How did AK "supercharge" his CPF-SA's returns?

Some might find this email exchange interesting:

Hi AK,

I chanced upon your blog and started to follow - would like to say thank you for being active and selfless sharing your wealth building story.

I came across one blog entry and you mentioned that in 2008~2009, you took the opportunity and invested in an OCBC SG equity fund and you said that you would invest on it if market crash down again. what is the name of the fund? Lionglobal Singapore Trust Fund?

I am in the midst of looking for a fund to invest and would like to study further on your choice back then.

Warm Regards
I

------------------

Hi I,

Wow! You have done your homework well! Yes, that was the fund I used money in my SA to buy. There were not many mutual funds which were approved for investment with CPF-SA money. :)

This is a unit trust which invests in names I am familiar with and since I am not able to use my SA's money to invest directly in these names, I did it through this unit trust instead. ;)

Best wishes,
AK

Hi AK,

I research further on the return of this fund, amazing 70% in 2009, but -22.76% in 2011, and 19.34% in 2012.

Overall return looks good.

Regards, I

-------------------------------

Hi I,

With our money in the SA, all the more we should buy only when there is blood on the streets. Very few investments can consistently produce results as good as compounding 4 to 5% per annum without fail and with zero risk. :)

Best wishes,
AK

Related posts:
1. SRS, CPF-OA and CPF-SA.
2. Do you want to be richer?
3. A bigger retirement fund with CPF-SA.
4. The CPF-IS and its alternatives.
5. Balancing returns and risks.

How is credit limit for personal credit cards determined?

The purpose of a blog post could be "A" but people could end up seeing "B". It has happened in my blog before and, going by the comments generated on FB, it happened again for my last blog post.

I am not complaining, really. I am just amused by how sometimes we can have unintended consequences which can be good things too, of course.

Some comments:

"I thought the credit limit should be 2x monthly salary only. MAS guideline, I remember. Or no longer in force?"

"std chartered gives a $100000 limit to everyone...the manhattan card i am referring to specifically. anyone else care to share?"

"Strange, ocbc gives my hubby credit limit of only half of his monthly income. We do not have any loan with them. Guess they do not want us to spend more money... We never get 2x or 3x our income. Usually only get 1x of our monthly limit or lesser."

"the banks will do a check with credit bureau. its just like when u open a stock trading acct, there is a financial background check..."

"So, if a person has no debt, pays his bills on time or has more unencumbered assets, he gets a higher credit limit?"

"That's the part I don't understand. We have no car loan, no house loan, we don't have overdue credit cards, no personal loan... How come our limits are so low?"

Including myself, it seems that not many know clearly how credit limits for personal credit cards are determined. So, I did a bit of research and found this:

Interesting, isn't it?

To read more on this topic, visit Moneysense:
http://www.moneysense.gov.sg/understanding-financial-products/credit-and-loans/types-of-loans/credit-cards.aspx

Related post:
An easy way to improve cash flow in life.

An easy way to improve cash flow in life.

It is a strange fact of life.

If we are poor and need some financial assistance, generally, the banks wouldn't want to lend us any money. When we start showing signs of being able to make some money on a sustainable basis and possibly no longer need financial assistance, the banks will want to lend us money.

I don't know about you but I have received so many cheques from banks in the last few years for amounts between $5,000 to $10,000 that I have lost count. They are practically stuffing money in my face. All I had to do was to bank in the cheques and the money would be mine to use. So good of them, right?

More recently, I got an OCBC 360 account and since one of the conditions to get more interest income is that I must charge $400 to an OCBC credit card each month, I applied for the cheapest available card, the OCBC Frank VISA card. A friend who found out told me that the card is for young graduates who just joined the workforce and not for established old gits like me who are making more money. Really? Look at the credit limit they have given me!

It is ridiculous! I have never had such a high credit limit for a credit card ever! No, my earned income has not had any increase in the last few years. In fact, it could have declined. Such is my life. My last credit card application approved by Citibank only had a credit limit of some $14,000. So, I guess OCBC is trying to encourage me to spend more money and, perhaps, even to take my time to pay them. OK, they are not being ridiculous. They are being nice to me. My apologies.

Take my time to pay them? Yes, of course. It is not just OCBC as, generally, the banks are very understanding about how we might not be able to pay in a timely manner.

Tell you a secret, if I could lend anyone money and charge an interest rate of 18% to 24% per annum, I wouldn't be bothered to invest for income in the stock market! "Lending for income", in this case, sounds like a better deal. Don't you think so?

Of course, to regular readers, this is not a new topic in my blog. I have blogged about it often enough and from various angles. I was encouraged to blog about it again by a friend who shared an article with me last night:

A "33-year-old is an honours degree holder and a white-collar professional. He estimates that he has paid out about S$70,000 in interest over two years on his original loan amount that was S$20,000. He has been forking out S$4,000 a month, or 88 per cent of his take-home pay, to pay interest on a loan he took from a licensed moneylender.

And it all started because:

"The banks kept on sending me invitations to sign up for credit cards, and at one point, I was using 10 different credit cards. I lost track of my spending,” he said."

Read the full story here: inSing.com

So, what is the moral of the story? We need to learn a secret and it is the secret to avoiding financial ruin.

Together with the two related posts below, publishing this blog post means that I have given proper acknowledgement to all the three local banks in their efforts to help improve my cash flow.

Now, who says that AK is not impartial? Who? Who?

Related posts:
1. Extra cash for better control of your finances.
2. Get on top of your finances.

Flats with remaining leases of less than 60 years are problematic. (Financing the purchase of a HDB flat, new or old.)

I revealed in my last blog post that I have been exploring HDB's website and there is really plenty of useful information for anyone who is thinking of buying a flat, new or resale.

One question that some might wonder is whether they can afford a flat. 

Another question some people might wonder is how much of their CPF-OA money can be used to pay for a flat.







I would like to share what I have found with anyone who might be interested:

"Some measures of housing affordability use the Home Price-Income ratio (HPI), where a figure of 6, for instance, would indicate that the property being purchased is priced at six times the buyer’s current annual income.

"In Singapore, HDB uses the Debt Servicing Ratio, or DSR as a more accurate indicator of actual housing affordability. The DSR refers to the proportion of the monthly household income set aside for housing instalments.. This measurement takes into account interest payments, which the HPI does not. It is calculated on an assumed 30 year loan, and the figure would rise if the loan tenure were shortened.





"HDB’s commitment to Singaporean households centres on the provision of new BTO flats. A typical first-time home buyer of a new flat in a non-mature estate used on average, less than a quarter of their monthly income (at the point of application) to pay for their housing loans. This means that most buyers are able to pay for their monthly instalments using CPF, with no or minimal cash outlay. 

"For example, a buyer, with a lower monthly income of $2,500 may opt for a smaller 3-room flat in a non-mature estate, to be financially prudence. This buyer will only need to come up with a very minimal cash outlay of $4 for the monthly instalments."

Click to enlarge table.
Source: HDB speaks.

Actually, it is all about being financially prudent. 

Some people had trouble with money because they overstretched their finances, over-consuming on housing, and it usually happens during the boom years because stories of how people made tons of money selling properties would be plentiful. 

Being greedy at the wrong times and getting the purchase of a property wrong is likely to tie us down and hold us back for a long time.





Of course, it really doesn't pay for us to keep up appearances. 

Living below our means might not be glamorous but, financially, it will give us a lot less to worry about.

What about the amount of CPF money we are allowed to use for the purchase of a flat? 

Generally, there is less of an issue, if any, when purchasing BTO flats with fresh 99 year leases or resale flats with remaining leases of 60 years or more.

The problem is with the purchase of flats with remaining leases of less than 60 years. 






In fact, for flats with remaining leases of less than 30 years, CPF money cannot be used in their purchase at all.



I have a found a very nice info-graphic to help explain this:

Click to enlarge.

Source: Using CPF for a property.

So, as conventional wisdom goes, if we are considering the purchase of a resale flat, try to avoid very old flats especially if we want to keep the option of reselling the flat open. 





If our flat should have a remaining lease of less than 60 years by the time we want or need to sell, it could be more difficult.

Searching for solutions to a reader's predicament has led me to learn quite a few things and I hope you have found this blog post useful too.

Related post:
Retiring comfortably with a HDB flat.

Retiring comfortably with a HDB flat.

A recent comment by a reader with a predicament led me to searching the internet for possible solutions. 

While unsuccessful, I came across an info-graphic by HDB which I find very good. 

So, I am sharing it here:

"If I sink my money into my flat, how will I be able to retire comfortably?"

Source: HDB Speaks.

I also wish to say that if we do the right things, we could possibly retire a millionaire without ever having to monetise our HDB flat. See:

1. Retiring a millionaire is not a dream.
2. What is $1 million at retirement?
3. $1 million in retirement funds.

If we want something badly enough, we will work towards it. If we are determined, our chances of success will be higher. Believe it.

Other related posts:
1. Housing and the CPF.
2. Buying an apartment: Considerations.
3. POSB HDB Loan: Peace of mind.
4. Balancing returns, risks, facts and fallacies.
5. Retiring before 60 is not a dream.

Accordia Golf Trust: At what price is it a BUY?

Some readers asked me at what price would I be interested in Accordia Golf Trust since I have said that I was not willing to pay the IPO price of 97c a unit, believing that it did not represent good value for money although it promised a 7% distribution yield.

Some asked me if they should start buying once the unit price goes under the NAV per unit of 92c because with its IPO in Singapore just 0.7x subscribed, it could see unit price sinking quite rapidly on the first day of trading.

Of course, I almost never give a clear answer to questions like this.




However, I will say that although it could be nice to buy something below its NAV, when we are investing for income, we really want to see whether the level of income that is being generated is attractive enough and how much of that promised income to be distributed is sustainable.

To do this, I looked into the Trust's gearing. The first observation is the very high gearing level of about 53%. That is similar to Croesus Retail Trust's current gearing level and yet Accordia Golf Trust could only promise a distribution yield of 7%.

Next, I looked at the way its debt has been structured. Long term debt really consists of three term loans of JPY 15 billion each.

The first term loan is for 3 years and the cost? 1.25% +
The second term loan is for 4 years. 1.5% +
The third term loan is for 5 years. 1.75% +

What is that "+" for? Cost of debt is actually a base percentage + the 6 months JPY TIBOR. If you don't know what TIBOR is, it stands for Tokyo Interbank Offered Rate which is forecast to be about 0.3%.

I feel that the TIBOR is likely to stay low for some time as Prime Minister Abe keeps borrowing costs low to encourage economic growth and works towards a targeted sustainable inflation rate of 2% per annum for the country. So, there could be some comfort there despite the high gearing level.

Just like Saizen REIT's loans, the term loans here are amortising in nature. Per term loan, the Trust has to pay JPY 75 million half yearly starting 31 March 2015. This means JPY 75 million x 6 in a year starting 31 March 2015. Per year: JPY 450 million.

On top of this, interest payment if estimated on the high side using 2% is about JPY 0.9 billion or 900 million

With total annual comprehensive income at almost JPY 6 billion, yearly debt repayment will be about 22% of annual comprehensive income from March 2015 to July 2017. In August 2017, the 3 year term loan will have to be fully paid.

Of course, by then, let us hope that the Trust would have found some way of refinancing since it would probably be impossible for them to pay off the remaining JPY 13.6 billion or so in the first term loan using internal resources.

Accordia Golf Trust's guidance is to pay out 90% of its income to unit holders from the 2nd year onwards but what is the distributable income available then? Ah! That is a question people might not have asked as they simply assumed that it would be 90% of the first year's DPU.

At the exchange rate of S$12.20 to JPY 1,000, assuming an annual comprehensive income of S$73.2 million and almost 1.1 billion units in issue, we would get a DPU of 6.65c if 100% of income is distributed to unit holders. If we should expect that only 78% of comprehensive income would be available for distribution from March 2015, then, DPU falls to 5.2c. If we still want that 7% yield, then, unit price has to fall to 74c which is a 24% decline from the IPO price.

Now, if only 90% is to be distributed, DPU could be as low as 5.2c x .9 or 4.68c.

So, at what price would I be interested in initiating a long position in Accordia Golf Trust? Let me talk to my bowling ball and I hope it is in a talkative mood.

Related post:
Accordia Golf Trust: 7% distribution yield.

Pre-owned books Flash Sale!

How do these sound to you?

1. Free shipping worldwide.

2. Save on cost. Save the environment.

3. Help promote literacy amongst the disadvantaged.

Buy pre-owned books from BetterWorldBooks and we will be doing all of the above.

Now, till 31st July, BetterWorldBooks is running a DOUBLE DONATIONS FLASH SALE!



Shop the Better World Books Double Donations Flash Sale, save on used books and double your impact on literacy, all with Free Shipping Worldwide!

Related post:
1. Donate a book to the needy.
2. ASSI is a BetterWorldBooks affiliate.
3. Bought another book from BetterWorldBooks.

Blogs that show the ugly truth about AK.

People know that AK is frugal. 

People know that AK buys stuff when he sees value for money.

However, life is never perfect. 

Why? 

Well, it is just the way it is. 

It is about being human. 





AK is not perfect. 

AK is as human as any other... er... human being.

I try to be rational but I have weaknesses too. 

It is a drag to be rational all the time, anyway. 

So, how? 

I give in to weaknesses from time to time lor.

Banana? Stunned?

Don't believe me? 

You want evidence of AK's wrong doing?

Where got criminal provide evidence to incriminate himself one?

What? Evidence is in my blog?

Cham. How like that?





The proof is in the pudding... er... ice cream (and more).

1. Ice Cream! See: High class ice cream.

2. Restaurant visits! See: Soup Restaurant.

3. Rolex watch! See: Vintage Rolex.

4. Tag Heuer watch! See: Repairing a watch.

5. Stayed in a Junior Suite! See: HK Hotel.

6. Bought a car! See: Bought a new car.

7. Stayed in condo! See: Photos of AK's home.

8. Added in 2018: Bought a gaming laptop!

See? 





I don't bluff you, right?

You can say plenty of stuff about AK but at least he is honest about being weak.

Bad AK! Bad AK!

Anime fans might know this scene from 
One Piece.
Stuck on a rock in the middle of an ocean, they ran out of food but had a whole sack of treasure. 
What use was all that treasure when what they really needed was food?

In our modern day society, having more money is good. 





Having more money gives us more options. 

However, remember that money is used to exchange for goods and services which we need or want in life. 

That is what money is for.

Don't be a 守财奴 (i.e. scrooge). 

There is no point in having a lot of money and have no happiness.





Please read a story from AK's past: 
How rich is rich? (14 NOV 2010)

P.S. While avoiding being a 守财奴, try to insist on having value for money. Sorry, I couldn't resist saying this. -.-"

Related post:
Kopi with Song Stonecold: Getting value out of everything.