5% in savings account. These days, SGS Bonds are publicly traded on SGX.

Money Market Funds (MMF) on the other hand are unit trusts that invest in short-term (<1 year) maturity and probably yield about 1% right now, although it could well be 2-3% over the longer term.  MMF are however very fluid.  While it carries slightly more risk than savings account, the risks are relatively low given the short term maturities and AAA-rated holdings.  I view MMF as 'equivalent' to a savings account, but with a latency of 1-2 weeks when the money needs to be cashed out.  Such funds would include LionGlobal Money Market Fund, Philip Money Market Fund, and Pru Cash Fund.

There are various Singapore Corporate Bonds, including from government or statutory boards, which may well offer better yields than SGS Bonds.  Unfortunately, these are not easily accessible for the typical retail investor for now.  But recent news suggest that SGX is looking into opening up this market in the not so distant future.

There is a good video presentation from Mah Ching Cheng to explain this subject (a SIAS event): Investing in Bonds.

In Summary

For the ultra conservative investor therefore, the above would reap immediate benefits in maximising the little cash that we could put to better use, avoiding unnecessary wastage, and simple solutions to getting better returns, rather than leaving our money in the bank idling away.

We start off by working hard for our money.  It's time to make our money work harder for us.

Retirement:
Supplementary Retirement Scheme [IRAS]
Investing in Bonds [SIAS MyMoney investor education]
SRS & CPF Cash Top Up Schemes [Nexia Pulse]

Capita Mall Asia Bonds (5 + 5 years)

Capita Mall Asia (CMA) is first off the block, offering a 10-year bond for the first 5 years at an interest rate of 3.8%, with pay outs on 12 Jan and 12 Jul each year, and callable in part or in full after 12 Jan 2017.  If not called, the interest will increase to 4.5% for the next 5 years, maturing on 12 Jan 2022.

Applications are open from 3 Jan 2012, 2 pm to 9 Jan 2012, 2 pm, at a minimum of $2,000 and in increments of $1,000.

Not eligible under CPF Investment Scheme and Supplementary Retirement Scheme.

Details at SGX Website

A Year of Retail Bonds and Preference Shares

It's 1 Jan 2012, and morphing shortly to the Year of the Dragon.

News seem to suggest that there will be a sprinkling of companies raising funds through Retail Bonds and perhaps Preference Shares.  Chances are good as credits are likely to be tight.  So this is one avenue for companies to secure credit.  Hopefully, these will be priced at more exciting levels, offering above 4% annual pay out?

I keep seeing comparisons that people make between the yield of REITs, comparing against bond coupon rates, and similarly, preference shares.  However, there is a big difference involved concerning the principal amount.  In the case of REITs, the yield is dependent on the current stock value of the REIT, so it will fluctuate.  In contrast, the coupon and dividend payment of bonds and preference shares are based on the original face value (or par value) and is not dependent on the trading value of the bond/preference-shares.

To illustrate, if the REIT was priced at $1.00 per share, a 5% dividend  would give $0.05 per share.  In the following year, if the REIT collapses to $0.50 per share, a 5% dividend would give only $0.025 per share.  For the REIT to continue giving out the same amount of $0.05 per share, it would have to pay out a dividend of 10%.  Whether the later is possible depends on its business revenue generated.

In contrast, a bond would be priced at $1.00 per unit.  If it has a 5% coupon payout, one gets $0.05 per unit every year until maturity, where the bond is then redeemed by the issuer at the original capital of $1.00 per unit.  The coupon payout does not fluctuate.  On the secondary trading market, the bond would be trading at values, and that does fluctuate.  But that does not affect the coupon payout.  It only has an impact if one needs to sell it off before maturity.

It is similar for preference shares.  For non-cumulative preference shares, the difference would be that there may be no payout if the underlying stock does not as well.  So it's important that such companies are well managed and have a consistent history of always paying out.  In the case of cumulative preference shares, any payout missed in one year gets carried over to the next - i.e. cumulative.  Some of the preference shares are "perpetual", and may never be redeemed.
[SGX List of Preference Shares]

The Toto special for New Year is estimated at $3 million.  If one was to win this sum, and invest the winnings in a series of bonds and preference shares (diversification!) that gives an average of 4% coupon/dividends, that's $120,000 per year perpetually!  Not bad. 

One can dream.  Buy a ticket today for that HOPE - a four letter word. 

Disclaimer: Winning is not guaranteed. *grin*  Happy New Year 2012!

Non Convertible Preference Shares III

[This is an update of a previous post.]

Traded on the SGX, NCPS are traded like shares (which means the bid-ask price fluctuates), but gives out dividend/coupon payments like bonds.  There aren't that many such NCPS, and they're most likely from the 3 big banks in Singapore. So long as the issuers don't call back their NCPS, they will continue to pay out the dividends at the stated rate.  However, some of these have 'maturity' dates where the coupon rate reverts to a floating rate thereafter.  Prior to the maturity date, the bank cannot call back the NCPS.

The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks.  But then again, we've seen also big banks in the US going down under in recent history!

If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream.  So long as the issuer doesn't call back the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually.  If they do call back the NCPS, you will get back the par value anyway.

Below are the respective NCPS.  Read as such:
[NCPS]
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])

Hyflux 6.0% - Cumulative NCPS

- 25 Apr 2018 @ 6% (25 Apr, 25 Oct)

- Thereafter @ 8% (25 Apr, 25 Oct)

DBS 4.7%
- 22 Nov 2020 @ 4.7% (22 May, 22 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)

UOB 5.05%
- 15 Sep 2013 @ 5.05% (15 Mar, 15 Sep)
- 15 Sep 2018 @ as above [2nd maturity date]

OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)

OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)

OCBC 5.1%
- 29 Mar 2013 @ 5.1% (20 Jun, 20 Dec)

OCBC 4.5%
- 28 Jan 2013 @ 4.5% (20 Jun, 20 Dec)

OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec)

SOR refers to the Swap Offer Rate.

For an elaboration to understand about these preference shares, you may want to examine this talk on Comparing Bonds from an SIAS MyMoney investor education programme.

For the latest, refer to SGX List of Preference Shares.

You may also be interested in SGX List of Retail Bonds.  As an example, "LTA n4.17% 160510" means that the bond issuer is LTA at a coupon rate of 4.17% per annum and matures on 10 May 2016.

How long shall thou be bonded?

Interesting that SGX appears to have moved quickly to bring Corporate Bonds to the retail market.  I am certainly looking forward to seeing more of such bonds being made available.  However, presuming the yield for SIA is 2.15% for a 5-year term, it wouldn't be very attractive to many. 

Perhaps, if one were comparing against the sub-0.5% of bank savings, there could still be a case to be made. 

Will there be one in the near future at above 4% yield?  Now that would be really exciting.

Discussion: SIA Bond discussion

Where lies the portal to wealth?

Having figured out the investment target, where then are the investment avenues?  Here are some suggested/useful sites:

SRS  (Supplementary Retirement Scheme)
Reduces tax burden, deferring it into the future. Meantime, the SRS funds should be invested.  Else, the interest returns would be a pittance.

CPF  (CPF Online) 
If you fancy topping up your own CPF or your spouse/parents, so as to reduce taxation. Meanwhile, the contributions would be earning risk-free returns from CPF.

Unit Trust  (Fundsupermart, DollarDex, POEMS) 
Online portals for unit trust investments.  The front load fees are usually far lower than what you would end up paying if you were to do so from Banks or Insurance companies (e.g. Insurance Linked Policies (ILP)).

SGS Bonds  (SGS Bonds at Fundsupermart) 
Buying and selling of SGS bonds from the secondary markets.

Insurance  (NTUC Income, AIA, Prudential) 
Details of your insurance policies. Most would generate the estimated returns (guaranteed, non-guaranteed).

CDP  (Central Depository)
If you're going to trade shares on the Singapore Stock Exchange (SGX), you would need to open up a CDP account.  This account holds the records of your shareholdings (scripless).

Shares  (POEMS, ...)
There are many online brokerage for trading in shares, Non-Convertible Preferences Shares, Exchange Traded Funds (ETF), warrants, and numerous exotic derivatives.  POEMS is just one of many such online portals.

Bonds and bond laddering

Singapore Government Securities (SGS) bonds are available for the retail investor like you and I.  I'm not sure how one can go about buying them, but for sure it can be done at Fundsupermart.  How does it work?

SGS bonds gives out coupon payments twice a year, based on the coupon rate of the particular bond series.  The family of SGS bonds have varying maturity date up till 20 years.  If kept to maturity, a SGS bond of $1,000 face value (a.k.a. par value) would return in cash the face value.  So long as it is kept in your holdings, you will continue to receive the coupon pay outs.  That means that SGS bonds is a good way to receive a regular payment stream. 

One approach to keep bonds over the long term is to hold bonds with different maturities.  Each time one matures, reinvest to the longest dated bond.  This is not dissimilar to the notion of Regular Savings Plans (RSP).  In this way, we spread the risk over the price at which a bond is bought by simply buying different years for different maturities.

The bonds are bought and sold on what is referred to as a secondary market.  While the face value may be $1,000, the price being bought or sold at would vary.  As a result, the real "yield" achieved from the annual payout would differ from the coupon rate.  So we would be looking at the yield to determine the rate of return, rather than the coupon rate.  However, if you were studying cash flow, you would be looking at the coupon rate instead.

The yields have not been great of late, having depressed to below 3%.  At the peak of the market panic a year or more ago, the longer dated bonds were at yields of 4% at one point.

One obvious flip side of SGS bonds is the liquidity. If you had to liquidate the bond by selling on the secondary market, you may not necessarily be able to do so at a price better than when you bought it.  That would depend on the market condition.  Even then, it is unlikely to vary that much.  Over the last two years, I've seen fluctuations by +/- 10%.

Taking an extreme example, suppose one held $1,000,000 worth (face value) of bonds, and the bonds had coupon rates averaging 3.6%, that means one would receive $36,000 each year, guaranteed.  That's $3,000 per month.  Perhaps not a bad retirement strategy.  That's of course, if you're happy enough with 3.6%.