It’s that time of the week again!

Get yourself a cup of tea and get ready to get smarter before the week starts.

 

Social Security benefits buy 34 percent less than in 2000, study shows (CNBC)

The World Isn’t Prepared for Retirement (Bloomberg)

This week, I wrote a post which touched on financial literacy. The sad thing is that many people around the world have very little idea about things like inflation or compound interest.

Unfortunately, these are exactly the things that you need to think about once you no longer have a source of income. Many people also think that they will have a source of income until they reach the official retirement age but a downturn in the economy or changes to the industry can easily mean that a person loses his/her job during their prime working years.

To see how you stack up on the financial literacy scale, go and take the little test included in the Bloomberg article. It’s only three simple questions and frankly, I’m surprised that anyone can get it wrong.

The CNBC article highlights the problem with our CPF. CPF works wonders in terms of forced savings and compounding that sum into something much more. The problem is that once CPF starts paying out, inflation isn’t really factored in. It’s not really that different for most insurance products. Whole life plans and annuities often don’t adjust for increases in the cost of living.

Unfortunately, as the article and even the statistics in Singapore (Table A.1 in the document) show, inflation for medical costs tend to be higher than what the CPI shows us. And if you think about it, this is precisely what retirees and seniors should be concerned with.

 

Bull Markets & P/E Multiple Expansion (The Big Picture)

Ritholtz has a post commenting on research done by UBS. The research shows how bull markets tend to be a function of P/E multiple expansion. The takeaway is basically how bull markets are driven by (over?) optimism as investors re-rate stocks to deliver faster than expected growth.

In other words, bull markets tend to be driven by a narrative on investor confidence due to the economy doing well while bear markets get punctuated by cycles of optimism and pessimism.

Take the finding/theory with a pinch of salt though. After all, if these things were so predictable, then we’d all be rich.

 

Guide to Dividend Withholding Tax for Singapore Investors (Financial Horse)

Finally! Someone has come up with information on withholding tax on dividends and this clarifies things up so much. I suppose Financial Horse’s training as a lawyer helps because all the legal jargon and heaps of information just confuses me. The table that shows the tax rates for other countries helps so much as well. Useful information to know if you invest in overseas markets.

 

The Story Of Agnes Plumb: Dividend Millionaire (The Compound Investor)

Another unknown millionaire story. Same themes from all the others – money compounded over long periods, frugal lifestyle but the twist in this story is that she actually inherited the stock from her father and subsequently did nothing.

Nothing! She sat on her thumbs and just waited, and waited.

You may argue about the wisdom of not spending all that money but you cannot argue about the wisdom of how compounding is a powerful force. As my wife’s favourite bear said,

“Don’t underestimate the value of Doing Nothing, of just going along, listening to all the things you can’t hear, and not bothering.”

As for Plumb, she may not have spent a lot of the money on herself but she left a lot of it to charity and if you ask me, that’s a lot of good done for the world.