Tuesday, May 23, 2017

Being Smart or Having Luck In Life and Investing

Is it better to be born lucky or to be born smart? Veteran banker Wee Cho Yaw said that the late former deputy prime minister Goh Keng Swee once told him that it is better to be born lucky than to be smart. This is an abstract from an article on Straits Times which I chanced upon and it really made me think about life. If you did not know, Wee Cho Yaw is the chairman of the United Overseas Bank and United Industrial Corporation in Singapore.

Some people are just lucky while some are smart. How smart we are can be practice and trained while how lucky we are is determined by fate. Is this sentence true? I beg to differ and as written by the Straits Times, it gives us some insight on how our luck can be changed for our lives once and for all.

It is better to be lucky in life

Let's dive in deeper on the topic of luck. I believe luck is a force that is created in our minds. There was a period in my life where I felt I had the worst luck. I was lost, had no opportunities and often failed in many things which I did. Be it in exams or investing, nothing seems to go well for me. Then, I decided I should do something about it to change my luck once and for all.

Did my luck change? Yes it did. Today, I feel I am lucky enough or maybe I just choose to count my blessings. Sometimes life may still not go well but I still choose to believe it is temporary. This is an important aspect for lucky people.

How to change your luck?

Studies have shown that lucky people enjoy certain common traits - thinking positively, seizing "chance opportunities", and adopting a resilient attitude when they encounter a setback. This was what was written in the Straits Times article. This resonates with me a lot especially the part on thinking positively. I realised when I changed my mind to think positively, my luck changes as well.

We've all heard about the law of attraction and how when we think bad things will happen to us, it will indeed happen in one way or another. Likewise, if we think good things will happen to us, somehow good things happen later. I believe this is more of a mindset change which allows us to seize opportunities when the time comes. When we believe that opportunities will come, we will realise when it comes and take advantage of it. But when we believe opportunities do not come to us, even if its right in-front of us, we won't even realise it. That's the difference when we have a positive mindset.

Investing requires some luck

While I do not advocate investing as gambling (which requires a lot of luck to win), however, investing requires some luck too. For investing, we have to understand the business and learn how to choose companies wisely. But, whether a company does well moving forward depends on some luck. How the share price moves depends on whether other investors or big players see the value of the stock. When the value is seen, the share price moves up when investors invest in the company. Also, some companies may just win some big contracts which increases their profits by many folds. There is some elements of luck in this as well.

Do you want to be lucky?

Luck can be changed in our lives. If you want to be luckier, start from changing your mindset. It is the crucial first step to see opportunities in your life. If you are facing setbacks now, see it as temporary. Always believe in the best can change the situation you are in right now. Lastly, think positively. This opens up your mind to take advantage when opportunities presents itself.

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Thursday, May 18, 2017

More Young People Want To Start Investing - How To Invest Successfully?

Since this blog was started back in 2013, I realised there are more and more young people who wants to start investing. Back then when I first started out learning how to invest, I went to many seminars in search for the answer on how do I make my money grow. Many of these seminars were preview sessions for a more expensive course which they would sell later. Many of them were conducted in small offices which seem really scary now when I think back.

Photo by: cafecredit.com
Credit: https://www.flickr.com/photos/cafecredit/32899395526/

Attending The Right Investment Seminars

Its also very weird that I was often the only or few young people in the sessions. Fast forward to now, there are so many investment courses which are available. SGX started its own SGX academy which has quite a few good courses for beginners as well as experienced investors. I've personally attended a few of them and most recently the SGX-CFA investor conference. This was a half day conference which talks about the current macroeconomic outlook followed by a session on the basics of investing. I was surprised the whole NTUC auditorium as packed fully and about half of them were young people.

I also attended the SIAS Singapore Investment Week where I also saw more young people in the auditorium. I guess the long periods of low interest rate in the bank and also the pressure of the high cost of living has pushed young people to find ways to make more money. Young people are also more savvy now where they read widely and know the importance of investing at a young age.

If you're new to investing, you can consider SGX academy courses and also SIAS courses. Some of them are really useful to learn about investing.

Getting into the Wrong Investments (Scams)

Before I continue further to talk about the investment strategies, knowing the wrong investments and avoiding them is crucial to investing successfully. There are still scams out there which many people fall into.

Most scams can be identified by the high returns they give which is unsustainable. There is a saying that if it sounds too good to be true, it probably is. Some of the most noticeable scams include investing in gold, overseas property, oil, land and many others. Some may appear very genuine so the trick is to ask as many questions as you can. After asking, we can check whether the company is on the investor alert list on the MAS website here and then check whether the people promoting the investments are regulated by MAS with a valid MAS representative license.

More recently, I'm concern with the rise of binary options and even have some readers email me on my opinions on binary options trading. There is a recent article on Straits Times on "Avoid getting burnt by binary option scams". As written in the article:
"The Singapore Police Force said it has received more than 40 reports from investors, including finance executives and retirees, who have made complaints over losses in trading binary options. Together, they have lost more than US$1.7 million (S$2.4 million) to unregulated binary option trading platforms.
The police issued a warning last December advising investors to check the lists compiled by the Monetary Authority of Singapore (MAS) to find out which investment service providers are regulated.
Last month, the MAS cautioned investors about the risks in trading binary options with unregulated platforms. It considers such options risky and speculative, and sometimes fraudulent."
There is definitely some problems here which we should all take note of. In any case, as long as I don't understand how an investment works, I will never touch it no matter how attractive it seems to me.

Spending too much on Investment

While there are people who fall into scams, most people "spend" too much on their investments which causes their returns to diminish over time. This is an important point and some people may not agree with me on this.

There are many products out there in the market and most are marketed by sales persons. Because of time constrain, sometimes we buy products which are recommended to us because the interest is more than what the bank offers. Some of these products are insurance endowment plans, whole life plans, investment link policies and unit trusts to name a few. While there is nothing wrong with all these investment choices, there is always a price to pay for putting our money with someone else.

Investing in some products above have high fees averaging about 3%. There are other simpler ways to invest like buying into low cost funds such as index funds. Examples are the Vanguard index fund which tracks the US stock market index. We can get this through standard chartered brokerage account and also buy the US index ETF directly from the US stock market with a US brokerage account. These funds mostly charge only a 0.15%-0.3% fee. This is a 2%+ difference in fees. With just a 2.5% difference in fees, it can take 4 more years for our money to double on a 5.5% return as compared to a 8% return. In 30 years, it can make a huge difference.

My Investment Strategies

Over the years, I've found the strategy that suits me. It is very important to find a style that suits yourself so it means other people's method of investing may not be applicable to you even if they have done is successfully. There is no one single method when it comes to investing.

Over the years, I've taken a lot of risks, scaled back and took lesser risks and then find a balance for my investments. I got my financial situation in order also, increasing my income, buying adequate insurance and making sure I manage my risks well.

All in all, the investment portfolio achieved consistently about 10% XIRR on average for the past 4 years. I invest primarily in blue chips companies and REITs. Currently, I own stocks in the retail sector even though the retail sector seems to be gloomy. In Singapore, Capitamall, Suntec and Frasers centrepoint are the 3 main operators of malls. I've been an investor of these Reits for quite some time now and this is more for the recurring income stream. Next, I diversify into overseas stocks such as Croesus Retail Trust which owns Japanese shopping centres. Also, I have investments in the hospitality industry which I've added more in recent months. I am believing that the hospitality industry will recover in 2018. You can read my post on hospitality stocks here. Other than that, I also have investment in commercial office Reits, property stocks and also in F&B production.

Before I select a stock, I look at the macro economic trend that is happening. I love to analyse business and read up on what is happening in the world. An example is how I invested in Japan Reits when there was an aggressive monetary policy back then which will benefit asset prices. Interest rates will only get lower and asset prices increases. Rent prices will increase too which really benefitted the Japanese Reits.

After looking at the macro trend, I will look into the individual companies to read their annual reports and how they do their business. From reading the annual report, I can sense how well the management runs the business, look at their business strategy and how well they are managing their cashflow. If needed, I will attend any sessions which the management holds to hear from the management myself. From the way they talk and answer questions, sometimes we can get a sense of the direction and whether they are really capable.

The final step will be to look at the valuation. We should never buy a stock when it is overvalued. Some simple ratios to use are PE and PB which I use most of the time. I will look at gearing ratio or debt to equity ratio also which is the debt level of the company. Whatever ratio it is, the most important thing is to understand the concept behind it. PE of 10 means nothing if we do not understand the business and how the profits are derived. Finally, i will also look at dividend yield and whether they are sustainable in the long run. This is primarily for reits. For growth stocks, dividend yield don't really matter if the company is reinvesting the profits to expand the business.

Investing shouldn't be a holy grail thing in itself. If we keep on trying to find the one successful way to invest, we will be wasting a lot of time. To me, investing also shouldn't be too complicated. I like things simple and if the business is too complicated, I rather stay away. I have to read and be able to understand the whole business before I put my money into it.

Hope this short article gives some light on how I invest my money and that it helps you too. I do not think I've learnt everything about investing after the past 8 years of investing. There are just too many businesses out there and its impossible to understand everything. This blog was started out of a passion to reach out to people on the importance of financial planning and investing. After close to 4 years of the blog existence, many things have happened. Some of my values towards financial planning have changed also. To be honest, what lies ahead is unknown to me. If you ask me am I afraid of the future? I would say yes I am. What I can do is to continue to strive on and keep on believing for the best. May we continue to be happy and live a positive life no matter what happens.

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Wednesday, May 3, 2017

CDL Hospitality Trust - Is Hospitality Industry Recovering?

Previously I blog about the hospitality industry and why I think that it may be the next investment opportunity. You can read the post here. CDL Hospitality Trust is one of the hospitality trust stocks which I own and recently it reported its Q1 financial results. Looking at its results, we can know whether the hospitality industry is still on the track to recovery. Some of the hotels they own are Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King's Hotel, Studio M Hotel and Novotel Singapore Clarke Quay.

Hotel Lobby of Grand Millennium Auckland in New Zealand

The hospitality industry, especially in Singapore has suffered quite a bit in recent years due to the poor economic conditions globally. Overall, the hotels revenue per available room (RevPAR) in Singapore has declined to as low as during the global financial crisis in 2007. This has caused the earnings of the companies in this industry to suffer.

For CDL hTrust, net property income (NPI) went up 6.4% in Q1 2017 as compared to Q1 2016. This resulted in the DPS going up 9% YoY. The increase was mainly due to higher contribution from its New Zealand hotel which was up 90.2%. For Singapore, NPI increase marginally by 1.5% only. CDL hTrust has most of its hotels (69.1%) in Singapore so the focus is still in this market.

Performance of Singapore Market

CDL hTrust Singapore hotels' occupancy rate went up from 83.9% in Q1 2016 to 88.4% in Q1 2017 which is a 4.5pp increase. However, RevPAR still declined but only marginally by -0.8%. This is a huge improvement from the -6.9% decline in Q1 2016 vs Q1 2015. It seems like the decline has slowed down and bottomed out.

For the macro conditions of the hospitality industry, STB estimates moderate growth in visitor arrivals of 2% and YTD February 2017 visitors arrival grew by 3.4% yoy with China visitors at the highest. Additionally, a S$34 million investment was recently announced by STB, SIA and Changi Airport Group to strengthen Singapore’s destination appeal and woo business and MICE visitors. This is on top of the other initiatives which I've listed out in my previous blog post.

As mentioned in previous blog post, we can expect hotel supply to gradually taper off in 2018 which we should see a stronger recovery in the RevPAR. CDL hTrust price went up to $1.55 with Price to Book ratio of 0.98. This is at fair value and not too cheap in my opinion. I bought this stock back when it was at PB of around 0.8. Nevertheless, the current yield is about 6.45% which isn't really too attractive for me. A dividend yield of more than 7% would be more attractive for hospitality stocks. I would accumulate more if there are any opportunities to buy a lower prices.

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Monday, May 1, 2017

Croesus Retail Trust - Another Japan Reit Potential Takeover

Croesus Retail Trust is not new to this blog. I've written several articles about this stock since 2013. It has been more than 3 years since I was an investor in this company. How time flies just like that. Investing in Japan Reits was a strategy I embarked on 3 years plus ago primarily due to macroeconomic reasons. Japan was starting an aggressive monetary and fiscal policy plan at that time which I saw the opportunity to invest in companies which owns real estate in Japan.

Just last week, there is a potential takeover which was announced by the company and this sent the stock price up as high as $1. The same thing is happening again which happened to another Japan Reit called Saizen Reit. If we see the same takeover as Saizen Reit, Croesus Retail Trust could possibly be acquired at more than $1 which gives a 5%-10% premium to its price to book value.

This stock has served me well over the years as an income investment. Its dividend was close to 10% in the early years and averagely it gave about 8%+ yield. Many were worried if the yield is sustainable but they have proven that it is. The last time I heard from the management face to face was during a retail investor day. I heard from the management on their strategy to grow the company by doing more acquisitions so CRT becomes an indexable stock which will hopefully drive the stock price up. In the end, they did do what they said. From a portfolio of 4 shopping centres, they expanded to 11 now. They also reassured investors that they will be responsible in delivering the DPU which they did consistently.

Whether it will be acquired or not, it doesn't really matter to me as its still a good investment. For those who are already investors in this company, let's see what happens next.

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Wednesday, April 19, 2017

Hospitality Industry - The Next Investment Opportunity?

Many great investment opportunities happen when the industry is still depressed and where the individual companies are undervalued. I've been looking for more investment opportunities and the hospitality industry came up on my radar.

The hospitality sector is not all gloomy for every country. The 2 stocks that I have which have direct exposure in the hospitality industry are Ascendas Hospitality Trust and CDL Hospitality Trust. Ascendas hTrust was bought quite long ago back in 2014. It has been providing me a dividend yield of about 7.5% for the past few years and price has gone up as well. Its main business is in Australia with 56% of its net property income coming from there. The rest are from Singapore (12%), Japan (24%) and China (8%).

CDL Hospitality Trust on the other hand was bought quite recently in December 2016. It is giving about 7% dividend. This is a different investment as its main income comes from Singapore (62%) with the rest from Australia (10%), New Zealand (10%), Maldives (8%), UK (6%) and Japan (4%). Investing in CDL hTrust is a different strategy which I will explain more in this post.

Understand more about the hospitality industry 

Before we go into the investment opportunities in the hospitality industry, it is crucial to understand what has happened and is happening in the industry. The hospitality industry is a broad category of fields within service industry that includes lodging, event planning, theme parks, transportation, cruise line, and additional fields within the tourism industry. In this article we will focus more on lodging which is all about hotels and serviced residences.

As mentioned earlier, CDL hTrust has most of its business in Singapore. Some of the hotels they own are Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King's Hotel, Studio M Hotel and Novotel Singapore Clarke Quay. Sounds familiar to you?

The hospitality industry is currently not doing well in Singapore. This is the best time to look at it when it is not doing well. There are some signs of recovery but is this sustainable? Let's look at the current situation first

Oversupply of hotel rooms in Singapore

The current gloom is partly due to the oversupply of hotel rooms in Singapore. An estimated 2610 more rooms were added in 2016 and it is expected that 3767 more rooms will be added in 2017. This means that the hotels business is expected to remain competitive in 2017. However, hotel rooms supply will slow down in 2018 with only 69 more expected rooms. I read that it is harder to get a license to start a hotel business in Singapore now and the government is also controlling the number of hotel rooms supply moving forward in 2018.

Hotel Room Supply
With hotel room supply tapering off, this industry should see some recovery moving forward which brings me to the next few points on visitors arrival and the Revenue per available room (RevPAR)

Visitors Arrival in Singapore

Visitors arrival is crucial for the hospitality industry in Singapore. The more visitors, the more revenue for the hotels. Visitors arrival is still stable with about 1.36 Million tourist in Singapore in Feb 17. Visitors arrival have grown 5.1% for the past 9 years but have stagnant since 2014.

Revenue per Available Room (RevPAR)

RevPAR is a key indicator in the hotel industry to gauge the average hotel room rates in Singapore. It is similar to the rental rates we see for the property market. An improvement in the RevPAR signals the recovery of the industry. A higher RevPAR also means the hotels are able to make more revenue per room they have. Its like you have a property and you can rent out for a higher price.

RevPAR for CDL hTrust has decreased -8.6% in FY16 as compared to FY15. RevPAR for the whole hotel industry in Singapore is on a decline mainly due to the oversupply of hotel rooms. With the oversupply tapering off in 2018, we should see some recovery in the RevPAR as well.

Initiatives by Singapore Tourism Board (STB) and Ministry of Trade and Industry (MTI)

If you've been reading the news, there has been many new initiatives by STB to attract more tourists to come to Singapore. Singapore Tourism Board (STB) and The Walt Disney Company Southeast Asia (Disney) announced a three-year collaboration, aimed at providing unique and fun experiences themed around Disney’s biggest brands and most popular stories and characters. As part of the collaboration, locals and visitors to Singapore will be entertained with a range of exciting experiential activities starting with Star Wars, followed by Marvel and Disney Animation/Disney Pixar themes in 2018 and 2019 respectively.

Also, MTI announced a Hotel industry transformation map to transform the hotel industry for sustainable growth. Four strategies were identified which are, building manpower-lean business models; developing new solutions through innovation; growing businesses through internationalisation; and building a strong pipeline of quality talent.

Lastly, Changi Airport is expanding with the new Terminal 4 opening this year and the new Terminal 5 which is still works in progress. A new Jewel at Changi will also be opening in early 2019. All these will attract more visitors into Singapore and boost the hotel industry greatly.

Stocks which are in the hospitality industry

Now, after understanding about the hospitality industry, let's look at some stocks which are in this business. These may be good investments when this sector recovers. I'm looking particularly at stocks which have more exposure to the hospitality industry in Singapore as it is the worst hit now and possibly will be the best when it recovers.

CDL Hospitality Trust

The first stock is CDL hospitality trust. Below is the 3 years chart of CDL hTrust where we see there was a sharp drop in 2015. The stock price seems to be recovering recently. Now, the dividend yield is about 6%+ with Price to book ratio at 0.96. Its NAV is at $1.55. At current price, it is not considered too cheap. I invested in this stock last year December when it was around PB of 0.80. Will not be planning to add more at current price unless it goes down again.

With 62% of its business in Singapore, CDL hTrust will definitely benefit if there was a strong recovery in the hospitality sector here. As at 31 December 2016, its gearing ratio is 36.8% with 61% of its loans on fixed rate. This is quite normal for a trust and aligned to other hospitality companies listed here.

RevPAR for the Singapore hotels has dropped 8.6% in 2016 as compared to 2015 with occupancy rate at 85.4%. Occupancy rate was higher at 87.7% in 2015.

Far East Hospitality Trust

Another stock which has its main business in Singapore is Far East Hospitality Trust. In fact, it has all its hotels in Singapore which is quite concentrated and may pose a risk if Singapore's hospitality industry does not do well.

Some of the hotels they own are Orchard Parade Hotel, Rendezvous Hotel, The Elizabeth Hotel, Village hotel in Changi, Bugis, Albert court and some others. They also have serviced residences called village residences located in Clarke Quay, Hougang, Robertson Quay and also the Regency house.

Rendezvous Hotel owned by Far East Hospitality TrustImage Credit: https://www.tripadvisor.com.sg/Hotel_Review-g294265-d299606-Reviews-Rendezvous_Hotel_Singapore_by_Far_East_Hospitality-Singapore.html
For Far East hTrust, we see a similar drop in its stock price in 2015 and it has largely stayed low for the past 2 years plus. It now has a dividend yield of about 7.1% with PB ratio at 0.67. Its NAV is at $0.91. At current price of $0.61, it does still seem attractive to me.

For the hotels segment, RevPAR declined 5.3% in FY 2016 as compared to FY 2015 but however, its occupancy rate actually increased marginally by 1.6pp to 87%. For serviced residences, RevPAU was 5.8% lower and average occupancy decreased 2.0pp to 85%. Overall, it DPS decreased 5.9% in 2016 which still shows continued weakness in their business.

Its gearing ratio is at 32.1% which is not too high and aligned to other companies in the hospitality industry. 71% of its loans are on fixed rate. A large part of its loans has been refinanced to 4 year and 7 year loans which is a good thing.

It is currently doing asset enhancement to its Orchard Parade hotel and also constructing Village hotel in Sentosa which is expected to complete in 2019. I do not own stocks in Far East hTrust currently but will be looking to buy some soon.

Is this a good time to invest in the Hospitality industry in Singapore? 

With hotel supplies in Singapore beginning to taper off in 2018 and visitor arrivals still growing, I would expect occupancy rate to increase and possibly RevPAR to increase as well should it recover. Furthermore, with all the initiatives by the Singapore government, I think there would be a high chance to see some recovery in the hospitality sector next year.

Investing in this sector may take some patience to realise its value. As investors, we want to invest in the companies during bad times to anticipate better times ahead. In the worse case scenario, it may not recover and the wait could be even longer. Most importantly, we will invest when the stocks are undervalued with some margin of safety to manage risk better.

Let's see what happens to this industry in the future.

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Monday, April 10, 2017

The Shocking Case of An Insurance Policy

Just last week, there was a shocking case of an insurance policy which went viral. Apparently, this person's dad bought an endowment policy from prudential in 1994 where the maturity payout of the policy is suppose to be $42,000. He got a shock when his dad got a cheque of only $20,000+ just recently when it matured.
My dad bought this prudential savings plan twenty years back and he was supposed to get 40k+ this year during March. However, they've only sent my dad a cheque for 20k+ (the initial investment is 30k+). 
My family went up to the prudential office to lodge a complain and to enquire as to why the company isn't giving the full sum as promised on the contract. The company dismissed my dad with a convenient bullshit excuse " our company isn't earning much so that's the sum you'll have ". 
Is this ethically right? What's the point for anyone to save with prudential if you're going to make a loss in the end after 20 years? That money could've been many times more if my dad invested in other financial instruments and inflation. 
Is there any case if we were to sue them? My parents are just Hawkers, I don't understand why you've to make the old generation suffer so much
I have reposted the original post on Facebook above. Insurance is always a complicated topic. Buying insurance is definitely a long term commitment as we will have to continue paying the premiums for at least 20 years and more. If we surrender early, we will lose a lot of money.

What happened to the shocking case?

Throughout the past few years, I've reviewed my own insurance policies, both which I bought when I was still a student and those which my parents bought. I've took actions to eliminate the unnecessary premiums which I've been paying and make sure I have enough insurance coverage also. For the case above, it was an unfortunate case where the maturity payout was less than what was expected. For us to know what happened, we must first understand how an endowment policy works.

Insurance, as the name implies, should cover us for some sort of misfortune such as death, critical illness and disability. All insurance policies will cover us for some of those mentioned but most of us would have bought policies with savings and investment elements also. Whole life plans, endowment and investment link policies all have the savings and investment elements in it.

Breakdown of the insurance policy

1. Guaranteed and Non-Guaranteed 

If we take a closer look at our insurance policies, we will always see a guaranteed and non guaranteed portion in the policy illustration which is prepared for us by the insurance agent. The policy illustration is only applicable for plans which have insurance and savings/investment elements in it. For plans which are only for insurance coverage, such as term plans and personal accident, there is no such illustration needed as the premiums paid are only for insurance coverage.

The guaranteed portion is the amount which we will definitely be able to get at the time of the illustration. If you look at this portion in your benefit illustration, it is very low. The amount you get back just on the guaranteed portion alone will 100% be lesser than the premiums you paid.

Then, there is the non guaranteed portion which seems like a lot of money. This non guaranteed, as its name implies, is not guaranteed to you. The amount is based on the projected investment return which your insurance agent put in when he/she did the benefit illustration. This is the tricky part. Some agents put in projected investment return so high that is it really quite impossible to achieve. Many people who bought insurance policies many years ago back in the 1980s and 1990s, have very high non guarantee amounts because the projected investment return was put in much higher in the past. It is understandable as interest rates were so high back then and we can easily get 5% just putting money in the bank. This doesn't apply to now at all.

Therefore, if we really want to know the value of our policy, we can actually get a revised policy illustration or check the actual value of the policy with the insurance agent of the company directly. This will ensure we do not get a shock when the time comes for us to cash out.

2. Not all Premiums are put into the policy value

The premiums we pay on the whole life, endowment and investment link policies are not all part of the policy value.

Let's breakdown the premiums into a few portions:

  • Insurance coverage
  • Critical illness rider
  • Disability rider
  • Life fund
As we can see above, the premiums we pay can go into different portions. Take note that the premiums we pay for the insurance coverage, the critical illness and disability riders are not part of the savings. These amount will never be given back to us. 

The rest of the premiums are put into a life fund to generate some investment returns. The amount we can receive back depends entirely on the fund performance. 

Managing our expenses on Insurance

Depending on your insurance policies for retirement may not be a good choice as the amount you will get back at maturity is really not in your control. It can be much lower than what you expected. For myself, I try to limit the money I spend on insurance to 10% of my income. In this way, I can save up more and plan for my own retirement which I have more control over. 

It is important to review the policies we have and see what we can do to get enough coverage while limit the premiums we pay. To get the most coverage, we can consider term insurance which is really simply just insurance in itself without any savings or investment elements in it. 

Now, we can even purchase insurance direct from insurance companies without going through an agent. You can check out MoneySense website on the direct purchase insurance here. Do note there are limitations on the coverage you can get which is at $400,000 currently. Any coverage above that, you'll still have to go through an agent. 

For the case on Facebook, it was unfortunate that the policy holder got back lesser than what was expected. For those of us who are still holding on to endowment or whole life policies, it is timely to review again if it serves our needs. 

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Wednesday, April 5, 2017

Changing Your Financial Situation With The Early Retirement Concept

It is soon coming to the 4th year of this blog's existence. Through writing about financial topics, I learnt a lot in the process too. I also read from other blogs and learn from people who have manage to changed their financial situation totally.

These 3 years plus has been a wonderful journey, meeting new friends and bloggers who make this journey a better one. We celebrate each other life journey from marriage to having kids, its really a whole community of friends from online to offline.

Worrying about life?

Through blogging, I also receive several emails from readers who are in tough situations. Many want to seek out solutions to change their financial situation. Most do not know what to do and just want to see light at the end of the tunnel. Finally, there are people who are afraid of their future and worried that they would not have enough money. 

I too was once lost, worried and afraid for my future until I got inspired by a concept that changed my financial situation. It started off with the concept of passive income, then multiple streams of income then early retirement and finally financial freedom. All these concept kept me focused on where I want to head in my life. It was not all perfect and I had to trial and error, fine tune and adjust accordingly. Life is about experience after all isn't it?

The concept of Early Retirement

The concept of early retirement which I chanced upon a few years back set the precedence for my life. Early retirement is often misunderstood as being lazy, doing nothing and not working. This is not true at all. To me, it is more about providing financial security and assurance for ourselves as well as our loved ones. When we are able to take out the money aspect off our minds, we can then truly live our lives purposefully.

So how does this work? How do we do it?

This is the table that summarises how much we need to save in order to retire in how many years:

Savings Rate (%)Working Years Until Retirement
5%66 years
10%51 years
15%43 years
20%37 years
25%32 years
30%28 years
35%25 years
40%22 years
45%19 years
50%17 years
55%14.5 years
60%12.5 years
65%10.5 years
70%8.5 years
75%7 years
80%5.5 years
85%4 years
90%3 years
95%2 years

If we just look at the table above, the traditional advise of saving just 10% of our income will ensure we can never retire at all. This is already base on a 5% annual investment rate of return on our savings. If we don't invest at all, it will be even worse.

Up to this point, maybe some of you are still confused on how the numbers come about in the above table. Let's take an example of saving 50% of our income which means retiring in 17 years. This also means having financial independence after 17 years just by saving 50% of our income.

Here's how it works:

Let's assume a person starts working at the age of 24 with an annual income of $30,000. This person saves half of his salary which is $15,000 and invest it at 5% investment return. At the end of 17 years, his $15,000 saved annually will become $387,605.50. If now he just put these savings and invest in some stocks which can give him a 4% dividend yield, he would have enough dividends to cover his expenses fully. This is the point of financial independence.

Of course, there are many situations which may change in the 17 years such as expenses increases and income should also increase as well. We would have to adjust accordingly to make this work. 5% investment return isn't that difficult to achieve. Most people can invest and get more than 5% return which would speed up the growth of their money.

This concept is an inspiration to help me focus on my long term financial planning. I believe most people know that it is important to invest their money but lack the motivation and the patience to see through the investment process. Knowing this early retirement concept has helped me to invest better and most importantly give me a reason as to why I am investing in the first place. Without a goal and a purpose, investment can get tiring, boring which lead to us eventually giving up.

Where To Start To Change Your Financial Situation?

After knowing the concept of early retirement, we can then identify how many years we want to achieve financial independence. If we are looking at about 10 years, then we need to save 65% of our income. The next question to ask is whether its possible to save 65% of our income?

We can start by eliminating unnecessary expenses. If its not possible to eliminate expenses anymore, we will have to increase our income. If after reducing expenses and increasing income, we still can't reach the desired savings rate, then we have to look at longer years to financial independence. Perhaps saving 50% of income is more manageable than saving 65%. This will take 17 years instead of 10 years but its more achievable for some of us.

Savings is just the first part of the early retirement concept. The next step is to invest the money with at least 5% investment return. Identify the types of investment which you are comfortable and familiar with then keep investing the extra savings and reinvest the profits. Our money will gradually compound over the years to reach our desired amount for financial independence.

There will come a point when we realise the money we get from investing is more than our expenses. The safe rate is at 4% which means if we invest all the savings we have at 4%, will we have enough investment return to cover all our expenses? If yes, then congratulations, you have reached financial independence.

I hope this concept will motivate and inspire you to persevere through your financial journey, just like how I was inspired. There will certainly be some adjustments along the way so do enjoy the process fully. The key is to keep focused and don't give up.

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Wednesday, March 15, 2017

Summary Of Changes Relating To Residential Property

The Ministry of finance made an announcement last week on the changes relating to residential property. Most people who own private properties would be happy to hear about this news as some measures have been relaxed.

Summary of changes:

1. Additional Buyer’s Stamp Duties (ABSD) and Loan to Value (LTV) Limits

While many people hope for the ABSD and LTV limits to be relaxed, the government is not doing so yet. This ABSD and LTV limits has been a pain point for people who want to purchase a second residential property. Sometimes the additional stamp duties and cash down payment required just makes it senseless to purchase another property. Interest rates are still low now so they will certainly not relaxed these measures. I would think when interest rates goes up further, then these measures will be relaxed.

2. Seller’s Stamp Duties (SSD) 

The SSD will be relaxed in this round of announcement. This SSD was introduced to prevent people from flipping properties (ie buying and selling within 4 years to make money). HDB has a minimum occupational period (MOP) of 5 years while private properties do not have thus the SSD was in place to prevent speculations.

For the changes, the SSD will only be imposed on properties which are sold less than 3 years, down from the current 4 years. The % will also be reduced by 4% for each tier. Do refer to the below image for the breakdown of the %.

Click to enlarge

3. Total Debt Servicing Ratio (TDSR) 

The TDSR will be tweaked too. The current TDSR is 60% where all the monthly loan instalments we pay should not exceed 60% of our monthly gross income. This 60% will remain the same for most of the loans except for mortgage term/equity withdrawal loans for cashing out of private properties. 

The TDSR will no longer apply for mortgage equity withdrawal loans with LTV ratios of 50% and below. This means if your net property value is 1 Million and you get a $500,000 or less cash out from your property, you'll not be subjected to the TDSR anymore. Simply said, it is easier to cash out of your private properties now. 

If you're interested to cash out of your private property, you can contact me through this form and I'll assess your situation and advise you accordingly on the best way to do it. 

4. New stamp duty on the purchase and sale of equity interest in property holding entities (PHE) with effect from March 11 2017

An Additional Conveyance Duty (ACD) will be introduced. This is aimed at significant owners of equities interest in PHEs that can include partnerships, trusts and companies. This means that those entities whose residential properties in Singapore form at least 50 per cent of its total tangible assets will be captured in this new requirement.

This ACD is quite confusing but doesn't affect most of us anyway unless we have equity interest in PHEs. You can read more about this here

Moving Forward

Many property developer stocks moved up last week in response to some of the measures being relaxed. In my opinion, I don't really see much impact unless the ABSD and LTV limits are relaxed as well. This is just a minor change to the residential property market. However, with the relaxation of the mortgage equity withdrawal loans, I think there will be more cash flooding our economy soon. 

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Saturday, March 11, 2017

Unlimited 1.5% Cashback With This New Credit Card

*Promotion has ended*

For more great credit card deals, please refer to the widget below:

I love good deals so when I heard of this new credit card by Standard chartered, it seems too good to be true. Standard chartered bank always try to come up with good deals to attract consumers. From a consumer point of view, this is definitely good news. For example, many years back they had this savings account which gives 2% cashback on any spending if we use the debit card. I used it to pay for my university course fees and got quite a lot of cashback in return.

The time round, they have just launched a similar card with unlimited 1.5% cashback on all spending. There is no cap and no minimum spend required. This is very different from the other credit cards in the market which only gives you points or cashback for certain types of spending. There is often a minimum spend too to be eligible for the cashback. This is not the case for this new unlimited cashback card. This card can also be used for public transport with automatic EZ-reload top up function.

For the month of March, they are running a promotion to give new applicants the following choice of gifts:
  1. Up to $138 cashback; or
  2. $150 Caltex StarCash card; or
  3. $150 Uber Credits
I have found another additional promotion where you can get $100 Takashimaya Voucher on top of the gifts SCB is giving. 

The $100 voucher will only be given if you apply by clicking on the above image. Be sure to follow the instructions on the page to claim your free voucher. One more thing, the card has 2 years annual fee waiver so we don't have to worry about paying for the fees upfront.

If the SCB unlimited card does not suit your needs, there are other cards having promotion as well.

If you want to get more cashback, consider the Citi SMRT card. This card has the following benefits:

  • 5% savings on groceries (7.3% for FairPrice Xtra Kallang Wave)
  • 5% savings on fast food, movies and coffee
  • 3% savings on online shopping

This card has a sign up promotion of up to $120 cashback plus $100 NTUC voucher if you apply through the below link (Applicable for New Citi Customers only):

If you're a frequent traveler, the Citi Premier Miles card is a must have. You can collect "miles" and exchange it for a free air tickets later. I checked Citibank's website and it seems like they are giving out $120 cashback for new card members. On top of that, if you apply through this link, you'll also get additional $100 NTUC vouchers (Applicable for New Citi Customers only).

There are many other cards on promotion too. Check out this link for more details. Remember, you'll not get the vouchers if you apply through the bank directly. The promotion is only valid till 31st March 2017. 

Credit cards are useful but never spend more than what you can afford. Spend smartly and wisely. 

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Wednesday, March 8, 2017

Multiple Streams Of Income - Can It Be Done?

The fear of having not enough money or losing our job makes one think about how to create multiple streams of income. It has been a popular topic since many years ago in this uncertain world we live in. Just these few months, I've heard a few people got retrenched. This makes me wonder when will I be next?

However, when we are already so busy with our work, how do we even have more time to create more streams of income? Its quite impossible to take up another part time job or even do freelancing when time is so tight for everyone. So, how can we create more streams of income using the least amount of time and is this realistic? Let's take a look at how it can be done.

Dividends from Stocks as an Income Source

If you're thinking of whether dividends from stocks can possibly be a source of income, the answer is yes. There are real life examples of people who manage to create $10k or even $100k of dividends through stocks. A few of my financial blogger friends have already achieved that.

However, nothing comes easy. Through my conversations with some of these friends who have already done that, let me share what did I find out.

1) Save Save Save

The first step to creating dividends from stocks is to save up. Without any investment capital, there is no way we can get dividends. Maybe you think you can invest $1000 and get $10,000 easily. The reality is not the case.

2) Look out for opportunities when its gloomy

Many people make their first pot of gold when a crash happens. This greatly increases our investment capital which will be useful for dividend investing.

Many multi baggers are made during a market crash. This means we could make more than 100% return on our investment on a single stock. This kind of opportunity doesn't come all the time so take advantage of it when you see it. How to know which stock to buy? This brings me to the next point.

3) Learn how to value companies

Buying stocks at the right price is all about knowing how to value a company. How much is the company really worth?

There are many variations on how valuation can be done If you read it up on your own, most probably most beginners will get confused. The most basic form of valuation is the PE ratio. There is no one fixed number we should look at. A PE of 20 for one company compared to another company with PE of 10 doesn't mean much if we do not understand what is it about. The PE ratio is calculated by taking the Price (Stock Price) divided by the Earnings (Earnings per share) of the company. If the Earnings of the company drop sharply and price remains the same, PE ratio will be a very high number. Similarly, if stock price goes up a lot while earnings remain the same, the PE will be very high. As such, a low PE is generally better than a high PE.

One way to look at PE is to compare the PE of companies in the same industry. The company with lower PE is more attractively priced than another company with higher PE. Let's take for example 3 companies in the Telecommunication industry namely Singtel, M1 and Starhub. Here's their PE:

Singtel PE: 16.46
Starhub PE: 14.39
M1 PE: 13.12

If we just base on PE from the above, M1 seems to be most attractively priced. Does it mean we buy M1 straight away? The answer is no. Previously I wrote an article about how Starhub went wrong as an investment. It is a lesson that if we buy at the wrong price, the whole investment can suffer.

Valuation has a second part where we try to project the future PE. We have to ask ourselves if we buy M1 at current PE ratio, is it really attractive? The PE ratio is low now base on current price and earnings. If earnings of M1 drop further, the PE will shoot up again. Most of the time, the stock price will also drop to reflect a fairer PE ratio. Earning drop and price drop will re-balance back the PE.

Another scenario is where the PE is not that low now but we predict that earnings will go up. If earnings really go up, the PE will be lower thus making it more attractive. The most ideal scenario is where the PE is low now and we also predict that earnings will go up. Most of the time, the stock price will go up thereafter to reflect the valuation.

In summary, PE ratio is useful for valuing a company base on its price and earnings. A PE of 1 means the company is making a profit that is equal to its price. Let's say a company has $100,000 worth of stocks (investors money) and it made earnings of $100,000 that same year, its PE ratio is therefore 1. PE ratio can also be described as the number of years it takes for investors to get back their money.

There are many other valuation methods such as using the price to book ratio which is a valuation of a company's assets. Some investors use other models such as calculating the intrinsic value or looking at the cash or free cash flow. It will be confusing if we're not finance or accounting trained but all these can be learnt if we are really determined to do so.

4) Don't be fooled by high dividends

Getting dividends from stocks doesn't mean we just go for the stock which has the highest dividend yield. Since we are investing into these stocks to get a second source of income, we want the income to be stable as well.

When companies pay out dividends, they have to get the money from somewhere. If a company has a payout ratio of 100%, this is unsustainable in the long run. It is likely the company will reduce its dividends later on. A company who pays out 100% of its profits in dividends do not have money to continue growing and expanding.

Another thing to look at is whether the companies' profit will be stable? If profits are not stable, it is likely the dividends will be affected later too when earnings drop.

Other multiple streams of income

With limited time, it is honestly quite hard to create more sources of income. We can build websites, publish books, sell items, do freelance etc. But, all these take time and effort.

To me, I would think dividends from stocks is an achievable stream of income. The hard work is certainly needed at the start but as time goes by, we will get more and more familiar. We can buy a company and hold it for the long term while monitoring its financial results only once every quarter. If you realise, there are some very stable stocks which gives good dividends in Singapore. In that case, we don't even have to monitor much.

Take the first step to invest and create a second stream of income!

New to Dividend investing? These articles will get you started:

The Power Of Dividend Investing [Part 1]
The Power Of Dividend Investing [Part 2] - Choosing the right stocks for dividend investing

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Monday, February 27, 2017

The Future Is Female Conference - A Women-only personal finance, empowerment and lifestyle conference

Did you know there are more and more female investors now in Singapore? With women's earning capabilities going up to be similar to that of men now, many are looking at alternative ways to manage and grow their money.

For the first time in Singapore, there will be a women focused financial conference for all the females out there. Often, investment seminars are packed with men and this may be a turn off for a woman who attends. This will be a game changer conference.

The Future is Female conference, taking place on April 8 2017, Saturday, is organized by The New Savvy and supported by the Singapore Exchange (SGX). The New Savvy is Asia’s leading women-focused financial literacy and career platform. SG Young Investment is a partner for this conference.

*Look out for FREE tickets to this conference at the end of the post

The speakers for the conference include CEOs, senior representatives from financial institutions, successful women entrepreneurs, venture capitalists, FEMALE Ironman triathlete, fashionistas… and inspirational movers and shakers!

The conference is for those who are…

… struggling to manage their finances…
… dreaming of taking their financial position to the next level…
… feeling intimidated by the various investment options and financial markets out there…
… trying to take full control of their finances but you have no idea how or where to start…

Through this conference, you will…

Be introduced to the concept of Personal Finance Management
Learn about investment products, money management, and financial know-how.
Be provided with a structure on how you can manage your finances effectively.
Hear from men and women from across industries and generations who have redefined conventional pathways to success.
Explore common issues in the personal and professional lives of modern women.
Figure out how you can uncover your inner genius to overcome gender discrimination and thrive a male-dominated environment.

Some of the confirmed speakers to date are:

- Lynn Gaspar, Senior Vice President, Head of Intermediaries & Retail Clients at SGX
- Nels Friets, Board Member, Fullerton Fund Management Company and Vice Chairman, tryb Capital
- Bernard Lim, Executive Director, Senior Fund Manager, Asian Equities, Columbia Threadneedle Investments
- Ted Fang, CEO, Tera Capital, Frontier Group
- Junie Foo, Head of Corporate Banking Singapore, Global Subsidiary Banking, Asia Oceania, Bank of Tokyo-Mitsubishi UFJ Ltd
- Rachel Lim, Founder, Love, Bonito
- Shao-Ning Huang, ex co-founder, JobsCentral
- Tamara Singh, Business Manager, Portfolio Execution Group, GIC
- Andy Lim, Executive Director, JL Family Office, Straits Real Estate, Lim Hoon Foundation

More details can be found on the conference website -- http://thefutureisfemale.sg/

Date: Apr 8, 2017 (Saturday), 0830-1900
Venue: SGX auditorium

FREE ticket giveaway (Contest has ended)

I've tied up with the organiser to have a FREE ticket giveaway (Worth $220) for readers of my blog. To participate in this contest simply click here to answer 3 simple questions. One lucky winner will stand a chance to win a free ticket to the conference. This contest is open to females only. Contest ends on 6th March 2017. The winner will be notified by 7th March.

In addition, the organiser have kindly given a unique discount code for all readers here. This will entitle you to a 12% discount. Simply use the code: TNSSGYI. This will be valid till 7th April 2017. 

For early birds, do take note you'll get a 20% discount until 8th March 2017 using the promo code: IAMSAVVY. Use this promo code first before 8th march.

The conference registration is open to both males and females but it'll be weird if you're a guy and go alone for this as the contents are catered more for females. You can certainly go with a partner though. 

*SG Young Investment is the official partner for The Future Is Female Conference 2017

*This is not a paid advertorial

Tuesday, February 21, 2017

Starhub - Dividend Investing Gone Wrong

There are many developments in the Telecommunication industry with the entry of a fourth operator soon in Singapore. As we all know, Singapore has 3 Telcos here namely Singtel, Starhub and M1. The 4th Telco which is coming will be TPG telecom. Let's take a look at Starhub in this post and see what went wrong with the share price falling from a high of $4+ to $2.80 now.

Starhub was once a favourite with its defensive nature and good quarterly dividends. If we had invested in Starhub back in 2005 and hold it all the way to 2016, we would be getting a dividend yield of 15.4% (based on a price of $1.30) and also the value of the stock price has increased by 3 times. $5000 invested in 2005 would become about $15000 in 2016 and we would still be getting about $800 dividends annually from the initial $5000 invested.

However, those who invested at a high of $4 were in for a surprise when it tumbled all the way to $2.80 now.

Here's a look at the chart of Starhub:

As we can see, the share price has dropped over the years, most drastically when the 4th telco was announced by the government. M1 share price has also dropped but Singtel is still strong. I've not invested in Starhub or M1 but have shares in Singtel instead. Working in the telecommunication industry previously, I do know that it is a very competitive market with little growth if the companies are only in the traditional telco business in Singapore. Singtel on the other hand has expanded overseas with most of its profits from its associates and subsidiaries in other countries and also went into other businesses such as digital marketing and cyber security.

Starhub is a favourite among many shareholders because of its quarterly dividends of 5 cents which they give out for many years since 2009. A 5 cents dividend per quarter translates to a yield of 7.14% at current price of $2.80. However, in its latest FY 2016 results, Starhub announced it will lower its quarterly dividends to 4 cents for FY 2017. After 7 years, they decided to lower its dividends. Why is this so?

Let's dive in deeper into the business of Starhub to understand why its share price has dropped so much and moving forward how it will perform.

Mobile is the largest of its business

Revenue from its mobile business is at 50.7% of its total revenue. Pay TV is at 15.8%. Mobile revenue came in at $1.21 Billion for the whole of FY 2016 with $2.3 Million subscribers. This means averagely, each subscriber pays $43.87 a month to Starhub for their mobile plan subscription. The fourth telco, TPG telecom, will only come in about 2 years later where we will see the real impact. If for example 500K of Starhub subscribers switch over to TPG telecom, we will see about $263 Million revenue gone. This is 9.8% of its total revenue now.

Investing at the wrong time?

Investing is all about the business and how it will grow moving forward. In the case of Starhub, it is obvious there will be impact to its business thus the reaction of the share price. If we had bought at $4+ when the PE ratio was about 18x-20x, we would have thought it was only slightly expensive. Even at $4, the dividend yield was 5% then.

However, as business sentiments changes with the introduction of new competition, the valuation changes as well. For this case, it is quite easy to see the impact as its reported all over the news for the new 4th telco. For other industries, it may not be so straight forward. Any companies' revenue and profit can be eroded anytime. As such, it is important that we always have a forward looking view for our investments and monitor the financial performance of a company. Remember the valuations will change according to the business environment. Stock price also tend to be forward looking where it will drop before the actual profits gets affected.

Is it a good buy now?

The fourth telco will certainly make the telecommunication industry more competitive and take away market share from the existing incumbents. I believe the market is trying to make sense of what is going to happen and is pricing in the impact now. The current PE ratio of Starhub is 14x. If we see the Earnings per share (EPS) drop by 10%, the PE ratio will be at about 15.7x. This looks like its trading at fair value with a slight discount at current price, taking into consideration the impact in the future.

The dividend yield, if the company maintains its dividend of 4 cents every quarter, will be at 5.7%. This is quite fair but the question is whether the company will continue paying this dividend or drop it even further? The real impact has not come in yet so everything is just speculation now. It may turn out that the 4th telco impact may be just 5% instead of 10%. If that's the case, PE will be at 14.9x which is more attractive. This is an interesting space to watch for the next 2 years. Will you invest in Starhub at current prices?

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