Photo by Pixabay on Pexels.com

Wait. Isn’t this supposed to be about investing? So why am I telling you about savings? At the very least, shouldn’t I be telling you about concepts like Time Value of Money (TVM) or Compound Interest? Well, all of those might be important but let me explain why I think savings, at least in the beginning, is the most important step of all.

Compounding will turbo-charge the returns you get on your capital. C the difference between simple interest and compound interest. A simple interest of 10% per annum (p.a.) on a sum of $1,000 brings your total to $2,000 after 10 years while the same $1,000 compounded at 10% p.a. for 10 years gets you $2,593.74. That’s almost 60% returns ($1,593 vs. $1,000) just by letting your returns compound.

So why is savings so important?

Zero compounded by anything is still zero

For starters, no matter how powerful compounding is, if there isn’t anything to compound, your returns are still zero.

That’s just it. You can’t escape the mathematics of the situation.

Naturally, the higher the savings rate also means that compounding has a much bigger number to compound on.

Without savings, it’s going to take a long, long time

In the beginning, you aren’t likely to have much capital to start with. Even if you can produce god-like returns in the realm of 20-30% p.a., the absolute sum is not going to be life-changing.

For example, let’s say you have a financial independence target of $1 million and you expect to compound $1,000 to your financial freedom. Assuming you can achieve the above-mentioned godlike returns of 25% p.a., it will still take you roughly 31 years to reach your target.

But what happens if you start saving an additional $1,000 a year? Then it only takes you about 24 years.

And remember, the above example assumes you are going to some sort of investment genius. I can assure you that more likely than not, you will be as average as I have been.

Let’s try to apply some more realistic numbers and see what that takes us. This example is going to be in the context of someone working in Singapore that has a Central Provident Fund (CPF) account. As of writing and I think (fingers crossed!) for the foreseeable future, the Special Account (SA) pays roughly 4% p.a.

If a Singaporean worker starts working at 25 years old can somehow contribute get $5,000 per year in their SA and it continues to compound at 4% p.a. until he/she reaches 55 years ago where CPF allows that lump-sum withdrawal, this person would have $280,424.69. Assuming that the 4% p.a. is a real rate of return, I think more than a few people would be quite happy with having $280K in their bank.

Savings forces us to live with less

Living with less means that it’s much easier to be financially independent.

Most people don’t realise this but there isn’t a magic number to financial independence. Financial independence depends a whole lot on whether you have enough income to meet your expenses.

A person with an income of $100,000 and expenses of $100,001 per year will never experience financial independence and in fact will be forced to dissave.

Naturally, achieving financial independence means being able to generate the income necessary to cover your expenses at will. There is no dependence on an employer for this income.

How does this relate to savings?

Well, if your savings rate was high, then your expenses would naturally be low. Let’s consider two people, both with an income of $100,000 p.a. Let’s say that A only saves $10,000 while B saves $90,000. The corollary must be that A spends $90,000 while B spend $10,000 per year. This means that each year, A would have saved 1/9 of a year of his expenses while B would save 9 years of expenses.

I also think there’s something to say about how people buy too much crap that they don’t need due to excessive advertising or how we end up spending on things that won’t mean much some years down the road and the environment is paying a price for that.

Less is more

If we were to apply the pareto principle of how 80% of all outcomes are determined 20% of actions, I would say being able to save and having a high savings rate is the 80/20 rule of personal finance.

I don’t think I’ve ever read or heard of anyone who has gone broke by saving too much. On the other hand, there are numerous examples of those who have made millions and lost it all and more because they simply couldn’t control their spending.

In short, save more, spend less.

I’ve been gone for some weeks to settle a few things that have happened on the personal front. Hopefully, this is a step back towards regular programming.

Photo by Mikes Photos on Pexels.com

Why Are So Many Unprofitable Companies the Best Performing Stocks This Year? (A Wealth of Common Sense)

A good read especially if you’re wondering about the valuations of such companies.

Solar energy reaches historically low costs (The Verge)

Wow. Now let’s see if this (a) becomes big enough and (b) is really better for the environment.

Your Home is Not an Investment (The Irrelevant Investor)

Putting this out here because home ownership is a big topic for Singaporeans too. Also because I’ve been seeing too much of a pesky ad by a certain company that is quite misleading. If you know, you know.

How a Trump or Biden Presidency Will Affect Your Portfolio (Meb Faber)

I love this. Precisely because I overheard a conversation between a financial advisor and a prospective client that revolved precisely around the US Presidential Elections and the stock market – it was not good. This is way better.

What If The 4% Rule For Retirement Withdrawals is Now the 5% Rule? (A Wealth of Common Sense)

Food for thought. I think Investment Moats has also covered this in much more detail.

How You Can Grow Passive Income With This S’pore-Based Gold Trading App (Vulcan Post)

I post this to warn people of the dangers of these media sites getting paid to advertise investing/trading platforms. Platforms are a gateway but when it involves financial products, I find users are more ignorant than usual.

tl;dr

We moved to a new place and that decision was triggered by my wife thinking about whether to change the main gate. Buying a property is fun and games. Selling a property, not so much. But it let us cash out for some nice gains and get an upgrade in terms of location.

We bought a new place!

I thought of doing this post some months ago, in the midst of the hell that is selling the house and moving to the new one. And all this on top of the I had to juggle some things at work that I couldn’t exactly run on autopilot.

However, I put off writing this as I didn’t want to jinx the deal before everything was done and dusted. Now that we’ve officially handed ownership over to the buyers, I can finally write this post.

The decision to look for a new place started last December when my better half thought of changing the main gate. The gate had been creaky almost ever since we moved in and we had been thinking of a better main gate that would be more cat-friendly.

Then it hit me, why not just move to a new place?

We had just reached the Minimum Occupation Period (MOP) on our Build-to-Order (BTO) flat a few months prior and I think moving to a better location had always been on the back of our minds.

Furthermore, we didn’t do our previous place up with cats in mind and over the last few years, we had a patchwork of modifications to make the place safe for cats. Buying a new place meant that we could start from a blank slate that would incorporate more cat-friendly elements in the design of the space.

In this post, I hope to share some of our experiences in buying and selling property in Singapore. This is not meant to be a definitive guide but I hope to share some of what I think are some of the more important considerations that I’ve learned throughout the whole exercise.

There are some things I would have done differently if there was a chance for a do-over while there are also some things I think we really nailed.

Buying our new home

I guess buying was the easy part.

Over the years, we already had an area in mind that we would want to move to if we ever decided to get a new home. That pretty much narrowed the search for us.

In terms of the house-hunting process, now that was a different story. We aren’t particularly fussy but we figured that if we move, the new place had to be as good as, if not better than our old place.

The location that we had our mind on would definitely better in terms of location as it was much closer to an MRT station. The downside was that apartments in the area were a lot more expensive, especially if we were to look at private apartments.

Some of the older apartments in the area were also old enough that we could potentially outlive the lease as both newer private apartments and HDB flats run on a 99 year lease. So, we confined our search to flats built from 2000 and after.

To keep things short, we saw some nice places and some really horrible ones. In the end, we settled for a place that pretty much had the same layout as our previous place. Together with renovation magic, we’ve made it into a place that works very well for us.

The flat itself is breezy, located extremely close to the MRT and other than some stinky drain pipes, there isn’t really anything bad about place. We’re keeping our fingers crossed that we don’t get any nasty surprises but so far, we’re really loving our new place.

The biggest downside is the new, increased mortgage that we’ve had to take on. It’s double our previous mortgage but to be fair, it’s not unaffordable by any stretch. Of course, the proceeds from the sale of our previous place helped to offset part of the cost of the new place so if we had not sold our previous place, that value would have just remained locked in within concrete walls.

Selling our place

To be honest, there isn’t much to dislike about our BTO property. It’s cheap, the neighbours are great and the environment is quiet and peaceful. On top of all these, the more recent BTO flats have nice 3/4 height windows and a nice, regular layout that doesn’t leave you with awkward corners or much wasted space.

If the property’s so good, then why sell?

One, the location was pretty inaccessible. Our previous place was about 15 minutes by bus from the nearest MRT station. With the best of conditions, it was also a roughly 30 minute drive to my workplace and a 45 minute journey by public transport to my wife’s workplace.

Second, there were a raft of BTO projects that were launched after ours. This meant that if we did not sell now, there would be increased competition within the next few years.

It was also later that I learned from more learned observers that property prices in that district hardly move much which means that there wouldn’t be much more upside in terms of price appreciation if we were to hold onto the place for a few more years.

The biggest downside to selling would mean having to take on another (and much larger!) mortgage when we were quite close to full paying off the previous mortgage.

The other thing I’ve come to realise is that property as an asset really sucks because of how illiquid it can be. It took us a full 7 months from listing to actually get an offer that we finally accepted. (Thanks Covid!) For the actual completion of the sale, it took us a full 10 months from listing to completion.

Furthermore, we had to drop the asking price once because of a desperate seller some floors above us who sold their flat at- or just under-valuation. This affected the valuation of all the other flats and in Singapore, the valuation of the flat affects the amount of loan that the would-be buyer can get from lenders. In the end, we were fortunate that our place fetched a price that wasn’t too far off from what we initially hoped to get.

The other thing that sucks about property transactions is the amount of paperwork that has to be completed. Even with a property agent helping us, the paperwork that to be submitted to lawyers and the procedures that we had to complete on HDB’s website still felt like we had to jump through a few hoops.

HDB, if you’re listening, you might want to improve your ‘Windows Inspection’ form. It totally doesn’t make sense that we had to select the option on the form even the HDB officer came to inspect the flat. That option should have been checked based on the outcome of the inspection.

Selling the flat also meant having to meet all sorts of prospective buyers. From an Ah Beng tattooed dad who had to consult his fengshui master to a ‘Rich Man’ looking to downgrade from his Condo to this Mother of two who couldn’t keep her hands off flipping the light switches to see how our place looked in natural light. You name them, we’ve seen them all.

Not sure why, but some of them really represent the kind of Singaporeans that make me swear off going on holidays with tour groups. To be fair, there were some nice viewers as well and I believe we sold our place to a very nice family.

It also didn’t help that we had to tidy the place each time there was a viewing as we have a fair amount of things. This is the kind of costs that people don’t factor in because it’s not easily quantifiable.

Ending Thoughts

To conclude, buying and selling property takes time and a lot of work. You may enjoy it but I certainly have better things to do with my time. However, I wouldn’t change it because the change in location really makes things much better for us and the livability of new flat is really better than the old one.

I’m back. Not that life has got less busy. But because WordPress seems to be acting fine now. Hoping that I’ll find some time next year to begin working on a coding my own site (with blog) from scratch.

Photo by Mikes Photos on Pexels.com

How Much Money is Enough? (A Wealth of Common Sense)

This is interesting from a philosophical point of view. I suspect too many people (especially in an environment like Singapore) will answer “Never enough”. Not a healthy answer but we are a reflection of the times we live in.

Why Do Poor People Stay Poor? (Of Dollars and Data)

I haven’t read the original paper (it’s behind a paywall) but the results of the experiment are interesting. It’s also a topic that I’m really interested in ever since I read Teo You Yenn’s book.

Rats, mazes, and the power of self-fulfilling prophecies (Tim Harford)

Another interesting behavioural quirk to take note of. I finally learned that an alternative name for this is the “Pygmalion effect”. Personally, I can attest to this as it applies to some of the stereotypes we educators have about weak and strong students.

I can say that I’m only human but at least I’m aware of my biases.

Blockchain, the amazing solution for almost nothing (The Correspondent)

Every time I hear about Blockchain, my mind takes me back to when bitcoin was at all-time highs and how my boss wanted us to do a sharing on the economics of Bitcoin and blockchain.

I can only say that fortunately, I was with enough like-minded colleagues that we ended up doing a sharing that tempered the high expectations of those who attended.

Time has not proven us wrong.

SoftBank’s Bet on Tech Giants Fueled Powerful Market Rally (Wall Street Journal)

And wow, just when you thought the week couldn’t get any more interesting, this news breaks.

So it turns out that the Vision Fund’s vision is to try and create the illusion of its bets paying off through financial chicanery. $4b on call options on top of a $10b position in the equities themselves. The options give them exposure to $50b (!) worth of equity.

At this point, you have to wonder who sold them the options and now that the people on the other side of the trade knows that Softbank is on the long side of the trade, what happens?

Post-National Day Long Weekend edition

Photo by Mikes Photos on Pexels.com

How Turkish coffee destroyed an empire (The Economist)

Super interesting. No surprises but that’s why social media is the coffee shop of the 21st century.

Personal finance blogger explains why financially literate people don’t worry about 99-year HDB leases (Unscrambled.sg)

Not entirely right but it is a valid point. Will write a piece on property in Singapore one day.

The Economics of Home Ownership (A Wealth of Common Sense)

U.S context but probably 90% applicable to Singapore as well.

Aging Economies May Benefit Less from Fiscal Stimulus (IMF blog)

Uh oh…Singapore qualifies as aging too you know…Of course, Singapore’s probably better positioned to overturn that as we’re more open to immigration than say, Japan.

‘The biggest monster’ is spreading. And it’s not the coronavirus (TodayOnline)

Uh oh…Is 2020 the year that starts us down a Mad Max-like apocalypse?

Millennials Slammed by Second Financial Crisis Fall Even Further Behind (WSJ)

During the GFC, I remember reading about how my graduating cohort would be one of the unluckiest generations as we were graduating in the middle of a recession. Getting a job in the middle of recession was found to be detrimental to overall lifetime earnings.

Turns out we’re doubly unlucky.

However, you have to count your blessings where possible. If I didn’t graduate in the middle of a global recession, I probably wouldn’t have thought about a civil service job. If I never joined the civil service, I never would have met my wife.

By the way, if the above scenario for millennials play out globally, you can be sure that the Singapore government will become more and more left-leaning.

We’re into August! This year has been nothing short of bizarre and probably full of disappointments for many. I hope that you’ve been able to see at least some good in what seems like nothing but bad news.

Photo by Mikes Photos on Pexels.com

‘They’d Find Fraud, Fraud, Fraud.’ (Institutional Investor)

I’m not so surprised that many publicly-listed Chinese companies are engaged in fraud. What I’m surprised is how Chinese financial regulators seem to be part of the problem. And you wonder why China has a problem convincing more of the world to hold Chinese securities even if they allowed the world to.

Why Is Gold Rising? (A Wealth of Common Sense)

Beware the Hype on Gold (Morningstar)

Ben Carlson has a good article on some of the drivers of investment in gold while the Morningstar article takes a look at the past record of investing in gold.

You Don’t Need Alpha (Of Dollars and Data)

Nick Maggiulli makes a very convincing case that most retail investors shouldn’t be too focused on beating the market when keeping up with the market will be more of a game-changer when it comes to retirement.

Here’s how a retired dad can cover basic needs with around S$1,500 monthly payout, leaving personal savings untouched (mothership.sg)

A terribly lousy sponsored piece from Mothership. Obviously paid to write on something that they don’t care about.

I hate how so many of these mainstream media outlets pretend to know about the product that they were paid to write about when they obviously don’t know enough to present an informed case.

In this case, they obviously neglect to mention that receiving $1,500 in 10 years’ time will fail to help the writer’s dad make the purchases listed in the table. $1,500 is a nominal amount while the prices listed for each of the expenses mentioned are in today’s prices.

It’s more likely that not that in 10 years’ time, $1,500 will buy the writer’s father much less than the writer thinks.

In short, you can’t ignore inflation.

Slow week. But there volatility seems to be picking up in the markets.

Photo by Mikes Photos on Pexels.com

My parents said you can never lose money buying properties in Singapore. They were wrong. (Dr. Wealth)

This is what every generation thinks of real estate—and what each has spent on it (Fortune)

Fortune article is behind a paywall but the chart there is the moneyshot. Anyway, point of those two articles is to counter the often-held belief that you can’t go wrong with property.

As with any asset class, market cycles matter.

How Millennials Can Close the Generational Wealth Gap (A Wealth of Common Sense)

Linking to this not so much because of Ben Carlson’s advice for millennials on what to do about the Generational Wealth Gap.

I’m linking to it because I think it highlights something we also see here in Singapore. A generational wealth gap that explains why those in their 40s and below feel this sense of injustice about many things.

Imagine being told that your life will turn out great if you study hard and do well in school only to find out that what used to be true no longer works and the future looks even more uncertain than before.

Intrinsic and Extrinsic Motivation (Benabou, R and Tirole, J)

I find this utterly fascinating because I have motivation problems.

No ‘Best Things I’ve Read’ last week because I was effectively hungover from GE2020. I was one of the minions on the ground. No GE2020 thoughts from me because those who have me on ig would know what I felt about this GE.

Instead, now that GE2020 is over, let’s get back to regular programming.

Photo by Mikes Photos on Pexels.com

Tesla and the Amazon fallacy (FT Alphville)

The Elon Musk factor is causing Tesla to rally hard. However, do not mistake Tesla for other tech giants. Remember the wise words of Keynes.

New research going back 120 years backs up Warren Buffett’s simple advice for investing (CNBC)

Buffett has fallen far off the top 3 of the billionaire charts… Either he has really lost his mojo or those that have recently climbed to the top have grown their wealth a lot.

Last I checked, Buffett’s wealth hasn’t changed that much. It’s the rest whose wealth on paper have increased a lot. And guess which is the prevalent sector that those people are in?

China’s regulators break down Xiao Jianhua’s financial empire, seizing Tomorrow Group’s insurers, trust firms and brokers (South China Morning Post)

Putting this here because this week in class, we were talking about tehe role of institutions and how no city within China is going to be the next Hong Kong. In fact, based on what’s going on in Hong Kong now, it seems like even Hong Kong will no longer be how it used to be.

This case is an example of why it’s going to be so tough for China to convince the rest of the world that it wants to be part of the global financial system.

GE 2020 campaigning weekend! This elections have been entertaining. Next friday, we’ll see if the elections will be a watershed one or just a run-of-the-mill Singapore elections

Photo by Mikes Photos on Pexels.com

Pandemics Leave Us Forever Altered (The Atlantic)

Great read. It’s crazy how much of our lives seem to be a fork in history. We could have easily gone down a different path if not for specific events.

Why is Gold Valuable? (Of Dollars and Data)

Great read. Especially if you’re a gold bug.

The Nifty Fifty and the Old Normal (A Wealth of Common Sense)

Another great read for those who think that the biggest companies today will continue to be the biggest and best, forever and ever.

Exhibit A

I don’t know. Maybe it’s a one-off thing but I’ve begun to notice a lot of so-called investment gurus in Singapore who have quite a following because they seem to be able to make well-reasoned arguments.

The problem with many of these so-called investment experts or gurus is that they either come from a non-investment professional background or they think that with the amount of advice that famous investment professionals on the internet, all they have to do is parrot the same thinking and things will work.

Gold! Gold! Gold!

Recently, I’ve seen some advice from Singaporean Investment experts advocating Gold as an investment in light of the times that we’re in. And they apply the usual arguments:

  • Gold is a hedge against inflation
  • Gold zigs while the markets zags
  • Gold will always be valuable

Now, while the points above may have some truth to it. Investors should also be aware of the potential pitfalls of investing in gold (see the link to the Of Dollars and Data post in tomorrow’s edition of ‘Best Things I’ve Read’.

Additional Considerations for SG Investors

While the usual pitfalls of investing in something like Gold are true for all investors, I wish to highlight another factor that many Investment Experts in Singapore often leave out.

Gold is priced in US dollars (USD).

Far too often, when recommending investments in foreign assets, many experts forget that currency matters. After all, a Singaporean investor starts off with Singapore Dollars (SGD) and therefore, all returns should be calculated in SGD terms. It probably will be the case that the investor cares about the returns in SGD as his or her purchasing power is in SGD terms.

Take a look at Exhibit A. It’s a chart of the SGD to USD exchange rate from 2003 to present day. Along the way, the USD has lost as much as 30% against the SGD and while it has climbed from the bottom, there’ no guarantee that the USD will appreciate further against the SGD*.

It’s not just gold

Now, before anyone thinks that this is a post against gold, let me throw in another example of a mistake when ignoring foreign currency flucuations.

Some years ago (roughly, 6-7 years if my memory serves me correctly), the local banks were encouraging many retail investors to take advantage of higher interest rates in countries such as Australia and New Zealand.

The basic idea was to convert your SGD to the either the Australian (AUD) or New Zealand (NZD) dollar, deposit it in a time-deposit in the banks there and earn the higher interest rates there.

Unfortunately, someone forgot to tell these investors that there is something called ‘Interest Rate Parity’. 1 AUD then used to trade for around 1.3 SGD but alas, now the almighty AUD trades for slightly less than 1 SGD. What seemed like an additional 4-5% return a year basically got negated by the 30% hit in currency terms.

It’s very basic but investors sometimes forget that (a) inflation matters, (b) transaction costs matter, and (c) local currency matters.

Notes:
*In fact, the fundamentals of international economics tell us that with the US being a developed economy with a persistent trade deficit, it is more likely than not that the USD will depreciate in the long-run. More optimistic folk would do well to remember that the British Pound was once as high as 6 SGD for each GBP.