Should I have just left my money in fixed deposits?

This blog post is a reply to a comment made by a reader, pf.

Read pf's comment: here.

Hi pf,

Actually, some time ago, that was what someone told me too. I have provided the link to the related post at the end of this blog post, if you are interested in reading the story.

We can make money from stocks in one of two ways, capital gains and dividends.

So, although I like to say that entry prices are important because that has a bearing on future capital gains and also dividend yields, if we had paid a fair price for a good business, we should do OK too in the longer run. Yes, longer run.

In the longer run, we might not do as well by way of capital gains but if the stock pays regular and meaningful dividends out of its earnings, we will still do quite well over time.

However, if we should need the money for specific purposes in the near future and are forced to liquidate, then, we could end up losing some money if Mr. Market should be feeling depressed at that point in time. So, it is important not to use money earmarked for specific purposes in the near future for investing in equities.

After many years of struggle, I like to think that I have found my way and I am glad to say that my current home will be fully funded by capital gains and dividends paid to me by Mr. Market.

Some money are best left in FDs and some money should be in equities. Once we have sorted this out, we should do better.

Related post:
To be richer, be comfortable with being invested.

How to grow money put aside for home purchase faster?

I received this email from a reader and provided my take on the situation:

Reader's email:

Dear AK,

I have only recently read your blogs and I must congratulate you for your passion and energy in keeping up such an engaging community going.

I have been in Singapore for a little over two years and am renting a condo with my family of four. I had applied for Singapore Permanent Residence but that hasn't come through. One of my intentions after becoming a PR was to buy a condo but obviously that has to wait (with all that one is reading about on prospects of property market in the next 2-3 years and the supply glut...I am just beginning to think may be that's a blessing in disguise :)

With the above intention, I've been keeping my money in rather safe but unattractive bank Fixed Deposit. Now that am not buying at least for another 12-18 months, would you have any advise for me to park my funds in options that can generate moderate returns? Of course i know i will have to forgo the perceived security of FD :)

Many thanks in advance!

A

AK's reply:

Hi A,

I will be very reluctant to take any risk with money that I will need within the next 2 or 3 years. I think fixed deposits are a good option if I were in your shoes.

I would also open an OCBC 360 account to get a higher interest income on the first $50K of deposit. I blogged about this not too long ago too.

If you like, I could publish your email in my blog, leaving out your name, to see if readers might have ideas that they could share with you. After all, I do not know everything.

Let me know if you would like me to do this. :)

Best wishes,
AK

The reader has agreed to have the email exchange published. So, if anyone has any good ideas, please feel free to share. Thank you.

Related posts:
1. Getting paid more while waiting for opportunities.
2. Eight pragmatic reasons to be Singaporeans.
3. Get VVIP discounts at condo launches?

Sell stocks now and wait to buy back lower?

This blog post is in reply to a question posed by a reader, Poh Huat.

Read Poh Huat's question: here.

Saruman, the White?

Hi Poh Huat,

If we can tell accurately when the market is going to crash, it would make sense to sell everything before that. If we can tell accurately when the market has hit bottom, it would make sense to throw in everything including the kitchen sink. ;p

Question: Can we tell accurately? This is where we try to make sense of the charts using technical analysis and I dabble a bit with this as you probably know.

However, I cannot say that I know with a great degree of accuracy if the market has peaked or bottomed. It is quite obvious from the moves I made which I blogged about.

What matters more to me is not to overpay for any investment. By this, I do not mean that if I pay $1 for a stock and tomorrow it becomes 90c, I have overpaid.

I mean buying at a price which I think the stock is worth or at a price less than what I think the stock is worth. If I have not overpaid, I think it is good to hold.





Of course, prices could go lower and as long as we have not overpaid, it means that the stock has become more undervalued. So, we should, in fact, consider buying more.

It is, therefore, important to have a war chest ready. It would be quite miserable to see all the undervalued stocks in a bear market but have no money to buy.

I hope this answers your question. :)

Related posts:
1. If we want peace, be prepared for war.
2. When to BUY, HOLD or SELL?
3. STE's story: Investment strategy.
4. Revisiting my strategy with Mr. Munger.
5. When to be fully invested?

Invest in stuff we understand.

Avoid investing in stuff we can't understand.

Try to understand the business before plonking down any money in it.

"Never invest in a business you can't understand."    
- Warren Buffett.

Don't buy just because someone else is buying.

Related posts:
1. How to be "One Up On Wall Street?"
2. Journey to financial freedom needs preparation.

Get a new HEPA filter and breathe cleaner air while in bed.

I blogged about how I have a Sharp air purifier in my room even before the very bad haze experienced last year. What makes an air purifier works is really the HEPA filter that is inside.

"High-efficiency particulate air or HEPA is a type of air filter. HEPA filters are designed to target much smaller pollutants and particles." (Source: Wikipedia)

A HEPA filter.

Those who have a HEPA filter air purifier will know that the HEPA filter comes wrapped in a plastic bag and has to be installed in the machine. Once exposed to the environment, the filter has a lifespan of 2 years. It says so in the manual.

However, I have people tell me that they don't ever change the filter because the machine still works. Well, the machine could be working but the filter is probably degraded so badly that it no longer works to filter out harmful particles. In fact, it could be paying out harmful particles if it is badly degraded.

Anyway, if you own a HEPA filter air purifier and you have not changed the filter in 2 years or more, you might want to get it changed. Of course, you would have to clean the inside of the machine before installing the new filter too.

If you are still not convinced that the filter has to be changed, I changed mine today and here are the photos:

Old HEPA filter.

New HEPA filter.

The filters used to be available in Courts, Best Denki or Harvey Norman but they no longer stock them. I had to go to Sharp's Authorised Service Centre at Alexandra to get the filter. Not very convenient but it is worth the trouble to have clean air in my bedroom while I sleep:

Oh, it is cheaper to get a new HEPA filter than to buy a new air purifier, in case you are wondering. It costs just a bit more than $70 for the model of air purifier that I have.

This is not an advertorial.

This is just AK being kaypoh again.

Related post:
Protect ourselves from the haze while in bed.

Getting covered for critical illnesses.

The following is an email from a regular reader, Tree:


Hi AK,

Let me talk to myself a bit too. :)

To start with, I think it is important for readers to understand what CI coverage is for... it is actually term insurance coverage for the 30 illness, which are likely to lead to either death or TPD of some form.

A lot of people have signed up for CI coverage only to find out years later that they are not covered when they contract one of the 30 critical illnesses (mainly due to the clause, for example cancer, only end-stage [stage 4] is eligible for claim). That is where early CI coverage came in. Even then, the requirement for early CI is still quite stringent.

Understand that the coverage is very very narrowly defined within the illnesses (read: very very seriously ill).

It is thus very very important all readers, for this insurance, to go over the details of the coverage so that you do not become disillusioned, furious, shocked, dismayed, disappointed, upset etc. with the actual coverage.

So CI coverage, like term insurance, is for your family. It is to help your family cope with the bills caused by the illness if it occurs, but only the very seriously ill version.

Since you have a family and you are bread winner (I assume), you ought to get the CI coverage for your family if your family cannot cope with the bills if you *choy choy choy*.

If your family can cope with ease, it is optional.

Same reasoning with early CI.

Please note that with the coming implementation of Medishield life, there will be better coverage overall for hospitalisation and as such, the need for CI coverage decreases.

Related post: SAF Group Insurance and CI coverage.

Singapura Finance: Electronic application through ATMs.

I have participated in quite a few rights issues before and the way I do it has always been to visit a POSB or DBS ATM. However, we must not take for granted that this is always possible.

I went through the online document on Singapura Finance's rights issue and found that they will only accept electronic applications through the ATMs belonging to UOB or OCBC.

This is terribly inconvenient for me since the only bank I still keep an ATM card for is POSB. This card can be used at ATMs belonging to DBS too, of course. Combined, they have the biggest network of ATMs in Singapore. There is no reason for me to hold ATM cards belonging to UOB or OCBC. Well, not until now.

I will have to pay a visit to UOB to apply for an ATM card which would probably see only a one time usage. What a bother.

So, for anyone who is a Singapura Finance shareholder, in case you do not already know, please take note of this. Don't go to a DBS or POSB ATM on the last day for acceptance (27 November) only to be surprised.

Announcement:
RIGHTS ISSUE OF 79,342,945 NEW ORDINARY SHARES

Related post:
Singapura Finance: 1 for 1 rights issue.