Recycling Capital in a Downtrending Market

As everyone might know now, the market has been in a downtrend in the past two weeks, and most, if not all, investors have seen a steep drop in their portfolio values. It is my opinion that we are seeing a lot of panic selling right now, and this has lowered prices in many stocks to an attractive level. Usually in such a situation I'd activate my warchest for use, but in this case, where the fundamentals of the market might have changed, I decided a different way could be more suitable.

As mentioned previously, I had bought into some undervalued S-Chip stocks, and they have done fairly well, even with the massive sell off that everyone experienced. While the fundamentals of these companies are still sound, they remain a speculative part of my portfolio and thus I decided to liquidate them, earning myself a 100% profit on cost. This was then recycled into stable dividend distributing companies (Singtel and ST Engineering) to bolster the cashflow generation of my portfolio. 

This meant that my portfolio has now gone red, with about 3% in paper losses. However, with the diversified and stable stocks I'm holding, and the advantage of a long term view of my portfolio, I'm very comfortable even with the losses, and very confident that I'd come out of the market correction relatively unscathed and in fact stronger for the next 10-20 years.

Summary Dec 2017

A long overdue portfolio review. To put it simply, in a bid to boost my returns, I have turned to buying undervalued stocks (mostly S-chips) that look to have a good chance of turning things around. Having said that, good cashflow producing assets are still being bought as and when the prices make sense, and the portfolio has done satisfactorily well in 2017. Without further ado, my portfolio.

Name	Shares	APrice	Cost	Div	Div%
Jiutian Chemical	381,600	0.029	11,203.44	NA	NA
OCBC Bank	508	9.462	4,806.51	328.32	6.83%
SingTel	1,600	3.68	5,888.52	231.7	3.93%
First Reit	3,367	1.226	4,128.07	652.015	15.79%
Oxley	5,390	0.58	3,123.61	34.3	1.10%
SoilbuildBizReit	4,900	0.666	3,262.80	357.602	10.96%
China Star Food	30,500	0.112	3,431	NA	NA
HLH	400,000	0.008	3,212	NA	NA
Keppel DC Reit	1,900	1.04	1,976.50	223.97	11.33%
Omega Healthcare Investors Inc	70	33.38	2,336.58	117.68	5.04%
CapitaMall Trust	1,100	1.945	2,139.35	60.83	2.84%
Accordia Golf Tr	2,200	0.609	1,339.23	254.71	19.02%
Tai Sin Electric	2,000	0.326	651.51	79	12.13%
Lippo Malls Tr	1,800	0.341	614.07	117.71	19.17%
KingsmenCreative	1,200	0.792	950	71	7.47%
AIMSAMP Cap Reit	500	1.319	659.65	113.35	17.18%
ST Engineering	200	2.817	563.35	60	10.65%
IREIT Global	700	0.631	441.61	88.07	19.94%

Review of 2017

2017's been a year of two halves for me, the first bad, the second awesome. First half of the year saw a change in personal relationship, and a subsequent foray into the social game again. Coupled with a few disappointments at work, Jan to Jun 2017 was not a good place for myself to be in.

Thankfully, things picked up fairly quickly in the second part of the year, with social game bearing fruit in a shorter than anticipated amount of time, and pleasant surprises at work. Now that all the vague generalities are out of the way, lets get down to the nitty gritty details of how 2017 went.

Health-wise, I decided to start utilising the office gym more as well as bringing homemade meals for lunch. This meant that I could both eat a healthier lunch, as well as saving money from having lunch outside. While I'm not too sure about the money aspect, health-wise it did help, with me shedding a total of 6 kg, reduction of body fat by approx 5 percentage-points, and generally in better shape than ever before, with the exception of being a Tekong NSF.

Personal relationships wise, aside from the fruit bearing mentioned earlier, eating solo lunches in the office (due to my brought from home food) has led me to understand the importance of choosing the people I hang out with, and that I could pick and choose who I wanted to hang with, and when as well as where. And to be honest, that is something quite refreshing to finally realise.

Financial wise is where I felt most satisfied by, having achieved my first big financial goals 1 year early. $100,000 in liquid assets (cash + stocks only) in 3 years! Savings rate of 40-50% per month, constant investments in cashflow producing assets (mainly blue chip stocks and REITs), as well as fruitful punts in undervalued S-chip stocks. Returns would have been higher if more punts proved successful, but hey, I'm not greedy. 

Goals for 2018:

Given the upheaval in changes in 2017, my goals for 2018 are just simply, to stay the course. To maintain the new relationship, to maintain my work performances, maintain my health routine, and lastly, to maintain my increasing cashflow assets.

The only new thing would be aiming for an increase of assets by $35,000, a stretch by no means, as well as to increase my annual dividends to at least $2,000 (for context, 2017's dividends came in at about $1,600).

So there, a short review of 2017, happy 2018 everyone, and may everyone achieve financial independence asap!!

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.