Sunday, August 31, 2014

Confused Now - A one stop insurance portal making you smarter than your agent

Are you confused about the many different insurance products out in the market? Fear not as Confused Now, a one stop portal which offers free access to unbiased reviews of the various insurance products will make you smarter than your agent.

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Here's what Ryan, the founder of the website Confused Now has to say:

I do have bad experiences with a few insurance agents.  They are selling you plans which have higher commissions rather than a plan which you actually need. They attempt to hide some agenda and it is difficult to understand the plans through the web. I believe in asking people who have purchased similar insurance plans which you are looking for. Through questions and answers, you hold a better understanding which policy is right for you. Take those opinions and clear your doubts when meeting your insurance agent.

Because Confused Now is a collaboratively edited, free-access, free content community to share your experience of policies you have purchased. It is an open discussion platform, designed to make collaboration easy. It is a one stop portal where you are able to see all insurance plans in Singapore. Free free to add in any missing insurance plans in Confused Now.

I believe in honesty and simplicity. Collaborate and share your experience of buying insurance policies in a simpler way for free. Our tagline is "Making you smarter than your insurance agent." Through Confused Now, you are able to be confident when meeting your insurance agent to discuss on purchasing a plan. You won’t be Confused anymore.

Why we are so special:

Collaboratively edited, free-access, free content community. Includes home, health, vehicle, home accident and even pet insurance. A community where you are able to find most of the insurance plans in Singapore, you can even add or edit any insurance plan. View all insurance plans in Singapore without the need to visit multiple sites.

We are unbiased. We allow anyone to add and edit content. Confused Now operates as an open platform, allowing anyone to share your experience of any insurance plans.

Voting system. Instead of Like and Dislike. We designed a system to make voting fun again. Kiss, Virtual Slap and Bait your insurance plan, agent or insurance plan providers.

Be a reporter. Share any news and tips on what to look out for in buying an insurance policy. Share any latest news of insurance in Singapore.

User comments, replies from everyone and take those opinions to clear your doubts when meeting your insurance agent. It is a more effective way of understanding insurance plans.

We care. We believe we can improve people's lives through business. Confused Now will sponsor 2 top advertising banners every month and focused on making sure that we operate in a way that's consistent with our brand values. We welcome all social enterprises to write to us if you would want your organization to be on the top advertising banner.

How it works?

I've looked through their website and found that it is nicely designed. It is relatively easy to navigate through the pages also.You can view a plan, submit a tip, vote, comment, edit a plan and even add new plans. It is like a community where everyone can share their views and learn from each other about insurance.

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Here's a few screenshot of their website portal:

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You can view the details of the plan and add or edit any information 
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You can submit a story of your experience with insurance or a tip for others to learn from you.

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You can even vote for the plans. Kiss, Virtual Slap and Bait your insurance plan, agent or insurance plan providers.

Click on image to enlarge

Lastly, they are having a promotion as below: 

We’d love to get to know you as well as your best friend knows you! Leave a greeting on our Facbook page, share the page to your best friend or someone you love! You will have a chance to win a spot on our Top Ads with your photos or anything you want to post on it (must be legal ok) 1 winner per month till end of 31st of Dec 2014. We want you to feel like a celebrity for a month. 

Visit their free-access, free content community today. 

*This is a sponsored post from Confused Now

Friday, August 29, 2014

Croesus Retail Trust - More than 10% dividend yield!

Croesus Retail trust year to date distribution per unit (DPU) is 8.98c. This exceeds forecast by 6.3%. That is $89.80 per 1000 shares that we invested. For the price that i bought, the dividend yield which i got was 10.26% year to date. 10% dividend yield do exist. However, the dividend i got was from the period 10 May 2013 to 30 June 2013 which is more than a year. Q4 FY2014 DPU is 2c. Annualising a quarterly DPU of 2c gives us 8c which represents a yield of 9.14% at the price i bought. Still not too bad. Share price of CRT has also appreciated by 12.5c since I blog about it in November 2013. This is an increase of 14.28%.

All about Croesus Retail Trust

CRT owns shopping malls in Japan. From the initial 4 properties in Japan, they have acquired 2 more properties right in the capital city, Tokyo. This sums up their total number of properties to 6. CRT's debt or gearing ratio is quite high at 51.7%. 20% of its debt is maturing in FY 2017, 60% in FY 2018 and the remaining 20% in FY 2019. The high gearing ratio may be a concern for some.

Two of the properties in Tokyo:

Luz Omori in Ota Ward, Tokyo. located at the intersection of a traditional shopping street and a retail street with strong shopper traffic that leads directly to the JR Omori Station.

Nis Wave I in Tachikawa City, Tokyo. Connected to the JR Tachikawa Station

Net asset value has increased slightly to 90c. At the current price of $1, this represents a premium to fair value. At current price of $1, if we annualised a DPU of 2c to get 8c, it represents a dividend yield of about 8%. This is still quite good. However, we have to ask ourselves whether CRT is still able to give a annual DPU of 8c? Will it be more or lesser in the next FY? With this, we have to bear in mind that CRT's policy is to distribute 100% of its distributable income in FY 2014 and FY 2015 and then at least 90% thereafter. So, there is a possibility that DPU will decrease after FY 2015. For now, we may see the same or more DPU in the next dividend payout assuming rental rates and occupancy rates remain stable.

The future of Croesus Retail Trust

CRT owns only 6 retail properties now. In future, i guess they will continue to expand their portfolio of properties which will hopefully increase DPU for investors. However, with CRT's debt already at quite a high level, they would most likely finance the purchase of further properties by other means. One possible way would be to offer a rights issue to existing shareholders. If that happens, existing shareholders would have the opportunity to accumulate more shares of CRT at an attractive price. Whether the management will do this is anybody's guess now.

Japan's economy is undergoing a recovery. I've blog about the Japan's economy for a number of times before already. The YEN has devalued quite a bit in the past 1-2 years. The devaluation of the YEN is a game changer. Previously, businesses were struggling due to the strong currency. Both exports and tourism suffered due to high costs for foreigners buying Japanese goods. This resulted in a decade of deflationary economy which depress rents and property prices. However, now we see inflation coming back and rental rates will definitely pick up along with a increase property prices.

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Related Posts:
1. Croesus Retail Trust - First Quarter results released and initiated long position
2. The Japan story - Croesus retail trust and Saizen Reit

Thursday, August 28, 2014

Saizen REIT - Income from Japanese residential properties?

Saizen REIT is one of the biggest investment in my portfolio. Owning shares of Saizen REIT effectively means owning 138 residential properties across Japan. Yes, Saizen REIT has a total of 138 properties across 14 cities in Japan. Saizen REIT has reported its full year 2014 financial results just 2 days ago. I've blog about the reason behind investing in Japan previously which i mentioned that i also invested in another Japanese business trust called Croesus Retail trust. Croesus owns shopping centres in Japan and separately announced its financial result just this morning. I'll write up on it in another post.

FY2014 financial results

Saizen's revenue and net property income increased by 3.4% and 2.6% as compared to FY 2013. DPU of 3.1 cents has been announced and adding the previous DPU of 3.25 cents in February, the total DPU for the whole year works out to be 6.35 cents. With the current stock price at 96 cents, the dividend yield is about 6.6% p.a. Of course if you've bought at lower price, the dividend yield would be much higher.

On its debt profile, its gearing ratio is 37%. This is the percentage of debt it has over its total assets. 88% of its debt have fixed interest and all its debt is long term in nature. The nearest loan maturity it has is in March 2020 which is almost 7 years from now.

Net asset value per share decreased slightly from $1.24 to $1.22 in FY2014. With the current price at 96 cents, this represents a discount to NAV of 21.3%. Saizen REIT is still at a good price. Of course, as stated earlier, investing at the current price would mean a dividend yield of 6.6% if DPU remains the same next year. If you're investing for income, you have to decide if 6.6% p.a is a fair return on investment?

The good thing is Siazen REIT DPU has been stable and increasing for the past few years since 2011. From a DPU of about 2.5 cents in 2011, DPU has increased to about 3.1 cents now. This represents an increase of about 20% for the past 3 years. It looks like it will continue to increase as rental rates pick up in Japan when the economy recovers and inflation starts to kick in after the various monetary policies implemented by the Japanese authorities.

Growth prospects for Saizen REIT

Currently, the average occupancy rate for the REIT is 91%. There is definitely more room to grow their property income even if they do not expand their portfolio of properties. According to a report as mentioned in their financial report presentation, mid market rents in the 23 ward area of Tokyo showed an increase of 1.1% from the year 2013. Rental rates should begin to pick up in other cities too. Japan has been suffering from deflation for many year now. It is time for them to get out of deflation. Well, its what the government hope so as they had set an inflation target of 2% by 2015 which is next year.  

As inflation happens, property prices should pick up too. This will increase the NAV for Saizen. It will be interesting to see how the situation develops in Japan. Read related posts below to understand the motivations behind my investments in Japan. So far it has been good and maybe its time for a trip to Japan before prices rise to even higher levels.

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Related Posts:
1. The Japan story - Croesus retail trust and Saizen Reit
2. Looking to invest in Japan's real estate

Tuesday, August 26, 2014

The shift away from the university degree culture

If you've read the past few days news, you would have realised there are many articles on recommendations to give non graduates a better prospect to progress up their careers even without a degree. This was a cultural change in the way Singapore values its people. We know that in Singapore, if you have a diploma or lower, the career path is limited in a lot of industry. We also know that as non degree holders, the salary would be lesser for most people. This lead to a mindset in young Singaporeans to start a paper chase and study in University. In fact, look around you and you'll realise most of your friends have either got a degree or is studying for one either part time or full time.

The problem comes when many people just study for the sake of studying. There were some who found that they were not interested in the course that they were studying but graduated anyway. In the end, they had to work in a job which they do not like. Education is not about studying for the sake of getting the cert or to get good result. Education should be a place where people can learn and apply what they have learn to the real world. There are already a few recommendations put forward by the Applied Study in Polytechnics and ITE Review (ASPIRE) committee to balance work and study commitments. I guess more will be announced later.

In today's news, i see a lot of initiatives from the public service to take the lead in this cultural shift. It was reported that there will be better career prospects for non graduates in the public service. One of the changes is enable non graduates to be promoted to graduate posts faster and more graduates and non graduates schemes will be merged to allow both degree and non degree holders to progress in the same track. The Ministry of Education separately announced that outstanding non graduate teachers could get graduate pay. This would level the playing field and let people progress base on performance rather than a piece of paper. This creates an equal opportunity for everyone.

I hope the initiatives will indeed change the mindset of our society on education. Hopefully the private sector will follow suit after this. A degree doesn't mean you're better off and a diploma doesn't mean you're worse off. In the end, its how we apply the things we learn in school into the real world that's important. Even in investing its the same. You can be a finance graduate or know all the economics theory plus the financial calculations but still not able to invest on your own. You can be an accounting degree holder with honours but still not able to understand company annual reports to help you in your investment decisions. Education is useless without application. Let's see how it works out in the future.

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Monday, August 25, 2014

Review of Select group's first half 2014 financial report - The F&B business in Singapore

Business operations

Select group is in the F&B industry in Singapore. They own several restaurants such as the Peach Garden chain of restaurants, Texas Chicken fast food outlets, several catering businesses such as Stamford catering, Hong Kong Sheng Kee deserts, super tree dining at gardens by the bay and also the recent Chinatown food street etc. The business that generates the bulk of their profits is their Peach garden chain of restaurants.


Financial performance

During the financial result last year, Select group faced some headwinds due a small loss from its Texas chicken outlets. However, there may be some interesting developments in future days ahead. In the first half of 2014, both revenue and gross profit increased by 10.5% and 6% respectively as compared to 1st half of 2013. The final net profit increased by 53.7% due to a 1 Million government grant. As Select group is considered a SME in Singapore, they are entitled to government grants which helps these companies to increase productivity and grow stronger.

Challenges of the F&B industry

The food and beverage industry is labour intensive. In Singapore, not many people want to work in the service line as the working hours are long and the pay is relatively lower. As such, restaurants have to employ foreign manpower. But with the tightening of foreign manpower in Singapore recently, there is certainly some labour crunch for these labour intensive businesses which causes labour cost to go up.

In Singapore, the profit margins for the F&B industry is low as compared to other industries. Net profit margin is only about 3% for Select group. If we compare to Breadtalk group which is in similiar industry, their Net profit margin is only 1.7-2% for 1H 2014 which is also quite low. Breadtalk group's profit was lower as compared to last year as they had to close down some poor performing outlets. Select group manage to maintain and had a small increase in their profits.

The growth ahead

Select group's earnings per share (EPS) for 1H of 2014 is already 2.2 Cents as compared to only 1.41 Cents in 1H 2014. Throughout the past 3 years from 2011, the highest EPS was 2.93 Cents in FY2012. Looking at these figures, there may be a possibility that EPS will break the high of 2.93 Cents in FY 2014 this year if they are still able to produce good results in the later half of this year.

Chinatown food street

Select group also recently announced in May 2014 that they are planning to expand their business in south east asian countries. The first retail space was identified in Kuala Lumpur as a suitable location for the expansion of Hong Kong Sheng Kee desert into Malaysia. The expected operation date will be in September 2014. With more expansion plans to come, revenue and profit may increase by a huge margin in the future. Currently, all of Select group's operation is only in Singapore. With their many years of experience in the F&B industry, the venture into the overseas market may prove to be a good one.

Financial Valuations 

Is it a good time to invest in Select group now? Assuming the company made half the amount in the 2H as compared to the first half in 2014, EPS will be around 3.2 Cents (2.2 Cents in 1H 14 + estimate 1.1 Cents in 2H 14). This would mean a PE ratio of about 12x (current price 0.4 / EPS 0.033). Assuming a compound annual growth rate (CAGR) of 20%, the intrinsic value would be 52.5 Cents which means the current price of 40 Cents is undervalued and provides a margin of safety of  23.8%. But the question is will Select group be able to achieve a CAGR of 20%? If CAGR is 15%, intrinsic value will then be 39.9 Cents which is fair value for the current price of 40 Cents. For the past 10 yers, CAGR was calculated to be around 10% which means the intrinsic value would then be only 30 Cents.

The question we have to ask ourselves is will this company grow by 10%, 15% or 20% in the next few years? If they can continue to grow, which means most likely their overseas expansion plans succeed, the reward can be quite substantial. If not, there will be some more headwinds ahead. The current 40 cents is a good price only if they are able to grow at 20% or more for the next few years.

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Related Posts:
1. Company in focus - Select Group

Sunday, August 24, 2014

The chase after money lifestyle and materialism

Saw this really interesting video titled "The high price of materialism". It shows why people become materialistic and how it affects our society. Many young people these days want to earn more money or become rich so that they can buy the things they want and live the life that they want. Many will choose high paying jobs which they are not even interested in. They think that with more money, they can become happier in life. However, at the end of the day when they become successful and can afford to buy the things that they want, they realise that they are still not happy. Materialism does not make a person happy.

The way forward is to promote intrinsic value. By this, we mean promoting better relationship values of being closer with family and friends, growing as a person and having a sense of greater cause to help improve the society. Success is not just about money. Financial independence is not about making a lot of money. Yes we need money for our basic needs and for survival. This is where financial independence comes in to allow us to have money for our everyday lives and not worry about having not enough money. If we choose to walk away from materialism, we can achieve financial independence faster and have the choice to do what we have passion for rather than having a life of just working and making money.  Enjoy the video!

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Related Posts:
1. What if money was no object?

Thursday, August 21, 2014

Review of Yongnam's 2014 Q2 and half yearly financial result

This posts came a little late. The financial report was out on 6th August but i'm only writing on it now. But anyway, Yongnam is still one of my investments till now. The motivation behind the investment in Yongnam was due to the positive outlook of more construction projects in Singapore. As Singapore grows, our infrastructure could not keep up with the growing population. As such, the government has embark on new construction projects such as the new MRT lines, many new residential and commercial buildings, building of new expressways such as the MCE and also plans for the fourth and fifth terminal for Changi Airport.

Yongnam has a good track record in winning key construction projects. They were previously involved in projects such as the circle line, the KPE, National library building, Suntec city, Changi Airport terminal 1 etc. The recent projects were the new sports hub which was just completed earlier this year, new downtown line and also the new Changi Airport terminal 4. They are also involve in overseas projects such as the Hong Kong MRT, KLIA airport and also Brunei and Bangkok international airport. Currently, they are also bidding for the project for the construction of Hanthawaddy International airport in Myanmar.

Yongnam has good track records of profits. For the past 5 years from year 2008, profits have been steadily increasing up till 2011. From year 2012, profits started to decrease to a low of only 5.5 Million in 2013.

However, Yongnam reported a second consecutive loss this quarter. This increased the loss for the half year of 2014 to 7.17 Million. This was attributed to lower revenues and also lower gross margins. With lower gross margins, this means that cost of construction materials may have gone up and cost of labour may also have gone up. This would be true for the increase in labour cost as the government tighten their foreign manpower policies. To counter this, Yongnam stated that they will focus on high yield projects and maintain its resources in anticipation of winning more projects in the second half of 2014. Whether or not they can achieve what they set out for, we'll have to see the results by the end of this year. But, do bear in mind that the loss which Yongnam reported is actually not a real loss. Depreciation is already 13.71 Million which is not a real loss which is incurred.

This explains even though Yongnam reported a loss, cash flow from operations remain healthy and increased 8.9 Million for the half year 2014. This was in fact higher than in 2013 which is good news. The increase in cash flow is due to the trade receivables which is the payment that they receive for previous projects owed to them. Gearing is at 0.59 times which is healthy for the construction sector. Net asset value per share is 23.78 cents which means the current price at 22 cents is slightly below fair value.

For Yongnam, the investment will still be good only if they are able to turn around by the end of 2014. For now, the risk for investing in Yongnam is high bearing in mind the uncertainty. I have adjusted my portfolio to take into consideration the risk so that it does not constitute too big a portion of my overall investment portfolio.

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Related Posts:
1. Yongnam reports a marginal loss of S$1.9 Million in 1QFY2014
2. Yongnam secures subcontract for construction at Changi Airport Terminal 4

Tuesday, August 19, 2014

Value Investing Mastery Course by BIGfatpurse

The site (BFP) has been around for 7 years now. Just recently, they embarked to create their first value investing mastery course which the founder, Alvin Chow, invited me to attend. The one that i attended was the 7th batch with the first batch started in the beginning of 2014.

This was taken earlier on that day. There were 35 students in total. Quite a full class

What is the course about?

The name of the course is value investing mastery course but it is very different from the usual Warren Buffett's way of value investing. Instead of using the complicated intrinsic value concept which has to predict the growth of a company and discount its value to the present value, BFP's course uses another method of value investing by calculating the net asset value of a company. That is to buy a company below its net asset value. However, they bring it one step further to calculate the conservative net asset value which they term as CNAV. The whole course is about CNAV and how to determine the value.

The course is retailed at $98. However, it is not an introductory course on the CNAV but it actually teaches the whole concept which by the end of the course, you'll be able to use this method for your investment. It is a full day course from 9am to 6:30pm and even breakfast and lunch is provided. Most people i talk to on that day find that $98 is too cheap for a full one day course. 

A course where you can learn about the accounting language

Accounting is the language of business and i would say it is essential for investing. Without understanding a business, we can never invest successfully. In BFP's course, they do teach you how to analyse some parts of the financial statements and this section took up almost 3 hours of the entire course. For those who have little to no knowledge in accounting, this course will definitely be a good start for you. Things such as which assets to include in the balance sheet statement, what is the difference between cash flow and profits?, what is minority interest?, what are receivables, inventory or intangible assets etc are all taught in the course itself. Financial ratios such as P/E, P/B and Debt to equity ratio are also taught. This section is taught by Louis Koay who is also one of the directors at BFP and has passed all 3 levels of the Chartered Financial Analyst (CFA) exam. He's more than qualified to teach all these and uses simple real life examples to make it easier for new investors to understand. He even created formula sheets where one can easily key in the values and calculate the CNAV of a stock within 15 mins. I enjoyed this section as i love numbers. 

When to buy and when to sell?

Of course, after knowing all the values and all that, we need to know when to buy and sell a stock. This part is taught by Alvin who has many years of investment experience himself. It is integrated with an investment game which is quite interesting. Real stocks and historical data are used to make it more realistic. At the end of the game, the top 3 teams which has the highest portfolio value will win cash prices which is contributed by each person at $10 each. The team that i was in won the second price where we practice what was taught in the class. Basically, we calculate the CNAV of the stock, determine which stocks to buy and how much to allocate to each stock and then rebalance the portfolio for each year within the 3 years simulated.

There are many more stuff taught such as how to calculate the Compound annual growth rate (CAGR), internal rate of return (XIRR) which is important for our own portfolio monitoring. Then, the most important aspect of when to sell a stock is also taught.

$98 is undervalued?

With the amount of stuff taught especially the accounting knowledge, $98 is definitely undervalued at the market rate. However, CNAV is only one strategy of investment. Even though the whole strategy is taught, investing is more than just strategies to begin with. To build up a good portfolio, we have to understand other factors which affect our investments. Knowledge such as macroeconomics, sector rotation, portfolio management, capital allocation, risk management, technical analysis and our own psychology management are also vital in investment decisions.

Investing is a long term journey which BFP recognises it. Apart from the value investing mastery course, they have a value investor club which graduates of the CNAV course can join. This is an optional lifetime membership where they provide lifetime coaching support and gatherings where they teach other aspects of investing as mentioned above. They also have a database of CNAV stock where they already calculated the value of individual stocks for you. Of course, this does not come free and is priced at $1,XXX. As mentioned by the team, the membership is optional. I like the fact that they do not pressurise people to sign up on the spot but give them one week to consider it. No emotional games were played unlike other courses which i have seen outside.

My thoughts

Overall, the experience was a good one. I met and chatted with a few of the students that day and i'm privilege to have met Alvin and his team, Louis, Jon and Alex. The course would definitely have been useful to me if i were lost in the world of investing. But, there were also seasoned investors who have been investing for a number of years in the class on that day. They too though that the course was a good one. There is always something new to learn in investment. BFP do not promise fast money like other courses out there but teach the truth to investing. The fact that accounting was taught in the class make it even more worth the price. You can check out how much financial accounting courses are charged outside. It is definitely more than a hundred dollars.

Thank you BFP, Alvin and his team for the invitation and the knowledge you shared in this course. For more information on their course, check it out here: Value Investing Mastery Course

Monday, August 18, 2014

National Day Rally 2014 - CPF and Retirement Adequacy

The speech by Prime Minister Lee at the national day rally yesterday was quite a good one. He touched on various aspects of Singaporeans lives such as education, retirement and living environment.

This year, one of the focus was on retirement. As such, the CPF system was brought up again. PM Lee jokingly said that during last year's national day rally, he was a real estate agent where he talked on issues of housing. This year, the real estate market is not doing well so he became a financial planner. He used a ficticious couple as an example and explained how the CPF system works including explanation on the minimum sum, pledging of property and lease buy back scheme etc. I thought he did a very good job in presenting the CPF in a simple and relatable way which most people can understand. Interestingly, after his speech yesterday, there were more searches on the CPF on Google which increased the number of page views on my various CPF posts i wrote previously. PM Lee manage to get people interested in the CPF.

How much do you need for retirement?

The amount we need for retirement is very subjective as it depends on individual circumstances. PM Lee did a poll during the NDR and most felt $2000 per month is just enough for retirement. In order to receive this $2000 monthly amount from the CPF, one needs to have about $250,000 in their CPF account at the age of 55. This is much more than the current minimum sum of $155,000. As such, PM Lee said that the current minimum sum is actually not that high as one will only be able to have ~$1200 monthly with $155,000. If that person pledges his or her property and draws out half of the MS, then he'll only be able to have $600 monthly which is even lower.

Increase in MS to $161,000 from year 2015

The next increase in MS was announced during the NDR. PM Lee added that he does not see the need for futher major increases to the MS beyond this. This may be good news to many people and young people will not have to worry about the MS increasing to a level far beyond which locks up their money inside the CPF.

However, we have to take note that since the MS will not have further major increases, we could still be only having $1000+ monthly from the CPF 15-30 years from now. Will this amount be enough for our retirement by then?

This should trigger the people of Singapore and especially young people to plan for retirement above and beyond that of the CPF. Previously, people mostly relied on the CPF for retirement and do not have much of their own personal savings because they thought that CPF is already a savings for retirement.

What if you don't have enough for retirement?

There are a few ways to find other sources of income if we do not have enough for retirement. PM Lee said one can continue to work, get support from their children, use their own savings or get money out of their house. Probably that's why the government can be more relax on the CPF since they figured out there are other ways for retirees to get income.

Monetising your house

We know that a house is an asset which can be used to generate income. PM Lee provided a few ways in which we could get money out of our house. We can rent out one room, rent out the whole flat and stay with children, sell the flat and move to a smaller apartment (e.g studio apartment), or take advantage of the lease buy back scheme.

The lease buy back scheme has been extended to 4 room flats where one can sell the remaining lease and get back some money. For a 4 room flat, it is estimated that if you sell 35 years lease to HDB, you'll get $27,500 cash plus $800 per month subsequently.

More changes to the CPF yet to be announced in detailed

Other changes to the CPF include a silver support scheme where low income seniors will receive an annual bonus from the government from age 65.

There will also be flexibility to withdraw CPF monies in lump sum subjected to limits. More to be announced by the Ministry of Manpower on a later date.

Conclusion and my thoughts

Singaporeans have been asking the government to give back their CPF monies. From what I see, the government has indeed heard the feedbacks from the public and is trying to make the CPF system more flexible. As we are given the choice to withdraw more from the CPF, we have to bear in mind to plan for our own retirement. If we withdraw and spend more now, we will have lesser for the future.

Running out of money in your old age will be a sad case. Some have to continue working even in their 70s and 80s, some quarrel with their children and others have to find other means just to put food on the table. These are real cases which I believe is vwry real in our society.

Many want to know how to plan for retirement but few know where to start. Before they know it, it may have already been too late. A national financial education and literacy program in schools and institutions will help instill the right values towards money and inspire young people to be financially prudent at an early stage of life.

What are your views on the national day rally? How do you feel about the changes to the CPF? Feel free to comment and discuss below.

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Related Posts:
1. All about CPF minimum sum and CPF life

Wednesday, August 13, 2014

CPF as an asset that generates income

By now, those who're frequent readers of my blog would have understood how the CPF system works. For the benefit of those who've not read my previous articles on CPF, i've consolidated a few of it below:
  1. All about CPF minimum sum and CPF life
  2. Queries on CPF minimum sum - Pledging your property
  3. Will we have enough CPF savings to retire on after using it for housing?
  4. Forum on CPF and retirement adequacy

CPF provides income

CPF is not an interesting topic especially for young people. But, it becomes an important thing when we grow older. Because of the lack of public education on these matters, most people do not know what to do with the money in their CPF. Most choose to withdraw everything less the minimum sum from their CPF accounts when they reach 55 years old. Some even pledge their property so that they can withdraw more cash from their CPF accounts. However, this may not be a wise choice. Why do i say that?

The reason is simple. CPF is actually an asset that generates income for your retirement years. It can be liken to you renting out a property you own and collecting rental every month. Your tenants pay you rental every month which is an income for you. CPF provides income for you in your retirement years. Apart from the CPF life which pays about $1200 every month if you meet the minimum sum of $155,000, the rest of your CPF you leave inside the account continues to earn extra interest as well. Let's say if you had $300,000 in your CPF at age 55, $155,000 is transferred to your retirement account and the other $145,000 stays in your CPF OA and SA account respectively. At this point, most people will draw out the entire $145,000 which is left inside the CPF account and put it into their bank account which gives an interest of only 0.05%. How much interest will you get from the bank? The answer is a mere $72.50 for the entire year.

However, if you choose to leave the remaining $145,000 in your CPF OA and SA account, it earns about 2.5%-4% interest annually. The interest you'll get is a good $3625-$5800. It is extra income for you every year. Why is this important? You see, most people withdraw their CPF money at age 55 and feel rich. They will buy something they like such as an expensive watch or maybe go for a holiday in Europe for a few thousand dollars. But many do not know that if they leave the money in the CPF just for another year, they could actually get the same items they bought for free. They can spend the interest given which does not affect their base capital at all. They can get the same $2000 watch for free and go on that $3000 holiday for free.

How to make CPF an asset that generates income?

To make CPF as an asset that generates income, we have to actively manage it and not just leave it on its own. We have to start making sure we can meet the minimum sum. It was reported in Channel New Asia that just one fifth of Singaporeans are confident that CPF will meet their retirement needs. Only 32% of the surveyed respondents said they actively manage their CPF. Actively managing their CPF means that they review, rebalance their CPF portfolio if needed. Something surprising is a total of 59% felt there should be more education on retirement. This does show that people want to learn more but do not know where to learn it from. Hopefully there will be more public education on retirement planning.

Contribute voluntary cash top up into CPF account to meet minimum sum

This topic of CPF has become a taboo to speak off. Most just want to withdraw everything out fearing that they can never see their money again. However, on the other side, there are people who contribute voluntary to their CPF account year in and year out. They contribute their own cash.

These few people who did that will realise that they are able to meet the minimum sum easily. When they already have more than the MS in their CPF SA account before the age of 55, the interest is actually enough to cover the increase in MS every month. With about $180,000 in the SA account, the interest is about $7000+ which is enough to cover the increase in MS. This person does not even have to worry about not being able to meet the MS any more. A person can contribute a maximum of $30,600 annually less the mandatory contribution which he/she and the employer has already contributed. From 2015, the annual limit will be increased to $31,450.

Transfer from OA to SA to meet minimum sum

There are also people who transfer monies from their CPF Ordinary account (OA) to their CPF Special account (SA). Why they do that is for a simple reason. To earn higher interest. CPF OA earns 2.5% while CPF SA earns 4%. The first $20,000 in OA earns 3.5% and the first $40,000 in SA earns 5%. With the higher interest, the money in the CPF compound faster over the years which makes it easier to meet the MS.

Meet the MS to have better retirement years

Meeting the minimum sum will ensure you have sufficient for your retirement years. Currently, CPF provides about $1200 per month for the rest of your lives starting from the age of 65. At the age of 55, if you've met the minimum sum and do not withdraw the rest of your CPF out, you can actually have extra income for yourself every year with the interest given. I would say if you do not need your CPF money at age 55, consider leaving it inside to earn more interest. You can still withdraw it out any time you want when you need it. People withdraw it out to buy something they like with their hard earned money. You can leave it inside and use the interest to buy something you like without having to touch your initial savings. Which is a better choice? Of course, you can choose not buy anything and let the money continue to grow. It's your choice.

CPF changes coming your way

There will be some CPF changes which will be announced soon. As our Prime Minister has said during his national day speech, one of the focus of the national day rally will be on the CPF. More will be announced in this week's national day rally on Sunday. Watch the national day rally on TV this Sunday evening and we'll see what will be announced. 

Saturday, August 9, 2014

Renew our goals, set our dreams

I'm inspired to write this post after watching the national day parade awhile ago. This time, they showcased stories of different people who did not give up even after going through hardships. This is the spirit of what Singapore was built upon.

Our national day theme songs always revolve around home, going for our dreams, united as one etc. It speaks of a nation building process where everyone stands together to nurture and sustain it. Every national day, Singaporeans like us will gather to remember the past, celebrate what we have now and renew our goals for the future. 

We may feel that it has become increasingly stressful to live in Singapore. Part of the cause is due to the higher prices we have in our small island city. However, what we don't realise is that the real cause of the stress is because we often want to be better than others or show that we are better than others. Having a grand wedding, buying a big house or a condominium, driving a car or a luxurious car, getting material stuffs such as branded goods etc are examples of it. It is not wrong to have all these but do ask yourself what is your motive for owning or buying all these? Is it to impress others? To show others that you're better than them? Or you just want to keep up with the standards of society? More often than not, all these do not make us more happy but instead make us feeling more empty and cause unhappiness. Isn't it weird that the things that we seek make us more unhappy? 

There is this national day song in chinese which i remember during my school days when i was like 10 or 11 years old. The song is titled: 小人物的心聲 which in English it means the voices of small people (I translated it literally). The lyrics talks about a man who doesn't care if he's a popular person or not. A simple life can also be a happy life.

Actually the song is not really sung for national day celebrations but somehow it became a popular national day song which i suppose all Singaporeans would have heard before regardless of race. 

Yes, we always want a better life for ourselves as well as our family. But, a simple life can also be a happy life. We don't have to keep stressing ourselves to keep up with the standards of this society. We don't have to spend all our time working just to make more money and neglect our family and friends. So what if others live in a bigger house than you? So what if others drive a bigger car than you? It is no point to keep comparing yourself with others as it will make you very miserable. Be grateful for what you have now while striving for the future.  

We can also make a difference in other people's lives as there will always be someone out there who's more unfortunate than us. We may not be able to help millions of people but we can start with just a few people. I just made a donation to Make A Wish Foundation Singapore last week. Their mission is to "grant the wishes if children with life threatening medical conditions to enrich the human experience with hope, strength and joy." You can do your part in your own ways too. 

Life is good. Always look on the bright side of life!

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Income and expenditure update for the past one year plus

I was curious on how my financial progress was since i embarked on the journey to financial freedom more than 1 year ago. I've not blog or updated on my income and expenditure here before so i thought it might be good time to pen it down today.

I do record down my expenses frequently which enables me to know my progress even from early last year. The chart which i'm about to show you includes my earned/active income, my expenses and my passive or other income. It is on a monthly basis. Here goes:

Click to enlarge

The blue bar is my active income, the red bar is my expenses and the green bar is my other/passive income. I first set out with a mission to invest and grow my money. As stated in my previous blog post on how my financial journey started, i was focused on buying assets that creates cash flow. This is also known as passive income. But, i know some may argue that passive income may not be that passive. After all, you still need to research before investing and this takes a bit of time. But i still think it is more passive than our active income where we put 8-9 hours a day for it. 

It took awhile before traces of passive income can be seen. As you can see from my chart, the beginning of 2013 was without much passive income. It was just me embarking on a savings plan and channelling a portion of it into investments. If you're thinking why there are spikes in my active income in certain months is because of variable bonuses. As you can see, my basic pay is lesser while my bonuses make up a huge portion of my income. I do spend a little bit more on months when i get my bonus but it's still not a lot. Generally, i save more than 50% of my income every month. 

You may be thinking i earn a lot to be able to save that much but the truth is i don't. Then if i save that much does it mean i compromise on my social life and lose out on the enjoyment? The fact is i still eat at restaurants, still go to the movies, still hang out with my friends and still go travelling. There is not much sacrifice on my part. The secret is to plan and budget ahead. Eliminate all the huge purchases and unnecessary expenses and you'll be fine. Also, as i have more passive income coming in, i can actually relax my expenses a bit. I will still be able to meet my targets even though i spend more. This is the benefit of extra money. 

How i budget my expenses

Firstly, i set a target of how much i want to save for that year. Next i estimate my total income and deduct it against the amount i want to save. This will leave me with the amount i can spend. This is further divided by 12 to determine the monthly expenses that i can spend on. Next, i estimate the amount i would need to spend per month. If my estimation is lesser than the amount i can spend on, it's good news for me. The rest can be set aside for unexpected expenses. I set aside about $1000 for these unexpected expenses. It can be a sudden celebration for a friend, weddings etc. This is essentially the pay yourself first principle by saving first and spending the rest instead of spending first and save the rest. 

I hope the above short post will inspire you to plan your finances as well. It will be slow at first but as you continue it, you'll definitely see results later. Have a great weekend and in a few moments time, we'll be celebrating Singapore's 49th birthday together. Happy national day everyone!

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Thursday, August 7, 2014

My financial journey and how it all started

Many people have emailed me saying that they are interested to start investing or manage their money better. Most are in their 20s with some even younger at 18 or 19. Maybe i'll take this chance to share how my own financial journey started so that it will inspire more to start this journey as well.

Before that, i would like to say one of the most important thing in the journey is saving money. For those who want to start investing, knowing that a larger amount of savings will help to grow the money faster is important. If you have $10,000, a 10% yield is only $1000 but if you have $100,000, the same 10% yield will become $10,000. Now, this is a huge difference.

My journey all started when i was in the army thinking how my life would be in the future. I've shared this before in my "about me" page. It was after reading the book "rich dad poor dad" that inspired me to manage my money better. One of the most important concepts that changed my attitude towards money is that the rich buy assets that generate cash flow to pay for their expenses. This is a stark difference to the poor and middle class who spend all their earned income or buy liabilities with their earned income which depletes their money even more. It becomes a vicious cycle. It went on to say that assets put money in your pocket while liabilities take money out of your pocket. This gave me a very strong motivation to save money. Saving money is no longer just saving money to me. I can actually use the saved money to buy assets that put money in my pocket. This money that is generated from the asset can help pay for my expenses and thus the next month i have even more money to save and buy more asset that generate more cash flow. Keep repeating this process and it becomes an unstoppable force. Money just keeps flowing round and round until you achieve financial freedom.

When we invest in stocks, it provides income in the form of dividends for us. If we invest long enough at the right prices, these stocks can become free money for your whole life in the future. Let's say we invested in Singapore press holdings more than 10 years ago. The price doubled and you sold half of your shares and got back your initial capital. Over the years, you've collected dividends and are still collecting dividends even until now. This becomes part of your free money which you will continue to receive as long as you remain a shareholder of SPH. Of course another possibility that you lose this income is if the company goes bankrupt or is de listed. But who cares, you've got back your initial capital so just collect money as long as its still available. This can be done is we have the patience to invest for the long term and also the knowledge and experience to buy at the right price. It is totally possible.

My colleagues and I always casually joke that we should buy more stocks when the market crash. We remind each other that when the market crashes, we must remember to push each other to buy in. My colleague is in his 50s and has seen at least 3 market crashes in his lifetime. Everytime he buys during a market crash, the results are always good. But bear in mind that you have to buy the right stocks. He has more than enough to retire but still works because he enjoys the work.

My financial journey has been fruitful so far. Since starting this blog, i've learnt so much myself as i seek to write good articles. The read up and researches on investing, financial planning, buying a house, marriage costs and even the CPF has allowed me to be more prepared for my financial future. The discussions and comments on my blog on these topics have widened my perspectives as well. Thanks to all who shared your precious experiences and knowledge in the comments in my blog. I do personally read everyone of them and try to reply to all of them too. The IPS forum on CPF and retirement adequacy which i was invited to attend last month was a good experience for me as i get to hear different perspectives of retirement from different people. It was good to know a few new friends along the way too who are passionate in financial matters as well.

A financial journey is not all about making more money. In fact, making money shouldn't even be what you should be thinking in the first place. As the saying goes, do what is right and the money will flow in later. If we focus on making money, we may end up doing all the wrong things as many people out there would tell you what to do if you want more money which are often wrong. People who promise you easy ways to make money are often the ones you should not believe in.

Start your financial journey and experience the benefits later. The right things to do are save money, use the money to buy assets that generate cash flow and do it over and over again. After doing this for the past few years, i'm beginning to see cash flow amounting to thousands of dollars on a yearly basis. It started with a few dollars to a few tens of dollars to a few hundred of dollars. I did share my passive income in a blog post in March. I've not blog about it since then but actually, the money is still coming in. It started slow but it will get larger and larger as time goes by. If you can visualise this, you'll definitely reach there one day. But meanwhile, enjoy the journey and you'll reach the destination easier. Have a great weekend ahead and let us celebrate Singapore's 49th birthday together this Saturday.

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