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If we want peace, be prepared for war!

Thursday, January 24, 2013


Next crash to be worse than 2008.

I had an email exchange with a reader who, amongst other things, asked me to elaborate on an often used phrase in my writings. I feel that his questions are pertinent and as there could be other readers who might have similar questions, publishing our exchange is probably a good idea.

Reader:

Hello Mr AK71, .... I am an avid reader of your ASSI blog.

First I want to say a big thank you for the many posts you have written, they have been extremely insightful to so many of us who are still learning about investing. Your guidance and advice is very much appreciated.


I have a question regarding a piece of investing advice you gave us some time ago, I hope you can enlighten us!

In several of your posts earlier this year and last year, you mentioned that we should always have a "war chest" ready should good opportunities come and we can use it generate good returns. ie buying low.

My first question is, what would you say will be a good percentage ( of one's total assets used for investing, ie both cash and stock ) for a person to put aside for such an opportunity ?

My 2nd question is, surely the opportunities you mentioned come once in a blue moon ( ie during times of recession, etc, ), and for small time investors such as myself, putting aside a considerable amount of cash while waiting for such opportunities seems "wasted" when it can be put into actual investments to generate passive income in the meantime.

To paraphrase, I fully understand your idea of a warchest, but I am in a dilemma as I would like to utilize all my available funds I have set aside for investing to maximize my passive income, and setting aside a considerable amount of cash while waiting for such opportunities doesn't seem like the best use of my money.

What is your take on this ?

I have one final question - Would you recommend investing using the extra cash one have in cpf ? ( the money after all, is just sitting there. )

I was thinking of investing it in relatively safe assets like SREITS.

Thank you so much for your time.


Lake Ashi, Hakone, Japan.


My reply:

I am glad you have enjoyed my blog and found the posts insightful. :)

I also have questions for you.

Do you believe in insurance?

When we buy insurance, we are protecting ourselves against bad things which could happen. If we know that bad things would definitely happen, would we buy insurance? More so, we would buy insurance, wouldn't we?

A war chest is like having insurance. Do you think there would be another bear market? If you think there would be, why won't you need to have a war chest?

If you think this through, you would realise the importance of having a war chest (or a few).

How large should your war chest be? This is up to you. It should be large enough to make a difference during bad times but not so large as to make you feel uncomfortable. It is a very personal decision.

I won't recommend you do or not do anything with your CPF-OA. 


I will only say that my CPF-OA money stands ready only to be used when there are compelling investment opportunities. In the meantime, it earns 2.5% per annum risk free.

I might publish our email exchange in my blog but I will leave your name out if I do. I hope you don't mind as it could possibly benefit other readers. :)


Reader's reply:

Hello Mr AK, thank you so much for your reply.

I have never thought about my "war chest" as a form of insurance, but more as a liquid asset that I can use for investment. Your advice has indeed given me something to think about. :]

As to investing with my CPF, I will give it more careful thought, and also do some more research and homework first.

Please feel free to publish our exchange if you think it might help fellow readers out there. As you mentioned, I'll feel more comfortable staying anonymous. :]

Once again, thank you so much for time and advice. Your blog continues to be a source of great inspiration and knowledge.


AK's final word on the matter:
We would do well to remember that if we want peace, we must be prepared for war. If we want to be richer, we need a war chest.


Related posts:
1. Be cautious as we accept higher risks.
2. Never lose money in S-REITs?
3. SRS, CPF-OA, CPF-SA. (Note publishing date.)
4. AK71's simple strategy.

9 comments:

Cory said...

I was still struggling with my Cash in banks. This article comes at the right time to remind me. :)

AK71 said...

Hi Cory,

Cash might not be king but when we need cash, it better be close at hand. ;)

Sanye ◎ 三页 said...

If the money in CPF-OA is just sitting there(no plan to buy property in foreseeable future, one way is to transfer them into SA to earn better interest.

AK71 said...

Hi Sanye,

That is definitely an option. :)

This reminds me of a recent blog post: Build a bigger retirement fund with CPF-SA.

Sunny said...

AK

Can I use CPF SA to buy STI ETF?

Tks fr Sunny

AK71 said...

Hi Sunny,

I don't think we can use the CPF-SA for this. You might want to check with the CPF Board to be sure. :)

AK71 said...

Michaels Koh:
Hi AK, i would like to seek your advice on investment via CPF. When we withdraw our OA to buy stocks, will we be asked to pay the accrued interest when we sell the stock, just like how the HDB housing work?

Assi AK:
I am not a good candidate to answer this question because the amount of money I have used from my CPF for investing in stocks is now negative. Yes, it is actually shown as a negative number in my statement because I made money in my investments using CPF money. Maybe someone else can throw light on the matter.

However, having said this, if we do make money in our investments, all the money goes back into the CPF. We cannot take any of it out. :)

(From my FB wall.)

Capricon said...

Hi
Nope, using CFP-OA for investments do not accrue interest, at least I didn't see it. When dividends are returned to CPF, the invested amount will reduce accordingly. Also usually I will trigger the transfer of dividends from bank to CPF after received, instead of letting it "sit" in the bank for 3months before it is transferred back to CPF automatically. I want to earn the CFP-OA 2.5% as quick as possible.... Haha cheapo..

Cheers

AK71 said...

Hi Capricon,

I have not used money in my CPF-OA to invest in stocks for many years. Still an untouched war chest for now. Thanks for the refresher. ;)

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