CPF Balances Update – January 2020

First CPF Balances update of the new year! It is the end of January with all mandatory contributions and cash top up in for the month.

MA new ceiling (Basic Healthcare Sum or BHS) is raised to $60,000 for 2020. OA to SA transfer for the month of January is also completed. SA balance currently stands at $96,990.09, slightly more than half of 2020 FRS or 53.6% of the journey.

So for 2020, I raised the bar in my approach to take advantage of the 5% interest rate for the first $60,000 on my child’s combined SA and MA which is currently $4992.61.

I continue to top up my child’s SA, but at a higher sum of $200, an increase of $100 monthly. SA balance currently stands at $703.75.

Investing and the future of your CPF in 2020

I was invited as a panelist on 20 January by Samuel Rhee, Founding partner and CIO, and Sheng Shi Chiam, Personal Finance Lead for Endowus, on investing and the future of your CPF in 2020. This is the first step and kickoff of 2020 for TOC in the quest of engaging the masses on raising the level of financial literacy in Singapore. Much more is in the works in upcoming months.

The auditorium for this evening was in full attendance, and the crowd was highly enthusiastic in understanding the different ways available to maximise their CPF returns and leverage on CPF both as a retirement tool and as a financial safety net. It is built on by the fact that several gurus were in the schedule to share real-life experiences and stories on how their investment journey could be applicable to the listeners. It is both a balance of perspectives and sharing of tips and tricks. It ain’t all talk, and no action.

To a speaker, a good crowd is important. Having a fun crowd doubles up the joy in sharing and is uplifting to the overall mood and atmosphere, as we could see.

I share my thoughts, strategies and experience on saving and investing for my child from age zero. With a longer time-frame of at least 50 years, how she could take on a higher risk profile and continue to be vested in the various market dips to come in a lifetime.

There is more ways than one in which parents with young children could explore, at their own comfort level, on how to set a role model in investing for their children using their very children as real-life examples. Something I wished my own parents had done it for me, or that I had been “woke” much earlier in life.

I continued to be intrigued by the power of compounding interest and to write extensively on it — with a recent article on Why Investing early matters. With a long time-frame and by starting early, you actually need to save less on a regular basis as compared to someone who starts off later. Mathematically, it has been shown that to reach the same financial goal at age 65, every 5 years that a person start off early would mean that he essentially could afford to half his daily savings and investment.

(From left to right) Sheng Shi Chiam, Personal Finance Lead Endowus; You Ning Sun, Co-founder Endowus; Loo Cheng Chuan, Founder 1M65; Lyndon Wong, Founder, Theory of Constraints; Kenneth Lou, Co-founder & CEO Seedly; Samuel Rhee, Co-founder and CIO Endowus

It was an engaging session with the audience afterwards, who were equally concerned on how their children and grandchildren, from the very young to mid-30s, to get started and interested in their investment journey. The only time when it is too late, is when you continue to procrastinate.

The point here is really, time waits for no one. To enjoy more in life later, there is a need to just sacrifice a little now. We call it delayed gratification in other words. Frugality and thriftiness is different from being stingy. It is a virtue whereby one exercise self-control and restraint in the appropriate situations and to be big-hearted, charitable and generous in others.

It was a great experience and good fun. I would do it over and over again, given the same opportunities to engage like-minded folks. Till next time.

Regular Savings Plan Update – January 2020

Monthly Allocation for 20 January 2020 as follows , with a $1000 investment amount

CounterQuantityPriceInvestment Amount
OCBC Bank (O39)62$11.177$692.95
SIA (C6L)34$9.025$306.85
Total$999.80

Average Price of existing Portfolio counters

CounterTotal SharesAvg Price
OCBC Bank (O39)246$11.1347
SIA (C6L)404$9.3402

ETFs: Fact vs Fiction

Sebastian Sieber, partner for Syfe, reached out to me at Distrii Singapore to hook up with Mun Fai Cheong on “SPDR x Syfe ETFs: Fact vs Fiction” on 14 Jan. Mun Fai by the way, is Vice-President at State Street Global Advisors, for SPDR Exchange Traded Funds (ETFs).

State Street Corporation for that matters, is responsible for 10% of the world’s assets and the third largest global manager of ETFs (approximately $715 billion in total global ETF assets). If we can’t visualise what that numbers mean, just know that it is massively HUGE.

In recent years, increasingly there is greater adoption of ETFs in investor’s profile due to its lower cost nature and accessibility. With ETFs, there is full transparency whereby you may know the exact percentage of holdings which is updated once at the end of the trading day. In short, ETFs can augment active exposures and enhance returns while lowering cost.

While ETFs is designed to be used very simply, the understanding of ETFs may not be easy however. As ETFs become more popular, more news and information becomes available, yet not all may be true. It is still important to distill the facts from the fiction.

The 6 most common fictions are as such:

FICTION #1: Fixed income ETF market has become so large it distorts the bond market

ETFs forms only a fraction of the market, whether it is by assets under management or trading volume.

FICTION #2: Fixed income ETFs are not sufficiently liquid, investors can run into trouble when many try to redeem at the same time

In comparison to index fund, actively-managed fund or even a single bond, a fixed income ETFs has considerably higher liquidity. It is minimally as liquid as the underlying market it tracks. Moreover, it can be traded off the primary and secondary markets.

FICTION #3: For a fixed income ETF, investor is overweight the most indebted — and therefore the riskiest — companies

While it is true that fixed income is an instrument of indebtedness, not all big debts necessarily mean bad debts. In fact, the ability to issue higher debts is directly related to a company’s overall financial strength.

We see big names such as JP Morgan, AT&T and Microsoft for example, having high debts, however, this is backed up by their sales, asset value and combined market equity value.

FICTION #4: Fixed income ETFs under-perform active managers during volatile markets

A comparison over 5 systemically important volatile markets from 25 years ago till date showed that 77% of active managers “lost” to index based fixed income exposure. Do we need say more?

FICTION #5: Fixed income ETFs are only useful for the largest, most straightforward bond exposures. Active managers provide a better return for niche areas, such as emerging market debt

We look at a sample niche area, a high percentage of active managers in fact under-perform the benchmark in the period of comparison from 2013 to 2018.

FICTION #6: Index investing don’t work for bonds, because there are too many bonds to index efficiently

We have to understand that for index investing, the goal is not to hold every bond in the index, but to track the return with minimal tracking error due to exposure differences.

CONCLUSION

Before investing, you have to understand the underlying instrument that you are investing in. This session has indeed leveled up my understanding of ETFs. There are many ETFs tracking the different underlying index. ETFs don’t just track the cream of the crop. There are ETFs that comprises also of big-, mid- and small cap companies.

Mun Fai Cheong (Vice-President, State Street Global Advisors) and Dhruv Arora (Founder & CEO, Syfe)

When investing in ETFs, we have to look in totality of the management fees, trading fees and tracking error etc. In this current climate, while the outlook is still on an uptrend due to the various positive factors and stimulation, it is good to have a defensive bias by keeping an eye on higher quality or defensive stocks.

Stay vested, but continue to be vigilant of the climate.

Investment spending to increase by 14% for 2020

Not all “spending” are bad. What I am essentially doing is knowingly forcing to “pay-myself-first” more at the start of salary collection.

When I first started out, I mentioned how I took control of every dollar flow out of my Monthly Salary. This was how it looked like for 2019:

DetailsPercentage of take-home
Savings fund10%
Investment fund30%
Child RSP10%
CPF Cash topup2%
Child CPF Cash topup2%
Total54%

I’m pretty comfortable with my spending in 2019. In fact, I am upping the ante by challenging myself with an increased allocation in my investment. What it will look like from Jan 2020 onwards.

Details20192020
Savings fund10%10%
Investment fund30%40%
Child RSP10%10%
CPF Cash topup2%4%
Child CPF Cash topup2%4%
Total54%68%

I believe one of the main problems faced by many is not just to save and invest, but to increasingly upped the amount to do so. Delayed gratification is not a new concept. The increase in 14% allocation for investment today will see a snowball effect on higher spending power many times over 20 to 30 years later. It is also a good habit to inculcate within whereby you actually think more in differentiating what you really need versus what is good to have. I looked back at what I noted for 2019:

The total dividends collected for 2019 was $1,734.26 for a small portfolio size of about $35,000 for the bulk of the year. It amounted to an annual yield of 4.95%, or an average of $145 monthly dividends.

The total dividends projected for 2020 was $2,738.27 for the current size of $51,000, or an average of $230 monthly. This is only for the start of 2020 and I expect to double the portfolio size by the end of 2020. We can see where this leads. The more capital injected, the more dividends could be gained / re-invested.

One of the goal of my financial independence is to build up annual dividends gains such that the inflow (amount I am gaining) is less that the outflow (what I am living off for my expenses). This is also one of the reasons for building up the habit of frugality, which is to control and curb bad spending.

The only issue is to convince the other half to do the same. Wish me luck.