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How to get $50K in passive income by investing in stocks?

Saturday, April 18, 2015

Extracted from a reader's email:

Hey there ak,

I was just wondering if your willing to answer some of my questions.


A little background, I'm 32 this year. Yet to marry, planning to.


I was always interested in trading, have tiny experience while working part time in a stock training center. 


Anyway, I seriously want to achieve financial freedom. And stumbling upon your blog was super!! And I want to be an income investor!!






Been reading up and giving myself till 2018 to start investing. There is still so much to learn. I'm still currently "know nothing" phase. Haha.. 


I don't have much cash. Since my wedding is around the corner. Most of it is tied up. 


So I decided to take up the POSB invest plan, 500 for the next 4 years. Should end up with 20k roughly. Which I intend to invest in 4 counters (by 2018).






My aim is to get 50k passive income.  But from my calculation, (assumption on 2014 dpu) I need 800k. No idea what I'm doing wrong. 


Anyway, since I can't amass such an amount, I was planning to, POSB invest plan to 20k (withdraw full), invest in 4 counters by 2018. 

And start OCBC BCIP 1.2k per month for 4 years get roughly 70k, invest as per my plan (counters to have by 2022) and again start another OCBC BCIP to amass cash for investing. (800k will kill me le :( , sianz)






From your view point, do you think I should do this way? As in invest every few years?  


My concern is, this will take me very long to achieve my 50k target. Your advice please.

Thank so much for blog, it's in line with my goals. And I'm reading it everyday at work.


Fellow investor (to be),





P




AK's reply:

Hi P,

Welcome to my blog and I am happy to read that you are inspired to invest for income. 

Investing for income does help to provide a sense of well-being and therein lies part of its attractiveness. :)

OK, firstly, if you are going to put money in the OCBC BCIP or the POSB Invest Saver Plan, you have to understand that these are with long term investors in mind. 

They are investments too but in a basket of stocks. 





So, what about the idea of taking out the money in 2018 to invest in specific stocks? 

Be warned that there is no guarantee that the stock market won't be lower than what it is today in 2018.

(When the time comes and if we need the money, we would have to take whatever price Mr. Market offers.)






The ETFs are not meant to be places where we keep our war chests or emergency funds. 

They are investments.






I would suggest that you continue to spend time reading up and also to concentrate on your career move and your upcoming wedding for now. 

Congratulations, by the way. :)

Be frugal, save money and wait for opportunities to buy income producing stocks on the cheap. 

Hey, you could be buying the STI ETF on the cheap too. Of course, you could start nibbling at some stocks in the meantime. 





It is important to remember that there is really no rush. The stock market will always be there. ;)

How to achieve $50K in passive income from investing in stocks? I think I blogged about this before many times in the past but not in recent times. 

There is really no magic. 






In summary:

1. Increase our earned income.

2. Do not increase our expenses beyond what is reasonable.

3. Save the rest and invest for income.

4. Save the income from investments and invest again.






We can make money in many ways. As long as they are legal and ethical, we want to think of seizing opportunities to make more money. 

People often upgrade their lifestyles as their incomes are upgraded. 

Be meticulous in distinguishing between consumption and investment. Yes, people often mix them up.





A reader told me that he hopes to achieve a third of what I have achieved by the time he is my age because his circumstances are different from mine. 

He wants to have children and his wife stays at home. This is an important thing to remember. 

Our circumstances are all different from one another's.





So, I remind readers not to be fixated with numbers.

The important thing is that their quality of life improves. 

The important thing is that they feel financially more secure, year after year. 

Investing for income will help to do this for them and it will do it for you too. :)





Best wishes,
AK

Related posts:
1. $1m in liquid assets or $120K in passive income?
2. To retire by 45, start with a plan.
3. Seven steps to passive income from the stock market.
4. OCBC Blue Chip Investment Plan.
5. POSB Invest Saver Account.

SembCorp Industries: Partial divestment.

Thursday, April 16, 2015

Yesterday, a reader asked me if I would be selling my investment in SembCorp Industries. 

I replied that if I thought SembCorp Industries was fairly valued at $5.00 when I made my first purchase a few months ago, would I sell at a lower price?






Honestly, the investor in me said to stay invested while the trader in me said to look at possibly selling at least part of my investment. 

Let me talk to myself and throw some light on the matter.





As SembCorp Industries' stock price fell in recent months, I added to my position at various price levels: $4.80+, $4.50+, $4.20+, $4.10+. 

My memory is a bit patchy but something like this. 

I believe that SembCorp Industries is a good company and that Mr. Market was overly pessimistic as the stock kept falling in price.

Then, whether I would sell or not would depend on whether the investor or the trader in me wins. 






Finally, the trader won but only after giving a concession to the investor. 

What do I mean?

I initiated a position in SembCorp Industries at what I thought was a fair price and I said so in a blog post soon after the purchase. 

I went in with my eyes open and knew what I was getting for the price I paid. 

However, given a choice, the investor in me would prefer to purchase an undervalued stock.






So, having added at lower prices as well, recovering the capital utilised for purchases made at higher prices which fairly valued SembCorp Industries, retaining the purchases made at lower prices which undervalued the conglomerate somewhat is a palatable proposition.

After looking at the charts this morning, I determined that there should be stronger resistance at $4.84 if the stock price continued its ascent today.





So, I put in sell orders at $4.82 and $4.83.







I still like SembCorp Industries and if its stock price were to weaken to retest its lows in the last few months, I would probably be adding to my position again. 

If its stock price should rally after taking a breather, I would stand to gain with my remaining investment in the conglomerate.

Related posts:
1. SembCorp Industries: A safe price.
2. AK went shopping in the stock market.
3. Investing for income and position sizing.

ST Engineering: A letter from a reader.

Wednesday, April 15, 2015

We are supposed to be emotionless as investors. This is not easy to achieve. Well, at least I am still working on it. I am a poor candidate for a ninja, er, I mean, investor.


Dear AK,

I went to your last seminar because of a friend. I have been investing for a year but I never make money. After your seminar and reading your blog, I understand why my friend said you are good.


At the seminar, you and the audience discussed ST engineering. I was inspired by your own story about your first lot at $1.55 almost 20 years ago and holding till now. I was excited that the stock pays you every year.

Some people said they know the business and also bought the stock. I remember one guy said he keeps buying every year. You gave me confidence when you said you bought again at around $3.30 and $3.40. You said it was not expensive. So, I bought that week.


Today, it is $3.77. I am very happy. Don't worry. I know you will say bu yao hai wo. You said to understand price and value. I have been reading your old blog posts. I know price can go lower in crisis. But I just feel happy. So, many thanks. You are a good person.


Yours sincerely,

W


I think we discussed STE at the 3rd "Evening with AK and friends"





Hi W,

Your last paragraph saved me from having to write you an email on the difference between price and value. Sounds like you have emerged from a fog and are beginning to plot your route in the stock market as an income investor.

It is, of course, normal to feel happy that our investments are doing well. However, please be mentally prepared that we might see prices sink one day. Knowing something could happen and being prepared for it are two different things. Apart from being mentally prepared, we should be financially prepared as well. So, have a war chest ready too.


I am glad that you have found my blog useful and that one of my chit chat sessions (not seminars) started you on your journey as an investor for income. Stay the course and, I believe, you will do well enough over time. Gambatte!

Best wishes,

AK

Related posts:
1. Seven steps to creating passive income.
2. 2014 full year income from non-REITs.
3. The mystical art of wealth accumulation.

Buy that second residential property and pay the ABSD?

Tuesday, April 14, 2015

UPDATE: 5 July 2018.

ABSD is going up 5% and LTV is being tightened as well.

Factor in this additional 5% when reading this blog.


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


UPDATED (20 DEC 16):
How to calculate BSD and ABSD?

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



A friend recently bought a second residential property and had to pay a 7% ABSD which amounted to quite a bit of money. 

He asked why wasn't I considering buying another property as I seem to have the financial ability to do so. 

Well, apart from the fact that I think that Singapore's residential property market is facing a glut and will continue to face a glut for a few years, I am reluctant to pay the ABSD.




ABSD stands for Additional Buyer Stamp Duty. This is at 7% for Singaporeans who buy a second residential property and is paid in addition to the regular 3% Buyer Stamp Duty (that has to be paid anytime a residential property is purchased).

For Singaporeans who buy a third residential property, the ABSD is 10%. 





Imagine buying a $800,000 property and having to pay the taxman an additional $80,000! 

That is enough to buy a 3 year old Japanese make family sedan in Singapore or a brand new Mercedes Benz E-200 in the USA with a fair bit of money left over.



My friend sent me this in an SMS:

"If it (the ABSD) goes down, then, people will rush in to buy again. Developers and sellers will raise the price. So, in the end, the overall paid is still the same... 

"If without this ABSD to artificially suppress the demand, the prices would have been super high and just keep rising. So, it helps to suppress the price but I must pay the ABSD.

"If the ABSD didn't exist, we would still have to pay a higher price.
"





See how the belief that property prices in Singapore can only go higher is firmly embedded in the message?

My reply:

"That is what property agents are saying to encourage buying (even if buyers must pay an ABSD). 

"I don't think anyone knows for sure (that prices will only go up). It is a lot of money. So, I rather stay cautious since I already have a property (i.e. my home). No hurry.

"It is called ABSD for a reason and when it is removed, it will be because the market has cooled enough and liquidity has dried up. In such an instance, developers would be shooting themselves in the foot by raising prices
.
"


I am reminded not to ask a barber if I need a haircut.








Try to remember the Rule of 15

The ABSD raises the buying price significantly for anyone who is buying a second or third property. 


This has to be considered as part of the price tag of the property. 




If we could only eke out a 3% yield from a purchase, in a rising interest rate environment, I would hardly consider that a good investment.

The ABSD has helped to keep out investors and allowed first time buyers a chance to buy private residential real estate at more reasonable prices. 




Apart from the ABSD, investors should also be deterred from investing in residential real estate here by the fact that the oversupply situation seems set to worsen in the next few years.

Honestly, I would tell people to buy a piece of private residential real estate in Singapore now only if they want to make it their home. 

As an investment, for anyone who decides to buy now, private residential real estate in Singapore might be rather disappointing a choice in the coming years.



Related posts:
1. The Rule of 15.
2. Disastrous investments in the property market.

To be richer, do not indulge in creature comforts (Part 2).

Sunday, April 12, 2015

Some readers might remember that I had a blog post in January with a similar title. In that blog post, I revealed that I was probably one of Starbucks' least favourite people. I know, I am putting it ever so nicely.

Unless it is free or heavily discounted in price, I don't drink Starbucks' coffee.

Now, what about Coffee Bean & Tea Leaf?

Alamak! AK is taking a pot shot at Coffee Bean & Tea Leaf next?

Aiyoh, do you really think I am so bad? No lah! I am just sharing here how I am going to get a free coffee from them lah.




Yes, I know. I am terrible.

Related post:
To be richer, do not indulge in creature comforts. Really?

Eat wholemeal bread and win a $6,000 holiday plus cash!

I will almost always choose wholemeal bread over white bread as it is a healthier choice although it costs more:

Wholemeal bread is nutritious because it is made from whole wheat flour produced from milling the entire wheat grain. 

You get all the nutrients – dietary fibre, antioxidants such as vitamins A and E, essential minerals and B vitamins (B1, B2, B3, folic acid) from the bran (the grain’s outer layer) and germ (inner layer).

In addition, whole grains also contain phytochemicals which may help to reduce risk for conditions such as heart disease and certain types of cancer. 


Now, there is an added incentive for me to choose wholemeal bread from Gardenia. What is it? OK lah. Got good lobang must share.


Gardenia Wholemeal Bread packaging.

Closing date: 15 June 2015.

1st Prize: $6,000 Holiday Package + $2,000 cash!
Made some sandwiches:


Tuna, cheese and margarine sandwich.
I always make at least 4 at one go.
Keep refrigerated and bring one to work each day.

If I don't win, I hope one of you do. Good luck. :)

Disclosure: 
Buying Gardenia bread will benefit AK as he is a shareholder of QAF's.

Related posts:
1. Supporting my companies.
2. QAF: Rising 5c to 93c a share.


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