Disclaimer

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.

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.

Part 2: Sequence of Returns Risk - A Crucial but Often Overlooked Factor

 


This is part 2 of the 4-part series on financial projections for achieving financial freedom. If you’ve not read the first part, I’ll suggest reading that post first and/or watch my YouTube video above (give some support to my first video!), which explains the overall framework for making projections that I’m using to plan my financial freedom journey.

Part 2: Sequence of Returns Risk – A Crucial but Often Overlooked Factor

The focus of this post is on one important section of the entire planning process – that the sequence of returns is a huge factor that is often overlooked when projecting your investment returns. If you’re lucky, a favourable sequence of returns may fast forward your retirement target by a few years; if you’re unlucky, it could wreck your retirement plans just as you think you’re almost there.

Try to recall the last time someone share about their targeted investment returns – your friend might say “I am targeting a 10% annual return”. Or perhaps when you spoke to an insurance agent, who told you that the “S&P500 has an average return of 10%”. But how exactly do we project this 10% into the future?

A very common way of “projecting” these future returns would be to simply extrapolate the expected annual returns and compound it over the intended time horizon.

For example, if someone intends to invest $10,000 per year, and targets a 5% annual return over 10 years, extrapolating this 5% across 10 years, compounded, will give you something like this:


At the end of year 10, this person would expect to have an ending capital of $132k, after investing $100k over 10 years at a 5% annual return.

But does this resemble real world stock market returns? Clearly not…

This “5% compounded annual return” is merely the long-term compounded annual growth rate – the “CAGR”. From year to year, returns may differ very significantly: In 2021 the S&P500 gained 27%, while in 2022 it fell by 19%.

To illustrate how the sequence of returns impact the returns of someone who is investing consistently over time, consider the following two examples:


What the above two scenarios show is that during the accumulation phase – the phase where you are earning an active income, saving up and investing for your retirement, apart from the obvious factors like increasing your income, reducing expenses and having a higher allocation to equities given your longer time horizon... The sequence of returns actually play a huge part in determining whether you can hit your retirement goals sooner or later.

From the two scenarios above, even though in both cases the CAGR over 10 years is the same 5%, and both people are investing the same $10,000 per year, simply because the “lucky” person A experiences the “bad” returns in the earlier years (when less capital is at stake), while the “unlucky” person B faces the “bad” returns in the later years (when more capital is at stake), they end with a huge difference in ending capital $194k vs $94k, a whopping $100k difference!

How do I account for sequence of returns risk?

Having said the above, how do I then account for the sequence of returns risk, when coming up with projections for accumulating my financial freedom portfolio?

I decided the best way would be to run a range of simulations, where the returns are randomised in each year – within a given long-term average and standard deviation. Stock market returns generally follow a normal distribution, although in the real world there are fat-tail risks that would not be captured here.

For my projections, I decided to use a 5% long-term average return, and a 15% standard deviation. These are in line with the long-term historical averages for the MSCI ACWI.

Let’s look at the same example above, but in this case applying the randomised returns based on a 5% average and 15% standard deviation. For simplicity, we will cap the maximum annual increase and decrease at +/- 30%, so that we don’t end up with too extreme numbers.

By running 30 iterations of the above parameters, we get this chart which shows the 30 scenarios.




I overlaid the “lucky” (person A, in green) and “unlucky” (person B, in red) scenarios on the chart, to show how these stand, relative to the other simulated returns. I also included the base case “straight-line 5% return” scenario (in orange), to illustrate how a range of 30 potential real-world returns may differ significantly from this base case.

Note that because the returns are randomised with an average of 5% and a standard deviation of 15%, the CAGR for the 30 simulations may end up greater or less than 5%.

Key takeaway when projecting Financial Freedom numbers

Now that we know the sequence of returns play a key role in determining the outcome of our capital accumulation phase, how do we use this to project when would we be able to retire early, which is what many of us are aiming for?

You need to know your required annual cash flows during retirement, based on today’s purchasing power. Then, adjust this cash flow figure over time to account for inflation.

You need to decide on your safe withdrawal rate. The number often being brought up is 4%, although you may use a lower figure if you’re more conservative. Alternatively, for dividend investors (like me), the question to ask is – what is the expected dividend yield I can get from my portfolio?

Lastly, depending on how much you expect to invest each year, you will be able to generate a probability distribution of when you will likely be able to reach these targets, which is either the point when:

  • Based on your safe withdrawal rate, your portfolio size can cover your inflation adjusted retirement expenses, or,

  • Based on your expected dividend yield, your portfolio can generate enough cash flows to sustain your inflation adjusted retirement expenses.

To conclude, I think there’s value in viewing things based on probabilities. By acknowledging the likelihood of different outcomes, we can make more informed decisions and prepare for a range of outcomes.

I tend to view things in life in terms of probabilities. When it comes to my investments, I take the same approach.

May the odds be ever in your favour.

Part 1: Using ChatGPT to help with projecting Financial Freedom numbers


This will be the first of a 4-part series which explains the different concepts covered in the Excel financial freedom template that I have created. I used ChatGPT to help with writing some of the excel formulas and macros.

The template allows me to project how much I would need to invest to achieve financial freedom, based on different assumptions on investment returns, volatility, saving rates, inflation and expected salary growth. There are also different scenarios built in to the template, which allows me to account for various market environment, such as stagflation, which has high inflation and lower returns, and easy money (QE), with low inflation and higher returns.

I was curious to find out the likelihood of an average income fresh grad ($4.2k SGD in 2022) achieving financial freedom. Thought it would be interesting to share the results here.

The FI targets for this person (25 years old today) looking to achieve Barista FIRE are:

  • $3k SGD in monthly passive income (2022 purchasing power, inflation adjusted during projections)

  • 4.8% yield on investments via dividend paying stocks

The assumptions are as follows:

Salary and Expenses

  • $4,200 salary, take home of $3,360 (net of 20% CPF)

  • Expenses of $860 per month - I know this will be debatable, but let me kindly refer you to this article by Kyith's on Singaporeans spending <1k a month.

  • Person receives 2-3 months of bonus per year, which is used to pay taxes, travel expenses and one-off expenses

  • For the first 6 years, assume a +20% increase in salary every 2 years due to promotion / job change

  • For the following 6 years, assume a +15% increase in salary every 3 years due to promotion / job change

  • Salary increase set at 3% for all other years.

  • Savings rate kept constant over time - Monthly expenses expected to grow at the same rate as salary increases, from $860 to around $2k by the time the person hits their mid-30s.

  • Housing: Choose a reasonably priced one, where the monthly mortgage can be serviced by the CPF Ordinary Account contributions of the dual income couple.

  • Have received some preliminary comments that the salary increase appears unrealistic. Here are my further thoughts:

    The projections include 3 promotions/job switches in the first 6 years, then 2 promotions/job switches in the next 6 years. A total of 5, 3 times of 15% and 2 times of 15%. The rest are 3% annually.


    Based on this article on Seedly,

    https://blog.seedly.sg/average-monthly-income-occupation-job-guide/


    For Managers & Administrators the median salary for early 40s is 9.5k today (115k annual) and 7.5k for Professionals (90k annual). The question should be what would a person in their 40s earn in year 2038 for these roles?


    If we apply a 3% adjustment for inflation per year, then in 2038 these people should be getting around 150k (Managers) and 115k (Professionals).


    In the example used, at 40 years old (i.e year 2038), the person would be projected to earn around 154k annually based on the assumptions above, so not too far off from the median expected salary for Managers/Professionals, if we adjust for inflation.

Investment Returns & Inflation

  • Projected portfolio return of 5% per annum, with 15% standard deviation (roughly aligns with the historical returns/std dev of MSCI ACWI)

  • To be conservative, max gain in a year is capped at +30%, while max loss is set at -50%

  • Returns are randomised with a normal distribution. This accounts for the sequence of returns which is often overlooked when projection investment returns. i.e, if you think you can get 5% returns yearly, people usually just compound this 5% directly without account for the sequence of returnsReal world returns don't behave like that.

    • Since we are investing consistently over a period of time, the sequence of returns matter. For example if the returns over a 5 year period are: +12%, +4%, +16%, +5%, -20%,The 5 year CAGR is 2.5%. Even if you swap the +12% and -20%, the CAGR remains the same at 2.5%.

      But if you invest a fixed amount across the 5 years, your ending amount would be different. Thus randomising the returns accounts for this.

  • Note: real world stock market returns exhibit fat tail distributions, which were not accounted for here.

  • Inflation is set at 2.5% for the base case. In the template, inflation can be adjusted based on scenarios, e.g. 5% in a stagflation environment.

Results

  • Barista FIRE year determined when a portfolio yield of <4.8% can generate passive income of 3k/month, inflation adjusted.

  • Results based on running 200 simulations:

    • 73% chance to achieve Barista FIRE by 2038 (40 years old, works for 15 years)

    • 89% chance to achieve Barista FIRE by 2040 (42 years old, works for 17 years)

    • 97% chance to achieve Barista FIRE by 2043 (45 years old, works for 20 years)

Please watch my YouTube video above for a full walkthrough of the template. I will be discussing some of the concepts mentioned in the video in the coming weeks.

STI vs S&P500: Why I continue investing in Singapore

 

I want to begin by saying that there’s no “right” or “wrong” investment strategy – we are all investing based on our convictions, our beliefs, our risk appetites, how we perceive data and much more. I am not making a judgement of whether one investment strategy is “better” than another, because ultimately, we are all investing for the same goal – to make money.

In recent years, a popular line of thought is to simply invest in the S&P500. In this post, I share my thoughts on this concept, specifically looking at the implications for Singapore-based investors who may choose to pursue this strategy.

Personally, while I invest in the S&P500 (albeit not exactly, but via a Quality factor ETF), I don’t believe in putting all my eggs in the same basket. Thus, the intention of this post is to share why I continue to invest in the Singapore market, and have allocated a significant portion of my portfolio (~50%) to local stocks. Generally, people my age (mid-20s) tend to shun the Singapore stock market altogether. The post touches on the reasons why I continue doing so.

Recency bias?

I think there’s a bit of recency bias and hindsight bias when it comes to STI vs S&P500 debate. Let’s use the period from the turn of the millennium (year 2000) to illustrate this. From the chart below, the S&P returned 172% from 2000 (dotcom peak) till today, while the STI returned 56%. The S&P500 clearly did better.


STI vs S&P500, 2000 to 2023. Chart from TradingView.

But since we are looking at things from the perspective of the Singaporean investor, we have to consider the FX movements as well. In 2000 the USDSGD rate was around 1.70. Today, it is around 1.33. So in SGD terms, the Singaporean investor who invested in the S&P would have suffered a -22% FX loss.

And what about dividends? I am too lazy to get the data from 2000 till today, but generally the yield on the STI would have been 3 to 4% for the STI, compared to ~2% for the S&P. Over 23 years, this further narrows the outperformance of the S&P vs the STI.

Let’s further analyse the reference period into two separate periods. The first being from 2000 (dotcom peak) to 2010 (a year after the GFC lows), aka the “lost decade” for the S&P500. And the second, being from mid-2010 till today.


STI vs S&P500, 2000 to 2010. Chart from TradingView.

STI vs S&P500, 2010 to 2023. Chart from TradingView.

What is clear from the two charts above, is that the S&P500 hugely outperformed STI from 2010 till today, for sure. But in the decade before that (2000 - 2010, aka the “lost decade”) for the S&P500, the STI outperformed the S&P500. The S&P500 returned -22% from the dotcom peak till 2010, a full 10 years, while the STI returned +35%.  

The outperformance of the S&P500 vs the STI was supercharged only in the period post-GFC, when ultra-low interest rates propelled the S&P500 on a 13-year long bull run, during which the S&P500 gained 249%, against the STI’s 15%.

Going forward, I think it’s tough to say what will happen. On one hand, many of the best and most innovative companies globally are in the S&P500, which should continue to do well. But on the other hand, valuations for the S&P500 were rather stretched in late 2021 (and one may argue, that for the Nasdaq, sentiment was similar to the previous dotcom peak), and mean reversion is possible. Could the tech-frenzy in late 2021 be compared to the mania of 2000, and if so, what can we expect of the US market’s performance in the next decade?

I think ultimately one’s perspective in this issue depends on when they had started investing.

If you speak to a relatively young person (30s and below) who only started investing post-GFC, or worse still, only recently during Covid, then obviously during this timeframe the US market vastly outperformed the SG market. Hence, they will have the perspective of ignoring the SG market altogether.

But if you speak to the older folks, like people in their 50s and 60s, who have actually made good money in the SG market during heydays of the 1990s and 2000s, then they would tell you the exact opposite – you can do well in the Singapore market.

I think even if we look beyond the golden era for the Singapore market (when the economy was transiting from an emerging market to a developed market), there are some SG stocks that have continued to do well – DBS, Sheng Siong, Raffles Medical, Parkway Life Reit… just to name a few.

Maybe I’m biased, because I started investing 8 years ago, and took guidance mainly from my older relatives – hence the preference for value/dividend names. But again, it all boils down to your conviction, your beliefs and your perspective. Your money, your call.

Currency Risks

Currency risk is a huge consideration as well. Of course, the USD being the global reserve currency provides some comfort. But if we look at how some of the other major currencies have performed over the decades, it’s no surprise why some older Singaporeans (especially retirees) shun foreign denominated stocks.

You may hear older relatives mention how the GBP/SGD went from more than 3 in the early 2000s, to 1.6 today, or how the AUD/SGD dropped from 1.30 to 0.90 today. Anyone holding investments denominated in GBP or AUD would have seen 30% to 50% FX losses in SGD terms.

Thus, when Warren Buffet suggested that people only need to buy the S&P500, because that represents the “economy”, I think that’s more applicable specifically to US citizens. For US citizens, it makes sense to have 100% USD exposure if one is retiring in the US and have their cash flows / expenses entirely in USD.

But as a Singaporean spending SGD in retirement, I think it is more prudent to have at least a substantial part of your cash generating assets in SGD. Unless you’re retiring in a location where the USD is widely accepted (some tourist friendly, SEA locations), then having your entire retirement nest egg in USD seems risky.

We don’t know how the USD/SGD will perform in the long run, especially with geopolitical issues and such. Having your entire investment portfolio denominated in USD means that you’re betting on the US-led, unipolar world to continue, whereas having a globally diversified investment portfolio across multiple currencies may turn out better in the event the world becomes increasingly multipolar, leading to a decline in the USD’s dominance.

At this point I will suggest reading some of the research notes by Zoltan Pozsar on the US Dollar; there have been many people sharing these notes on LinkedIn. He shares some interesting analysis of the Russian-Ukraine war’s impact on the USD’s dominance.

If one is really adamant on only investing in a single ETF – then maybe the IWDA/VRWA/VT may be a more ideal from a diversification perspective. Although these are still denominated in USD, holding a globally diversified portfolio means that part of your FX exposure will be based on the underlying currencies of the global stocks in the portfolio.

Merits of the Singapore market

Let’s take a step back and appreciate the merits of the Singapore market. We don’t have capital gains taxes. We don’t have dividend withholding taxes. Valuations are generally less frothy (at least in recent years). These boring, mature companies usually pay a decent dividend.

Thus, I am investing in the Singapore market exactly with these merits in mind – to generate a steady stream of dividends for my early retirement. And the Singapore market has served me well for that.

The STI pays a stable dividend of around 4%, and going forward, even if STI has zero capital appreciation, and barring any catastrophic financial system meltdown, at least I get the 4% dividend yearly.

My approach

Having said the above, my current approach is to have around 10% in QUAL (SPY equivalent) and 10% in STI. As I’m only targeting a rather conservative 5% annualised return to hit my FIRE goals, I think I will be able to reach it, regardless of whether SPY outperforms STI in the next decade or not. Broadly, I still choose to having around 50% of my portfolio in SG investments (S-REITs, STI and SG dividend payers), while having exposure to the US, China and Developed Markets via other stocks/ETFs.

Therefore, will the US market continue to outperform the Singapore market, as it has done for the past decade?

Or, will the next few years of higher interest rates benefit the more “value” oriented Singapore stocks?

My answer is that I don’t know. But I for sure will not put all my eggs in the same basket.

Remember, past performance does not guarantee future returns.

January 2023 Portfolio Update



Portfolio allocation as of Jan '23.

• SG Shares: CDG, DBS, SGX, Valuetronics

• SG Reits: Syfe Reit+

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


The rally so far in 2023, coupled with additions to the portfolio, propelled my total invested capital to record highs. But I'm having mixed feelings to be honest, on one hand it's nice to see my portfolio value go up, yet having undeployed cash on the sidelines and seeing fewer buying opportunities is frustrating. 

For this month I only added to my position in CDG, a laggard which was still trading below its Covid lows recently. This is mainly a recovery play and I've written about its merits in my previous posts. Another interesting company that I've looked at is Haw Par. For my Singaporean friends, you may be familiar with the Tiger Balm brand, which is manufactured by them. But beyond that, they are also an investment holding company with stakes in UOB and UOL. There is a significant holdco discount at the moment, with the current share price trading at a 30% discount to the value of its investments + cash balance. And that's before we even include the value of their healthcare business. I think the main concern would be that this could end up as a classic value trap, hence I've yet to decide on whether I should invest in them.

 

FIRE musings

I was informed that my post last week had made rounds in some forums, and generated some fervent debates. I briefly read through some of the comments and I think while there were strong opinions on both sides, ultimately the discussions were largely civil. I think that’s great – in a well-functioning democracy we need more of such debates – if only other contentious topics could be discussed in such a gracious manner… We can all be nicer to each other, even if we don’t agree on certain issues.

I will continue to write about FIRE. I won’t say FIRE is controversial, because that carries a negative connotation, but I’d say FIRE is still largely misunderstood. That’s because “retirement” means many different things to different people, and with the variations of FIRE (Coast FIRE, Lean FIRE, Barista FIRE, Fat FIRE etc), sometimes even those in the FIRE community can’t agree on the technicalities.

To some, especially those in the older generation, “retirement” could mean sitting in front of a television 12 hours a day. A more well thought out retirement life, could involve travelling, exercising to for a healthy lifestyle, lifelong learning, activities to maintain strong social bonds and much more. The latter requires more money, of course. The former just requires a television.

To me, in addition to the above, “retirement” is simply another word for “being able to pursue my dreams without any financial pressure". Note that in the above scenarios, there’s no “right” age for these – even though when you read the sentence “sitting in front of the television for 12 hours a day”, you might have pictured a 70-year-old granny.

Thus, in this context, I want to "retire" as soon as possible. Once I achieve financial independence, I will "retire". There are just too many things that I want to pursue – regardless of whether they are practical or lucrative.

At this point I want to share some comments I left on Thomas’ Instagram reel. Thomas writes about investing at Steady Compounding, where he shares his research and deep dives into many companies. I enjoy reading his articles and I think he’s done a great deal to uplift financial literacy not only in Singapore, but globally.

Thomas posted an Instagram reel recently, where he shared “Why I abandoned FIRE”.

To summarise his points into a few sentences:

  •        Life is short
  •        Don’t do something miserable but makes you a lot of money
  •        Instead, do something you enjoy
  •        Spend responsibly and sustainably
  •        Smell the roses, enjoy life gradually, in a sustainable manner

 

I left some comments on Thomas’ post because I felt that while he brough up some good points, the lifestyle he is advocating is not mutually exclusive with what FIRE aspirants aim to achieve, but rather, just different ways to reach the same destination.

I have reproduced my comments below, with additional comments from me in blue.

[Me] I think practically speaking, it is difficult for most people to find their "dream jobs". What they may be passionate about may not be able to pay the bills. e.g someone loves playing football, but what are the odds that they can make a career out of it, or end up as Ronaldo or Messi?

Also, regardless of whether people are pursuing FIRE or not, think the vast majority do not "hate" their jobs. Rather, they are just working because they have to.

Here I want to bring in some additional context – I have found 2 surveys on Singaporean’s attitudes towards work. The first one is from CNA, quoting a survey which found that “More than six in 10 PMETs agreed that it is true or very true that they have found a meaningful career, and that their work makes a positive difference in the world”. While the second survey from PwC found that “Only 12% (compared to 25% globally) strongly agree that their jobs are fulfilling”.

What I’m trying to illustrate is that while it is definitely good to advocate for people to find their “dream” jobs, ultimately it is difficult for the majority to land something ideal (or find their Ikigai). Anecdotally, whether they are pursuing FIRE or not, I think for most people, after working for some time, say to themselves “my boss is not bad”, “my colleagues are not bad”, “my salary is not bad, and then just end up going with the flow, and before you know it 40 years has passed and you’re in your 60s. Speak to your family, relatives, friends and colleagues, and I’m sure similar sentiments will be shared.

Pursuing FIRE does not necessarily involve the trade-offs you mentioned. I think of FIRE as simply a way for one to pursue their passions with little to no financial pressure. Barista FIRE for example, is a decent compromise of having that financial safety net to pursue interests that may not be lucrative.

That said, I think it's great that you've found an area which you are 1) skilled at, 2) passionate about, and 3) able to make a living out of it. I'm sure you worked hard for this and I appreciate your work.

But as to whether this is possible or probable for the vast majority of people - I would say it is very challenging to say the least.

 

[Thomas] Great points. A balanced approach would always be the best. But just to push the conversation a bit further, it will be near impossible for someone to be the next Messi or Ronaldo.

But they could very well learn to monetize their love for football by being a coach or building an online presence. I think in today's age, there is an abundance of ways to monetize your interest.

 

[Me] Thanks for your reply. Yes, the Messi / Ronaldo one was an extreme example, but if we were to use more common examples - someone may like baking, but what's the likelihood of running a successful bakery? Or someone may like plants, but how practical/lucrative would it be as a florist?

I agree with you that people should pursue what they love as far as possible. But I view the timeline of jumping towards entrepreneurship/passion as a something of varying riskiness.

In the order of highest to lowest risk:

1) [high risk] Starting a business right after graduation. Examples of people that have done well would include SecretLab, which was started by 2 university students, now worth more than a billion dollars. Zenith Education, which was recently featured on the Straits Times, within 3 years scaled to become an 8-figure revenue and 7-figure profits business. An Acai Affair – founders started the company when they were 20 years old, and now operates more than 10 outlets across Singapore. Seedly – Kenneth and Tee Ming started the personal finance firm “from their dorm rooms in NUS”.

2) [moderate risk] Working & saving up for some years before striking out on your own (which is what you did; if I recall you shared that you saved up 24 months of expenses before making the leap, at around 30yo?).

3) [low risk] Working till 35, with a ballpark passive income of say 3k/month before pursuing passions. A good example here would by my finsta friend @centsofindependence, who left her full time job last year to pursue Coast FIRE. She now earns almost double her hourly rate ($95/hr) compared to her full time role ($58/hr), and only works for around 15 hours each week. This frees up a lot of time for her to pursue her passions. Do less, earn more (per hour).

To add to Thomas' example of the football coach above, I would think that if someone is able to build up 3k/month of passive income by their mid-30s, and then perhaps “retire” to become a part-time football coach for kids, working only on weekends to earn an additional say 2k/month, for a total monthly income of 5k (the median income in Singapore), then I believe that this is still a very good balance of pursuing their interests and securing their finances.

4) [very low risk] Working till 40, with passive income of 5k/month before pursuing passions. I think the best example of this would be AK71, a Singaporean blogger who retired in his 40s, and now collects more than $200k SGD in passive income annually.

 

What I'm trying to say is that based on the above, your path (2) was a relatively riskier one (which paid off), compared to (3) barista FIRE and (4) FIRE.

But I think for the vast majority of folks, 3 & 4 makes more sense as lower risk scenarios. I think for the average person, it makes more sense to live frugally but not to the point of deprivation, invest prudently, build that FU money, and finally pursue their passions with a financial safety net in place.

Ultimately, one has to decide for themselves whether scenarios 1/2/3/4 are most appropriate for them, and thus I don't necessarily see "FIRE" as being in conflict with what you're saying, but rather just different milestones along the risk spectrum.

 

When writing the above I think a saying that’s apt would be “all roads lead to Rome”. Some are riskier than others. Choose the one that best suits you.

Let me again emphasise that the choice to retire early is entirely a personal one. I don’t think there’s a right or wrong age to retire, as it very much depends on your expenditures, finances, commitments, lifestyle, health and many more.

I know my choice. Do you know yours?

December 2022 Update and 2022 Review

 

A belated update for 2022 as I have been procrastinating, as usual. Wishing everyone a Happy Chinese New Year and may the Year of the Rabbit bring you good health, happiness and wealth. Wealth is placed third, because simply having this without the first two is meaningless.


 

2022 was largely a good time to deploy capital – being a net purchaser of equities means that I am happier when stocks go down rather than up – giving me opportunities to buy more on the cheap. My invested capital increased by 72% from a year ago (although I had invested more, as this does not account for capital losses), while dividends received increased by 75%. When I planned out my FIRE journey in Dec 2021, I projected “total net worth” targets for each year – I am glad to say that for end-2022, I achieved 102% of my target. Some other thoughts to wrap up the year:

1. Diversification

I’m invested across SG, China, US and Developed Markets. The current target asset allocation would be to have 50% SG exposure, 20% in China and 30% in US/DM. This is still a work in progress as I’m yet to be fully invested.

I think 2022 highlights the risks of overly focusing on a specific market – often the US. What’s interesting is that the often-overlooked SG market is one of the top performers globally. I’d rather over-diversify and settle for a lower average return, than expose myself to huge idiosyncratic risks related to a specific company, country or sector, as many have learnt the hard way in 2022. As mentioned in my blog post a year ago (“Seeking FIRE – Route to Financial Freedom”), I am targeting a 5.5% long-term CAGR on my 100% equity portfolio, which I believe is reasonable.

2. Consistency




The figure above illustrates how I have consistently deployed capital in every month except for November. Generally, when I’m buying ETFs, I aim to adopt a DCA approach to build up my positions. With the exception of buying the Nikkei 225 in the late 1980s, I don’t think you can do too wrong by accumulating broad market ETFs. In 2023, I aim to increase the proportion of my portfolio allocated to ETFs.

3. Skepticism & Biases

Most people are aware of the inherent conflict of interest that banks and brokers have, that is, you’ll usually see research reports advising people to “Buy” stocks, because these firms are incentivised to get people to trade more frequently.

But when it comes to taking advice from Youtubers/Finance Influencers, I find it ironic that few people realise that conflicts of interest exist as well, albeit from a different angle. There is a clear conflict of interest because sensational and click-bait headlines draw the most views, thus these “gurus” are incentivised to make bold claims about “when the Fed pivots”, or that “the market has bottomed”. Basing your investment decisions on these often does not end well.

Thus, be skeptical whenever consuming such content, and always do your own due diligence. If I ever become a content creator, please apply the same level of skepticism to me as well.

Dec 2022 Summary



For Dec ’22, I mainly increased my positions in S-Reits via Syfe Reit+. I had intended to initiate positions in DigiCore Reit and Keppel Pacific Oak Reit (“KORE”), but these did not reach my intended entry levels. After Manulife Reit reported a significant decline in asset valuations which brought their gearing level to just a whisker away from the 50% limit, I think I will hold off buying KORE now. I think the day of reckoning for Reits has finally arrived – where capital values are likely to fall and put pressure on gearing levels. But I must add, that I had expected the same scenario to play out nearly 3 years ago during the March 2020 Covid crash, which ultimately did not materialise. For now, I think my exposure to S-Reits is still manageable at 8%, as I am passively holding most of the blue-chip S-Reits.

The “actively managed” component of my US portfolio has declined relative to my SG stock picks since Q3 ’22, this is largely due to my efforts to increase my dividend income. However, I expect to increase my US allocation and am looking at GOOGL and ADBE. These are my top picks, although we shall see what other opportunities surface along the way.

As a continuation from the above about “being skeptical”, I am not going to make any predictions on what 2023 will look like for the markets. Instead, I’ll say, invest not because you expect the markets to go up tomorrow, this month, or even this year. Rather, as a long-term investor you should be investing only because of one simple reason – you expect that in a capitalistic society, capital (being an asset owner) will outperform labour (being an employee) in the long run. Thus, you believe being an asset owner is the best way to protect your capital against inflation, be it equities, fixed income, commodities or real estate.

In 2023, my goals are, in the order of priority, (1) increase dividend income, (2) increase proportion of passive investments, and (3) work towards my target asset allocation of 50% SG, 20% China and 30% US/DM.

 

Pro-work vs Pro-FIRE

Let me end off with a short section on the pro-work vs pro-FIRE debate. I know I’ve written on this multiple times, but a LinkedIn post by someone who got retrenched by Google yesterday made me feel like writing on this again.

The author of the post wrote that after 16 years at Google, he was simply laid off via email. One line in the post stood out for me. He wrote: “This also just drives home that work is not your life, and employers -- especially big, faceless ones like Google -- see you as 100% disposable. Live life, not work.”

To me, the fact that employees are largely dispensable forms my baseline when thinking about FIRE. Reaching FI is your insurance policy against the unpredictable nature of corporate life, while having the choice to RE gives you the power to live your own life, rather than being stuck on the hedonic treadmill. Thus, when people say things like “you should work harder, create more value for your company” and so on… Please don’t be naïve and think that one can be indispensable. Employment is simply a means to an end to me – to build my life, and my dreams. At the end of the day we are all dispensable. The earlier you realise that, the better, because that means that you'll start working towards building your safety net.

I find it absurd when pro-work folks say “I like to work. So, you should like to work too. Please don’t retire early”. Because on the other hand, pro-FIRE folks rarely go around telling people “I want to retire early. So, you should retire early too. Please stop working”.

Of course, a well-intentioned person might say “Please don’t retire early until your have an absolutely robust financial plan” I think that’s totally valid. I welcome these comments, which help pro-FIRE folks identify any blind spots in their early retirement plans.

I think when it comes to the pro-work vs early retirement debate, there’s an implied philosophical perspective as to whether FIRE folks are “contributing” to society. Let’s not be naïve here and I’ll say that I’m fully aware that if everyone wanted to retire early, society is screwed. We can already see that happening in the US, with the falling labour force participation rate post-Covid partially contributing to inflation, as there’s a shortage of workers who decided to retire during the pandemic (hey – life is short; although many had the tailwind of rising markets).

But that’s a bigger issue for governments and corporations to tackle, not me. Perhaps some form of wealth tax, dividend withholding tax and/or capital gains tax will address the issue and make it more prohibitive to retire early. But we all know the in capitalistic Singapore, this is unlikely at the moment. We’d be shooting ourselves in the foot given our aspirations to become a leading wealth management hub.

Personally, I view the decision for one’s retirement age from a laissez-faire perspective – that ultimately, one has to be responsible for the choices they make, and deal with the consequences of their choices. The choice to retire early or not should be entirely up to the individual, once a certain level of financial independence has been achieved. I don’t think I am in the position to impose my views on others. I can only share my perspective.

Thus, if you’re pursuing financial independence and early retirement, may the fire in you continue to burn strongly. We will get there. Have a good year ahead.