Wednesday, August 15, 2018

The Regrets Of Saving Money For FI vs Spending To Get Happiness

Have you ever struggled with the thought of saving more money for financial independence vs spending to get happiness now? For people like me who are on the journey to financial independence, we often think that if we don't spend more on some items we wanted to, then we can achieve financial independence earlier. Its always a trade off for saving money vs spending to get happiness.

In recent weeks, the conflict of saving money vs spending to get happiness right now is constantly on my mind. It went on into a state of confusion and anxiety as well. I have been a saver all my life and spending more money on something which I don't think is valuable affects me a lot. The numbers run through my head and my mind keeps thinking what if I didn't spend this amount? Will this affect my plan of financial independence?

The Regrets Of Saving Money vs Spending To Get Happiness

I chanced upon a podcast which was a conversation between 2 people who had achieved financial independence early in life. They both had enough passive income to live their life in their late 20s and early 30s but it was through extreme saving and investing. In the podcast, they were talking about the regrets they had because they turned down friends gatherings and forego trips just to save more. After they achieved financial independence, they looked back in their life and felt lots of regrets for sacrificing so much early in life.

Another thing which caught my attention is that they also mentioned the motivation for achieving financial independence early is because of anxiety. This is the anxiety that money is not enough and they wanted more to feel secure. To think of it, actually my motivation for achieving financial freedom is also because of anxiety. This made it very difficult for me to spend money unnecessary without comparing prices to get the best deal. Even when I tried to live away from a budget, mentally in my mind, the numbers are always there and when I spend a little more, my mind would give out an alert.

I have also lived with the notion that money does not buy happiness and spending unnecessary on material goods does not give lasting happiness. However, in actual fact, money does buy happiness especially when we spend on experiences with people. It also builds relationships and create memories of a lifetime.

Spending a little more doesn't hurt?

If money does buy happiness and can create memories, so spending a little more doesn't hurt right? I am still trying to learn this part where I just spend money without thinking about the trade off for financial independence. In fact, spending a little more doesn't really deviate myself from the financial plan. Instead of focusing on how much more I can save, I should focus on what I can spend more meaningfully on. This doesn't apply to everyone. If you're already spending close to 100% of your salary, then you should be focusing on saving more. For those of us who are already saving perhaps more than 50% of our income, then it may be good to review our expenditure to spend a little more on meaningful things.

Meaningful things which we can spend on includes:
  • Gathering with friends
  • Overseas trips with family or friends
  • A nice meal treat for your loved ones
  • Participating in events to create memories
  • Buying gifts for people

What about financial independence if I spend more?

Now, spending a little more doesn't hurt but does it affect our goal to reach financial independence? Or maybe I should put it in another way, if we can't reach financial independence earlier, then does it matter if we reach it later? 

Many financial bloggers have wrote about how they saved more than 100K in their 20s. More often than not, this is done through lots of sacrifices unless we have a high income which is not the case for most people in their 20s. I used to save even on drinks and food just to save that extra few dollars. Looking back, maybe if I didn't do that, it wouldn't hurt much also. I would think there are some regrets which I had, living a life of fearing to spend money. 

As my income grows, spending money is not as painful but there are still conflicts in my mind on this when it comes to certain spending. In the podcast which I was listening to, it was also mentioned that one of them couldn't bear to spend $13 on breakfast when on the same morning she got a $6000 cheque for a side hustle. Its really not about how much money we have or earn but the mindset that we have. 

Never in my life would I have thought that the ability to spend more could be as bad a problem as the ability to save more. We have often heard of people who can't control their spending but not much have been said of people who do not spend a lot. For our own life, I always believe there should be a balance. Life is short so spending some money on people we love is really a privilege. We may not have a chance in the future when they are gone. There will be lots of regrets by then. 

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Thursday, August 2, 2018

INVEST Fair 2018 - Coming Soon In August 2018

This article is written in collaboration with ShareInvestor. All views expressed in this article are the independent opinion of SG Young Investment

INVEST fair has been a yearly affair ever since I started investing 8 years ago. I attended my first ever INVEST fair at Suntec City many years back and it really opened me up to the world of investments as there are many free talks and also booths around for me to ask any questions which I might have on finance and investment.

This year, INVEST fair is back again at Suntec City which will be held from 25-26 August 2018. Admission is free and all seminars are free to attend too . INVEST Fair is ShareInvestor’s annual flagship event with the purpose to showcase products and services in the market, to act as a meeting point for investors and traders alike and to keep the attendees abreast with the latest market outlook. There will also be 3 x lucky draw chance for readers of SG Young Investment. Do read to the end of this post to find out how you can take part in the lucky draw.

I will briefly write about some of the interesting topics and also the speakers who will be delivering it so you can check it out later.

The fair this year features some interesting topics such as fintech, cryptocurrency & blockchain, crowdfunding and also the usual trading and investing. I've picked some interesting topics and speakers below which you may be interested in:

1. For investors:

The Impact of Interest Rate Rises on Singapore Listed REITs 

This topic is presented by Tam Ging Wien from ShareInvestor Academy. He has been an avid equities and real estate investor for over 10 years. In 2017 he published his first book entitled REITs to Riches: Everything You Need to Know About Investing Profitably in REITs.

I think this is really relevant for investors especially if you are investing in REITs. The rise in interest rates will affect REITs but do you know how much your investments will be affected? I'm a fan of macroeconomics and this topic will certainly be of interest to me.

The Market Talk with The Motley Fool

Most of us would have heard of The Motley Fool. They will be holding a 30 mins Q&A session at INVEST fair where you can ask their team any questions related to investing. The panel includes some of their top analysts so just shoot any questions which you might have and I believe you will learn some good stuff from them.

2. For traders or aspiring traders:

Acquiring a Systematic Professional Trader Process  

The next topic which caught my attention is on trading. I started off as a trader and tried to learn everything from reading charts, to psychology to candlestick patterns and all the Fibonacci techniques etc. However, I grew to learn that trading is not really for me but it can be suitable for some people. I've personally seen certain people around me who can trade rather well because it suits them very well.

If you're thinking of trading for a living but do not know if its just a dream, then this may be the topic for you. The speaker is Anton Kreil, one of the keynote speakers for this year's INVEST fair. He was a former professional trader at Goldman Sachs, Lehman Brothers and JP Morgan on Wall Street and the City of London and retired from the Investment Banking Industry in 2007 at the age of twenty-seven just before the Global Financial Crisis. Anton is now the Managing Partner of the Institute of Trading & Portfolio Management, a global school and community of smart Retail Traders. He is well known for his direct approach to teaching which he has cultivated over the last eight years in order to optimise Retail Trader performance

3. For cryptocurrency and blockchain technology explorers:

Blockchain & Cryptocurrencies - More than Money

For those who want to know more about blockchain and cryptocurrency, this should be the topic for you to explore on. To be honest, I do not have much knowledge on blockchain or how I can invest into this new space. Its not easy to learn online so probably if we can listen in person, it would be much better.

This topic will be presented by Darren Koh, who's a strategist from Tokenize Xchange. Darren has been an enthusiast of the space since 2016. At Tokenize, he is the man behind strategies and is passionate about what the blockchain has to offer. A purveyor of blockchain technology, Darren is always educating others on what this new trustless data structure can accomplish and is also building the Tokenize blockchain.

Digital Assets & Blockchain - The New Tokenized Economy for the Future

There is another similar topic on the new tokenized economy for the future which will be presented by Davy Goh from Bcoin Exchange. As the founder of BCoin and an outspoken blockchain and cryptocurrency evangelist, Davy is responsible for its overall success. A motivated leader and serial entrepreneur, Davy has a proven management track record and brings a wealth of knowledge and expertise in corporate financial strategies and management.

This will be a good topic to hear on how blockchain will be used for the future.

4. For crowdfunding investors:

Compound your Returns by Auto-Investing in a Portfolio of SME Loans

Crowdfunding may be still new to many investors out there but it is actually a viable alternative way to grow our money with higher returns. Of course, with higher returns, most of the time it comes with higher risk as well.

This topic will focus on SME loans which I have invested in several times through the Moolahsense platform. I've invested in 4 different loans and so far all has been successful with returns of 13.50% to 18%. Because of the higher risk nature, I evaluate the investment choices really carefully and make sure I manage my risk well. I only invest a small portion of my investment capital in SME loans for now.

Lawrence Yong, CEO and Co-Founder of Moolahsense will talk about compound your returns by auto-investing in a portfolio of SME loans. Before founding MoolahSense, Lawrence was a Vice President at Macquarie Capital where he was closely involved in developing its sales and structuring business at the Fixed Income division.

Many other free seminars and panel discussions

Apart from the topics I listed above, there are many others which you may be interested in for the INVEST fair which will be held over 2 days on a weekend. Here are the details of the event:

INVEST Fair 2018

Date: 25-26 August 2018

Time: 10am to 7pm
Location: Suntec Singapore Hall 405 & 406

You can refer to more information on their website here. Do check out the exact date and time for the different seminars available under Agenda -> Seminar Schedule on the website.

*Additionally, ShareInvestor has kindly given SG Young Investment's readers 3 x lucky draw chance when you enter the promo code - SGYOUNGINVESTMENT when you register. Remember to enter the promo code when you register for FREE for this event. Click here to register.

Saturday, July 28, 2018

The Nail Of Life - How I Got Out Of Painful Situations in Life

I've not been writing much about my life lately as many things happened and I wanted to at least wait for things to settle down before I pen my thoughts down. This will probably be a short post to summarise my life in general.

Life is full of ups and downs as always. Readers would know I had a bad year end in 2017 where I saw how fragile life was. It was a struggle for me to understand and digest and accept what happened. You can read about what happened last year here. The start of the year was extremely painful for me too as I had to handle the emotions of not just myself but of my loved ones as well. I struggled to stay happy even though I know happiness is a choice.

I used to write about life lessons on my blog but realised I haven't been doing that for a long time. Oh well, when I cannot handle myself what right do I have to tell people about happiness? This was what went through my mind which stopped me from writing more. I had thoughts to just get out of Singapore and travel alone so that I can escape from the world but didn't do that in the end.

Work didn't come easy either. My department was restructured and the manpower was cut into half. Half of us were transferred to another department. I was one of those being transferred. I thought I could learn more by doing new things but the department was fire fighting all day long with back to back meetings for the past 2 months. I've had maybe 20 meetings in the past 2 months and some lasted as long as 12 hours. It was extremely difficult to absorb and learn the information myself while I struggled to understand what is going on in the meetings. It didn't helped when the management didn't gave clear direction of what they wanted to do either.

For investments, the market had a significant sell down a few weeks back and my portfolio went down by the thousands. Thankfully, the market went back up again and dividends were paid recently too. The worst investment this year which I made had to be in Hyflux where I invested in its preference share. I went to the town hall session just last week and it is still unknown whether they will pay back the money. It was a really bad town hall with the place very hot and stuffy and the management didn't really gave clear directions on what would happen. It seems like they were as lost as us even though they had the best legal, accounting and C-Suite level professionals in the town hall session. I hope the CEO will keep to her word where she said she will want to take care of the minority stakeholders interest as much as possible.

Then, things started to turn around. Some good news happened just this week. I was so sick and tired of everything that I told myself enough is enough. I am going to get out of my situation and move forward. Just 2 weeks back, 2 recruiters called me and proposed jobs which I may be interested in. I went for one of it and may get a job offer soon. I am really contemplating to leave and will think about it and see how it goes when they call back next week. Its a meaningful job where I get to make impact in the lives of others.

I saw a video on Facebook which talked about "How to Un-Stub Your Toe on the Nail of Life". Are you in situations where you feel pain but you still stay on the pain and unable to get out of it? Watch this short 3 mins video and hope it motivates you in your life:

If you've been in pain for the longest time in your life, now is the time to say enough is enough, I am getting out and moving forward in life again. Turn your failures in success today!

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Wednesday, July 11, 2018

Looking More Closely At Singtel - Is Singtel A Good Investment?

Singtel is really a big company. Its market cap is worth $50 Billion with over 650 Million mobile customers in 21 countries. Singtel was the first stock which I purchased when I started investing. That was probably 8 years ago now. The telecommunication industry is facing some headwinds and all 3 listed telcos share prices have fallen significantly. Singtel took the hit too and many investors added to their position hoping to get good value investing in a stable blue chip company with more than 5% dividend yield.

In this article, I will dissect Singtel's businesses so that we can understand it more on what is happening and what may happen in the future. Let's start off with its share price. Share price of Singtel has mostly traded in side ways until recently in early 2018 where it plunged to new low. It hit $3 before coming back up to above $3.20. Currently, share price of Singtel is at a 5 year low with dividend yield of more than 5%.

Financial Highlights FY2018

For FY2018, Singtel achieved an operating revenue of $17 Billion, which is a 4.9% increase from previous year. EBITDA came in at $5 Billion which is 1.8% higher than previous year. However, underlying net profit declined -8.4% from previous year due to lesser share of associates profit.

Share of associates pre-tax profit declined from $2.88 Billion to $2.46 Billion. This is a 14.6% decline which is quite significant. Earnings from Airtel India and Telkomsel were impacted by intense competition and mandated reduction in mobile termination charges in India, as well as lower contribution from NetLink NBN Trust following the reduction in economic interest of 75.2% in July 2017. The decline was partly mitigated by higher contribution from Intouch (acquired in November 2016).

For Singapore, Singtel achieved lower EBITDA of $2.18 Billion from $2.21 Billion in the previous year. This is a slight decline showing the resilience of its Singapore's business despite the tough competition. Optus, a wholly owned subsidiary in Australia achieved higher EBITDA of $2.90 Billion as compared to $2.78 Billion in the previous year. This is quite good performance at the Australia side.

In terms of revenue contribution, Singapore only makes up 29% of its underlying profit with 47% coming from regional associates and 24% coming from Australia.
Singtel is quite a well diversified business and as we can see from the breakdown below, they are not just a mobile communications company anymore. Only 34% of its operating revenue comes from mobile communications and 20% comes from data and internet. They also have ICT and digital business which contributes about 23% in total to its operating revenue.

Dividend has been stable for the past 4 years at 17.5 cents. Singtel also made a commitment to continue giving 17.5 cents of dividend at least for the next 2 years. Looking at its group free cash flow (FCF) of $3.6 Billion which has increased from $3 Billion, I have no doubt Singtel can continue to give dividends in the future. Dividends paid to shareholders was about $2.8 Billion which is lower than its free cash flow. The free cash flow is the cash generated from operating activities minus the CAPEX. It is important to look at FCF to know the actual cash which the company has at the end of the day.

Singtel's Business Segments

Let me briefly go into Singtel's business segment to have an appreciation of the type of company it is becoming today. In fact, in its 2018 annual report, its theme was "ready, set digital". This shows the resolve it has to transform its business from a traditional telco company into a digital company. I believe this is the right was to go as areas such as cyber security, ICT, digital marketing and data analytics will be a huge market in the future.

Singtel has mainly 3 business segments for its business. They are group consumer, group enterprise and group digital life. Group enterprise consist of its ICT, cyber security, cloud and smart technologies business segments. Lastly, for group digital life, this consist of digital marketing (Amobee), regional premium OTT video (HOOQ) and advanced data analytics and intelligence (DataSpark).

Group Consumer

Group consumer is its business on mobile communication and all the telecommunication things which it has been doing all along. Operating revenue and EBITDA grew 2.7% and 2.3% respectively with growth in Australia partly offset by decline in Singapore.

In Singapore, operating revenue fell 2.7% impacted by fierce competition in mobile services and continued decline in voice services due to data substitution. Australia on the other hand did well where the increase in operating revenue was driven by strong customer additions in mobile and fixed broadband, increased Equipment sales and higher National Broadband Network (NBN) migration revenues despite the temporary suspension in connecting and migrating customers to NBN’s HFC network. Optus also gained 384,000 customers in FY2018.

Group Enterprise

Group enterprise achieved stable operating revenue with growth in ICT and and equipment sales offsetting decline in traditional carriage services. ICT services had good contributions from cyber security, cloud and smart cities business.

Group Digital Life

For group digital life, this is still a growing business with strong operating revenue growth. This is a segment to take note of as its operating revenue doubled to $1.08 Billion driven by first time contribution from Turn (acquired in April 2017) and strong performance from Amobee’s media and social businesses. While operating revenue is strong, EBITDA and EBIT still declined but at a lower amount.  Amobee achieved positive EBITDA for the year while HOOQ’s losses narrowed on higher operating revenue.

I believe group digital life will see a positive EBIT soon if revenue continues to have strong growth. Losses has narrowed from $190 Million to $120 Million.

Breakdown and analysis of Associates profits

The decline of associates profit of 14.6% is a concern and this, I believe is what is sending the share price down. The associates are in various countries as below:
  • Telkomsel (Indonesia)
  • AIS (Thailand)
  • Globe (Philippine)
  • Intouch (Thailand)
  • Airtel (India & Africa)
Of all the associates, most are stable and growing except for Airtel's India business. There was intense competition and aggressive pricing by a new player which caused Airtel's revenue in India to drop 13%. In Africa, operating revenue is stable. 

For other associates, Telkomsel had 5% revenue growth and 2% EBITDA growth. AIS had 5% revenue growth and 11% EBITDA growth. Globe had 7% revenue growth and 11% EBITDA growth. Intouch was newly acquired in November 2016. Intouch’s post-tax contribution was S$86 million.

Is Singtel A Good Investment?

Singtel is weathering the change in the telecommunication industry. As we can see, apart from the competition in Singapore, else where around the world, India also has intense competition which affected its associates revenue. Singtel is rapidly expanding into other areas of business especially in the areas of cyber security and digital business. The future world will be really focused on smart nations where capabilities such as cyber security and data analytics will be in demand. I believe Singtel will see tremendous growth in these areas of business not just in Singapore but other parts of the world too. 

At current dividend yield of more than 5%, this represents a good opportunity to invest in a blue chip company with strong free cash flow. Furthermore, the management has made a commitment to pay 17.5 cents of dividends for the next 2 years. I have added to my investment in Singtel on various occasions. This investment makes up the base of my portfolio now where I can look forward to stable dividends. I will be looking closely at the associates profit (mainly Airtel's India business) and the impact from the entry of the 4th telco in Singapore. 

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Thursday, July 5, 2018

Ascendas Hospitality Trust - An Opportunity To Invest Again

Share prices of various stocks have come down significantly in the past few weeks and this include Ascendas Hospitality Trust (AHT). This has been one of my favourite hospitality trust investment which I bought back in 2014. It has been a 4 years investment now. AHT made some significant developments in the past 1 year which they have summarised in their recent AGM last friday. I wanted to make a trip down but was too busy at work so I couldn't take time off for this AGM. Nevertheless, I managed to get the slides presented during the AGM which gives quite good information on the developments over the past 1 year.

I believe AHT share price of below $0.80 presents a good opportunity to invest in a hospitality trust with stable dividend yield of more than 7%. Let's discuss in detail on why is this so.

Park Hotel Clarke Quay in Singapore owned by AHT

Brief introduction to AHT

AHT has 10 hotels located in Australia, Japan, Korea and Singapore. In terms of portfolio valuation, Australia makes up 38.7%, Japan at 38%, Singapore at 18.1% and South Korea at 5.3%. In its opening address during the AGM, they mention specifically 3 highlights:
  1. Divested Beijing Hotels for 2.0x valuation
  2. Effective interest rate significantly lower at 2.7%
  3. 3.2% DPS y-0-y improvement
Earlier this year, AHT did divest away their 2 Beijing hotels at much higher valuation. It was the talk of the town as its share price shot up because investors believed that its Net Asset Value is much higher than what they have put in their balance sheet. However, this was short lived when its Australia properties did not do as well and what made it worse was Australia hotels collectively made up the largest contribution to its DPU. Its Australia net property income declined -6.4% in FY2017/18 as compared to FY2016/17.

Its other hotels in Singapore and China did relatively well and Japan 's hotel was unchanged with a slight decrease. Overall, DPU increased 3.2% mainly due to savings in finance cost  and look fee received in connection to the divestment of Beijing hotels.  

One thing to note is that I can see REVPAR is increasing for all its hotels in all countries including Australia. This is an encouraging sign. Its Australia's hotel in Sydney still performed well. One of its Sydney's hotel was also undergoing renovation so this affected DPU in the past 1 year. Moving forward, DPU should continue to be good as the renovation is already done. 

*To understand why REVPAR is important, you can read this article here

Healthy Balance Sheet 

AHT's gearing is at 30.8% which is a decrease from the previous 32.2% after it divested its Beijing hotels. One significant thing to note is that its effective interest rate came down to 2.7% from the previous 3.1%. This is an important factor in this rising interest rate environment which I wrote in another article here

Net Asset Value remains stable at $0.92. This means that the current price of AHT at $0.79 is trading at a discount. For its debt profile, 77.2% is on fixed rate while 22.8% is on floating rate. Most of its debt are in AUD and JPY which is not that affected by interest rate movement so far. Japan still has one of the lowest interest rates in the world currently. It might be interesting to note that Japan's key short term interest rate is actually at -0.1% as at June 2018. 

Hotel Acquisition for Growth

After its divestment of its Beijing hotels, AHT continues to pursue growth opportunities by acquiring DPU accretive hotels. It made its maiden entry into Seoul, South Korea by acquiring a hotel that is strategically located in the prominent Dongdaemun area. The acquisition is DPS accretive by 1.7% on pro forma FY2017/18 basis. This is a midscale hotel which was completed in 2015 and it is freehold. 

Separately, it also purchased 3 other hotels in Osaka which is DPS accretive by 4.3% on pro forma FY2017/18 basis. Osaka is a key financial centre both in Japan and globally and also a popular leisure destination. International visitors arrivals in Osaka reached 11.1 million in 2017 and has a CAGR of 43% over the past 5 years. Overnight stays in Osaka also grew by 8% on average, every year for the past 5 years. 

I believe Ascendas Hospitality Trust will continue to grow both in terms of portfolio valuation and also in terms of DPU. A stock price of below $0.80 represents a good 7%+ yield as well as trading below its book value. I will be looking to add more to this investment if it comes down to below $0.75. My last purchase price was at $0.72 and this represents a 8.1% yield which I have been getting for the past 4 years.

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Tuesday, July 3, 2018

More Financial Assistence For Those Severely Disabled And Additional Information on Careshield Life

Eldershield has been renamed Careshield life with additional enhancements to provide for better long term care financing in the event of disability. I have got some additional information from MOH which I will share in this article.

To read up more on the basic of what Careshield Life is about, you can refer to a previous article I wrote here

This article will focus on:
  1.  The premium structure for those who are already on Eldershield and; 
  2.  Financial assistence for those who are currently disabled and do not have any Eldershield at all. 
Why the need for the disability income?

Careshield life to me is a form of disability income. For those who have disabled family members at home, you'll probably understand the advantages of having this as all the different cost that adds up can be quite significant in the long run. For those of us who do not have disabled family members at home, we should prepare in advance just in case something happens. This is the purpose of insurance in itself. 

Singapore is facing an ageing population issue. To make premiums affordable and still provide some sort of safety net, Careshield life was introduced. This is like the enhanced Medishield life which was introduced and became compulsory for everyone to be insured for hospitalisation insurance. By risk pooling, premiums could be made affordable. However, if you've read on the news, there has been several discussions on the premiums of hospitalisation insurance increasing in the future as those insurance companies suffered more losses for the second straight year. This is another issue altogether which I will not discuss in this article.

Premium structure for Existing Cohorts

Now back to Careshield life, more information has been released on the premium structure for existing cohorts. There are generally 3 groups of people n this existing cohort which is estimated to be around 2 Million Singaporeans. This group of people are those who are born in 1979 or earlier and do not have any existing disabilities. 

Let's go into detail on 3 different groups of people in this existing cohort.

Group 1: If you are on Eldershield 400

Those who are on Eldershield 400 and never opted out will pay only a base premium, which increases over time until age 67. 

Those who join at age 59 and above will have a 10 year premium payment term, so that annual premiums are more manageable.

Group 2 & 3: If you are on Eldershield 300 or not on Eldershield at all

For those on Eldershield 300 or not on Eldershield at all, besides paying a base premium as above, they will pay an additional Catch-Up Component, because they paid less premiums than those on ESH 400. Catch-Up Component is a fixed amount paid over 10 years. 

You can refer to the below illustration for a better understand of the premium structure for existing cohorts:

Participation Incentives For Existing Cohorts

For existing cohorts, it is not compulsory to join Careshield life. This group of people can continue being insured on their Eldershield or not be insured at all. Careshield life is only compulsory for those born on or after 1980. However, those who are on Eldershield 400 and aged 41 to 50 in 2020 and not severely disabled will be auto-enrolled in 2021. They can still opt out within 2 years of auto-enrolment and receive premium refund

It is important to note that most people who are on Eldershield 300 or 400 will only receive $300 or $400 per month for up to 6 years only. This coverage might not be enough for most people as disability is more often than not, a long term healthcare issue. To encourage this group of people to join Caresheild life, there will be a participation incentive of up to $2500 which can be used to offset the premium payable. This participation incentive will only be applicable if existing cohorts join within 2 years from 2021. 

Here are the various participation incentives payable:

How about those who are born in 1979 or earlier and are disabled and cannot join Careshield life?

For those born in 1979 or earlier and are disabled, they have no insurance protection at all and it can be financially straining for their family members to handle. Good news for this group of people is that there will be additional support for them. 

1. MediSave Cash Withdrawals for Long-term Care

Firstly, MOH will allow the withdrawals of cash from Medisave for long term care needs moving forward from 2020. They can withdraw up to $2400/year (or $200/month) as cash for each severely disabled individual. This can be from individual or spouse’s account. This is subjected to a minimum Medisave balance of $5000 which means for those who have $5000 or less in thier Medisave account, no amount can be withdrawn. 

The eligibility criteria will be: "unable to perform 3 or more ADLs, similar to CareShield Life"

You can refer to the below table on the monthly withdrawal quantum for various Medisave balances:

This Medisave withdrawal also applies to those who have Eldershield or join Careshield life later. 

2. Elderfund

MOH will also set up Elderfund for lower-income Singaporeans (aged 30 and above) who are severely disabled and need additional support for LTC costs, from 2020. They can get up to $250/month for life for as long as disability continues.  

This is targeted at those who are not able to join CareShield Life, or have low MediSave balances and insufficient savings for their LTC needs.  Singaporeans who are still unable to meet their LTC needs after these subsidies and assistance schemes can still tap on MediFund or ComCare. 

Looking Ahead

There are a few timeline which we will be looking at for this Careshield life. I belong to the compulsory group who are born on or after 1980. 


  • Singaporeans born between 1980 and 1990 will be enrolled in CareShield Life, with younger cohorts enrolled when they turn 30
  • MediSave Withdrawals for Long-term Care and ElderFund will also be implemented

  • Singaporeans born 1979 or earlier can join CareShield Life

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Wednesday, June 27, 2018

Relieve Your Financial Burden With This Strategy

Financial planning is always advocated but little has been said about how to really relieve financial burdens in life. What we are mostly taught is to go to school, get a good job, save money and then plan for retirement. This is not wrong and in fact it is a very important first step in financial planning but what's next?

Today, I will attempt to discover a new way of financial planning which will definitely relieve your financial burdens in life. In fact, you'll realise that this is the way which the government in Singapore has been managing its finances to create a financially sustainable Eco system as Singapore has little to no natural resources to begin with. If we can imitate this and manage our personal or family finances in the same way, the money we have can perhaps last many generations to come.

Discovering how the Singapore Government manages its finances

There is a lot of wisdom to how the Singapore government manages it finances. They do not just create income and then spend it. This is definitely not a financially sustainable way to manage money. How they manage money is to create funds and use the interest generated from the funds to cover some of the expenses which are needed. This can range from social assistance to healthcare and also the net investment return contribution (NIRC) which was talked and discussed quite substantially during the budget earlier this year. There is a lot we can learn from this method which I will elaborate later. Let's dive deeper into the government's way of managing money so we can learn from it.

The following is a paragraph from the Ministry's of Finance website which gives a good overview of how the government creates a sustainable budget from its reserves. I quote it as follows:
How do Singaporeans benefit from the investment returns from our reserves? 
The investment returns from our reserves provide additional resources for Government spending to benefit Singaporeans. This includes Government investments in education, healthcare, transport infrastructure, R&D and other areas to improve our living environment and to grow our economy. 
The ability to tap our reserves in a sustainable manner is a significant financial advantage for Singapore. Our situation is quite unlike that in many countries that have to service their debts and other liabilities from their budgets on an annual basis, and hence either raise taxes for the purpose or engage in further borrowings so as to service current borrowings. 
In Singapore, the Government is instead able to take in money from the investment returns of our reserves to supplement our Budget on a sustained basis, in keeping with the provisions in the Constitution. The few other countries where Governments are able to derive net investment income for public spending are typically those with substantial reserves of natural resources such as oil. 
The investment returns of our reserves supplement the annual Budget through the Net Investment Returns Contribution (NIRC). The NIRC is estimated to be S$14.1 billion in Financial Year (FY) 2017, or 17% of our budget.
There are a lot of debates to the NIRC which I will not go into in this article. What we can see from how the money is managed is that the government has saved up quite substantially over the past few years and have quite a big reserve to invest and generate investment returns to pay for various expenses which we have. This is probably one of the reason why we still can have one of the lowest tax among major economies around the world.

An example on what investment returns are used to pay for is the social assistance schemes under the Ministry of Social and Family (MSF). To date, MSF has a community care endowment fund of $1.9 Billion and able to generate $57.5 Million in interest to pay for various community care programmes to help the low income and those who need it too.

Here is an excerpt from MSF's ComCare Annual Report FY2016:

As we can see, the interest income generated from the fund is used to fund the various social programmes to help the needy in Singapore.

How we can create a fund to relieve our financial burdens?

We can also definitely set aside a fund and generate interest income to pay for some of the expenses in our life. Currently, what is being advocated in the financial planning world is just to put aside your money to invest for retirement. Most of the products out there only just lock up our money for many many years before we can use it for retirement. Some people end up surrendering their policies early because they could not pay the premiums anymore.

The creating your fund strategy is different. It allows us to have some relief of the financial burdens while still prepares us for retirement. In other words, it means we can enjoy now then later. Here are the funds we can set aside and an indication of how much interest we can get on a monthly basis to offset our expenses:

Fund AmountInterest %Monthly Interest Income generated
$200,000 6%$1,000
$300,000 6%$1,500
$400,000 6%$2,000
$500,000 6%$2,500
$600,000 6%$3,000
$700,000 6%$3,500
$800,000 6%$4,000
$900,000 6%$4,500
$1,000,000 6%$5,000

At a 6% interest, $300,000 set aside can already yield us $1,500 per month. I suppose this can offset some of the basic expenses which we have. If you have a family, most likely a fund of $500,000 generating 6% interest will be quite comfortable as it brings you $2,500 per month.

The key is to set aside this amount of money early in life which I would think is not difficult with a good income and modest expenditure. You can take a reference to the above table and plan how much to set aside accordingly to your needs.

You might have questions on how to generate this 6% interest? It is actually not hard to find investments that can yield dividends. The key is to pick the right ones which will be sustainable. REITs and some blue chips stocks can be considered. Take for example Capitaland Mall Trust which currently yields about 5.5% at a price of $2.03 or Suntec REIT which yields 5.89% at a price of $1.70. Of course, we still have to research and analyse whether the dividends will be stable in the long term and whether we are buying at a good valuation. This is like buying a property and making sure we buy at a good price and looking at its rental potential to generate rental income. Blue chip stocks such as Singtel is also yielding about 5.50% currently at a price of $3.19.

Maybe you would think 6% is too hard to achieve. How about if we bring it down to 5%? Let's take a look at the table again:

Fund AmountInterest %Monthly Interest Income generated
$200,000 5%$833
$300,000 5%$1,250
$400,000 5%$1,667
$500,000 5%$2,083
$600,000 5%$2,500
$700,000 5%$2,917
$800,000 5%$3,333
$900,000 5%$3,750
$1,000,000 5%$4,167

At 5%, a $500,000 fund will still generate an income of $2,083 per month. This is still not a bad amount to have as it would definitely relieve some of the expenses which we have. The beauty of this strategy is the fund amount is left untouched and may even increase as the investment grows. At the same time, it provides an income to offset some expenses while we are still working. In this way, if we are prudent in our expenses, we can still continue to save more of our full time job income without having to sacrifice the quality of life.

If you have a partner and both of you are working, you can actually set aside this fund much easier than those who are single. It is really about delayed gratification in the first few years to build up the fund and then it'll be much easier in the future. If we spend all our earned income without putting aside anything, then we will find ourselves still struggling in life as we age. Is this what we really want?

Relieve Your Financial Burden Today

I hope this article gives you an idea how you can plan for your own finances or how you can plan your finances as a couple. Like Singapore which has no natural resources, most of us also do not have "natural resources" which we can tap on unless you are born in a rich family which has unlimited cash to spare. However, we can follow the Singapore's government footsteps to create our own reserves and generate interest income to pay for some of our expenses. This seems to be a financially sustainable way to manage our money to last for a lifetime and perhaps for many generations to come.

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Wednesday, June 20, 2018

REITS Are Falling - Will This Continue?

REITS have been falling lately and my portfolio was not spared either. There are a few reasons to this which I will simplify and explain in this article. Investing in REITS have been a favourite among investors due to its income generating feature which provides good dividend income for investors. Typically, we can look at around 5%-7% dividend yield investing in REITS. Will this be sustainable going forward?

The Rise of Interest Rates

The main reason for the drop in REITS price is due to the rise in interest rates. Why is this rise in interest rates so damaging to REITS in the first place? To explain it simply, the main cause is because the rise in interest rates make REITS investment less attractive. There are 2 main reasons to this:

1. Interest expense reduces distribution of income

REITS are required to payout 90% of its taxable profits to shareholders in the form of dividends. As such, they have little left at the end of the day and thus have to take on more debt to boost their returns. This is the nature of a REIT's business.

All debts have interest payable just like we pay interest on the loans we take up. When interest rates increase, the interest expense which a REIT has to pay generally increases as well. There are some strategies to mitigate this which we will look further into later in the post below. The increase in interest expense reduces the cash flow that is available to pay shareholders and thereby reducing its distribution income and the dividend yield.

2. Attractiveness of REITS decreases

Building up from the above factor, as distribution income and dividend yield reduces, it makes REITS less attractive as an investment bearing in mind the risk which is involved as compared to safer assets like bonds or fixed deposits.

Furthermore, in a rising interest rate environment, those safer assets such as bonds or fixed deposits have their rates increased as well thereby making them a more attractive investment option. This is called the risk free rate.

The Rise of Other Alternative High Yield Investments

If you've not noticed, there are many alternative safe investments out there now. Additionally, the rates which these safe investments give are going up as well. Just take a look at Singapore Savings bond which is capital guaranteed and still have the flexibility to sell anytime without losing any capital. The interest rates it gave earlier this year was about 1.2% for first year but it has risen to 1.72% for the June issue. If you put your money there for a period of 10 years, the average return per year is at 2.63%. Not bad for a capital guaranteed investment. For REITS, we still can get higher dividend yield at more than 5% but the question is will people want to take the risk to get that additional 2%+ return?

From the subscription rate of the Singapore Savings Bond, it is oversubscribed every month for the past 3 months. This shows that people are rushing in to invest their money inside There was another bond which was launched by a Temasek Holding subsidiary, Azalea Asset Management. It offered retail investors a coupon of 4.35% per annum which is really quite high. Even though there should be higher risks associated with this kind of high yield, the bond was still oversubscribed by 7.4 times which again shows the interest of the retail investors in this kind of higher yield investments.

All these alternative high yield instruments started to come most probably because of the higher interest rate environment as well. In a rising interest rate environment, it actually signals the recovery of the global economy and these government or privately owned funds are more likely to issue bonds to raise money because they are more confident of getting back a higher return for the money they borrow.

Another capital guaranteed interest generating instrument, the fixed deposit accounts, have been neglected for quite some time now due to the low interest rates environment. However, if you notice, banks have actually started to raise their fixed deposit rates again. I just checked and saw that DBS 1 year fixed deposit rate is at 0.60% now. I think it was lower just a few months back. Banks are in the business of loans and they have been raising their rates for mortgage loans as well as for other loans as well. The demand for loans have probably picked up as the property market recovers and also better business environment for businesses to expand. The banks are willing to raise their interest rates they give for deposit accounts in order to get more money to loan out at a higher rate.

How To Check If Your REIT Will Suffer?

Coming back to REITS, does all the above factors mean that its the end for REITS now? It may not be the case actually. As mentioned earlier, rising rates signal a better business environment and may benefit REITS which rents out its business space to various businesses. However, as REITS have to pay high interest expense, it is a balance now whether they are able to generate more income even as interest expense increases? There are a few things we can check to see if our REIT will survive or suffer:

1. Percentage of debt on fixed and variable rate
2. Gearing ratio
3. Weighted average debt maturity
4. Average cost of borrowings
5. Interest coverage ratio

What we essentially want to check is in the balance sheet. Fortunately, we don't have to calculate or dig the financial statements as most REITS regularly report their debt profile in easy to read slides. There are quite a few terms which may be new to some of you. Let me explain more in detail as simply as I can.

Let's start off with this REIT called Frasers Centrepoint Trust (FCT). I like this REIT a lot because of its defensive nature. Its malls are located in the suburban areas such as Causeway Point in Woodlands and Northpoint at Yishun.

Below shows one of the slides which FCT has for its Q2 2018 financial results. We can see the gearing ratio, the interest coverage ratio, the percentage of borrowing on fixed rates and average cost of borrowings etc.

One look at the slides, we can see that FCT gearing ratio is at 29.2% which is not too high for a REIT. The gearing is calculated as the total outstanding borrowings over the total assets. It has 56% of its borrowings on fixed rates which is quite low in my opinion. I've seen most other REITS already have more than 70% of their borrowings on fixed rate. However, this also explains why the average cost of borrowings for FCT is only 2.4% while if we compare for another similar retail REIT, Capitaland Mall Trust, their average cost of borrowing is higher at 3.2%.

For its interest coverage ratio, it is 6.64 times which is quite good. For interest coverage ratio, it is calculated as the earnings before interest and tax (EBIT) divided by interest expense. This means the lower the ratio, the more the company is burdened by debt expense. This is expected to be lower when interest expense increases due to higher interest rates.

The last thing we should be looking at is the weighted average debt maturity. For this, most REITs would have a slide as well which is easy to refer to. The reason why we have to look at this especially in rising interest rates environment is because when the debt is about to mature, the company will have to refinance its debt. During rising interest rates environment, refinancing will definitely be more costly. We can expect the interest expense to increase once the debt matures and it is refinanced at a higher interest rate. On the other hand, some REITs may choose to pay down its debts if they have the funds to do so.

For FCT, it has $91m of borrowings maturing in FY2018. These are unsecured bank borrowings. With the banks already raising their rates, if FCT were to refinance this loan, the interest will most probably be higher.

REITS Prices Are Falling - Will This Continue?

I would think there are actually opportunities to invest in REITs again as the prices continue to fall. We just have to evaluate and make sure we buy at a discount to NAV and also take into consideration that dividend may fall in the future as interest expense increases. We can also take reference to the risk free rate such as the 10 year Singapore government securities bond which is known to be default free. Using this rate, we can determine the yield spread of REITS dividend vs this risk free rate. There are people who use standard deviation to determine a good price for REITS but I will not go into this which is too technical for this post. In simple terms, it is just to gauge the attractiveness of the dividends given by a REIT as compared to the interest we can get in a default free asset.

Some REITs are managed better than others so its important to separate the good from the bad. By looking at its balance sheet, it will tell a lot on how the management is prepared to handle this rising interest rate environment. Just look through the slides of a few REITs and I'm sure you will be able to see it for yourself as well.

Want to learn more about dividend investing in REITS and how to value them correctly? Check out this online REITS masterclass here

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Tuesday, June 12, 2018

Long Term Healthcare Cost In Singapore - Are Subsidies Enough?

In a previous article, I wrote about the real issues which people face when having to care for a family member with disabilities at home. You can read the previous article here. Also, as what I have said previously, the purpose is to bring the issues of long term healthcare cost to the government. I have managed to contact the Agency for Integrated Care and Ministry Of Health and I attended a session on the enhanced Eldershield (Careshield life) to learn more about it as well as give my thoughts on the recommendations.

In this article, I will dive into the various subsidies available for this group of people and whether they are adequate? Also, I will talk about what we can possibly do to prepare for the future in the event if this happens to us or our loved ones.

On 6th February 2017, NCMP Mr Dennis Tan Lip Fong asked the Minister for social and family development: " how many persons with disabilities and/or special needs are there in Singapore;". The reply was as follow:
  • Student Population: 2.1%
  • 18-49 years old: 3.4%
  • 50 years and above: 13.3%
Based on the above statistics, this is almost 20% of the population with disabilities. It was further added that persons with sensory (blind and deaf) and physical disabilities would constitute half of the disability group. The remainder comprises those with Intellectual Disabilities and Autistic Spectrum Disorder. 

Furthermore, the committee in-charged of reviewing the Eldershield scheme estimates that 1 in 2 healthy people age 65 today run the risk of becoming severely disabled before they die. This is quite a high percentage and I can imagine if nothing is done in the future, it will be a disaster. 

Subsidies Available for Long Term Healthcare cost - Are they adequate?

There are various subsidies available which can alleviate the financial burden of those who need it.

To be honest, AIC and MOH has done a good job to try to set up a system and compile the information for subsidies into one place. Most subsidies can be applied through a medical social worker who will be assigned to each patient. All hospitals including community hospitals have full time medical social worker for this purpose. If you need subsidies for long term healthcare cost, do remember to approach one at your hospital.

Let's take a look at the various subsidies available:

1. Foreign workers concession levy

The normal levy which is required to be paid for hiring a maid is $265. However, if we are hiring a maid to care for a family member with disabilities, the concession levy will be only $60.

2. Enhancement for Active Seniors (EASE)

EASE is a subsidised home improvement program offered by HDB. Improvement items such as grab bars in the toilet, slip resistent floor tiles and ramps can be installed to make your home more elderly friendly especially for persons with disabilities.

If you're eligible, the cost is reduced from $2000+ to $100+ only depending on your HDB flat type. You can refer to HDB website here for more information.

3. Intermediate and long term care (ILTC) subsidies

This ILTC is the most common form of subsidy which covers both home care services such as home nursing and home therapy and residential services such as community hospitals and nursing homes.

What you can expect is at least 20% subsidy for nursing home if your household per capita monthly income is less than $2600. For home care services, it is at least 30% for household per capita monthly income of $2600 also. You can refer to the subsidies for ILTC here.

As much as there are subsidies already available, the cost is still a huge burden for families. Nursing homes in Singapore cost somewhere between $2500-$3000+ per month. Even with a 20% subsidy, the cost is still at around $2000-$2500+. Most nursing homes fees also do not include disposables such as diapers.

For those who brought their family members home and require home care services, I did check with some home care service providers on their cost and the estimate cost is as follow:

  • Home Medical – $223
  • Home Nursing – $95
  • Home Therapy – $125

The cost above is per session and before subsidies. After a 30% subsidy, as you can see, the cost will still be high.

4. Community Health Assist Scheme (CHAS)

The CHAS is essentially a card to get subsidies when we see a doctor at a private clinic. There are 3 different types of card namely the CHAS blue card, the CHAS orange card and the CHAS for pioneer generation  card.

The blue card is for low income households with household monthly income per person of $1100 and below while the orange card is for households with monthly income per person of $1,101 to $1,800. For pioneer generation, there is no income criteria so as long as someone qualifies as a pioneer generation person in Singapore, he or she will get all the CHAS subsidies.  There are subsidies for common illnesses, chronic conditions and even dental services. For more details on the scheme, you can refer to the CHAS website here.

5. Seniors mobility and enabling fund (SMF)

The SMF is a fund which subsidises 3 groups of items and services. They are home healthcare items, assistive devices and transport. For home healthcare items and assistive devices, the income criteria is household monthly income per person of $1800 and below while for transport it is $2600 and below. For more information on the SMF, you can refer to AIC website here.

Long Term Healthcare Cost In Singapore - Are Subsidies Enough?

Indeed there are already various schemes which act as social safety net to support those who are burdened with long term healthcare cost in Singapore. However, I would think the schemes mostly benefit more for the extremely low income people only. For those with middle class income, it is hard to get help on this.

In a survey which I conducted previously, I asked the percentage of subsidies which people receive for the most common scheme which is the ILTC. To my surprise, most people do not receive or do not know such scheme existed and a minority get low subsidies amount with some lower income households getting higher subsidies amount.

For middle class households, the financial burden and stress is real. Some are just slightly above the income level criteria and most of them are in situations where their parents become disabled suddenly and the children have to take up the responsibility. While the children want to give the best for their parents, they also have to plan ahead for their future especially with the high cost of owning a home and also having their own children in Singapore.

To me, it is a negative cycle that if more and more people are caught up in this situation and the young adults cannot move ahead in life, there will be more social problems in the future.

What can we do to prepare?

While we hope for more schemes to support those with disabilities, we may also do our part especially if we are still healthy now. Getting hit by critical illness and becoming disabled is more real than we think. 

1. Be insured with Eldershield (Careshield life from 2020) or disability income insurance

Firstly, we can look into getting Eldershield or disability income insurance. Eldershield is an auto opt in scheme when we reach 40. The basic plan pays out $400 per month for up to 72 months (6 years) in the event of disability if we cannot perform 3 out of 6 daily living activities. There are supplement plans which offer higher monthly payouts for life also. Aviva, NTUC income and great eastern provide the supplement plans. You can refer to MOH website here for more information on Eldershield.  

Starting from 2020. there will be a new enhanced Eldershield which is renamed as Careshield life. All those born on or after 1980 will be included in this compulsory scheme which pay out $600 pr month for life in the event of severe disability. I've written a separate article for Careshield life which you can read here

For disability income insurance, it can be bought separately and can possibly replace our income in the event of disability. The premiums may be quite high so make sure you can afford it before purchasing. 

2. Term plans which covers critical illness

The second and most important thing we can get for ourselves is to purchase an insurance with critical illness and total permanent disability coverage. There are probably about 36 critical illness covered which includes stroke, heart attack and many of the different cancers. A Straits times article recently wrote about a study which suggest that working adults in Singapore have inadequate cover if critical illness strikes. The study by Life Insurance Association (LIA) showed that an average working adult in Singapore only has critical illness cover of just $60,000 which is well under the LIA recommendation of $316,000. 

I would think the problem is people generally buy whole life policies and the premiums are too much if we want to get a high coverage. Buying a term insurance with critical illness will be much more affordable. It probably will only cost around $1000-$1500 a year to be insured sufficiently with term insurance for those 30 years old and below so its good to get some term insurance if you're still young.


This ends the 2 part series on creating awareness on the issues of long term healthcare cost in Singapore. The government actually has a 3rd enabling masterplan to support persons with disabilities but how long all these will get implemented is another question. The ageing population problem in Singapore is real. Disability is real too and that's why we have all the wheelchair accessible initiatives all around the nation now.

I understand that there is an ongoing review for the various support schemes under the health ministry. I feel that some of the middle class families still fall through the cracks when it comes to support for unforeseen circumstances. Family members becoming disabled is one of them and this often comes with huge long term healthcare financial burden to deal with. Hopefully we will see more support along the way as our society progresses. Nevertheless, it is impossible for the government to support everyone as it would mean the younger generation have the bear the cost instead.

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