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What makes an undervalued and thoughtful gift?

Saturday, July 25, 2015

UPDATE:
I remember some people of rather limited imagination calling me a cheapskate after reading my blog post. Well, at least I did not "re-gift".


"HAPPY HOLIDAYS AND MAY ALL YOUR PROBLEMS BECOME SOMEONE ELSE'S."
-----------
I know someone who orders canned green tea at coffee shops all the time. He says it is a healthier option compared to carbonated soft drinks. 

Well, I told him that canned green tea has lots of sugar too and that they are not necessarily much healthier alternatives. (AK can be very sensible about food too, you know.)

Anyway, for his birthday, I gave him a box of green tea. I told him that he just needs to bring a tea bag a day to work and he would be able to save $30 a month from not ordering canned green tea during lunch! His office has a hot water dispenser, I am sure.

Definitely a healthier alternative with lots of anti-oxidants and no sugar too!

When I told a friend what I did, he said I was a cheapskate! 

Oh, dear. Why did he say that? Actually, did you think the same way? 

Now, now, you can be honest with AK. I promise to listen.


Anyway, I told him it was a $80 gift! That puzzled my friend. He wondered if I bought some atas green tea from Japan. 

No, of course I didn't buy expensive green tea from Japan.

Then, what did I do? I explained:

Well, that box of green tea (which is a product of Japan, by the way) costs me a bit more than $5.00 and has enough tea bags to last about 2.5 months. 

So, the recipient of the gift is going to save $75.00 in those 2.5 months assuming that he pays $1.50 for a can of green tea during his lunch breaks (i.e. 50 days x $1.50).

Genmaicha.

In fact, if the habit grows on him, he would continue to save money during his lunch breaks forever.

The gift might not be costly but it is worth a lot more than it looks. 

It is an undervalued and thoughtful gift from AK. 

Remember the difference between price and value?

Well, I hope my friend appreciates it.

Related posts:
1. The price of convenience.
2. Genmaicha.

Do I need a bigger home and what to do if I do?

Friday, July 24, 2015

Housing is a topic that is close to our hearts. It would not be wrong to say that most people tend to be somewhat emotional when talking about our homes. After all, home is where the heart is.

So, being objective which means not being emotional about our homes when it comes to viewing it simply as an asset or liability is not easy for many people. 

Fortunately, for some reason, AK is quite emotionless when it comes to his home or so his friends have observed.

Here, we have an example of AK dishing out some objectivity on a reader's housing situation:


Hi AK,

Hope this email finds you well.

Thank you very much for taking your time responding to our queries in relation to giving us your honest opinion in matters of money management.

I have a "worry".

Currently, we bought a condo and owing about $400k+ with the bank and paying our monthly mortgage still at $2000/month. Its a one bedroom small condo and small enough that we feel we needed a bigger place given that we just had a baby a few months ago.

option
1) Sell condo now and wait for 2 years before we are "allowed" to go into Econdo and might take another 4-5 years before TOP. In practicality, i feel its not practical to wait that long because we will need a bed for our 5 year old grown up boy but pros are we could save up "more" before buying into a bigger econdo home for a 3 member family. So more time for us to save up for something more value for the money e.g econdo, hdb. We made the mistake of buying to condo initally.

2) sell this condo now and buy into another bigger place with our current savings of $250k, meaning take out our savings and buy a bigger place, something like a 2+1 bedroom private condo. pros we can take opportunity of the low condo price now and "hope" in few years it shall provide us some asset appreciation. Note: Selling our current 1 Bedroom condo will make a 50-60k loss because of the low demand in current market now. we would have made 25% loss on our initial downpayment.

3) take our savings and stay vested so we could have more passive income (my idea actually). If stay vested with REITS e.g saizen of $250k. we could have about 1-2k per month passive income. Cons is we wont have a bigger place (will need to stay with our parents) and there is risk of an economic downfall (my wife's worry) and i am not sure during the last subprime recession how much did Saizen drop to? Meaning if i used my savings for buying a property at least the pros is i could have something physical at hand during economic downturn. Am i making any sense?

4) lower our debt ratio and sell off when the market improves then rip the profit--> then buy in to a bigger place. ( by then may be the property market and outlook would have improved)

I know nobody can tell the future but i would sincerely hope if you can share your experience and expertise on the subject i have at hand currently.

Sincerely
B


Hi B,

All of us need a roof over our heads. How big or pricey a roof? That depends on each person's circumstances.

I like to approach situations such as yours by thinking about the needs:

In your case, the first question to ask is whether you really need more space or could you make do with what you have (i.e. your current one bedder condo)? If you could somehow make do with what you have, then, no issues. Think about possibly refinancing the housing loan if that could bring down the cost of servicing the loan.

If you absolutely cannot make do with what you have and really need more space now, then, sell your current place only if you are able to find a good value for money offer in a larger condo somewhere. Don't buy a larger condo unit just because you can afford it, always bearing in mind that our homes are consumption items and not investments. What about buying a resale HDB flat instead?

If you think you don't need more space now but will need more space in the future, then, selling your condo and moving in with your parents first while waiting for a couple of years before you could buy an Executive Condominium from a developer (or a BTO HDB flat if your combined salaries are not too high) will most probably give you the best value for money. In the meantime, you could invest some of the money in the stock market for some extra income.

In summary, what you decide to do at the end of the day should consider:

1. What you need.
2. When you need it.
3. What kind of housing is acceptable.

I hope my talking to myself is helpful to you. :)

Best wishes,
AK

Related posts:
1. Affordability and value for money.
2. Buying an apartment: Considerations.
3. Buying a property as an owner-occupier?

Letters on risk free, volatility free retirement funding.

Wednesday, July 22, 2015

Regular readers would have guessed what this blog post is about.

Letter number 1 from a lady:

Hi ASSI,

Sorry if I sent this email to the wrong email address, not sure if this is only meant for ad enquiries only.

I enjoy reading your blog and these few days I keep coming across CPF-SA on your blog. It got me thinking about whether I should transfer some $ from OA to SA.


I just realised I have abt $50k in my OA and $20k in SA. Is there a cap on the amount transfer-able from OA to SA? I read about a $7k limit but it seems to be voluntary contribution cap as well as tax deductible.

I'm in my 20s, married with kids and have a HDB loan but it is not serviced with my OA. Do you think it is advisable for me to transfer as much as possible to my SA account?

What should be the considerations I have for leaving the balance in OA vs transferring to my SA account?

From what I gather, it sounds advantageous for me to transfer those in excess of $20 from my OA (thinking since 1st $20k earns additional 1% interest) to SA.

should I have an aim of say x% dividend yield/captial gain given that money in SA is already earning 4% and it's risk-free.

Thank you.

Cheers,
Y


The ant stored food for the coming winter.

My reply:

Hi Y,

Welcome to my blog. :)

Well, if you don't have any use for the money in your CPF-OA, it would make sense to do an OA to SA transfer. Yes, leave $20K in your OA since it makes 3.5% per annum.

The first $40K in your SA will make 5% per annum. The rest will make 4% per annum.

OA to SA transfer and Minimum Sum Top Up to the SA will be limited by the ceiling imposed by the CPF. This year, it is $161K, I believe. So, people who have $161K in their SA already cannot do any transfer or top-up.

$7K in Minimum Sum Top Up to the SA each year is eligible for income tax relief. You could Top Up more than $7K but you won't get tax relief for anything more than $7K. There is no tax relief for OA to SA transfer.

There is a place for risk free and volatility free instruments in our investment portfolio, I firmly believe. I treat my CPF as the bond component of my portfolio. ;)

Best wishes,
AK



Risk free, volatility free retirement funding.


Letter number 2 from a gentleman:

Hello Bro,

I saw your blog and am very impressed with the article you wrote on CPF SA.

I was doing some calculation but unable to really get the correct numbers and have tried using CPF compound interest calculator but the numbers I get seems to be wrong....

Wondering if you can help ?

Case Scenario : Age 33 with $40K in SA and contribute $7K to SA for the next 12 years (Till Age 45)

How much SA will I have at age 55?

My calculation comes up to about $384K which is definitely wrong....

Regards,
C

Sorry bro forgot to add that after age 33 to age 55, a constant contribution of just $300 to SA from employment and $7K is a cash topup. At age 45 the cash topup will stop with just $300 contribution to SA from employment.

Power of compounding.

My reply:


Hi C,

If you notice, in my blog, my math is usually very simple. I think if we can be approximately right, that is good enough.

If you contribute $300 to your CPF-SA each month from age 33 to 55, starting with a base of $40K at age 33, you would have $223,381 at age 55.

Principal: $119,200.
Total interest: $104,181.

I used the CPF Compound Interest Calculator.

Of course, you would probably end up with more than this because the first $40K in your SA will get 5% interest per annum and not 4%.

Now, if you were to do a $7K Minimum Sum Top Up to your CPF-SA every year from age 33 to 45, I don't know what you might end up with at age 55. I will say "a lot more". ;p

A lump sum $7K compounding at 4% per annum for 22 years will become $16,852. Total interest: $9,852. Since you plan to stop doing Minimum Sum Top Up after age 45. Then, your final contribution at age 45 will compound for 10 years which will give you $10,436. Total interest: $3,436.

You could do the rest of the calculations yourself (11 years to 21 years) and total them up.

You will have a lot of money in your CPF-SA at age 55. ;)

Best wishes,
AK


Related post:
How to upsize $100K to $225K?

AIMS AMP Capital Industrial REIT: An opinion. (UPDATED)

Monday, July 20, 2015

It has been a long time since I blogged about AIMS AMP Capital Industrial REIT which, till today, is still my largest investment in the S-REIT universe.





Reader says:

Dear AK,
I noticed from one of your recent posts that you invest quite a lot into AIMS AMP Capital Reit & 

I have heard a lot of good word about this reit too from other people & so I am interested to invest in it. 

However, I read somewhere that they were known as Macarthur Cook Industrial Reit & during the 08/09 financial crisis, they actually diluted the shares of the unitholders, causing dividend yield to drop. 

From what I know, that was due to the managers not seeing in alignment with the unitholders. 

What are your thoughts on this & do you think it'll happen again in another crisis? Thanks!
Best Regards,
J







My reply:

Hi J,

MI-REIT was a disaster because the management, then headed by Chris Calvert who went on to lead Cambridge Industrial Trust, did not secure financing for an asset they committed to buy. 


So, when the global financial crisis struck, credit dried up and MI-REIT was in big trouble.

Back then, George Wang led AIMS and AMP Capital from Australia to recapitalise MI-REIT. 






The recapitalisation exercise was accepted and AA REIT was formed but not without some drama. 

Of course, George Wang and partners got MI-REIT for a song. 

Why would they pump in their own money, otherwise?

Anyway, the important thing is that George Wang et. al. turned around an ailing REIT. 






They put in so much of their own money in the REIT, they must make sure the REIT adds value for investors over the years. :)

AA REIT is a very different animal from the old MI-REIT. 


The REIT's income is more diversified and its finances are also more resilient. 





The REIT is now bigger and better. 

I don't know what is going to happen in the next crisis but chances of the REIT coming out of one fully intact are much higher today than back in 08/09.

Best wishes,
AK






Related post:
6M 2015 passive income from S-REITs.


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