The articles in the blog are intended for informational purposes only, with the aim of encouraging thoughtful discussions. The articles should not be relied upon as financial advice. Please read the important disclaimer at the bottom of the page before proceeding.

Seeking FIRE - Route to Financial Freedom

Been months since I wrote a post here – I’ve started a full time role in the financial sector, which means that active investing has taken a back seat, as all my transactions have to be pre-cleared. I had sold off a number of positions right before I started my role, reducing my single stock holdings to just a handful of companies. Pursuing FIRE (Financial independence, retire early) has been a goal of mine for some time, and this post serves as a summary of the steps I’ve taken as well as the plan ahead. This might also be the last post here in a while, as I intend to mainly post updates on my Instagram page (@alpacainvestments).

Investment Portfolio

Going forward, I intend to post monthly portfolio updates (if any) mainly on my Instagram account. Working full time means that I don’t have the luxury to thoroughly research individual stocks and write lengthy posts on them. The majority of my portfolio is in ETFs – about 50% currently and with the intention to increase my allocation over time. I will still selectively take positions in single stocks, but these would mainly be large cap names simply to get exposure to a certain sector, for example, if I am bullish on the payments sector, I may buy V/MA/PYPL to be “overweight” on the sector in addition to ETF positions such as IVV/QQQ of which these are already constituent stocks.

SRS Account

Recently opened my SRS account by depositing $1. If you’ve yet to open one, please remember to do so before the end of this year because the retirement age will be increased from 62 to 63 next year. Correspondingly, the withdrawal age for our SRS monies will be increased to 63 too. There’s this good article by Seedly explaining the rationale for opening an SRS account with $1 here.  


I am a complete beginner in this space therefore I don’t think there’s much for me to share, but I have started buying some cryptocurrencies and this will form a small part of my portfolio going forward. Current allocation is capped at 1-2% of portfolio.

Credit Cards

Applied for a number of credit cards mainly for the deals for new customers – perhaps too hurriedly which was detrimental to my credit score. The lesson learnt here is not to apply for a number of cards in a short period of time, as this may give the impression of a weak credit profile.

I try to use credit cards for nearly all my expenses. I see this as a way to reduce my “working capital”, similar to how companies seek to optimise their receivables and payables. If I were to pay for most expenses using cash/debit cards, it would mean that I have to keep a cash balance in my bank account for monthly spending. But with credit cards, I am literally living “paycheck to paycheck” (with emergency funds set aside, of course) where my current expenses are funded by the following month’s salary, and any excess cash can then be put to investments. The additional benefit of credit cards would be the cashback perks, but for now this is rather insignificant given my low expenses.

Seeking FIRE

The idea of FIRE has been a goal for me for some time. Recently, there was an article on Today which found that around 6 in 10 of young adults in Singapore aimed to retire early, which I found rather ironic given that the Govt has just announced that the retirement age will be raised. I think that there are too many variables to account for at this point of time, thus I would not want to set a specific net worth or age for FIRE. Instead, I believe that a simple three step strategy will eventually lead to attaining FIRE, whether it is 10, 15 or 20 years away. But it would be inevitable. My three steps involves: (1) Maximising income, (2) Keeping expenses below average, and (3) Investing consistently and prudently, and let compounding work its magic.

For point (1), the caveat would be what trade-offs one is willing to take – for example, one could take on various side hustles in addition to a full time role to maximise income, but that would be at the expense of burnout or sacrificing time spent with loved ones. Therefore, I think this should be framed as “given X number of hours I’m willing to work, what would allow me to maximise my income?”.

For point (3), “prudently” is open to interpretation and I think there will always be the temptation to bet on riskier stuff such as options or cryptocurrencies and hope for a 100x return. For me, I think that a more balanced approach would be more practical, keeping most of my investments in ETFs and perhaps having a small allocation to hopeful moonshots.

I’ve ran the preliminary numbers based on the expectation of having $4,500 SGD (in 2021 dollars, adjusted for inflation) of passive income monthly, which I consider to be Barista FIRE or Coast FIRE. This $4,500 figure represents the median income in Singapore and my perspective is that being able to generate this income would be sufficient to live the lifestyle of an average Singaporean. Any additional “luxuries” can then be funded through part-time employment.

My base case assumes a conservative 5.5% CAGR for my investments (100% equity), which I think is reasonable given that pension funds are projecting similar expected returns on their portfolios, which include fixed income. What I noticed when running the numbers was that the sequence of annual returns actually makes a difference on the portfolio’s growth trajectory. For example, having a -30% drawdown in the earlier years is better than a -30% drawdown in the later years, even though the CAGR over the period remains the same – meaning that $1 today still grows at a 5.5% projected rate over the projected period. The main difference would be because there would still be capital injections into the portfolio over time, thus it would be more ideal for the years with higher returns to be the later years when the portfolio is considerably larger.    


My perception is that the idea of early retirement is still pretty controversial, and there are people who are puzzled by the idea pursuing FIRE. My view is that it is simply to have the option to retire once one has accumulated enough wealth, regardless of which age you achieve it by. If someone attains a net worth of X million by 60 and retires, then why shouldn’t some who attained the same X million by 40 be able to retire? To me, as long as both portfolios generate the same amount of passive income, there is no difference.

In any capitalistic society, there is always the battle between Capital vs Labour. And more often than not, Capital is better rewarded than Labour. While most of us begin as salaried employees (Labour), the goal should be to invest in income generating assets over time (Capital), and eventually being able to depend on passive income instead of active income.

Ultimately, I view all our choices as trade-offs that we have to make. In our 20s and 30s, we are trading our time for money; the wealth accumulation stage. At some point, we would have to use that accumulated wealth to “buy” time – that is, to have earned yourself the freedom to pursue whatever you want. To me, that’s the true purpose of seeking FIRE.

Impact of P/NAV ratios on acquisitions and rights issues


Earlier this week, I was having a conversation where I was trying to explain how some REITs are able to consistently make acquisitions and grow their AUM, while other REITs are not. My view is that the difference is mainly down to their price to net asset value (P/NAV) ratio which the market assigns to the REITs. REITs with P/NAV greater than 1 are able to take advantage of this cheaper cost of equity to make yield and NAV accretive acquisitions, whereas REITs with P/NAV at or below 1 are unable to do the same – acquisitions would often not be feasible as this would result in NAV and yield being dilutive.

I illustrate this with the examples below.

Let’s say we have two REITs, Reit A and Reit B. Both have similar properties valued at 1 mil, and generate a gross yield of 4%. Interest costs are 2.5%, and the gearing ratio of both Reits are 40% - meaning that the capital structure of the reit comprises of 40% debt and 60% equity. Both Reits have 600,000 shares issued, which gives the Reits a net asset value of $1 per share each. Up till now, both Reits have exactly the same metrics.

Now, let’s assume that as the units of both Reits are traded on the market, somehow, Reit A’s units are trading at a P/NAV ratio of 0.9x, with a dividend yield of 5.56% (assuming 100% payout). Reit B’s units are trading at a P/NAV of 1.5x, with a dividend yield of 3.33%.

What would then happen if both Reits were to look at making an acquisition?

If both Reits were to look at acquiring a property at “market value”, in this case, meaning a property that gives the same gross yield as their existing properties (4%). The target property is valued at $100,000, and the acquisition would be financed by the same debt to equity structure (40% debt and 60% equity), in order to maintain the same gearing ratio for the Reits. This is where the difference in share prices would matter to the Reits. If the discount on new shares is 10%, Reit A, has to issue 74,074 new shares to raise $60,000 of equity, whereas Reit B only needs to issue 44,444 shares to raise the same amount of equity. This means that Reit B’s cost of equity is “cheaper”, because it needs to issue fewer shares to finance the acquisition, hence resulting in lesser dilution of its outstanding shares.

When evaluating the proposed acquisition, both Reits would publish the “pro forma” financial impact of the acquisitions. Here, the capital structure of both reits remain the same (40% debt 60% equity). The gross property yield remains the same, because we are purchasing a property which gives the same yield as the existing property portfolio, and the interest cost remains at 2.5%. The pro forma impact on both Reits would be that the acquisition would be dilutive Reit A’s NAV and yield. NAV will drop to $0.98, while dividend yield, based on the theoretical ex-rights price (TERP) would be 5.50%, down from 5.56%.

On the other hand, Reit B would see its NAV rise from $1 to $1.02, and its dividend yield would increase from 3.33% to 3.44% - both NAV and yield accretive.

What would be the impact of the proposed rights issue for both Reits?

It is likely that Reit A’s shareholders would not approve the deal – nobody likes coughing up more cash, only to see their NAV and dividends get diluted. In fact, the Reit manager for Reit A might not even propose the deal to shareholders, given that it is likely to fail. On the other hand Reit B’s shareholders would likely be glad to throw extra cash at the Reit – given that the deal is NAV and yield accretive.

What can we understand from these two examples?

Fundamentally speaking, there is no difference between the two Reits, as well as the property that is to be acquired. The only difference here is that Reit B is trading at a much higher P/NAV ratio, which allows it to issue fewer shares to make the same acquisition, hence resulting in it being NAV and yield accretive. The longer term impact would be more crucial. Reit B can continue to grow its AUM with more yield accretive acquisitions, and reap benefits such as lower interest costs on its larger asset base, as well as perceived “stability” from it being a much larger Reit. The market would also view Reit B as consistently “growing”, thus may be willing to pay a premium for Reit B. This results in a positive cycle for Reit B, all of which started from the mere fact that its P/NAV was higher than Reit A.

What can Reit A do to grow?

This is not the end of the road for Reit A. It can still grow, but it would require different approaches to grow its AUM. Firstly, Reit A would probably be more selective in its acquisition targets, looking for properties that yield above market gross yields (in this case, >4%). Reit A can also consider other financing options, such as issuing perpetual securities, which count as equity instead of debt. Lastly, Reit A can also consider taking on a more aggressive financing structure for the acquisition, for example, using a 60% debt/40% equity mix, and play around with the numbers until the acquisition can be yield and NAV accretive. However, this would increase the Reit’s overall gearing ratio.


The conclusion here is that simply having a higher P/NAV ratio can result in tangible long term benefits for a Reit, if the Reit is able to take advantage of their “cheap” cost of equity to make acquisitions. In fact, raising equity when share prices are high is what many companies are doing, for example, fast growing companies such as Tesla or Sea Ltd have taken advantage of their high share prices to raise equity. Even meme stocks such as AMC have done the same.

Of course, there are other factors that influence a Reit’s ability to grow, such as the sponsor strength, pipeline of properties from the sponsor, capital recycling etc, but this article mainly serves to explain the impact of having a high P/NAV on acquisitions and rights issues.

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Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.

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