End of year 2020 - My Reflection On This COVID year

Just like that, 2020 is coming to an end. This year proved itself to be a year of surprises. This definitely isn't a normal year which we would go through as the whole world practically descended into crisis. Luckily for us in Singapore, the disease outbreak is mostly under control and we've not seen multiple waves as compared to other countries. Nevertheless, we have transitioned into a new norm of living with social distancing, wearing of mask and limitation on gatherings still in place probably for another year ahead.

What I learnt in year 2020

2020 would be a year I will never forget. For both my personal and working life, I had to make tough decisions which was not easy. I was suppose to get married this year with almost everything all planned out. Me and my fiancee made the decision to postpone our wedding 3 months before our big day. Luckily we did that else we wouldn't be able to hold a wedding during the circuit breaker anyway. 

For my working life, this is the year which I pushed myself so much that I didn't take a single annual leave at all. This is the first time in my 10 years of working life that I didn't take any leave. Working in healthcare supporting COVID operations in the frontline is never easy. There were several times which I felt totally burn out and wanted to give up but I pushed myself to continue. It was mentally and physically exhausting. I'm glad that the situation is much better now. Looking back, I learnt how much I could actually push myself. I realised how much more I could do, pushing myself to the limits. Of course, this could not be achieved without the support of my fiancee, family, friends, colleagues and even the whole nation coming together as one. During a crisis, work becomes very different. We had SOPs to follow but also had to make critical decisions when situation changes. Policy changes becomes a weekly affair too where we had to adjust to changes almost every other day. 

The good thing about working in healthcare is I didn't have to worry about whether my salary or bonus will be cut. My salary remained intact and bonus was not cut. Because of this, I took the risk to invest more of my savings when the stock market dropped drastically. The ride was really wild as stocks continued to drop every time I bought a new stock. There were times I doubted myself whether am I doing the right thing as I see losses accumulating. Facing a tough personal life, I had moments of depression where I couldn't sleep well at night which was worsen by the losses from my investments.

Fortunately, the stock market has recovered and my portfolio went back up higher than the beginning of this year. All the losses have reversed and turned into profits. I believe this is only the beginning of the recovery and there is still much room for stocks to run up. 

Income and expenditure update

For the year 2020, my income from employment continues to grow. Total income grew 13.8% as compared to year 2019. Other income drop slightly as I had lesser time for income generating outside of work and also dividends from stocks were mostly cut this year due to the economic uncertainty. Expenses also dropped as I did not travel this year and also partly because of the circuit breaker and work which I did not go out for any social gatherings for a few months. 

Stock Investment Performance

For investing, I kept to my believe that the best time to invest is when there is a crisis. I've been waiting for such a time like this for the longest time ever since I started investing more than 10 years ago. There were some small crisis during the 10 years but this is one of the crisis which I've never encountered before. 

As you can see from the blue line representing my stock portfolio value, it has increased by more than 2 fold as I injected more capital every time the stocks drop lower. As the red line (representing portfolio time weighted returns) dropped, I put in more money and thus my portfolio value still went up even though stocks drop a lot. I have seen wide swings in my portfolio to the tune of $50K just this year alone. Not an easy journey I must say but this has made me a better investor to be able to control my emotions better. I learnt not to panic sell stocks during such times and really need to patience to ride it through.

With the support from other financial blogger friends, all of us got excited and invested more as stocks drop. This proved to be the right thing to do when stocks are on a great discount to their valuation. Nevertheless, it is still hard to know which company will survive at that point in time. I had stocks like SATS and hospitality Reits which were the hardest hit. Stocks like these have also recovered back to the price which I bought them at. The whole wait took about 6-9 months for it to turn around. At that point in time when I invested in these companies, the outlook was bleek and future was unknown. There was even fear whether the companies would survive. Looking back, there was definitely risk involved. It may still be risky now as borders have largely remained close and tourism is almost non existent. 

What's in it for us in 2021?

While the stock market has recovered and a vaccine is underway to control the outbreak, there is still uncertainty over the impact this outbreak will bring to the economy. There might be permanent shift in certain industries due to disruptions and accelerating of technological advancements. 

Will travel resume in 2021? I certainly hope so as the urge to have a good break and exploring new places keeps coming back. It might take awhile for normal travel to resume though as the start of borders reopening will certainly face with some hiccups and also travelling cost will definitely be much higher initially due to pent up demand. 

Nevertheless, holiday season is here and its short working week for the rest of the year till 2021. Here's wishing all readers a Merry Christmas and Happy New Year. Have a joyous celebration with your friends and family members but do remember to stay safe too! 

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Taking A HDB Loan - Should I Wipe Out My CPF OA?

Starting from August 2018, we do not need to wipe out our CPF OA anymore when taking a HDB loan. Now, we can have the flexibility to leave up to $20,000 in our CPF OA when we take a HDB loan. For a couple, this means a total of $40,000 in their CPF OA ($20,000 each). 

The question now will be should we wipe out our CPF OA or leave $20,000 in our account? Leaving $20,000 in our CPF OA means taking up a higher mortgage loan and paying more loan instalment and interest per month. This may not be a bad thing. Let's look into detail on this. 

Setting out the scenario

Let's assume the following scenario for a couple who has bought a house and looking to take HDB loan:

1. Bought a house at $400,000
2. Has $100,000 each in CPF OA
3. Wants to take HDB loan at 2.6%

Now, this couple wants to consider whether to leave $20,000 each in their OA or wipe out totally to pay lesser monthly instalment? 

If they wipe out their CPF OA and take a loan of $200,000 for 25 years, their monthly loan instalment will be $908/month. 

If they leave $20,000 in their CPF OA each (total of $40,000) and take a loan of $240,000 for 25 years, their monthly loan instalment will be $1,089/month. 

Looking at the above, most couple will choose to go for the lesser monthly loan instalment right? It seems like a logical choice but unfortunately logic does not always prevail. 

Interest gained for $20,000 left in CPF OA 

The decision now is whether to leave $20,000 in CPF OA. First, we must know how much interest we would have gained if we leave it in CPF OA. Here's a table to summarize:

	$20,000 @ 2.5%
15 years	$9,088
20 years	$12,957
25 years	$17,341

The above is the interest we would have gained for leaving $20,000 in CPF OA for 15, 20 and 25 years at 2.5% interest. Doesn't look a lot but let's move on to how much more interest we would have paid if we take up a bigger home loan if we have not wiped out our CPF OA. 

*Do note that CPF OA is actually giving 3.5% interest for the first $20,000 so the amount should be larger.

Interest paid on $240,000 vs $200,000 home loan

In order to know whether it is good to leave $20,000 in our CPF OA accounts, let's take a look at the interest we would have paid on a $240,000 vs a $200,000 home loan. 

	25 years	20 years	15 years
$200,000	$72,121	$68,711	$59,081
$240,000	$86,618	$82,497	$70,921

The above shows the cumulative interest paid for a $200K vs $240K home loan for 25, 20 and 15 years at 2.6% interest rate. Now, let's calculate how much more interest we would have paid on a $240,000 home loan should a couple not leave $20,000 in each of their CPF OA. 

	25 years	20 years	15 years
Additional interest on $240K vs $200K loan	$14,497	$13,787	$11,840

Now, the additional interest paid on that additional $40,000 loan doesn't seem like a lot. Will the interest gained on the $20,000 each in a couple's CPF OA be more than the above interest paid?

Let's bring the numbers together. 

Taking HDB Loan - Should I Wipe Out My CPF OA?

Now, with all the calculations, will we see higher interest gained for leaving the $20,000 in our CPF OA? The answer is yes. Let's look at the table below. 

	25 years	20 years	15 years
Additional interest on $240K vs $200K loan	$14,497	$13,787	$11,840
Interest gained in CPF OA ($20,000 each for couple)	$34,681	$25,915	$18,177
Net Interest gained for leaving $20K in CPF OA	$20,184	$12,128	$6,337

While the net interest gained is more for the above, we still have to consider the higher mortgage paid per month for taking a $240,000 loan vs a $200,000 loan. The difference in monthly instalment is $1089-$908=$181 per month for 25 years mortgage. This sum will be left in our CPF OA earning 3.5% interest which can be quite significant. 

Apart from the interest point of view, leaving $20K in our CPF OA can be used as emergency fund just in case when we lose our job later. If we do not have leftover in our CPF OA, then we will have to pay our housing loan in cash at that time which makes it worse for our financial circumstances during that tough period. 

CPF OA monies can be invested as well for sums more than $20K. Leaving $20K in oir OA will enable us to invest the accumulated sums thereafter (above $20K) and may earn more interest higher than 2.5%. However, as with all investments there are always risks involved. 

Deciding on whether to wipe out our CPF OA is not an easy decision. It depends on what we really want. Nevertheless, this gives us the flexibility to choose based on our risk appetite.

Life and Investing In the Midst of A Recession

News of what was to come came in early January 2020. Working in healthcare, I first heard of the then Wuhan virus in early Jan. Infectious disease experts in Singapore were already starting to monitor the developments in China very early on and preparing for what was to come. We didn't have the mood to celebrate Chinese New Year and the worrying part is when people around the world travel to different parts of the world during the CNY holidays causing the virus to spread.

In the midst of CNY, I was busy preparing slides for manpower planning for COVID-19 support. I had to work till midnight for several days. The CNY holidays were totally disrupted for me. The preparation work continued for the rest of the 15 days of CNY and DORSCON was raised to orange in Singapore even before the 15 days CNY was over. I remembered some of my colleagues had arranged reunion dinner with their family on that faithful night but all plans were disrupted. 

The virus was officially named 2019-nCOV in February and then changed to COVID-19 thereafter. The events happened very quickly and caught many by surprise. It sent shock waves to the stock market and every stock went into free fall mode. Many people, including me started to deploy our warchest to buy some stocks at good bargain thinking this virus will pass by in just a few months. The only comparison we had was the SARS virus back in 2003 and the world got out of it in just a few months. 

Little did I know that COVID-19 would cause such massive damage to the economy as compared to SARS. Fast forward 7 months into COVID-19, we are still far from over from this crisis. Retrenchments are intensifying and pay cuts become a common occurence. Our borders are still mostly closed even though there's some good news now that our borders are starting to reopen to revive the tourism, hospitality and aviation sector. This sector contributes about 5% to Singapore's GDP which is somewhat significant. Furthermore, there are repercussions if there are no tourists in Singapore. Tourists contributes significantly when they spend in our country. Without them, many businesses suffer a drop in income and many had to close down as what we have seen. Singapore's domestic market is still too small to sustain our economy for the long run. 

Is this still the best time for investing?

Nevertheless, I still think this is the best time for investing. Many investors in the past have said that they will take advantage and find opportunity to invest when a crisis happens. I too was looking forward to a crisis so that I can invest more. When the crisis really comes, it was easy deploying cash into stocks at the start but as the crisis drags on and your portfolio continues to see losses, we also start to doubt our investment thesis whether is it correct or should we even be investing now. I had self doubts too investing in this crisis. Almost all companies have cut dividends. The more than 10% dividend yield we see for some companies when the stock price drop becomes less than 5% now after they cut dividends. Its almost like everything is going against you.  

The good thing now is the companies I invested in, so far non have collapsed in the midst of the crisis. This is especially important as some companies will surely not make it and file for bankruptcy. Big names like Muji, GNC, Hertz have filed for bankruptcy in the US. Recently, Genting HK which owns Dream Cruise and Zouk Singapore also defaulted on its loans. Car sharing firm Smove in Singapore also collapsed. In times like this, it is really important to invest in strong companies with good balance sheet to ensure they can ride out the storm. 

This storm may take some time to pass. Perhaps another 6 months to 1 year from what I read so far. For Singapore, we should be looking at a vaccine nearer to the end of 2021 which is still quite some time from now. For now, we still have to get use to living this different life we have since the start of 2020. I am still accumulating stocks which are at depressed prices now. I still believe in REITs which I had accumulated more of Frasers Centrepoint Trust, Capitaland Mall Trust and Lendlease REIT to larger positions. I have also invested more on hospitality REITs such as CDL Htrust even though the hospitality sector may still take some time to recover. However, the REITs that own hotels are still surviving with profits as they cater for visitors on SHN and foreign workers. I believe once COVID-19 is under control, people will start travelling again. There is definitely pent up demand for travel again.

I also bought more Netlink Trust as they continue to generate dividends and appear unscathed from the crisis. For recovery plays, I bought in Comfortdelgro at $1.35 as I feel they should be the first to recover and the stock price is really attractive. I also invested in banks such as OCBC and DBS to ride on the banking giants at attractive prices. Lastly, I also made my first investment in US stock in Alphabet Inc which is the Google company we know. 

Nevertheless, my portfolio is still down 15% YTD while the STI is down almost 20%. This is definitely not a good year for investment and who knows how long this will continue on. Reference to the past during the 2008 global financial crisis, the stock market took about 7 months to 1 year to bottom out and recovered furiously thereafter to reach another peak in 1-2 years. I feel the stock market has already bottomed out and bad news are already priced in, not withstanding another shock to the world again. There may still be another slight dip but it should not be as bad as what we have went through thus far. 

Therefore, I do feel this is the best time to accumulate good companies in the next few months. We are so far about 5-6 months from the stock market drop and if history do repeat itself, then it should take another 5-6 months to see recovery. Remember, the stock market is always 6 months to 1 year ahead of the economy. So, the market can be recovering when retrenchments are intensifying and at the peak. This is the nature of investing. 

Life has not been an easy one for many of us this year and it may get worse before it gets better. Nevertheless, when we get out of this crisis, we will become better and life will be back as normal again. As with all other crisis, nothing will be permanent. Those who look for opportunities during a crisis will become better and emerge stronger. Its up to us to take action now in all aspects of our life.