Monday, May 16, 2022

How Will Our Lives Be Impacted In The Face Of Rising Interest Rates

There has been lots of new stuff happening since my last blog post back in December 2021. A few months back, Singapore started opening up and relaxing measures for COVID-19. It seems life is mostly back to normal now. While we were just starting to enjoy this good news after 2 years of abnormal life during covid, new things start unfolding which is starting to impact our lives and may impact us even further. 

Firstly, the Ukraine-Russian war started. This caused oil prices to skyrocket impacting petrol prices immediately. If you own a car, the impact is felt with petrol prices at more than $3 a litre. Ukraine is one of the largest exporter of many items such as wheat and seed oil like sunflower oil. This impacted daily living also as what we are beginning to experience. Edible oil prices have increased which even cause hawkers to have no choice but to increase their prices for the food they sell. I personally have experienced food prices increasing by 70 cents to $1 for every plate of food. Groceries items in the supermarket have increased as well. Indonesia also recently banned all exports of palm oil which skyrocketed the global palm oil price. Palm oil is used for food manufacturing and it is in close to 50% of the packaged products we find in supermarkets, everything from pizza, doughnuts and chocolate, to deodorant, shampoo, toothpaste and lipstick. We should see prices continue to increase in the months ahead. 

Secondly, because of the risk of high inflation due to higher prices, central banks all around the world are increasing their interest rates to slow down inflation. This is to prevent prices from going too high and making the economy unstable and at risk of a recession. Singapore do not have an interest rate policy so we are a taker of interest rate and will be affected by this by a great extent. Already, we are seeing interest rates for mortgage loans going up from as low as 1% 1 to 2 years ago to 1.3%-1.5% now for floating rate. For fixed rates, it has increased even more to 1.80% for a 5 years fixed rate from DBS. This shows that banks are forecasting that interest rates will continue to increase so they are not keen to price fixed rates loans at low rates anymore. 

Interest rates increase will affect not just home loans but everything in life. The sky high property prices will definitely fall as loans become more expensive and less affordable. Businesses will incur more cost on their loans because of high interest rates so they may pass on the increase cost to consumers. In rising interest rate environment, essentially those who have debt are losers while savers will benefit. We should see higher interest rates for bank accounts soon. You might have noticed that banks are starting to launch higher interest fixed deposit accounts and Singapore Savings Bond is also at an all time high of average 2.53% for a 10 year period. The 1st year interest given for SSB for the May launch is 1.43%, 2nd year will go up to 2.41%, 3rd year at 2.68% and 4th year onwards will be 2.71%. This is the highest SSB rate I've seen in a long time. 

Lastly, with risk free rates like fixed deposit accounts and SSB giving such high interest, investments such as in stocks and Reits become less attractive. You can get 2.5% risk free on SSB while Reits yields about 5% so the difference is only 2.5% but Reits have higher risk so naturally Reits prices start to fall as well. For growth stocks, it also drops as the risk is even higher and with higher interest rates, these businesses which rely on loans to expand their business will face some cost pressures and may slow down their expansion plans which caused their stock prices to drop even more. Nevertheless, stock prices will drop to a certain extend only and its the best time now to pick up some good companies as the stock prices drop. We should see Reits prices coming down and investors will pick them up again when they start to yield more than 6% which better justify the risk to return. 

Those who have bonds in their portfolio (not SSB) will see bond prices coming down as interest rates increase. So, if your portfolio has both bonds and stocks, you will likely see your portfolio drop even further as both bonds and stock prices drop in correlation to rising interest rates. It is still an unknown how much more interest rates will increase so we have to wait and see. 

If you have mortgage loans on 3m SIBOR, the rate as of 9 May has already increased to 1.11% as compared to 0.43% in Jan this year. This is already a 0.7% increase in just 5 months. If your loan is on the new SORA benchmark, interest rate has increased from 0.14% in Jan 22 to 0.89% as of 13 May 22. A 25 years tenure, 500K loan, with 1% rise in interest rates will increase your monthly mortgage payable by $235/month. If its a 1 million loan, it doubles. 

Don't belittle the things that are happening around the world now. All of us will be affected one way of another. We should relook at our financials and adjust accordingly so that we will not end up in deep trouble later. 

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Friday, December 31, 2021

Reflections for year 2021

2021 has come to an end. The year flew by in an instant as there were quite a few major changes to my life. I got married earlier this year in Jan and moved to a new house in Oct. This was in the midst of a busy work schedule as I continued to work in a public hospital in Singapore. There were a few waves of COVID-19 infections and everytime there's a new wave, the hospital scrambles with everything its got to support the country in need. Every employee plays their part in this fight against COVID-19 no matter if they are doctors, nurses, allied health professionals or admin workers. 

I've learnt a lot through the experiences I've had this year. I learnt that life is fragile, I've seen deaths. I've seen how people come together to help each other when in crisis. These are the experiences I get from my work which can be emotionally draining sometimes but it helps me grow stronger. 

I've not written a blog post for quite a while now while I was busy settling my reno and moving to a new home. Its a transition in life and one thats well worth it to spend with someone I love. In a relationship, we learn to care for each other and not just think for ourselves. I'm not perfect but I'm learning as time goes by. 

On finances, I'm still doing relatively well. Despite spending on wedding and reno, I still manage to have extra savings after deducting all my monthly expenses. I got a promotion in Jan and continued to get good bonuses while working in the healthcare sector. All these helps grow my wealth. 

On investment, my portfolio continues to grow with more stocks being bought as COVID-19 continues to put a dampen on the stock market. However, total returns (calculated by XIRR) is only 3.54% for the whole year for me. This is largely due to a write off in a total loss in Hyflux, which has collapsed totally without any compensation. I'm lucky in a sense that despite the loss, my other stocks gains manage to cover the losses and still eek out some gains. Moving forward, my portfolio will continue to focus on building dividends and continue to sustain a 5 figure dividend annually. 

How has your year been so far? If its not so good, have faith that year 2022 will be better. If this year has been good for you, I sincerely hope that year 2022 will be even better for you. One last hope I have is that COVID-19 will be gone from our lives soon so that we may live normally again. Our world has changed because of it while we adjust to new ways of living. But as all things goes, it will one day come to an end and all will be good again. 

Stay safe and have a good year ahead everyone. Happy new year 2022!


Tuesday, October 12, 2021

Why Do I Keep Worrying About Having Not Enough Money?

The fear is real... the worry of having not enough money is causing me sleepless nights sometimes. Is this normal I ask myself? I have savings, I have a stable job and earn a decent fixed monthly salary. I have enough to live my life and still having savings every month. But there is one thing I am constantly worried about, and that is having not enough for retirement. 

No matter how much I budget and plan and forecast, there is still a lingering worry in me even though I try to assure myself as much as possible that its all ok. There is one reason I identified, the reason is the future is so unpredictable that there is no way to actually predict what will happen. Even if I plan all the way, the outcome may still be not what I want it to be. 

Life throws in all kinds of nonsense at you along the way. I'm lucky not to have met too much nonsense thus far but I've seen nonsense being thrown at people and depletes all their savings instantly due to high medical bills and long term healthcare cost. 

There are many Singaporeans who do not have to worry about money. We can see it on social media channels Youtube, Facebook, Instagram, Tiktok. Many people have the means to renovate their house nicely, buy a car, buy a luxurious condo, stay in 5 star hotels and eat good food all day. Some are spending beyond their means, some do not plan for the future but there are some who really have too much money to spend because they earn extremely a lot too. 

For me, spending money was a taboo all my life. Yes its hard to spend money because we always didn't have much anyway. When its my turn to spend money, I buy nice furniture for my house, eat good food, spend on luxurious staycations because I can afford it but guilt sets in. Its a funny feeling of enjoying but at the same time fear.  

Psychologically, I would think I need a breakthrough. Its like when you first started investing and you are brought on an emotional ride of thrill when the market goes up and fear when market goes down. Its not easy to overcome but as years goes by, you get better at it. 

I'm not sure if anyone has the same thoughts and experience as me but if you do, I would encourage you to keep going when it gets tough. The light is always at the end of the tunnel. Worry is a normal process and it should spur us to achieve more in life.