Simple Analysis of PRUinvestor Guaranteed Plus Savings Plan

Been seeing this product being shared by some friends on Facebook. 2% per annum compounded single endowment policy with lock in period of 5 years (SGD) or 2.5% per annum compounded for USD. Good product? In short, NO.

Lets not even bother about the usd rate as its subject to currency risk, thereby making this product's claim of capital guaranteed moot.

As for sgd (2%), the benchmark risk free rate, the singapore savings bond, gives an avg of 1.56% for the latest month's offering. A mere difference of approx 0.5% per annum, but a vast difference in terms of liquidity (since the ssb has no lock in period).

In addition, for younger people like me who hasnt maxed out their high yield savings account (ocbc 360, uob one, dbs BYOB), these accounts all beat the product's returns handily, albeit with hoops to jump through. But again, liquidity is king.

In gist, a product that I wouldn't touch nor recommend to anyone.

Short and simple advice for insurance and retiring in Singapore.

A short post on insurance and investing.

1) Avoid Whole Life Policies, which are high cost, inadequate protection, and below average investment returns

2) Buy Term Life Policies instead, low cost plans which give you high coverage

3) Invest the difference, in low cost ETFs (a good recommendation would be the SPDR STI ETF, which tracks the general market performance of Singapore. This ETF has a record of an average of 7.28% returns per annum over the past 15 years)

4) Have a lesser risk appetite? Use a proportion of your money for ABF Bond ETF, an ETF that holds Singapore Govt and Stat Board bonds (as safe as they come) with returns of 2.7% per annum over the past 10 years.

5) If insurance plans to you are a way of forced savings, use the Regular Savings Plans (RSPs) of banks (DBS or OCBC), which automatically deducts money from your account to buy the ETFs as mentioned above. Google if you're unsure what this means.

Random Post: Whole Life Policy Pushed by Random Agent

Had a recent meeting with an insurance agent who tried to sell me a whole life policy, insisting that it was better than a term policy as, "This will cover for your whole life in case you get sick at 80, 85, 90. Also, wouldn't you want to make sure that money is left for your descendants?" Most irritatingly, he kept claiming that "rich people buy these plans all the time, and if the plans were bad would rich people buy them?"

I found these reasons unconvincing. Firstly, the returns for the whole life plan was pathetic, with guaranteed returns coming in at $50k for approx $21k total premiums paid (premium payment stops at approx age 45). There was a non-guaranteed portion which at the high end would have given $70k extra (at age 90), but the agent admitted that those projected returns were best case scenario and highly unlikely to be achieved. Let that sink in. At age 90, the BEST possible returns were approx $120k for an approx 600% returns. AFTER 45 YEARS OF COMPOUNDING. And we're supposed to pay management and distribution fees for such crappy performance!??? I told him straight I could do way better than this for him without charging any fees just by passively investing in low cost ETFs.

Secondly, the policy cost ~$1800 per annum for a coverage of $125k for either whole life or till age 120 (my mistake, I did not clarify on this). Not only is this way too expensive for the coverage, from the attached chart, we see that the typical period of our lives in which we need the most coverage is somewhere in the middle, approx 30s to 60s depending on the age you have kids. This is the period where the kids are young, and the parents old, and we'd have to obtain sufficient coverage for both in case something happens to us (touch wood!). And this plan would provide way too little coverage for that period.

Furthermore, the period of which zero to minimum coverage is needed is at the tail-end of our lives (approx 70s-90s), as parents (barring those super long lived immortals) shouldn't be around anymore, and the kids (barring those no-good devil-spawn offspring) should be all grown up and no longer dependent. But this was exactly where the agent said we'd be reaping the most rewards from the whole life policy, ie the benefits would only kick in when we need it the least! This is also the reason why I am not a fan of the new Prudential Term plan that purports to have a coverage till the age of 100.

All in all, the whole life policy pushed by the agent was 

a) too expensive
b) did not provide adequate coverage when I need it the most
c) provides too much coverage when I don't need it
d) shitty returns which far lags the market averages

Insurance Needs

Readers of most Singaporean financial bloggers would have had their own ideas on insurance, with the mantra of most of them (including me) being Buy Term, Invest the Rest. However, there are still many financial consultants (I prefer to call them insurance salespeople) out there who still insists that Whole Life Policies (WLPs) are relevant. We'll take a short look at these in this post.

Whole Life policies are policies that offer the insured a cash value upon the maturity of the policy, which insurance companies will tout as being better as buyers can be protected while getting a potential windfall at the end of the policy. This is false. What WLPs provide is protection at a much higher cost, as premiums are split into protection (the actual insurance), and investment, which further splits into participating fund fees, commission for the agent and of course the sum of money placed in the participating funds. These "investments" are projected to come in at 3.5% - 5%, which are actually quite bad, given that purchasing WLPs means a solid commitment in the time frame of decades. One could easily buy a low-cost ETF, such as the SPDR STI ETF, which has a 15 year return of 7.28% per annum. 

When you mention this however, the agent is likely to say things about how WLPs give you protection at the same time, and not everyone has the same risk appetite. To this, I say BULLSHITTTTTTT. Firstly, WLPs give you very little coverage for the amount you pay, as compared to a term life policy. For a real life example, I'd bought a WLP from my agent when I first started working, and was unfamiliar with investing. Total cost per annum was $2,400, for a coverage of $150,000, albeit I only had to pay the premiums for 20 years. Contrast this with a term life policy I bought with the same agent 3 years later. $2,100 per annum for $500,000 worth of coverage, albeit I'd have to pay for as long as I wanted the coverage. As to which plan is more worthwhile? I'll leave it to you to decide. 

Next, risk appetite. What's more risky than buying into a product of which the fees are so high, that the fund managers would have to outperform the market every year to even ensure that your money is not being eroded away? Also, if its equity risk that you're afraid of, there's a convenient Bond ETF in SGX, composed solely of government and stat board bonds, which are as safe as they come.

My point is, don't be taken in by these insurance salespeople who are introducing you WLPs only to line their pockets, and to secure their "incentive trips" paid for by their companies (using our money of course). Their arguments do not hold water. Much better to buy term, and invest the rest.

Summary Mar 2017

On to the second quarter of the year, and yet another summary post. 2017 has been quite a boon to the stock market, and prices have been rising since Jan. It has been harder to find bargains so far, as such value investing has been a bit difficult. Still, stocks on my watchlist did experience dips, and I was able to buy in Croesus Retail Trust at a reasonable price (read here). And since I bought it during a dip (after Ex-Date), I was able to book a profit for it as well. All in all, a good year so far :)

I was also able to sell off my holdings in Hock Lian Seng for a profit, thanks to the surge in prices after their earnings as well as a super generous special dividend ($0.10!!!!) were announced.

Name	Port%	Shares	A.Price	Dividend
OCBC Bank (SGD)	18.45%	508	$9.46	$145.44
First Reit (SGD)	17.15%	3,367	$1.23	$435.85
SoilbuildBizReit (SGD)	12.62%	4,900	$0.67	$145.48
Croesus RTrust (SGD)	10.57%	3,000	$0.84	NA
SingTel (SGD)	9.94%	700	$3.68	$6.80
Keppel DC Reit (SGD)	8.82%	1,900	$1.04	$155.00
Accordia Golf Tr (SGD)	6.04%	2,200	$0.61	$139.43
Tai Sin Electric (SGD)	3.30%	2,000	$0.33	$47.00
ST Engineering (SGD)	2.80%	200	$2.82	$30.00
Lippo Malls Tr (SGD)	2.76%	1800	$0.34	$70.01
KingsmenCreative (SGD)	2.73%	1200	$0.79	$41.00
AIMSAMP Cap Reit (SGD)	2.61%	500	$1.32	$64.65
IREIT Global (SGD)	1.96%	700	$0.63	$67.84

Purchase: Croesus Retail Trust

Croesus has been a stock I've looked at for quite awhile, ever since my other J-Reit, Saizen, was taken over and I needed to redeploy the capital. However, there were always more compelling buys, until I finally put in an offer at $0.84 for 3000 shares. Including the commission and numerous fees, average price came in at $0.844 per share. Considering that the price before its recent XD was $0.88 with a declared dividend of $0.036, I more or less came out even.

Now, what do we get with Croesus?

1) 11 retail malls, of which 9 is freehold
2) P/B ratio of 0.863, meaning a discount of 14%
3) P/E ratio of 6.405
4) An attractive trailing dividend yield of 7.89%
5) Good recent results with Net Property income, Distributable income and Distribution per Unit all increasing.
6) Enhanced cost savings coming from internalising the management team
7) Higher interest cover ratio from 3.7 to 4.2. This is important as Croesus is quite highly leveraged, with a gearing ratio of 46.1%.
8) A conducive macroeconomic situation as the BOJ is unlikely to increase interest rates within Japan in the near term, keeping the cost of money to remain low. This is unlike Singapore Reits whereby they are affected by interest rate fluctuations coming from the Federal Reserve of America.

All in all, Croesus is likely to be a good dividend growth stock for me, and I will likely be keeping it for the long term.

An Alternative Approach to CPF

As a citizen, 20% of my pay is credited into my CPF account each month, together with 17% from my employer. Now the CPF is touted by the Government as a retirement tool, with the annuity plan CPF Life which is supposed to give you a monthly payment till you die. This post is not to discuss about the pros and cons of the scheme, which would definitely generate a long debate which would not be conducive to the point I will be discussing below.

As the title says, this post will be about an alternative approach to CPF. What do I mean? As of current rules (which are highly subject to changes though), there are two ways to cash out the monies in your CPF account. Firstly, we have the annuity plan as discussed above, a slow drip of cash meant to supplement (note: not solely depend on) your retirement. The cash amount varies, and will be deducted from your account. If you pass away before the amount is depleted, the leftover monies will be dispersed to your surviving family members. If you pass away after depleting the amount, your family will get nothing. 

Secondly, and more appealing to me, is the cash withdrawal that is allowed upon reaching 55 years old. This allows a one-time withdrawal of $5,000 or whatever sum of money that is above the current minimum sum (standing at $161,000), whichever is higher. Bear in mind that the minimum sum is set to increase year to year, based on some ad hoc metric that is not shared publicly, so the minimum sum that has to be kept aside could be a problem in the cash withdrawal. Singaporeans could also struggle to hit the minimum sum as significant funds from CPF are utilised for housing purposes, which empties your OA, essentially rebooting the savings process. While there are other schemes that make use of CPF monies, housing is likely to be the largest expense that Singaporeans will use their CPF on. We then have the accrued interest problem, where you have to pay back to your CPF account the interest that would have been earned if you hadn't used the funds for your housing. Essentially, paying interest on nothing. 

Some good news though, if you own a property, you could pledge it to the CPF board in order to reduce your minimum sum commitment by half (ie from $161,000 to $80,500), which would help in reducing the burden. This would help to ensure that a considerable windfall can be obtained at age 55.

So what would be my strategy in getting to that windfall? First things first, I have yet to purchase a property, so a certain sum of money will have to be left in the OA, which attracts a 2.5% interest rate. I will likely to be leaving around $50,000 which should be enough to provide for the 20% downpayment (combined with my future wife). Excess monies after that will be shunted into the SA, which attracts an interest of at least 4%. This will allow the monies to accumulate at a faster rate. I will also be looking to make voluntary contributions into my MA, as once the Basic Healthcare Sum ($52,000 as of 2017) is hit, all excess monies will be funnelled into the SA. Do note that funds in the MA get an interest of 4% as well. By doing these, the hope is that half of minimum sum (after pledging the property) will be reached as soon as possible, after which I will make voluntary contributions into my CPF (limited to $12,500 per annum if I'm not wrong), and transferred into SA. What I'm essentially doing then would be to treat my SA as an AAA rated bond with a 4% coupon rate, and maturity date in the year I turn 55.

So there, an alternative approach to CPF.  

TL:DR Two ways of making use of CPF, I will be aiming for the cashout at age 55, by pledging my property and making use of higher interests of SA and OA.

Summary for Jan 2017

So the first month of 2017 has passed us by, and its time for another portfolio review. Nothing's much changed, other than the addition of Singtel into the portfolio (see my analysis and decision making process here). Glad to say that my previous analysis was right, and the share price has risen by about 5% from my entry price.

Without further ado, here's my portfolio update:

Name	Port%	Shares	A.Price	Div (Total)
OCBC Bank (SGD)	19.45%	508	9.46	145.44
First Reit (SGD)	17.54%	3,332	1.24	365.873
SoilbuildBizReit (SGD)	12.65%	4,900	0.67	145.481
SingTel (SGD)	10.95%	700	3.68	6.8
Keppel DC Reit (SGD)	9.19%	1,900	1.04	155
Hock Lian Seng (SGD)	7.23%	4,000	0.39	142
Accordia Golf Tr (SGD)	6.04%	2,200	0.61	139.43
Tai Sin Electric (SGD)	3.17%	2,000	0.33	32
KingsmenCreative (SGD)	2.93%	1,200	0.79	41
Lippo Malls Tr (SGD)	2.89%	1,800	0.34	54.35
AIMSAMP Cap Reit (SGD)	2.73%	500	1.32	50.8
ST Engineering (SGD)	2.70%	200	2.82	30
IREIT Global (SGD)	2.09%	700	0.63	45.79

For now it's unlikely that I will make any moves on the market, but I might start a RSP with POSB, just to have a bit of exposure to the ABF Bond ETF for hedging some of the volatility that I predict with Trump's presidency.