It’s official. Singapore goes to the polls to elect a President on 1 Sep 2023. In other news, markets have been coming down over the last couple of weeks. Bitcoin has also fallen off a cliff in the span of 3 days.
$1b anti-money laundering raid in Singapore: Who are the 10 people charged? (Asiaone) $1b money laundering case: 11 more properties linked to suspects (Asiaone)
I think what amazed me was the sheer number of properties in Singapore linked to this case. Also, given the information needed to even move money here and complete the transactions, wouldn’t all this have been flagged a lot sooner?
My tongue-in-cheek personal conspiracy theory is that the authorities identified the gang earlier on but allowed for the gang to complete moving a sizable sum here before nabbing them. The reason? So that the assets get sold once (benefitting sellers) and then get seized so that they can be sold again to generate another round of taxes collected.
If this were true, that’s some serious 4D chess that the authorities just played.
It Takes Nearly 3 Decades And Half A Million Bucks For An Average Singaporean To Feel Financially Free; 2023 Singlife Study Finds (Yahoo Finance)
$500K SGD seems rather low to me. I’m not sure what the survey asked to get the number but I expected the number to be closer to a million.
Hidden behind a paywall but greats charts showing the similarities between Nvidia’s shares today and Cisco’s back during the dot-com boom (and subsequent bust).
STI ETF Dollar Cost Averaging Generated 5% CAGR from Dec 2019 to Jul 2023 (SGX.com)
I’m not sharing this link to state how great DCA is. Rather, I’m sharing this as a reminder of how DCA-ing in non-trending (or down-trending markets) makes little difference to your portfolio. And this is how you calculate returns, not like some folks who only look at price returns. Of course, the biggest downside to DCA vs. lump-sum will be any fixed transaction costs. That will probably make all the difference for retail investors who only invest small amounts at each go.
5 BIG LESSONS POPULAR PERSONAL FINANCE ADVICE GETS WRONG (Gen Y Planning)
Singapore turns 58 and having been born in Singapore and lived here all my life, I am proud to say that I have no regrets. While Singapore’s not perfect, I think it’s one of the few countries in the world where it’s safe even for a woman to go home alone at night. The public transportation here is also amazing – it’s affordable, convenient, and (mostly) reliable. Government spending is also not profligate, which is reflected in our fairly stable and strong currency. Lastly, while the ingredients are not the freshest because almost all of it has to be imported, the food is still amazing.
I didn’t realise that Endowus now has nearly 190 funds available for retail investors to choose from. That’s a ridiculous number of funds and really shows that they’ve lost the plot. In my course of work, I’ve met many fund houses trying to pitch different products and honestly, after hearing so many different pitches, they all sound the same.
Recently, I’ve been talking to many fund managers about ESG investing and it turns out that all of them pretty much tell me the same thing – it depends on what you want.
Need a product that excludes contentious sectors? No problem. Need one that focuses on aligning the fund’s investments with the Paris Agreement? Sure, we have it.
And therein lies the rub. Fund managers just want your money. They don’t really care whether ESG makes sense as an investment or whether the way they implement ESG in investments makes sense; they’ll come up with products that they think clients will buy and the reason they have so many different types of products is because they have as many different types of clients.
If you ask me, a great fund is like a sushi master. A great sushi master focuses on making great sushi. If you don’t like sushi, that’s your right. Just go eat something else. The sushi master doesn’t care about your business, he just wants to be good at what he does.
Safe Withdrawal Rates Reading
The Problem with the 4% Rule (and Why You Could Retire Even Sooner) (madfientist)
The Problem With FIREing At 4% And The Need For Flexible Spending Rules (kitces.com)
Kyith from Investment Moats did a great in-depth video on the 4% rule which led me down this rabbit hole because I’ve been aware of the other research surrounding safe withdrawal rates.
The first link provides a great point on a strategy that adjusts withdrawals based on returns in the stock markets (which impact portfolio values) and incorporates the idea that not all spending is necessary. If one is willing to adjust withdrawals for discretionary spending when times are bad, that greatly mitigates the sequence of return risk and therefore extends the longevity of the portfolio.
The second link provides an overview of safe withdrawal strategies alternative to the 4% rule.
The third link is to a paper by Guyton and Klinger which, using monte carlo simulation, provides insight into how different withdrawal rules affect a portfolio over a 30- and 40-year period. The findings of when portfolios are likely to run out of money also point to the usefulness of having a flexible withdrawal strategy (such as the strategy outlined in the first link). Very interesting paper.
The Fed hiked once more but it seems that at this point, the market doesn’t really care. As long as inflation heads in the direction its been going and the economic data supports a soft landing, things are going to be just fine for markets.
Two lessons from this post – one, many people make the error of omitting dividends when calculating stock returns, and two, many people underperform total returns due to their behaviour.
When Hindsight Becomes Foresight: Replicating Investment Performance (Enterprising Investor)
What a great post! The authors use two approaches to determine if a fund actually does what it claims to do or whether its performance can be replicated – either by market factors or a combination of holding the S&P500 and cash.
The tool highlighted in the post is pretty fun to play around with.
The cause of all our #firstworldproblems is the comfort it brings.
This post hit me like a brick because it’s so right. It’s not like I don’t know this but most of the time, I’m just blissfully unaware of how much of a problem it is.
Commercial Real Estate Is in Trouble, but Not for the Reason You Think (Morningstar)
Really good article on the commericial real estate market in the US. The highlight of the article is that many investors don’t have a huge segment of the commercial real estate market, Multifamily homes, on their radar. This segment is set to see a huge number of loans get renewed this October which means higher rates and in turn, higher rents. However, the silver lining is that many of the loans are packaged in Commercial Mortgage Backed Securities (CMBS) and those that are agency-backed have a government agency backing it which, in theory, limits any chance of default.
Crafting an Ideal Passive Investment Portfolio for Your Life Goals (Investment Moats)
Kyith from Investment Moats has done a commendable video that gives an overview of asset allocation and the kind of returns one could expect from a well-diversified portfolio built using passively-managed ETFs. A good primer if you’re completely new to investing^.
^When I say new, I really mean the kind of person that has never heard of diversification, index funds, and the like. If you’ve been purely investing in single-name stocks without regard to the portfolio level effects, you’re new.
A new study by Moshe Levy finds that when measured by Sharpe Ratios, most U.S. active equity funds (92.1%) underperformed a passive index. This study also finds little correlation between fund size and performance, and performance in the first half (Apr 2011 – March 2016) and the second half (Apr 2016-March 2021) of the period surveyed.
In Singapore, almost everything that anyone wanted to talk about this week was the high-profile investigation into an alleged corruption case linking Singapore’s Minister of Transport and a Malaysian billionaire based in Singapore.
As I read some of the alleged reasons for the probe, I can’t help but think that if true, it is what some would call the cost of doing business in other countries. In Singapore, we just don’t take this kind of stuff too lightly.
As for markets, investors are bulls again following the lower-than-expected CPI report in the US. The icing on the cake was the resignation of Bullard, one of the Fed members who is a notable hawk. Sadly, this means that valuations in US markets are getting more expensive.
Despite the higher valuations and turn in optimism, my gut feeling is that it’s too soon to turn bearish. Markets may climb higher for a while before the bears get to see their day.
Joachim Klement provides a good argument on why those worried about Government Debt are likely to be wrong. Here is his summary of the entire argument:
Central banks have and in my view will continue to monetise government debt to keep long-term bond yields low if they have to. People who are afraid that this may create runaway inflation have to explain why this was not the case in Japan over the last three decades. The ageing demographics in the US and Western Europe even help governments in keeping demand for their bonds high and reduce the need for central bank intervention. And in the US, there is additional support from the fact that the US Dollar is the world’s reserve currency and foreign investors have to hold US Treasuries, whether they like it or not.
Gig workers ‘most financially stretched’ group in Singapore; spending exceeds income: DBS study (ChannelNewsAsia)
Do we really need a study to tell us that the groups of people most vulnerable to inflation and rising interest rates are gig workers, boomers, and those with low income?
South Korea’s archaic rental system is costing people their life savings (The Business Times)
I first read the full article on Bloomberg. It’s really interesting that a rental system like this exists because it is just so different from other residential rental markets around the world. Here’s a description of the system:
Under a system that’s unique to South Korea, landlords collect a deposit called jeonse that’s equal to anywhere from 50 per cent to 90 per cent of a property’s value at the start of the lease period, which typically runs for two years. Tenants usually pay no rent for the duration, while the property owner profits by investing the funds, often to buy or build more apartments. Landlords are contractually obligated to refund the deposit at the end of the lease term.
And this is how the scheme has endured and why it’s finally unravelling:
What’s essentially a government-sanctioned pyramid scheme – in which landlords pay back the deposits of tenants whose leases are expiring with funds obtained from new renters – worked relatively smoothly when property prices in the country’s major cities were climbing. But that decades-long trend was thrown into reverse when the Bank of Korea began aggressively raising interest rates in 2021 to tame inflation.
I’m just amazed that no one packaged these loans into securities and tried to offload the risk to retail investors when times were good. Imagine you owning the liability to pay your neighbour’s jeonse and your neighbour owning yours.
Why it makes perfect sense that real estate/insurance agents and FAs are braggy (The Woke Salaryman)
Sunday double feature on Financial Advisors in Singapore. As usual, Christopher Ng writes well and The Woke Salaryman tries to put across a point of view that isn’t very controversial or antagonistic. I don’t disagree with their points.
In fact, I agree that the system as it is designed right now, doesn’t benefit the customer.
Christopher Ng shares a personal take on why being “asset-rich” is better than “cash-rich”.
I love personal stories like this. In my view, whether to have cash or property is a matter of switching out one asset class for another. The different asset classes just have different risk and reward characteristics. As he points out, over the long run, it’s very hard to get rich if you hold on to too much cash as inflation will eat away at your purchasing power.
The thing about property which my family had to learn the hard way is that you need to be able to have holding power in order to see those returns over the long term. And those returns depend heavily on which part of the property cycle you sell the asset. My family had to sell off a condo unit in order to fund my brother’s education. The property was bought before the onset of the Asian Financial Crisis and despite it being rented out for many years, my parents sold it for pretty much the same price they paid for it which meant they hardly made anything after accounting for transaction costs, operating costs, taxes, and inflation. Throw in opportunity cost and they probably lost money from this investment.
Couple’s two-home dream lands them in heavy debt (The Straits Times)
This piece of news has been floating around the local investment blogosphere.
This tale follows more recent warnings on decoupling and I cannot verify if this is a true story or not but whether the tale is fiction or not can teach some lessons.
This cautionary tale sounds like the perfect story to warn would-be property buyers to be careful of what many property agents suggest to do when it comes to buying property in Singapore – have the property of residence in one spouse’s name so that the other spouse’s name can be used to buy another property for investment. When my wife and I were looking to buy our new place, this is the same strategy that a property agent floated to us.
If we had taken up this suggestion to decouple and buy two properties, we would probably have faced a little more stress as interest rates increased over the past year although it might have been a profitable operation seeing how home prices and rents have both increased as well.
But we didn’t go ahead because the tradeoffs that come with this investment are hefty. The first would be the need to use cash to pay for any excess that can’t be paid with CPF monies. Second, having two mortgages weighing down our necks would mean less flexibility in terms of any change in lifestyle (e.g. if either of us wanted to switch to part-time employment).
In general, decoupling to buy two properties less little room for error. In the case of the article, shit happened and they lost it all because their system was too tightly coupled. While Investment Moat’s take is that it was a run of bad luck, this couple obviously took on a lot of risks that they couldn’t afford to:
Husband ran a business and businesses are notoriously tied to cycles. Would he have been comfortable paying for the mortgage if business was bad?
Did they not stress test their comfort with interest rates rising? I remember a friend buying a property sometime around 2015 or 2016 and one of the things I asked him was “What’s the mortgage going to be if interest rates go up?”
In short, you don’t have to optimise to the point that there is no slack or buffer in the system. Be happy with lower rates of return if it means taking on non-fatal risks.
What a great post. The poem by John Burr Williams, Markowitz’s impact on the industry, and Peter Bernstein’s point on more volatile investments also bring more prone to permanent losses.
Biggest news of the week is the release of the report on the Ridout Road saga. Plenty of opinions floating around the internet on the report which makes for an interesting read.
Workers want to stay remote, prompting an office real estate crisis (Washington Post)
Uh-oh, this can’t end well.
I guess that at the end of the day, something will have to give.
Either (1) companies will force employees to return to the office which I think is doable if the labour market is softer, (2) banks get hit by the fallout from Commercial Real Estate (CRE) which is probable but creditors will probably extend and/or negotiate terms, or (3) it will be a long-drawn wringing out of all the excess in the market which could take decades.
Inside North Korea: “We are stuck, waiting to die” (BBC)
When you read stuff like this, it makes you appreciate the fact that no matter where you were born, at least it isn’t in a place like North Korea where the odds are most probably stacked against you.
When Home Furnishing Instalment Plans Land Buyers in Debt (RICE)
It’s funny that this is only on the news now because I recall hearing from someone many years ago that the business plan behind the installment plans provided by big-box retailers is precisely to entice more financially vulnerable consumers to buy big ticket items which can then be repossessed if the consumer defaults on payment, restored/repaired for cheap, and resold to another buyer.
I suppose this doesn’t work as well for electronics which can go obsolete pretty quickly but for sofas, mattresses, and the like, that’s what I heard.
Yeah so it’s funny that this is only making the news now when there’s a new business model – Buy Now Pay Later (BNPL) that is probably a concern as well. If you have a business touting great sales because of BNPL, don’t expect that to last.
The Dutch experience described in the post probably mirrors the situation in Singapore:
First, they show that until the 1970s, house prices were mostly determined by the cost of materials and labour to build a house, the supply of houses and population growth. But since the 1970s the drivers have shifted. Between 1970 and 2012 about 70% of the house price increase can be explained by the increase in capital and the cost of capital, while an additional 20% is explained by population growth. In other words, people have increasingly bought houses on debt (i.e. using mortgages) rather than buying them outright. And as mortgage rates dropped, people could afford to pay more for a house.
An equally important point made in the post is how you have to be careful about interpreting the results from too long a time series due to how the drivers of price in the market change over time.
Half the year’s over and markets have been surprisingly rosy. Not much in the financial news this week although news headlines have ranged from a private submersible vanity project blowing up, the astonishing popularity of Coldplay and Taylor Swift concert tickets, and as I write this, a possible turning point in the Russian-Ukraine war (?) with a Russian private military contractor going rouge.
Moving from financial stability to financial abundance takes Singaporeans 32.3 years: Study (The Straits Times)
The study by wealth manager, St. James’s Place terms the different stages of wealth as financial stability, financial security, financial flexibility, financial freedom, and financial abundance.
I’m not sure whether the respondents in the survey are more conservative than usual but for it to take someone roughly 20 years to go from financial stability (being able to save money) to financial flexibility (sufficient financial assets to cover living expenses for up to one year) seems rather long to me.
Even though they can be quite long, I generally like the articles from Stacked Homes. I read this particular story about why the couple featured in the article decided to pay down their HDB loan and I saw this:
I don’t doubt the math but this is exactly the problem I have with the 1M65 movement. Even if you have $1.3 or $1.7 million, that amount of money won’t mean much in 35 years. To be clear, that sum of money is better than nothing but given the recent bout of inflation, you would think that people would be more aware of the impact of inflation.
However, it seems that many people still think in nominal terms and it’s a real concern because people are going to be in for a rude shock when they find out at the end of their working lives that all the money that they’ve saved away doesn’t necessarily translate into a better quality of life.
Doing some rough math, if inflation averages 2-3% p.a. for the next 35 years, $1.3 million will have the equivalent purchasing power of $450,000 – $650,000 today. As I said, it’s not nothing but I hesitate to call it a retirement plan.
The cheese, the rats – and why some of us are poorer than others (Tim Harford)
The idea of a Giffen good is one that has been taught in econ 101 class but is also one that has rarely been observed. With the recent bout of inflation, I guess this is something more keenly felt, as described in the post:
Inflation is always a little lower than it seems once you allow for such substitutions. But one group of people can’t play that game: those who are already relying on the cheapest staples have nowhere to run from price rises.
Meet the typical South Korean millennial: educated, overqualified for the job market, and part of the ‘kangaroo tribe’ that can’t afford to leave their parents’ homes (Insider)
I think this is part of a series and there was an earlier post on Singaporean millennials. Interesting to know how similar cohorts in other societies are doing because I can imagine that what’s happening in South Korea could easily be what lies ahead of Singapore.
Many of my friends and former colleagues have also done Masters’ degrees only to do the same kind of work that I’ve done so the overqualified part seems to be happening. It may even be worse for the next generation because many of my former students have, at a minimum, university qualifications but end up doing jobs or work that hardly need university qualifications.
Thankfully, the public housing scheme in Singapore seems to provide some relief as far as the next generation not being able to afford their own home. The only problem with this is it seems to be heavily reliant on the BTO scheme as many singles and young people looking to buy their first house are increasingly priced out of the resale and private property sector unless they have the help of their parents.*
*However, many young people have no or few siblings which allows for a wealth transfer from their parents to them.
Can Milo Tin Budgeting for a Month Reform a Financially Reckless Millennial? (Rice Media)
I’ve always found such exercises unnecessarily complicated and tiring. Isn’t far simpler to transfer a portion of your income to an account that is meant for purposes such as emergencies or investing the moment it comes in and whatever is left over gets spent?
If you want to take it further, have three accounts – one for emergencies, one for investments, and one for monthly bills. When your salary comes in, transfer $X, $Y, and $Z to the respective accounts for bills, emergencies, and investments in that order of priority. Whatever is left over gets spent.
If you’re worried, you might overspend, then use a debit card until you’re sure that your monthly income more than covers your spending before signing on for credit cards. That way, you’ll really be mindful of spending on frills such as Grab and bubble tea.
Why CPF Life can be better than an investment property (TheStraits Times)
It is impossible to buy an apartment for $600,000 that can guarantee you a monthly income of about $5,000 in today’s red-hot property market, but the Central Provident Fund’s (CPF) annuity scheme can give a couple such returns.
I’m not sure why anyone would compare CPF Life with investing in property but the ST has done it. This is wrong on so many levels that I don’t know where to begin. Probably the best way to weigh between the two options is to recognise that both options carry very different reward and risk characteristics.
For one, CPF Life carries very little default or credit risk since it’s unlikely that a government-backed pension scheme (especially when your government has a triple-A credit rating) will fail to meet its obligations. Tenants on the other hand can fail to pay up (on time or at all) although measures such as rental deposits can mitigate this.
Two, the capital invested and income earned from investing in property need to account for taxes and any expenses incurred in the upkeep of the property whereas, as far as I know, CPF Life incurs none of these.
On the other hand, property investors can anticipate significantly more upside as rents can adjust upwards, property prices can appreciate, and the use of leverage juices returns. This can be (and should be, otherwise why take the risk?) more than enough to offset the additional risks, taxes, and expenses involved in property investment vis-a-vis CPF Life.
The payouts from CPF Life (apart from the Escalating plan) don’t adjust for inflation (the escalating plan adjustments are limited to 2% a year which may not outpace inflation) which means that any advantage based on current yield is doomed to erode over time.
Lastly, you can think of the bequest aspect to property versus CPF Life.
All in all, investing in property and CPF Life are two completely different beasts, and making that comparison is kind of meaningless (unless those are real choices that people make – leaving monies in CPF for CPF Life versus taking it out to buy a property).
My sense is that if those are indeed real options, then people have a problem. My choice would be to leave enough in CPF such that CPF Life pays me a sum that will meet my survival needs for life, and only with the excess should I think about generating returns (either from stocks or property) that will be for wealth accumulation and additional income generation to lead a better life.
Ryan Goh: Life through these eyes 