August 2023 Portfolio Updates

 

Portfolio allocation as of August '23.

• SG Shares: CDG, DBS, Haw Par, SGX, Valuetronics

• SG Reits: Syfe Reit+, DigiCore Reit

• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

• US ETFs: SCHD, QUAL

August was a decent month for adding to my existing positions. I bought more of 2800HK amid the China real estate fears, and added to my Syfe Reit+ portfolio multiple times.

In my previous posts, I have shared about having an asset allocation target of 50% Singapore, 30% rest of world and 20% China. Recent events have led me to rethink this allocation, thus I have made the following adjustments to my allocation targets.

	Previous Target	New Target
STI ETF	10%	20%
SG Stocks	20%	15%
S-Reits	20%	15%
HSI ETF	20%	15%
Global ETF	30%	35%

 

Reasons for the change:

• I want the portfolio to be even more passive, hence actively managed SG Stocks will be reduced to 15%
  
  
• Having a higher weightage towards global stocks (35%) versus China exposure via HSI (15%) to reduce single country risk
  
  
• S-Reits are under pressure recently due to higher rates, but taking a step back I believe that there’s a significant principal-agent conflict of interest when it comes to the structure of Reits. Reit managers are incentivised to grow the AUM of the Reit via acquisitions, which may not always be in the interests of unitholders. 
  
  
  Additional, Reits are more highly leveraged as compared to an average equity index, thus the impact of “mistakes” can be more costly, e.g. if a Reit has a relatively high gearing ratio, a small drop in asset values may cause the Reit to be in default as debt covenants are breached.

FIRE Musings

Last month’s post regarding “what is work” was rather well-received. Hence, this post would be a continuation along those lines – dispelling the notion that “working” should be the default for everyone, eliminating the fear of (early) retirement, and reaching our early retirement dreams via dividend investing.

Why is work the default?

When someone talks about wanting to retire early, and shares that part of their retirement plans involves some volunteer work, pro-work folks love to say “why can’t you volunteer while working?”.

That’s such an absurd question. I would challenge you to think, in the first place, why should “work” be the default? Because society tells us to? Because there’s a stigma against retiring early?

At some level of wealth, work becomes optional. If someone tells me they’ll retire early and volunteer twice a week, I’d say that’s great, rather than try to suggest that they should somehow fit volunteering into their current busy schedule.

Think about it this way:

How volunteering fits into an early retiree’s week: Wakes up naturally without an alarm. Perhaps spends 1 or 2 days per week working part-time in a freelance role in an area they’re passionate about, and maybe another 2 days volunteering. The remaining free weekdays can be spent exercising while the gyms are empty, sitting at a café reading a book or relaxing by the beach without the weekend crowd. Weekends then can be entirely devoted to family. A slow pace of life, living intentionally.

How volunteering fits into an ordinary worker’s life: Wakes up at 7am, 5 days a week. Spends their mornings in rush-hour public transport packed like sardines. Monday to Friday in the office, juggling their workload, bosses’/clients’ high expectations, office politics… and then travel back home in the evening rush-hour, assuming one is lucky enough not to work overtime. After an exhausting work-week, perhaps set aside 1 day during the weekend to do volunteer work, which would mean that some family time is sacrificed.

Let me be clear – the above comparison is not to diminish the efforts of people who manage to carve out time for volunteering while being employed in a full-time job. I think these people are truly altruistic and deserve our respect.

My point regarding the above comparison, is that if someone expresses their view that they want to volunteer as part of their early retirement lifestyle, that should be celebrated. Rather than questioning why can’t they fit volunteering into their current lifestyle, because obviously volunteering while holding on to a full-time job involves massive trade-offs, that not everyone is prepared to take.

Eliminating the fear of (early) retirement

Recently, I had a conversation with ourmoneydreams – a Singaporean couple in their early 30s who would likely reach financial independence in within the next year (in their early/mid-thirties). They wondered if their account would still be worth following if they retired early (rather than posting updates about their journey to early retirement, which is what most finsta accounts do).

I’d say that posting about the life of an early retiree is probably far more interesting, simply because so few people actually get to retire early! It would be wonderful to get insight on how they spend their time, but equally as important, their fears and insecurities and how they manage them.

Many people fear early retirement because it is so unusual. There’s even a fear of traditional retirement, because people who’ve worked for 30 to 40 years reach the point where their jobs becomes their identities! Articles fear-mongering about losing “purpose”, losing “structure”, and the like… are extremely hilarious to me. Thus, I believe that sharing the lifestyle of an early retired couple would be extremely beneficial to those looking to achieve the same dream.

There was a reddit post on SGFI asking “Those who achieved FIRE, how are you passing your days?”.

I shared this blog from a fellow Singaporean blogger, RB35, who managed to retire at 33 in 2018. He continued blogging to share about his early retirement lifestyle, which I found extremely inspiring.

 

 

There was a response to my comment that “he went back to work in the end”, as if to point out something went wrong with his early retirement plans.

In reality, RB35 went back to “work” for 2 more years because he couldn’t travel freely due to Covid, which was how he spent 2018-2019. Not because of monetary issues. RB35 retired at 33, went back to “work” for 2 years at 35/36, and has now retired again at 37/38. Which is still way earlier than most folks and I’d say that’s still pretty amazing.

Pro-work folks like to jump up and yell “checkmate” whenever FIRE folks face the slightest of setbacks. What’s the obsession with what other people choose to do with their lives? Do you spend your entire life hoping that some early retiree will screw up their retirement plans, so that you can jump in and say “I told you so”?

If people get to retire early, I genuinely feel happy for them. I think it is fantastic to be work-optional. People who reached financial independence are generally happier. And having more happy people is good. There’s zero envy from me. It really doesn’t matter to me how they came to that wealth.

Whether you retired early because you won the lottery, received an inheritance, built and sold a business, made 100x your money in crypto… or for the rest of us in the 99%, through working and investing aggressively, it doesn’t matter to me. As long as we reach financial independence, I don’t think there’s a difference how we got there. What matters would be, at that level of wealth, how do we plan for a sustainable retirement?

Criticism of dividend stocks

Another warped perspective that I’ve seen is someone questioning why Singaporeans prefer dividend stocks, rental income, or generally any cashflow based instrument, rather than investing for “growth”. I am not sure what’s the issue here. What I can say is, I’m certain that someone like AK71 with SGD 200k+ of dividends annually, would definitely not be complaining.

I am more than happy to continue to perpetuate this preference for dividend stocks on this blog. The irony is that from a dividend investor’s perspective, it would be fantastic if these naysayers choose to shun dividend stocks, if there’s less demand for dividend stocks, we get higher yields on our investments – please don’t buy dividend stocks, so that I can get them at cheaper prices!

 

If I were to summarise the above 3 points into a sentence, tying together my views regarding work, retirement and investing for dividends, it’d just simply be:

I’d rather be unemployed with 5k/month of passive income, than be employed and earning a 5k/month salary.

The former is (almost) permanent, the latter is not. I don’t think it gets simpler than that.

 

July 2023 Portfolio Updates and thoughts on work vs FIRE

 

Portfolio allocation as of July '23.

• SG Shares: CDG, DBS, Haw Par, SGX, Valuetronics

• SG Reits: Syfe Reit+, DigiCore Reit

• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

• US ETFs: SCHD, QUAL

Markets have been on a frenzy and hence there's little portfolio activity to report for July. Again, the only purchase was my regular DCA for Syfe Reit+. 

Just for fun, this is the first time that I've calculated the month-on-month increase in portfolio value. Portfolio at the end of July was +6.9% higher than portfolio at the end of June, excluding inflows during this month. Interestingly, the increase in portfolio value is equivalent to more than 1 month of my salary! I think this reinforces my point about capital vs labour that I've written about before - in the long run, returns on capital likely trumps returns on labour, which is why I've been aggressively deploying my earned income into investments.

This week on my Instagram page, I have written a short commentary about the impact of projected inflation rates when calculating how much we need for retirement.

GIC had announced their 20-year rolling real returns, which was 4.6%. The sovereign wealth fund of Singapore reports its returns in real terms (nominal return - inflation rate), which means that it was able to generate returns of 4.6% above global inflation.

Earlier this year, when I posted my YouTube video / blog post regarding financial projections and assumptions for FIRE, I assumed nominal returns of 5% and inflation of 2.5%, to estimate when I would be able to hit my FIRE targets. This means an expected real return of 2.5% (nominal returns - inflation rate). 

The main area of contention by a number of people was that using a long-term expected inflation of 2.5% was “too low”, and many suggested using an expected inflation of up to 4%. 

People are prone to recency bias. Before the inflation spike in 2021, the last time that people were concerned about inflation was in the 80s… and now, many think that high inflation is here to stay.

The very same folks who are now expecting inflation to stay elevated for longer, tend to be those who also say that they’re “investing to beat inflation”, and possibly are expecting to generate nominal returns of 8-10%. At an 8% nominal return and 4% expected inflation, the expected real return would be 4%.

Consider the 2 scenarios below:

(A) Expected nominal returns of 5%, expected inflation rate of 2.5%. Implies expected real returns of 2.5%

(B) Expected nominal returns of 8%, expected inflation rate of 4%. Implies expected real returns of 4%.

It is ironic because using an expected 4% real return for FIRE projections is in fact more "aggressive" than using a 2.5% expected real return. Put another way, if you only need a 2.5% real return to achieve $X million by 40, you are being more conservative in you assumptions than someone else who would need a 4% real return to achieve the same $X million by 40.

In summary, it is crucial to consider your expected real returns when you do your financial projections - there is little value in assuming higher nominal returns to "compensate" for higher expected inflation - ultimately, it is the real returns that matter. 

 

FIRE musings - what is "work"?

Thousands of years ago, when humans were still doing barter trade, “work” was simply about sustenance. It was a means for survival. If you were a shepherd, you herd your sheep. If you were a farmer, you grew your potatoes. At some point, the shepherd and farmer will meet at the market square of the village, to trade some meat for potatoes, which will ensure that both families have both meat and potatoes to eat. 

Many centuries later came the industrial revolution. With machines, production lines and a much larger population, there was a need to organise people to produce stuff. And hence the “9 to 5” workday was created – an orderly system to get people into the factories, work for 8 hours a day, and get paid at the end of their shift.

Today, in significantly advanced economies, “work” seems to take on a larger meaning. With countless Ted Talks on “finding your purpose”, self-help books about self-actualisation, and to top it off, social media to project the “ideal” life to the world – people have come to see “work” as something more than purely about survival. People rationalise “work” as something that “contributes to society” (work = good; no work = bad), for prestige, for passion, for purpose, or some combination of these. Of course, while working we pay taxes, which in turn fund certain public initiatives, infrastructure and so on. That said, there are obviously some jobs that have more “purpose” than others, perhaps being a healthcare worker or an educator. 

But, fundamentally, whether in the barter trade era, the industrial revolution or today, “work” simply earns us an income to sustain ourselves. Because let’s be honest about it – how many of us will continue in our current jobs, if we won the lottery of a billion dollars tomorrow? 

Hence, I prefer to be a realist. I prefer to see work as exactly how our ancestors saw it for – a source of income for survival. Nothing more.

To me, here’s how I plan to reconcile working for survival vs doing something I love. In the initial years of working, I aggressively deploy capital, building up my portfolio quickly. At some point this will generate me enough passive income to cover my expenses. That will be the point I “retire” from the shackles of full-time employment, and can freely pursue what I love. 

Maybe you want to be a home-based baker selling pastries, but realistically that would bring in $500 per month. Baking is your passion, but how do you scale this up – with all the considerations about marketing, logistics, operations and inventory – for it to become a full-time stable business endeavour? And for all you know, the huge amount of effort spent may eventually cause you to lose your “passion” for baking, that you started off with!

But what if the person above is also a decent software engineer? Do they give up a lucrative career, fresh out of school, to pursue baking? Or would they be better off, working in a tech firm drawing $100k/year, save and invest aggressively, and then “retire” in their 30s to pursue their passion for baking?

Which route would be more logical and reasonable?

This is not to say that everyone shouldn’t pursue their passion. Anecdotally, I’d say around 20% of people I know have found roles that they’re passionate about and are well compensated for it. These are the lucky few. But for the rest of us in the 80%, who are not as lucky, it is up to us to create the ideal conditions for ourselves.

Does the source of income matter?

Another issue that puzzles me is the bias to see “earned income from work” as something superior than say, dividend income, rental income or other forms of non-conventional income (OnlyFans?). In society, we are brought up to think that effort should correspond with rewards – that “hard work” should be espoused, while those who have it “easier” are criticised. In school, you have people lamenting that they’ve studied very hard for an exam, yet someone who barely studied scored way better than them. “They don’t deserve it”, is the common grumble.

The same perspective plays out when it comes to generating income. For example, there are a number of people who may think that an early retiree in his 40s who lives off dividend income and play games all day is “lazy”, or perceive someone who lives off rental income from multiple properties as a “greedy landlord”.

But I’d say life is too short to give a damn about what society thinks. Live your own life, however unconventional it is.

Because at the end of the day, money is fungible. A dollar earned from dividends buys you the exact same amount of things, as a dollar earned from being stressed out over some pointless corporate tasks. To me, as long as one does not cheat or steal… there’s really little difference as to how the money is generated.

What’s the difference between a YouTuber who spends 15 hours a week producing 2 videos that generate $3,000 in AdSense revenue a month, compared to an auditor who works 15 hours a day in an office cubicle during peak season, earning the very same $3,000?

Consider the few scenarios below:

1. A 35-year-old private hire driver, earning 11k per month

2. A 23-year-old fresh graduate investment banking analyst, earning 11k per month

3. A 60-year-old retiree who accumulated 3 million in invested capital and now lives off 11k per month of passive income

4. A 45-year-old who inherited a 4 million dollar freehold property in a prime location, rented out at 11k per month

For the private hire driver, it probably involves 12 to 16-hour days. Extended periods of being seated and driving is gruelling. The person is also probably at the limit of their earning power. 

The investment banking analyst probably has to work 12 to 16-hour days as well. But of course, in a good year, with potentially 12-month bonuses, total comp is much higher. There’s also upside to their income as they progress in their career. Conversely, there is also the risk of retrenchment, especially in a year like this when M&A deal flow has waned considerably. 

Assuming the retiree has invested in a globally diversified portfolio of equity ETFs and bond ETFs – it is currently yielding 4.4% to provide 132k of annual passive income. The idea here would be to generate a perpetual stream of cashflows to fund the retiree’s lifestyle.

For the 45-year-old who inherited the freehold investment property, given Singapore’s gravity defying residential real estate prices, supply shortage and the prime location, it could be considered low risk as well. There’s obviously single asset risk, and hence the logical solution would be to use the excess cashflows from rental income to diversify into other asset classes.

The point of these 4 scenarios is that while we may all have our own preferences and prejudices about them, the reality is that $11k from any of the above sources would buy you the same amount of goods and services. $11k a month buys you a rather comfortable life in Singapore. If you want to spend $5k on a ski trip to Switzerland, $5k from any of the 4 sources buys you the exact same experience.

I still have a preference for scenario 3, because in Singapore, scenarios 1, 2 and 4 will be subjected to income tax, while 3 will not. Which is why my ideal retirement plan aligns with scenario 3.

Another perspective to see this would be from a longevity point of view, which would bring in the perennial tussle between capital and labour. Obviously for scenarios 1 & 2, these are from sourced from employment income (“labour”), which would very much depend on one’s human capital. The driver could very well be replaced by driverless cars, while the excel monkey could by replaced too, once AI gets sufficiently adept at re-arranging logos on powerpoint and financial modelling. 

Whereas scenarios 3 and 4 can largely be considered as perpetual. These assets, be it equities, fixed income or real estate, will generate cash flows with a high degree of predictability (“capital”), over a long horizon. 

Therefore, those in scenarios 1 & 2 would have to save, invest with a long-term oriented mindset, and eventually they might reach a level similar to the 60-year-old retiree with 3 million of invested capital.

In summary, a dollar earned from labour, converted into a dollar of capital via investing, will allow you to reap the benefits for a long time to come. While we all may have different perspectives on the meaning of work, this blog is ultimately about how to build wealth, manage that wealth sustainably, and above all, to have the freedom of time to live life well. 

Recognise that time is the most important commodity we have. And spend it well. 

32 years to Financial Abundance? Here are my thoughts

 

Last week, there was an article in the Straits Times, titled “Moving from financial stability to financial abundance takes Singaporeans 32.3 years”.

As usual, when it comes to the topic of retirement… it caused quite a stir online. Based on social media comments, the overwhelming sentiment seems to be that these numbers are ridiculous – that in Singapore, it is nearly impossible to achieve financial freedom / financial abundance, apart from maybe striking the lottery (or birth lottery). 

To summarise what the article mentioned, the survey found that from a starting point of financial stability, it took:

6.1 years to reach financial security; defined as being able to invest on top of saving a portion of income.  

An additional 6.5 years (cumulatively 12.6 years) to reach financial flexibility; defined as having sufficient financial investments and assets to cover living expenses for up to one year.

An additional 8.7 years (cumulatively 21.3 years) to reach financial freedom; defined as having sufficient investments and assets to generate enough passive income for life.

And finally, an additional 11 years (cumulatively 32.3 years) to reach financial abundance; defined as having more than enough income for one’s lifetime.

 

Comments on social media raised a few key points.

Firstly, some folks believed that this survey was “not representative” of the average Singaporean, because it only targeted the “high income” folks. Is it perspective valid? Let’s look at some figures.

The survey interviewed 1,000 participants aged between 25 and 64, with household incomes of $70k to $250k.

For perspective, the median household income for Singaporeans in 2022 was around $120k per year ($10,099 per month), which means that the 50^th percentile household would be included in this survey.

At the lower end, the $70k household income would actually fall slightly under that of a median household consisting of 2 fresh graduates: $4,200/month per person (2022 figures) amounts to ~$100k per year.

While at the upper end, assuming the $250k household income are for folks in their 50s, then that works out to around $10k/month per person – reasonable for people working in middle-management roles at that age.

Thus, based on the figures above, I believe that the sampled population surveyed is reasonable. While it does skew slightly towards the wealthier segments (the article itself mentioned that respondents were “affluent”), the $70k to $120k income group falls below the median household income. Definitely not only the “rich” folks, as many have speculated.

But within the sample there could be anomalies. While a $250k household income in your 50s is would be comfortable, a $250k household income for a fresh graduate couple in their 20s is undoubtedly amazing. After all, there are fresh grads earning >$10k per month, right?

 

The second point that many have brought up is that: if it takes an average of 21 years to attain financial independence, and 32 years to attain financial abundance, why do we still see many elderly folks working well into their 60s and 70s? (Or, to be politically correct, some may just be “collecting cardboard for exercise”). Why isn’t everyone retiring in their 40s and 50s?

I think this is a valid challenge. I don’t have a comprehensive answer to this, but I have a few thoughts.

If we were to compare the Baby Boomers against the Millennials / Gen Z, the Boomers grew up in an environment where the priority was on survival. Literacy rates were lower, and many stopped pursuing education at a young age, in order to work to support their families. Consequently, if some Baby Boomers end up falling short on retirement adequacy, I don’t think it is fair to fault them for not managing their finances well. It was a different time.

Today, for the majority of the Millennials / Gen Zs, life isn’t solely about survival. Education in Singapore is heavily subsidised, and most go on to complete tertiary education. Singapore’s economy has grown by many multiples from the early days of independence, providing more opportunities. The internet has also democratised access to financial knowledge – we have forums like Seedly, SGFI on Reddit or telegram groups like 1M65 where folks can discuss personal finance. The FIRE movement has also increasingly gained traction in Singapore in recent years.

As a result, financial literacy today is much higher than previous generations. The barriers to entry for investing is much lower (zero / low cost brokerages), and there are a wider suite of products that cater to people who do not want to actively manage their investments (ETFs / robo-advisors). An increasing number of people realise the power of compounding and the importance of starting early, and have started investing in their 20s or even late-teens.

For further evidence of the aspirations of Millennials and Gen Zs, a survey last year found that on average, Millennials and Gen Zs want to retire earlier than the previous generations, which is ironic and contradictory to the retirement age being progressively raised. 

Therefore, I would argue that despite the rising cost of living, achieving financial freedom today would actually be easier than for the previous generation. People are more financially savvy, aware of the steps required to achieve financial freedom, and have the benefit of staring early with time on our side for compounding to work its magic.

The main contributors to the sky-high cost of living today are private properties and cars. Without these big-ticket items, I believe that it is still possible work towards financial freedom, while enjoying a reasonable standard of living in Singapore.

 

Putting some figures to each level of wealth

The article left out any reference to hard figures when for each milestone. Which makes perfect sense, because these milestones differ based on individual needs and wants. A luxury to someone may be a necessity to another.

But let me share what I think would be comfortable for me (for 1 person – double the amount for a couple, although there could be some synergies):

Financial Security: At least 6 months of emergency funds set aside, and starting to build an investment portfolio.

Financial Flexibility: Emergency funds able to last at least 12 months, possibly supplemented by some passive income.

Barista FIRE (Added by me): $1m to $1.25m SGD

Financial Freedom: $1.5m – $2m SGD

Financial Abundance: $3m SGD and above.

Given that I view attaining FIRE as a “cashflow” target, rather than an “asset target” (FIRE number), the way I think about the last 3 stages above would be “if I want a monthly cashflow of $X, how much capital would I need to invest, based on a reasonable portfolio yield of 3 to 5%?”

Our mindset is key

For me, the main takeaway from the fervent debate would be the different mindsets that people have. In the Financial Independence community, I am used to seeing people with targets like “Barista FIRE by 30”, “2M35 as a couple”, and “Retire by 45”.

These are very ambitious targets, but definitely possible, with a combination of 1) above average income, 2) above average savings rate, and 3) moderate investment returns.

Whereas in the general comments on social media, the sentiment seems to be that even after working for 32 years, it is impossible to even achieve financial freedom, let alone financial abundance. To me, that’s the stark difference. Those actively working towards FIRE are mostly driven, goal-oriented folks, with the conviction that FIRE can and will be achieved, even if some trade-offs are required along the way.

If we believe that something is impossible, it will remain impossible. A good example of this would be the 4-minute mile. For a long time, people believed that it was impossible for a person to run a mile in under 4 minutes. People genuinely believed that it was just not possible for the human body. But once Roger Bannister broke the 4-minute mile barrier in 1959, subsequently, many people could break it as well. This shows that our beliefs play a huge role in determining the outcome. Get rid of your limiting beliefs today!

Surround yourself with like-minded people who share the same values and mindsets towards positive wealth building habits, who will inspire you on your journey. Having the belief and conviction that you will succeed. Ignore the naysayers and skeptics.

While reading through the comments, perhaps my favourite one was “I don’t even want to work for 25 years”.

Well, I don’t even want to work for 10.

“Believe you can, and you’re halfway there.” – Theodore Roosevelt

Earlier this year, I made a YouTube video detailing the numbers required for an average fresh graduate earning $4,200 per month to achieve financial freedom within 20 years. Do check it out!

May 2023 Portfolio Updates

Portfolio allocation as of May '23.

• SG Shares: CDG, DBS, Haw Par, SGX, Valuetronics

• SG Reits: Syfe Reit+, DigiCore Reit

• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

• US ETFs: SCHD, QUAL

May was an excellent month for capital deployment - making up for the lack of portfolio activity in April. For ETFs, I bought 2800HK and SCHD. I initiated a new position in Haw Par ($9.35) and averaged down on Valuetronics (avg. $0.53). I also continued my DCA into Syfe Reit+. 

Valuetronics reported positive results this week and announced a dividend of 0.20HKD, which includes a special dividend. The company holds $0.41 per share of cash and with a share price of $0.53, gives a 77% cash to market cap ratio. It has benefitted from higher rates, as interest income increased nearly 10x vs FY22. With an EPS of 29HKD, the ex-cash P/E ratio stands at 2.4x. The company intends to continue repurchasing shares as part of its 250M HKD buyback programme, and currently holds around 5% of total shares. I believe that as long as the shares trade below NAV of $0.56, share buybacks make sense and will benefit shareholders.

Haw Par is another largely ignored stock - it is mainly an investment holdco but has a healthcare segment which generates c.40M of profit before tax. Even if we exclude the healthcare segment, the holdings in UOB and UOL are worth c.2.6bn. With a further 334m in cash and 295m in debt securities (mainly SG T-bills), less 28m of debt, these add up to c.3.2bn, vs its current market cap of 2.05bn... that's a considerable discount. Of course there's a natural holdco discount applied, and the question of whether holding that much cash is efficient - but in a high rates environment there's a benefit to this as well.

At a portfolio level, my exposure to SG shares has increased considerably, thus I am unlikely to add to individual SG positions in the near term. Building steady dividend income continues to be the top priority, with a preference for ETFs to "buy-and-forget". As I posted yesterday, dividends YTD stands at c.1.6k SGD - working towards the 6k annual target but this is also largely dependent on the market.

Follow me on Instagram @alpacainvestments where I post more frequent updates!

FIRE musings

There was a post on the SingaporeFI Reddit community about "How do you stay motivated and not lose sight of the goal (to achieve FIRE)?".

Having embarked on the FIRE journey for more than a year, those negative feelings come to me at times, which makes me feel that the goal is far away and dreading the process.

I wrote my reply on the thread, reproduced below with the addition of some afterthoughts:

I totally understand what you're saying because I feel that way all the time too. Here are some ways I look to address those feelings:

Striking a balance between living in the moment and delayed gratification.

I think one of the misconceptions regarding FIRE needing to be extremely frugal. I think it's up to individuals to strike that balance between spending now so that you don't feel deprived of experiences (you'll never be in your 20s again), while staying on track to your longer term goals. As long as you spend reasonably and invest consistently, you will get there.

Having a range hobbies also helps as it takes your mind away from work, which already takes up most of your day. Given that once you achieve FIRE, you'd have way more time on your hands, developing hobbies that truly interests you now will reduce the likelihood of feeling "lost" once you've reached early retirement. I believe that there are many hobbies that are free or relatively low cost in Singapore - walks in the park, exercising, learning new skills and so on. Life is meant to be lived - live life, not work. 

Think of FIRE as a journey rather than a destination.

Some people see FIRE as the be-all and end-all, as if it will magically solve all problems. While I do believe that FIRE will eradicate many issues for me, at the same time I think it is important to build healthy relationships, develop hobbies and live life well, along the way to FIRE.

Not sure what's your FIRE number and timeline, but for example if I had a $5M Fat FIRE target by 50, I think I would definitely feel that is too far away. My view is to strike a balance between what's realistic and achievable, while also being able to enjoy life as soon as possible.

Personally, I feel that Barista FIRE is a good balance for me, and I hope to achieve it as soon as possible (ideally mid-30s). I think that once I achieve some form of financial safety net / financial security, I might be willing to take a pay cut to do something that I'm really interested in, and live that Barista FIRE life.

People often misunderstand me when I say I am pursuing early retirement, thinking that I'm aiming to retire to sit by the beach all day... In reality, there are many things I'm passionate about, and therefore I believe that Barista FIRE presents the sweet spot for me - I enjoy working, only on things that I'm truly passionate about, and I'd also rather work while knowing that there's no financial pressure, no unrealistic obligations and with full autonomy to say no to tasks that I feel are meaningless. In short, I see Barista FIRE as an ongoing journey which allows me to explore a range of "jobs", rather than a destination. 

All the best!

March 2023 Portfolio Update and Thoughts on Inheritance

Mar 23 Portfolio Update

Portfolio allocation as of Mar '23.

• SG Shares: CDG, DBS, SGX, Valuetronics

• SG Reits: Syfe Reit+, Digital Core Reit

• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

Another relatively quiet month in terms of capital deployment, with the main purchase being Digital Core Reit ("DCRU") at $0.50. It promptly fell to $0.40 within a few days, as one of their major customers was facing refinancing concerns. I think my purchase price had a reasonable margin of safety, as DCRU was trading at around 0.6x P/NAV at that point. Additionally, DCRU is one of the lower geared reits here, which would provide some buffer in the event that cap rates expand and valuations fall.

I also added a small amount to my Syfe Reit+ portfolio, which is part of my regular DCA.

Taking stock at the end of Q1 '23, my overall portfolio allocation stands at 50% in Singapore, 24% in Hong Kong and 26% in the US and Developed Markets. This is roughly in line with how I envision my long term portfolio allocation to be. As for my active vs passive split, this stands at 44% active vs 56% passive - the passive component has actually gone down compared to the last time I mentioned this (62% passive in Sep '22). I am a strong believer in passive investing, and longer term I want to increase my allocation to passive instruments.

As for dividends, total dividends collected for Q1 '23 came in at around $500. I didn't track the corresponding number in Q1 '22, so I don't know how much of an increase this is. But it appears to somewhat fall short of my dividend target for this year. In my previous post, I mentioned that I am on track to hit my $6k annual dividends, this is contingent on being able to deploy capital over the next 3 quarters. With last year's bonus paid out earlier this year, I do have a considerable amount of cash on the side. However, I want to be selective in this environment, and dollar cost averaging of passive ETFs and looking for undervalued stocks remain my preferred strategies. 

Random musings

This is slightly different from the “FIRE musings” section that I usually include at the end of my monthly updates. I’ll be discussing the topic of inheritance, which based on what I’ve seen, is definitely something rather taboo among Singaporeans.

It might be obvious, but I would still like to highlight that if you’re in your 50s or older today, and nearing retirement / have retired, then obviously your main priority should be to ensure your own retirement adequacy first, before even thinking about leaving an inheritance for your kids.

Having said the above, I think the perspective I’m sharing will still be controversial – perhaps some may agree with my point of view, but I’m sure there will be a fair share of people who disagree. At the end of the day, it’s your money, your call… if you’ve already made up your mind that you want to spend all your money before you die (because you earned it), then by all means do so!

For a start, I am single and I don’t have kids. These are mainly my observations of how people perceive the utility of money and approach the topic of inheritance, by sharing a few examples that I’ve come across in recent years.

I think it would be good to set the context for this discussion – people tend to use the word “rich” a little too broadly. “Rich” can be further split into mass affluent, high net worth and ultra-high net worth. The 3 examples I am sharing further below fall into each of these categories.

For the purposes of this discussion, I think any inheritance amount nearing or greater than SGD $1 million (including owner-occupied residential property) would be relevant – broadly, people in the “mass affluent” category and above. The reason I include owner-occupied residential property is because we are discussing the topic of inheritance here – so obviously when you pass on, the property you are occupying forms part of the inheritance. I think this probably represents the top 20% to 30% of the relevant age groups (people in their 50s and above), mainly because of the sky-high property values in Singapore. But if you think about it, while $1 million and above appears to be a large number, it may be more common than you think – after including residential property, CPF accounts, equities, cash value of insurance policies and savings.

I think this is most relatable, especially in the context of a couple in their 50s or 60s thinking of bequesting their wealth when they eventually pass on.

Example:

$800k HDB flat – fully paid up, possibly purchased for much less.
$500k CPF accounts at retirement age (combined; FRS + Medisave)
$400k investment portfolio (combined)
$200k cash value of insurance policies (combined)
$100k liquid cash / fixed deposits (combined)

Based on the above, that’s a combined net worth of SGD $2 million per couple, or SGD $1 million per person. Obviously, some of that would be drawn down (spent) during the retirement period, but even if the eventual “total net worth” is halved, and given that people usually have 1 or 2 kids these days – that’s still a sizeable sum of inheritance.

You might look at the above numbers and say:

1) That’s too low, I have more! Congrats, if you have kids, and you believe in the idea of inheritance, then they are lucky.

2) That’s too high. As I’ve mentioned above, your priority should be to work towards your own retirement adequacy first.

For those of you who fall in to category (1), you can adjust the above numbers in the above example, based on your personal circumstances. I think when people think of “inheritance”, probably the complex cases of the top 1% comes to mind – infighting among siblings for a larger share of the pie, long drawn-out lawsuits and so on.  My point here is that the groups of people in the category of having SGD $1 million net worth, including owner occupied residential property, is actually more common than you might think. And people who fall into these groups should give inheritance some serious thought as well.

We know that 20% of Singaporeans live in private condominiums and landed properties, and the average price of an OCR condominium probably goes for around SGD $1.5 million today. Additionally, with the top end of HDB flats transacting for anywhere from $1 million to $1.5 million… I would think these form a sizable group of Singaporeans, perhaps closer to 1 in 3 of the relevant age groups.

This 1 in 3 could be your colleagues, your relatives, your parents, or even yourself, who will be dealing with the “good” dilemma of having to decide how to pass down the inheritance.

Let’s now look at the 3 examples.

The “Mass Affluent”

The first example is a Facebook post made by someone by the name of Michael Chong, on the Seedly Facebook group. I saved this post when I read it a few years ago, because I felt that the story represented what is possible for a significant number of people in the mass affluent category.

https://www.facebook.com/groups/seedlyfinance/posts/2386572571634095/

To summarise what Michael had shared, their family was thinking of selling their condominium and moving to a 4-room flat. Using the proceeds from the sale, together with their existing investment holdings, they will likely have around SGD 2.5m combined as a couple. Based on his projected returns of 4% a year, will yield around SGD 100k/year or about $8k/month. Presumably, this passive income will be enough to sustain their family expenses. Additionally, he mentioned that he will still get CPF Life payouts when they turn 65, potentially bringing the passive income to 10-12k/month for their family of 4.

The two sections that stood out for me in the article were:

“If this goes well, the portfolio can give us about 8k in passive income monthly, with some capital gain. My dream is to pass this on to my children and grandchildren one day. Maybe my grandchildren will not have to work a single day in their life, and can follow their passion.”

“I have also encouraged her to save and invest since she was 18, so she has about 6 years of experience. I have also taught my children financial responsibility, so they are very thrifty too.”

I won’t interpret the “will not have to work a single day in their life” too literally, but rather, I think the idea of allowing his children or grandchildren to freely follow their passion sounds like a great life to live. I also think the part about imparting frugality and managing money is paramount, especially in the context of succession planning.

By selling their condo and buying a cheaper HDB flat, they could use the proceeds, plus their current investment holdings, to create a perpetual cash flow generating machine for themselves, their children and even their grandchildren. Simply amazing.

The “High Net Worth”

The second example was a recent Straits Times article that I read. Mr Yong is the CEO of a marine engineering firm.

https://www.straitstimes.com/business/invest/me-my-money-ceo-and-ex-banker-takes-nimble-approach-to-investing

The part I would highlight is “The priority in my savings plan is to buy a house for each of my children, so that they are not burdened by mortgage loans in their adult life. With their own roof over their heads, they can afford to take career risks and pursue their passions in life.”

Not much for me to elaborate on this, because I don’t think the average person would have resources to give 4 houses to their 4 children. But I think the broader takeaway here would be giving your children a leg up in life, especially when they need it and when it matters most.

Oftentimes when I see comments on social media, the prevailing thought among Singaporeans seem to be that assisting your kids monetarily would “spoil” them or make them “soft”. I completely disagree with this view. Undoubtedly, talent and hard work are paramount when it comes to determining whether one can succeed or not. A talented and hardworking person will do well in life. But when it comes to achieving greater things, such building a trillion-dollar internet company? Wealth plays an important part too. For intelligent and hard working kids, wealth supercharges their odds of success, instead of hindering it.

Examples of how wealth breeds wealth – Bill Gates and Jeff Bezos. Bill Gates was undoubtedly a computer whiz, but it was through his wealthy parents that gave him access to the tools to fully develop his potential (I’d recommend reading the book “Outliers” by Malcolm Gladwell on this). Jeff Bezos was a Managing Director at a leading hedge fund before he left to start Amazon. Yet, his parents still invested $300,000 (in 1993) to help him get started. Even Donald Trump - claimed that his father gave him $1 million (in 1975) which he used to build his real estate company.

I wonder – if the parents of these people had decided against helping their children out of fear of "making them soft", would they have had the same level of success?

The ”Ultra-High Net Worth”

This article was written by Abigail Disney, from the Disney family.

https://www.theatlantic.com/ideas/archive/2021/06/abigail-disney-rich-protect-dynastic-wealth-propublica-tax/619212/

Although the intent of the article was to criticise the ultra-rich for fervently trying to lower their tax obligations, one paragraph sheds light on how families of dynastic wealth view their money:

“When you come into money as I did—young, scared, and not very savvy about the world—you are taught certain precepts as though they are gospel: Never spend the “corpus” (also known as the capital) you were left. Steward your assets to leave even more to your children, and then teach them to do the same.”

To me, this is perspective is simple and straightforward. It’s not even a “secret” of the ultra-rich. Use your capital to create a passive income machine, collect passive income into perpetuity, and keep your annual expenses below your annual passive income. Re-invest the surplus which will then increase your capital even further. Over the years, this snowball grows larger and larger, and finally pass this down to the next generation. To quote part of Patek Philippe’s slogan, “You merely look after it (this perpetual passive income machine) for the next generation”.

My takeaway from the section above, is that while most people are unlikely to amass more than 7-figures of net worth in their lifetimes, the perspective of capital preservation isn’t exclusive to people who have hundreds of millions or billions. If we apply this concept to a more “realistic” scenario of Michael Chong (the first example above), we see that their SGD $2.5 million combined portfolio can provide comfortably for their family of 4 ($100k/year) – building a perpetual stream of cashflows and eventually bequesting the principal to his children.

Common themes:

1) Preserve the capital, spend only the interest / dividends / passive income. This creates a perpetual stream of cash flows and yet grows the capital over the long term.

2) Impart their children with knowledge of managing the assets.

3) Let their children pursue their passions.

I think it’s easy to fall for cliches of “spoilt rich kids”. There will be bad apples. But based on what I’ve seen, more often than not, money itself does not result in negative outcomes.

Anecdotally, by and large, most of the “rich” friends I know, are mostly hardworking, driven people, who go on to excel in their chosen fields. They recognise their privilege, which affords them some inherent advantages, but at the same time with the right upbringing and values, will continue to be prudent stewards of their families’ wealth.

Thus, instead of seeing money as the root of evil, the source of family feuds or something that makes children become “soft” or “strawberries” … why not learn from some of the examples above, and think of how to make the capital last for generations to come?

How this aligns with FIRE

To me, money is simply a tool. It is meant to buy me freedom, to allow me to enjoy life (reasonably, within what I can afford). While I don’t need multi-millions or billions, I think ideas discussed in the examples above are actually in line with how I envision my financial situation to look like, once I’ve achieved FIRE.

The idea of generating a perpetual stream of passive income, keeping my expenses below this passive income, and re-investing the surplus to continue to grow my capital, is exactly my plan. The idea of seeing money as a tool which buys me the freedom to pursue my passions freely, strongly resonates with me.

And taking a step back to consider how taxes in Singapore incentivises us to accumulate wealth and capital. Let’s say Ronaldo comes to play in the S-League. If a club is willing to pay him $40 million per year, based on our current tax brackets, Ronaldo will probably have to pay around $9 million a year in taxes. $9 million of taxes a year is probably more than what most people would earn in a lifetime. Let that sink in.

But compare that to families of dynastic wealth, with their investments based in Singapore. A 4% per annum return on $1 billion of investment holdings generates $40 million a year, which will be entirely tax free! There are no dividend withholding taxes or capital gains taxes in Singapore.

Accumulate wealth, create a perpetual stream of passive income, and enjoy the fruits of your labour for many years to come.

While I don’t have a million dollars or more (yet), I am working towards that. With the right money mindset, coupled with the values of frugality and prudence, I’d say the odds of succeeding is more likely than not.

The best time to plant a tree was 20 years ago. The next best time is now. 

Start planting that passive income tree today, that will bear fruits for generations to come! And maybe, save this article for your grandchildren. One day, they will be thankful you read this.

February 2023 Portfolio Update and Thoughts on Finding Purpose

 

Feb 23 Portfolio Update

Portfolio allocation as of Feb '23.

• SG Shares: CDG, DBS, SGX, Valuetronics

• SG Reits: Syfe Reit+

• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

Not much to update this month – I mainly added a small amount to my Syfe Reit+ portfolio, as interest rate fears once again puts pressure on S-Reits. This is part of my regular DCA strategy as I work towards accumulating $20k in S-Reits on Syfe. I am clear that my objective is to just achieve market returns for S-Reits and thus will continue to build my position, even though the outlook for Reits may be rocky.

A few months back, I wrote that I was closely watching the US Office Reit sector, and was looking at Keppel Pacific Oak Reit (“KORE”) in particular. Against the backdrop of some office landlords defaulting on their loans – Pimco ($1.7bn, Office assets across the US), Brookfield ($755m, 2 offices in LA) and Blackstone ($562m, Office assets in Finland), I decided that KORE will drop off my watchlist.

In last month’s update I also wrote about my interest in Haw Par. It was trading at $9+ at that time, then shot up to $11+ within a few weeks, and is now back at the $9 level. I did some further research over the past week and I think it is a compelling opportunity for me in the coming weeks.

With the SVB crisis, things would probably get volatile again in the coming weeks, but as I’ve said multiple times before, I think having a diversified portfolio, investing prudently and consistently and having a long-term oriented mindset will be the best way of riding out any volatility.

Meanwhile, I will continue to collect my dividends – current run rate stands at around $4k for the year, and well on track to hit the $6k target for 2023.

FIRE musings – some Thoughts on Finding Purpose

Let’s talk about “purpose” today.

Recently, a friend shared about their longer-term career goals, about what they would like to have achieved at the end of their career. They work in a tech role and therefore will likely be very well compensated during their career, but yearn for a greater “purpose” or “impact” on the world. This friend shared that an option would be to work at a Big Tech firm, or perhaps even become a quant in finance. But they want something more “meaningful”. For example, working on how artificial intelligence can be applied to the medical field. For them, the main decision at this point would be between money, or money and purpose. I think that’s great, and I feel happy for them to be able to find their ikigai. This person is incredibly capable and talented, and definitely deserves the best of both worlds.

This conversation led me to think further about finding purpose, and what it means to me.

A common misconception is that “purpose” has to come from work. I mean if you can find purpose from your work, or deliberately look for jobs that have “purpose”, then that’s great. Even better if you get paid well for it. You are lucky.

But “purpose” to me can come in many forms – it could be from volunteering, it could be from nurturing your children, it could be from being a caregiver to your elderly parents… and much more.

I think that at least for the vast majority of folks, during their search for employment, do not have “purpose” at the top of their list – instead focusing on factors such as compensation, job progression, job scope and so on. After all, “purpose” doesn’t pay the bills.

Then, after settling into a role, some might attempt to rationalise and find “purpose” in their roles, perhaps as a way to justify their chosen field. It is easier to find purpose in some jobs than others, for sure. A teacher’s purpose might be “to educate the future generation”, or a healthcare worker’s purpose might be “to help my patients recover well”.

But for a good number of private sector employees, what can they say? If you work in the securities desk at a bank, you might say something abstract like, to paraphrase Lloyd Blankfein, “we are selling this security to clients who wanted exposure to the housing market…” (lol) Or, for someone working at a tech firm and whose role is to write algorithms to literally get people addicted to social media, what can they say?

Therefore, I think for the vast majority of folks, this whole job and purpose thing should be viewed as a “good to have” rather than a “must have”. Don’t be too fixated on this.

What is my purpose then?

I believe that writing this blog gives me purpose. It is always nice when people write to me to tell me that I’ve positively impacted their financial independence journey. I love it when a new finsta account tells me that they’ve been following my account for some time, and finally decided to start to document their own financial independence journey as well.

All these Singaporean financial independence accounts come from a variety of backgrounds, some are recent graduates and have just began working, while some are families with kids and in their 30s and 40s. Some have even achieved Barista FIRE or FIRE.

I think what’s great about this community is that, at least from my perspective, while we are clear that we are all running our own races, we still celebrate the triumphs and success of others. For me, I recognise that we all have different starting points, different circumstances and different priorities, thus it is clear that some will achieve FI faster than others. Yet, I believe that we can still learn a great deal from what others share, especially from those in a similar situation or those who have walked a similar path before. The focus is on sharing positive financial habits with the ultimate goal of achieving Financial Independence. At that point, the option to Retire Early will always be on the table.

I think we should all do more to uplift each other, rather than having a dog-eat-dog mentality where people look to put each other down – as seen in some forums or groups where people constantly argue over whether a starting salary of $X is realistic or not, or whether a net worth of $Y by a certain age is attainable or not… all I can say is – the sky’s the limit.

Thus, I would like to give a shoutout to the people who I’ve crossed paths with on Instagram. These are Singaporeans who have embarked on their personal finance / financial independence journey and have been sharing their progress. In no particular order:

@CentsOfIndependence

@BudgetByYerim

@kopi_dreamer

@enroute2fire

@MillionaireFIRE

@money.bao

@SpendingOnBrownies

@SGFIREGoals

@happymillionaire99

@theCashCottage

@sgFireCouple

@millionairePanda

@JCprojectfreedom

@money_mousee

@aFinancialSheep

@ThinkForwardInvestor

@HappyReitInvestor

@PothetaFarm

@fire_by_40

@LoadnFIRE

@SenseAndCentsibility

@heyGomako

@millionaireSpongebob

@FlyFireFinance

@tbhfinance

@ARichMonkey

@CoupleWealthDiary

 

Sincere apologies if I missed anyone out – do let me know and I’ll be happy to update this list :)

Thus, to sum up, my purpose would be to share the ups and downs of my financial independence journey, and hopefully, inspire others to embark on the same as well.

If you want to go fast, go alone. If you want to go far, go together.