The email address in "Contact AK: Ads and more" above will vanish from November 2018.

PRIVACY POLICY

FAKE ASSI AK71 IN HWZ.

Featured blog.

1M50 CPF millionaire in 2021!

Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...

Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.

Archives

"E-book" by AK

Second "e-book".

Another free "e-book".

4th free "e-book".

Pageviews since Dec'09

Financially free and Facebook free!

Recent Comments

ASSI's Guest bloggers

Understand the function of each tool in personal finance.

Saturday, July 30, 2016

People get confused sometimes what the CPF is supposed to do. We should be clear what each tool in personal finance is supposed to do for us. Don't be confused.


C

... May I know how much should I top up my SA cpf by cash if I want to avoid paying tax?


Assi AK
Assi AK

You could do MS Top Up to your SA. Tax relief will be given for the first $7K of top up per year.

C

Thanks. Tax relief meaning the entire tax payment is waived or only partially waived?


Assi AK
Assi AK

Well, if you taxable income is $20K and you do MS Top Up of $7K, your taxable income becomes $13K.


C

Alright thanks. Most ordinary folks will not be taxed so much so I think there is no point in topping up. I would also like to learn investment. Where can I start? I am risk averse though.


Assi AK
Assi AK

Risk free? CPF.

Tax savings from CPF MS Top Up is just a sweetener. It should not be the primary motivation.

Learn how to invest? You can start by reading some books. Go to my blog's right side bar and look for the box with the heading "Food for thought".


C

Thanks AK. Am I right to say that if if I hold the stocks long term e,g. More than 10 years, I will not be making losses?

Assi AK
Assi AK

I don't think anyone can guarantee that...



Related post:
Build a cornerstone in retirement funding.

A couple of blog posts on selling winning investments.

Friday, July 29, 2016

Reader:
"Hi AK,
just curious about your strategy on handling rises in a share price. E.g if you had bought StarHub/ sph/ accordia etc for income, at what level would you consider it worthwhile to sell? Thanks!"








"If we are investing for income, if the investment is still doing the job we expect it to do, generating attractive income for us, then, there is really no reason to sell unless we feel that there is another investment out there that can do a better job." - AK

Cutting or holding Marco Polo Marine?

Dear AK

Good day to you!

MPM has been on serious "diarrhoea" mode for a long time.  Friends have advised that I should cut-loss and forget about this counter.

I would appreciate it if you could talk to yourself on MPM.

Thank you.

Regards



AK says:
"MPM has survived previous down cycles before. I am hopeful that they will survive this time too.

"The elder Lee now holds 62% of MPM's stocks. He wouldn't want MPM to go under.

"I am holding on to my investment, understanding that, for a while now and for a while more, this position is rather speculative."

Related post:
Marco Polo Marine: Termination of rig contract.



Which types of stocks and REITs to invest in?

Good morning AK,

How are you today?  Hope you are doing well =)

Firstly- THANK YOU for sharing the post on CPF interest accrual on funds used for housing! I was wondering why my accrued interest portion kept growing- almost S$6K per year! I am considering some voluntary refund on principal amount to reduce the funds owing to CPF.

I have a new query to get your views- do you plan specifically which categories of stocks and reits to invest in?

As you may recall- I am trying to re-balance my portfolio to release some stocks at the right time and buy some new ones- aim is to increase my income yield from 4% to slightly higher. Look forward to any thoughts that you have...
L


Hi L,
Glad to know you found the blog post useful. Yup. People are usually very surprised when they find out how much they are losing by using their CPF money to fund the purchase of their homes.

Doing voluntary refund since you can afford to will help you to build wealth in a meaningful and risk free manner.

I do not tell myself I must have so many % in stocks and so many % in REITs although I have been trying to build up my non-REIT portfolio due to future interest rates risk.


I invest when offers make sense to me.

When it comes to investing for income, in today's environment, if I can get 8% or higher from well run REITs and business trusts, that's not bad.


For stocks, if it is cash rich, a 3% yield based on a 50% payout or less is not bad but I would prefer 4% or higher.

Each of us will have to find out what is acceptable for us. :)

Best wishes,
AK

 
Related posts:

Matthew Seah answers questions on SPDR STI ETF.

Thursday, July 28, 2016

Dear AK,

I am SH, one of your many blog readers. I am currently 21 years old and i am planning to make my first investment through a STI ETF. (Still deciding between spdr and nikko). However i have quite a number of questions regarding SPDR STI ETF; especially after reading its annual report, which i hope you can help to clarify.

These are the questions:

Unitholders’ contributions/(withdrawals)

Creation of units:
2015: 31,366,855
2014: 59,145,817

Cancellation of units:
2015: (149,927,298)
2014: (6,664,213)

Change in net assets attributable to unitholders resulting from net creation and cancellation of units:
2015: (118,560,443)
2014: 52,481,604

Distributions NOTE4
2015: (12,106,500)
2014: (10,726,000)

Total (decrease)/increase in net assets attributable to unitholders:
2015: (109,105,696)
2014: 69,068,372




QN: I found the above information in the annual report but I couldn’t understand what it means. Can you explain?

Matthew Seah: "Each unit of STI ETF is a share of STI ETF. Units are created or cancelled due to the injection of fresh funds or the withdrawal of money from the fund respectively."


Qn: 1 What is net asset attributable to unit holder? Does it just mean net asset value?

Matthew Seah: "Net asset attributable to unit holder is the net asset value, after fees are deducted for selling all the stocks and derivatives (if any) that the fund owns to convert everything into cash."



2 What is collective investment scheme?
Matthew Seah: "A collective investment scheme is a scheme which pools moneys from many people for the sole purpose of investing the pooled funds.
"Mutual funds, unit trusts, endowments and ETFs are examples of collective investment scheme."

3 Quoted derivatives in the form of nil paid rights from Jardine C&C on 15/07/15. What does this mean? I heard that spdr etf uses derivatives to try and minimise tracking error. Is this a significant proportion? What are the risk of it?
Matthew Seah: "Jardine C&C has made a rights offer of 1 for 9 shares.
Click to enlarge.

"STI ETF owns 112,541 shares of Jardine C&C.
"That equates to 12,504 rights that you see on the annual report."


4 If they pay dividends from cash, it seems that they are paying out more than what they have. They only have S$5M+ of cash but paid out 12M+ for 2015?!
Matthew Seah: "It is wrong to say that they paid $12M when they had $5M in cash. What you see as cash is only a snap shot “at 30 June 2015”. What has been paid out is cash they had previously from dividends collected over the six months prior, less management fees.

"Likewise, suppose your bank account has $5,000. It would be erroneous to say the $12,000 you have already spent is more than what you originally had, which was $17,000."

5 Does portfolio turnover ratio have different meaning if the calculation is based on purchases instead of sales? Is lower ratio better?
Matthew Seah: "For a turnover to happen, $1 in stock A have to be sold to purchase $1 in stock B. The portfolio turnover ratio will be the same regardless of purchase or sales.

"A higher purchase happens when there is a net investment inflow, i.e. more investors buying STI ETF units. Alternatively, a higher sales happens when there is a net investment outflow when investors liquidate their holdings. However, these higher purchases/sales numbers are not turnover as no portfolio rebalancing occurs.

"A lower ratio is better."

6 There is a significant increase in portfolio turnover ratio from 31Dec 2014-2015. It jumped from 0.94% to 9.77%! Do you have any idea why it is so? Is it due to the replacement of 3 of sti constituents in 2015? It is considered a one-off kind of thing right?
Matthew Seah: "It is indeed caused primarily by the replacements of STI constituents. It would be one-off when FTSE does not change the constituents on a regular basis. Generally, investors would consider such rebalancing to be one-off."

7 There is a significant increase in payables in 31 DEC 2015 compared to 30 JUN 2015. Is it due to the losses incurred due to the changing of constituents in STI?

Matthew Seah: "Payables in the ETF comes in 2 forms:

"‘Accruals for expenses’ and ‘Amount due to the Manager’. It just meant the fund owes money to to the Manager and third parties. These have nothing to do with losses incurred."

8 Is there a chance/under what circumstances the sti etf will close down?
Matthew Seah: "STI ETF is unlikely to close down."

9. If you are the one considering to buy the sti etf, other than the tracking error, expense ratio, portfolio turnover ratio, p/e, what else would you look at when analysing this etf? Would you read into the past years’ annual report?
Matthew Seah: "Nothing else, really. You should read past annual reports to compare all the parameters you have mentioned to ensure that the Manager has kept tracking error, expense ratio and turnover ratios low, or lower (better) over the years."

10. Where can I get past few years of annual report? I can only find annual report for 2015 and the semi-annual report for 31DEC 2015 on the official website
Matthew Seah:"You can contact them at http://www.spdrs.com.sg/contact/index.html"
Read another blog post on ETFs by Matthew Seah: HERE.

He did CPF top ups but is denied lump sum payment.

Wednesday, July 27, 2016

Reader:

Hi AK, I'm one of your readers.

With respect to the Retirement Sum Top Up Scheme, I checked with CPF and they mentioned that all funds made under this scheme cannot be withdrawn in lump sum. That is to say that all funds under this scheme and the associated interest earned will be ring-fenced into the RA upon reaching 55.

Neither can such funds be used to meet the FRS /BRS requirement.

If a person wants to withdraw lump sum upon reaching 55, he would need to have at least the BRS sum solely from his Mandatory contributions, then the amount over this sum can be considered for withdrawal as lump sum. (Assuming property pledge)


AK:

That is not what I understand.

When we discussed this with Christopher Tan from Providend who is on the CPF Advisory Committee, we were told that any amount above the FRS is available for withdrawal (except for money from MS Top Ups and the interest earned).


Reader:

Right, so the point here is that the funds from the MS TopUps are not allowed to be considered as part of the BRS or FRS.

My dad wanted to do a withdrawal but they told him that he needed to clear the BRS threshold and funds under the MS top ups are not considered in this regard.


AK:

It doesn't make sense because we are not allowed to have more than the ERS in our CPF-RA. If the MS Top Ups to SA is ring fenced for the CPF-RA, we could end up having much more in our CPF-RA.

This is especially if the person does this regularly and hits the FRS early on in life and continues to contribute to his CPF whether mandatory or voluntary.

If a person does MS Top Up to the max of $161K by 30 years old, for example, he would have $440K by 55 years old (at 4% p.a.) without any further mandatory or voluntary contribution.

If he must set aside a FRS from mandatory contributions alone by age 55, plus this $440K, it would be far higher than the prevailing ERS allowed at that time, I am willing to bet.

They allow MS Top Up to the prevailing MS (FRS) and nothing more. This stays in the CPF-RA. This makes sense.

But in addition to this, FRS must be from mandatory contributions only? That does not make sense.


Reader:

Thanks. But based on the letter which I received from CPF, it seems that they don't allow such withdrawals. My dad made significant topups under MS topup scheme but because his mandatory contributions are not much, they do not allow him any withdrawals, on the basis that the BRS needs to be from mandatory contributions.

He has more than $175k in his RA now but most of it is from MS Topups Do u think it makes a difference if the person is above 55 when they started doing their MS topups ?


AK:

When did he start doing the MS Top Ups?


Reader:

He started topups after age 55.


AK:

Mystery solved :)

The $40+K would have gone into his CPF-RA when he turned 55.

Then, his MS Top Ups after age 55 would go into the CPF-RA too.

It is all locked up for CPF Life.

If he had $175K when he turned 55, then, he would have been eligible for a lump sum withdrawal and the MS goes into his CPF-RA.


Reader:

Ok. Then that probably explains it.
In any case, I'll write in to CPF to confirm this point.



Source: CPF Allocation Rates

What I did to monetise my free time and why?

Reader says...

I have been an avid reader of your blog and have also been to your meetup session last week.

Thank you for what you have doing and helping people in providing financial literacy.


I read that you used to work 3 jobs when you were starting out, for 7 days a week.

May i know what jobs were you doing at that time?


I have been working in a mid sized firm for a few years but my income is still not where i would like it to be and would like to take more jobs to supplement my income.

Spending wise i am disciplined but there's only so much i can save with a small income base.
Thank you.
Cheers,






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


AK says...

Welcome to my blog. :)

I had a full time job but my evenings and weekends were free.

So, I found jobs that occupied me on some evenings and on weekends.

I was teaching students taking enrichment classes at night and I was also a private tutor on weekends.

These paid more on a per hour basis than my full time job. ;)






If we have free time, we can either think of monetising it or using it for enjoyment.

When we choose to monetise it, not only do we make more money but we also have less time to spend money.

It brings making money and saving money to another level. ;p


Gambatte! :)






----------------------
When we monetise our free time, to be quite pragmatic, it should be doing something that pays more on a per hour basis. 

Of course, this is not a hard and fast rule.

For some, they might do something they enjoy and yet be paid to do it in their free time even if it doesn't pay well. 






Being paid to do something we enjoy doing doesn't sound like a bad thing, does it?

Want to achieve financial freedom sooner than later? 


Monetising our free time will definitely help.

Then, what is the next step?






That is another topic and here is a hint as to why it is important:


The best insurance in life.












Related posts:
1. A young father of two says money not enough.
2. How my student went from zero to hero?
3. Is it wrong to be idealistic and live the good life?

An exchange of emails with AK on REITs.

Tuesday, July 26, 2016

Hi Ak,

I've been a religious reader of your blog since 2015 and after doing some reading up to get myself more knowledge of investing for income, I'm ready to put some money to work.

As this is my first time, I'm limiting my self to $10,000 and split 50/50 between 2 REITs (AA REIT and MCT) for dividend income, and as I learn more I can invest more. I would welcome your thoughts on this. Appreciate it.


Regards,
E




Hi E,

I am not sure what to say but splitting your funds between 2 REITs avoids putting all your eggs in one basket. Seems like a prudent move. :)

Best wishes,
AK







Hi AK,

Thanks for taking time to reply. I'm sure you get a lot of emails like this.

One time I'm unclear is that how do you account for the increase/decrease in stock pricing over time to calculate your yield on your investment? Currently all yields are based on current market price.


Regards,
E





Hi E,

It depends on what we are trying to do.

If we are looking at REITs as fixed income, then, yield based on cost (i.e. like a FD) is OK.

If we look at REITs like real estate investments, then, we want to look at yield based on market prices. Then, we know when we might want to sell some.

Best wishes,
AK






Hi AK,

So deciding when to enter the market will determine your costs. I've read on the subject of on buying and sell ex-dividend dates. So correct me if I'm wrong, if you trust in the business, the best time to enter would be right after ex-dividend date as normally stock price will drop by the same amount as the dividend?

Thank you for your insight.

Regards,
E





Hi E,

I don't do that.
If an investment is a good long term income generator and if I am holding for the long term for income, as long as I pay what I feel is a fair price or better than fair price, it is good enough for me.

Best wishes,
AK



Related post:
A chit chat session with AK on REITs.


Monthly Popular Blog Posts

All time ASSI most popular!

 
 
Bloggy Award