Monday, August 28, 2017

What drives stock price volatility and how can I profit?

The Singapore Stock Exchange (SG) has been in a downswing lately and has also seen some volatility. This doesn’t mean there is a lack of profitable opportunities for investors – it simply means that they need to understand how to anticipate and profit from stock volatility.

That entails gaining an understanding of what is driving prices, so that the investor has an insight into why a stock’s price is rising or falling.

Financial results always causes volatility

One of the key drivers of volatility in a company’s stock is when the company reports its financial results. Some companies report quarterly, others half-yearly or annually. Companies often have surprises in the reported figures – both on the upside and the downside.

All stock exchanges and internet forums generate a lot of discussions and speculations, so before the actual results are announced, prices often move sharply, in reaction to the latest rumour about what the results will show.

Surprisingly, the volatility sometimes continues for a few days after the results are out – this is largely due to portfolio managers adjusting holdings, given the numbers that have actually been reported.

And of course, the market often overreacts, so that a swing in one direction or another is followed a few days later by a swing back in the other direction. Observant investors who are following key Singapore Exchange stocks, can develop a feel for when to buy and sell, to take advantage of this volatility.

August 2017 Financial Results

Property companies are definitely doing well, in fact six out of the ten best performing stocks this year, are real estate stocks. After the government relaxed some development restrictions, analyst are forecasting a continuing rise in real estate stock prices. UOL Group, City Developments and others are leading the charge.

In the August results reporting, one of the stocks that saw price swings around the reporting dates was Singapore Airlines which had a moderate 5.6% year-on-year growth in revenue in the passenger business but strong results from the cargo unit. 

However, this was put in the shade by the Hotel Properties limited (HPL) result – the company reported profits up 23%. And after a 77% rise in profits in Q1, Capitaland, Singapore’s largest property developer, followed it up with a doubling of operating profits in Q2. 

Analysts reports are worth reading

It’s well worth reading the analysts’ comments on these companies when they report. There is often background information that can help you understand whether the result is caused by special accounting measures or unusual trading conditions, or whether the company’s performance is likely to be sustained. These two different scenarios are vital for knowing whether the share price is going to be underpinned and steady, or very volatile. Market expectations that a company will constantly outperform are difficult to meet, and disappointment from investors at a missed target can result in the share price dropping.

As a private investor, you can take advantage of these volatility using a spread trading account that allows you to profit from price falls as well as price rise. However, be careful to choose a well run broker, such as CMC markets. 

Global environment always influences volatility

All stock exchanges are now part of the global information flow, and Singapore is no exception. Investors don’t like international tension, such as the situation between the US and North Korea. They also dislike uncertainty, such as how far US interest rates are likely to rise. All of these factors add to volatility.

Price volatility is always greater before key Federal Reserve announcements or major US economy statistics such as the non-farm payroll data released each month. 

Mergers and Acquisitions (M&A)

M&A activity, even when it’s based on rumours and hotly denied by the parties involved, can send share prices into overdrive. But Singapore has seen a slow start this year in terms of M&A activity. Some property deals have taken place, but nothing like the contested takeovers that really encourage price movements, on the back of the uncertain outcome. 

The investor who carefully observes these market fluctuations can start taking advantage of highly volatile prices to make excellent profits.

*This is a guest post

Saturday, August 26, 2017

Survey Shows Singaporeans Worry About Having Not Enough Retirement Savings

A few days back, I posted a survey conducted on my blog to show what other readers, like yourself, think about retirement needs. You can read it here if you missed it out. I then received a press release from Blackrock Global on a survey which they did on retirement savings too. I found that the findings were quite insightful so I decided to share it here:


Singaporeans are not doing enough to prepare for retirement, according to BlackRock’s Global Investor Pulse Survey 2017. The discovery comes at a time when insufficient funds for retirement has become an increasingly pressing concern worldwide, in light of today’s low-yield environment.

BlackRock’s annual survey polled 28,000 people throughout 18 markets – including 1,000 in Singapore – by asking questions on financial and investment management and the likely impact on their retirement.

Kevin Hardy, BlackRock’s Country Head of Singapore, said: “It is promising to find that Singaporeans are acutely aware of the need to save for retirement and worry about not saving enough. This mindset is essential when seeking to reduce the retirement savings gap, which is caused partly by today’s low-yield environment.”

He added: “Singaporeans’ expectation of a 5% annual investment return seems reasonable compared with their regional peers, but underestimating their life expectancy is the other caveat to address as they plan for retirement. This is especially important for women who are normally expected to live longer than men.”

Results showed 64% of Singaporeans worry about running out of money in retirement, the highest proportion in Asia Pacific. Nearly nine out of 10 Singaporeans (87%) believe they are responsible for their own retirement income. However, this realization has yet to spark action – only 68% have started saving despite the fact they save an average 15% of monthly income, the highest rate worldwide. Some 84% are saving beyond the mandatory requirement of the Central Provident Fund (CPF), or in other forms of savings plan. But it is clear respondents are underestimating how much they will need for retirement, in many cases by as many as six years.

Singaporean investment leans heavily on cash – 47% on average, which is slightly higher than in other parts of the region but much lower than the rest of the world – meaning Singaporeans may not be able to achieve enough income from their existing portfolios.

More than 62% of millennials have begun saving for retirement  

Millennials in Singapore demonstrate a high awareness of the need to save for retirement, and are concerned about outliving their savings and becoming a burden to their families.

Nearly two-thirds (62%) of millennials have begun saving for retirement, a significant increase from 2015 (56%). More impressively, 87% of those now saving are making additional investments beyond the mandatory CPF requirement. In fact, 27% (vs 24% of Singaporeans generally) are saving into private pension plans, and 22% (vs 18% of Singaporeans generally) are making further voluntary contributions to the CPF. This represents the highest proportion across all age groups in both categories.

Sentiment is generally positive amongst millennials, with half (50%) feeling confident of accumulating adequate retirement income, while 49% are confident of making retirement-focused investment decisions (scoring higher than the average among respondents in Singapore). This indicates positive investment behavior from the younger population.

Yet to fully embrace technology and professional financial advice  

Singapore is home to a technology-reliant population, with online channels (55%) being the main source of investment information before financial advisers (42%) and family and friends (39%). Although most are using technology for basic functions such as information-gathering, routine monitoring and everyday banking, a fifth (20%) of Singaporeans find technology helpful in monitoring their retirement prospects. This is seen to be providing motivation to adjust spending patterns, retirement dates, income expectations and portfolios.

In fact, 64% of Singaporean respondents are willing to buy an investment online. Of this group, nearly half (46%) said they prefer to obtain professional advice either before or during a transaction, while 36% need reassurance from a trusted brand. It becomes evident that financial advisers and technology are used as complementary sources of information when Singaporeans make investment decisions.

Hardy said: “Technology provides ease of access to information and can be a useful tool in enhancing financial knowledge – but the human component should not be ignored. Ability to harness the potential value of both technology and face-to-face financial advice will generate greater confidence in long-term investing, as Singaporeans build their desired retirement income.”

Narrowing the retirement savings gap 

It will take a long time if we just rely on savings for retirement. We should learn how to make our money grow as well to reach our retirement targets. Income is also important as if we have higher income, it makes it easier to save without having to squeeze ourselves too much.

Hardy said: “Investors need to periodically track and evaluate their progress against targeted savings goals, especially as they will likely spend more years in retirement than expected. It is important to make cash work harder by taking on some risk to generate desired retirement income. We find income-related products such as dividend-growing equities or high-quality debt to be popular among Singaporean investors. This can be a great means of delivering higher income than cash within diversified portfolios, without sacrificing asset growth.”



About the BlackRock Global Investor Pulse Survey
The BlackRock Global Investor Pulse Survey is one of the largest global surveys ever conducted and surveyed 28,000 respondents in 18 markets. In North America: The US and Canada. In Europe: France, Germany, Italy, the Netherlands, Spain, Sweden, and the UK. In Latin America: Brazil, Chile, Colombia, and Mexico. In Asia: Mainland China, Hong Kong, Japan, Singapore and Taiwan. The survey in Singapore involved 1,000 respondents. The survey took place in January and February 2017 and was executed with support from the TNS Group, an independent research company.


Tuesday, August 22, 2017

Retirement Survey Results - Understanding Our Needs and How To Achieve It?

One week ago, I launched a retirement survey on my blog and said I will release the results and also write it into a blog post. Thanks to all who have done the survey. There were quite a good handful of responses which made this blog post possible. The purpose of this post is to show what other readers, like yourself, think about retirement needs and then I will provide some examples to show how we can actually achieve our targets for retirement. Let's begin.

Survey Responses

Q1: At what age do you hope to retire?

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For the first question, most people are looking to retire at the age of 50-55 years old or 55 to 60 years old. This seems to coincide with the time we would be getting our CPF at the age of 55. I guess its also a achievable age to retire after working for about 30 years or so. There are also quite a number of people who are looking to retire at the age of 40-50 years old. Let's see how is this possible in the later part of this post.

Q2: How much do you think you need per month when you retire?


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For question 2, people generally think they need about $2000-$3000 per month for retirement. There are mixed responses where some think they need $1000-$2000 per month while others think they need $3000-$4000 per month. I guess this depends on individual lifestyle and preferences. We will look at how to achieve our desired monthly income for retirement too.


Q3: How much savings do you think you need by the time you retire?


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For question 3, it seems like most people believe they need at least 1 Million dollars to retire. Some felt they just need about $500,000 to $1 Million.


Q4: Choose which instrument you would use in order to reach your retirement goals (Select all that is relevant):


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For question 4, most people feel they can use a variety of instruments to reach their retirement goals. Stocks and CPF savings are 2 of the best instruments which people feel they could use.


Q5: Do you worry you would not have enough money for retirement?


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For question 5, most people are worried about having not enough for retirement. I guess its very hard to know what will happen in the future so people are generally worried. However, I think if we plan well ahead and have more information on how to achieve our retirement goals, it will be much better for us.

Achieving our retirement goals

In summary, the survey results show that most of us want to retire around age 55 with a monthly income of $2000-$3000 and we think we will need $1 Million in order to achieve that. Let's say if we start saving and investing at the age of 25, how much must we save to achieve that? How about if we start later, can we still achieve our retirement goals?

The Millionaire Dollar Grid

I came across this million dollar age grid from fourpillarfreedom.com. I love the grid because it shows very clearly how we can achieve our goals in just one grid.





















This grid assumes you start with $0 and your savings are invested at a 7% annual interest rate. Let's take for example you start at age 25 saving $16,000 a year and investing it at a 7% annual interest rate, you can achieve $1 Million dollars at the age of 50.

Even at 50 years old, if you manage to save and invest $40,000 a year, you can become a millionaire at age 65. But, do we really need a Million dollars to achieve $2000-$3000 per month income during our retirement years?

Getting the monthly income for our retirement

There are a few methods for drawing income for retirement. The first is drawing out from our lump sum savings for our monthly needs until it runs out. This is what a lot of people have done. $1 Million dollars will only last 27 years if we draw out $3000 every month.

The second method is to get a monthly income through an annuity. We pay a fixed amount of money to buy into an annuity then get monthly payments when we retire. In Singapore, all of us are enrolled into a national annuity called CPF life. Through the survey, CPF savings was one of the top choices which many of us will be using for retirement. Through the CPF life scheme, a sum of $249,000 at age 55 will get us a monthly payout of about $1860 to $2000 when we reach 65 years old. This will be paid to us all the way until death. It seems like we don't need $1 Million to get a comfortable income of about $2000.

The only problem I guess people have with CPF is the payout age is too late. It would be better if there is some kind of payment before age 65 but I guess we would need a lot more savings in the account to get the same payout if that ever happens. Nevertheless, I still think CPF life is a good income stream for our retirement. For us who want to have some income stream before age 65, we would have to plan something additional which leads me to the third method.

The third method to get monthly income is through investing in good dividends stocks. When we have accumulated some savings, we can invest and get some income through dividends. Let's just use 4% as a safe margin for dividends. If we have $1 Million in cash and invest to get 4% dividends, this would translate into $3333 per month for us. The problem is $1 Million may be somehow hard to achieve for some people.


The combination strategy for retirement

I've mentioned retirement a lot of times in this article but to me, achieving the savings or monthly income is not to retire and do nothing at all. Its all about having some freedom to choose what we want to do in life instead of being stressed at work because we have to work for money.

As mentioned, CPF life is one of the monthly income streams we can look forward to. However, it only pays out at age 65. We can probably have some plans to achieve a certain monthly income through stocks investing or other methods before age 65. Targeting to save $500,000 and invest at 4% interest would get us $1666 per month. This could probably be achieved before age 50. Once we reach age 65, CPF life would payout probably $2000-$3000/month depending on the sum we have in our accounts. The maximum amount in CPF now is $249,000 which pays out about $2000. By the time most young people, in their 30s currently, reach retirement age, the amounts should have adjusted upwards so they could be looking at payouts of $3000 or more. If you're reaching 55 soon, you could plan to get more than $2000 in monthly payouts. The CPF retirement sums will increase accordingly to adjust for inflation.

Achieving monthly income of $2000-$3000 shouldn't be that difficult if we use the right tools. Saving up and investing in stocks is a good way to build some passive income while CPF life also provides some stable income in our later years. If we can achieve $1 Million, it would be good but it seems like even if we did not have $1 Million dollars, we could still retire quite comfortably.

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