Archives for category: Personal Finance
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For those who’ve been following me for a while, you’ll know that I really think that most Financial Advisors in Singapore have never really moved on from being anything more than insurance salespeople.

This latest post over at Investment Moats show what’s wrong with the Financial Planning industry. While the data collected by Kyith is by no means comprehensive and only shows what has happened many years ago, I highly doubt that the Financial Planners in Singapore today operate very differently from the late 90s/early 00s and I’ll explain why.

Don’t get me wrong

Before I go and point out the issues I see, I want to state upfront that this is by no means targeting the people who have chosen this profession or in any way about any particular financial planner. I personally know a few and they range from very experienced ones to rookies in the field and by and large, they are not bad people.

I also think that insurance is a necessary expense to protect against low probability but high impact events. The problem with the Financial Planning industry is how the industry evolved from dealing primarily with insurance to one that moved into advising their clients on all areas of their finances.

Proof is in the pudding

Source: Investment Moats

If you look at the examples compiled by Investment Moats, you’ll see that most of the plans (which look like endowment plans) are basically plans where people pay a regular premium in return for an amount that gets returned at the of the life of the policy.

In short, it’s a forced savings account that only matures some years down the road.

A cursory look at the returns per year (XIRR) shows that investing in any one of those plans returns any where from 2-4+ % which is my opinion is pretty weak if you think about the fact that interest rates have been much higher in the past.

The worst part of all this is not that the plans delivered as they promised. In fact, if you go back to the 2000s, I’m pretty sure the plans were being marketed with non-guaranteed returns that were much higher, probably in the 5 – 6.5% p.a. range.

A test for all financial planners

I’ve spoken about how the agency problem is a big one for financial planners in Singapore. Furthermore, the barriers to entry into the industry is low and once they are in, the focus on most training is in terms of sales and not actual financial literacy.

If you look at the returns of the above savings plans, you should probably realise that savers could do better by putting their money in the CPF SA*. Using the same parameters given in the example in Kyith’s article, I came up with a figure of $34,569.07 if the yearly premium of $1,228.80 paid over 20 years was compounded at 5% per year.

Compare that with the $28,317.13 received by the policy holder in Kyith’s story.

Therefore, my test is this:

If presented with a plan by your financial planner, ask them how many of their plans have actually paid the non-guaranteed rate or more and to show you the data.

Given the low-interest rate environments, if any of the plans presented show you non-guaranteed returns close to 5% p.a., you should run and hide.

And if they show you returns of less than that, then why bother since CPF presently gives you that returns but without the additional corporate risk and fees?**

If you have a financial planner that is willing to say, “hey, you can get protection from me, but when it comes to savings, my products aren’t exactly going to be the best bang for your buck.”, then do let me know.

Notes:
*Less chance of default, almost equally long period where money gets socked away.

**I’m sure some of them will point out that the lower returns are due to the plans having some form of insurance as well. But if so, then why not just sell the insurance separately without the savings plan.

Covid-19 is all the rage here in Singapore right now. But obviously the markets have been pretty much treating this as a non-event. I have quite a few more links this week if you have to stay home because of the virus.

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Great to Gone (Humble Dollar)

Great story. You may or may not agree with the diagnosis but you can most certainly feel for this guy. How many people can count their ancestors a few generations before as one of the wealthiest people in their country?

I personally witnessed this in my own life as the small business that my grandfather started has gone from start-up to stagnant to dead under the hands of the second generation.

Dollarisation would not save Argentina (Financial Times)

Great read for those into macroeconomic and monetary policy. It’s a subject very few appreciate and even fewer understand well. Unfortunately, it’s something that also affects many lives.

The Biggest Wealth Levers (A Wealth of Common Sense)

A great breakdown of what leads to wealth creation for individuals and households. The Millionaire Next Door is a classic and goes into too much detail (like the brand of cars and watches that most millionaires own) which can cause a loss of relevance in today’s context but the principles you can learn from there are timeless.

The Biggest Risk in Crypto Today (A Wealth of Common Sense)

Good points overall. And just like every financial scam out there, it preys on asymmetric information between those who understand finance and those who don’t.

However, finance isn’t rocket science. More people should be able to figure it out.

Why my purchase choices have the kiss of death (Tim Harford)

Really entertaining and funny read. I particularly like the phrase “harbinger of doom”. I must confess that I might be one of these people as well.

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This is one of those end of year posts so I guess it’ll be retrospective and yet forward-looking at the same time. However, being the end of a decade, I thought it’ll be interesting to look at some of the changes that has happened in my life in order to give myself an idea of what to expect in the next decade.

Career

At the beginning of this decade, I was a couple years out of school and working for the civil service. The job paid decent but was the scope of work was way out of my interest zone. Needless to say, I was there for another 2 or so years before I left for a teaching job in the public service.

Teaching foundation level economics has been fun but of course, the lack of depth impedes an understanding of real-world issues. Also, in this current day and age, economics has been applied in areas outside of the traditional business setting but being in the business school, the economics we teach doesn’t stray far from your traditional Econ 101.

In short, teaching economics at the school where I am right now is kind of limited in depth and breadth. Plus, it seems to be a business school phenomenon that economics isn’t all that important. Instead, the flavour of the times seem to be anything tech-related.

Fortunately for me, my interests and skills lie not just in economics but also in finance and in the next decade, the plan is to move further and further away from economics and more into the finance space.

Which area of finance? It should be in corporate finance and business valuation.

Health

It’s funny that I’m down with flu as I write this but my health hasn’t really changed much over the last decade. If anything, it has gotten slightly better.

I put on a fair bit of weight after working and in December 2017, I reached peaks that I had never reached before. That was the trigger for me to be more aware of my diet.

The thing is, I love beer.

So I searched and searched, and eventually I learnt that there was something called intermittent fasting. Long story short, I followed some version of it where I skipped breakfast except for a cup of coffee with evaporated milk, no sugar. And then I ate lunch at around 11:30am or so, followed by dinner at around 7:00pm.

I not sure I even did it right because some people say that you can’t have anything that has even a little bit of sugar in it (which the milk has) but anyway I lost about ten kilos and my weight has been at a comfortable level since.

I’m also sure it’s because I had light lunches on some days of the week but otherwise, I didn’t restrict my diet to any food groups. It was all about making sure you don’t overdo things.

The not-so-good part is that I haven’t managed to exercise regularly. Every time I’ve started to hit the gym again, the momentum somehow gets disrupted and the next thing I know, a week or two goes by and all my gym gains have gone down the drain.

I really need to start making a gym routine part of my week because I can literally feel my body getting weaker once I go without exercise for just a week or so.

Currently I try to do my gym sessions during lunch but I realised that’s not exactly a great idea because my timetable changes every semester which would be a deal-breaker for establishing a routine.

We’ll see how things go from here.

Life

Well, life is the big one, isn’t it?

At the start of the decade, I had a girlfriend. Now, I have a wife and three cats. Scratch that. Make it seven. How we got to seven is a funny story but we’ll get to that later.

So my wife and I have been married for almost 8 years now but it’s more than 10 years since we’ve met and gotten together. We’re not the perfect couple but we’re perfect for each other.

We can get upset at each other but we’ve never shouted at each other. We mostly just give each other the cold shoulder for a while before we realise that it’s not worth it and then we apologise and make up.

Most of the time, we just enjoy the simple things in life and each other’s company. Things like reading good books, eating good food (in moderate quantities) and relaxing.

In that way, we’re kind of like cats.

So, two years ago my wife (it’s always my wife who has the better ideas) asked if we could adopt a cat. She’s always liked cats but never owned one.

Since we don’t have kids, I figured it wouldn’t be a bad idea to have a cat to come home to and from what I read, cats are definitely lower in maintenance compared to dogs (or kids). I had dogs growing up so I kind of an idea about what kind of care you need for dogs.

And that’s how we got our first cat, Teddy. He wasn’t the cat we were going to adopt but then the rescuer suggested that as first-time cat owners, we adopt him because he was friendly and easy-going.

That turned out to be totally true because Teddy is the most low-maintenance cat I’ve ever met because you pretty much just have to feed him and make sure he has a clean litter box, and he’ll be a happy camper.

Then some time this year, the same rescuer asked if we could take in a kitten that was part of a litter rescued from Pulau Bukom, an island off Singapore, which is part of the oil refining industry in Singapore.

So cat number two, Pepper, came into lives and she has been a little ball of terror because she came with a parasite issue which caused diarrhea, refuses to leave Teddy alone hen all he wants to do it chill, and is super noisy when it comes to feeding time. But we still love her anyway.

Then a few months after we got Pepper…

One day as we were walking home, we noticed a cat hiding away at the bicycle rack, at the block of flats next to ours. We’d never seen her before and there are community cats in the area so it’s unlikely that another stray would have ventured into this area since cats are pretty much territorial. Plus, she was too friendly to humans which made us suspect that she was abandoned.

And so cat number three, Mudpie, came into our lives.

What we didn’t realise was that cat number three, was pregnant with four kittens. By the time we found out, she was two weeks away from delivering and so we now have seven cats at home.

They turned out to be such fluff balls

I think the next decade will easily see a mean reversion in terms of cats.

Wealth

Ah yes, and finally, all about the money.

I’ve been tracking this number ever since I started investing but my records for the early years haven’t been well-kept. The good thing is that I now have at least a decade worth of records so I can see exactly how much my wealth has grown.

The short answer is: a lot.

At the start of the decade, my portfolio was under $50,000. Today, it’s roughly eight times that. By the way, I only count monies that I can easily convert to cash. This means that I don’t include my CPF accounts nor the property that we stay in.

You could include those but that would mean giving up your residency status in Singapore. If that’s an option for you, then by all means, include those numbers. Otherwise, if you’re a Singapore citizen or PR, you have to ignore those numbers as those don’t mean much until you reach the age where you can cash out.

I’ve digressed so back to the increase in my wealth. Is that record impressive? Not really.

Because it could have been a lot more if not for two things: one, I was and still am, under-invested, and two, I was invested in the wrong places.

Let me explain.

I’ve had a huge allocation to cash in the last two to three years. This is despite the fact that as an investor, I’ve two things going in my favour. One, I’m relatively young and two, I’m still gainfully employed and likely to be in the foreseeable future (iron rice bowl, see above).

Therefore, I should have bumped up my allocation to equities, REITs or anything with a higher expected return than cash as I’ll be able to ride out any bumps along the way.

The second reason is that I was invested in the wrong places. Honestly, I started out the decade thinking that if I could read the financial statements, I would be a lot better than most investors. That is true but only to the extent that one is familiar, or willing to be familiar, with how the economic landscape that any company is in was going to change.

For example, there’s a company that I (like many other Singaporeans) am invested in where the shift towards online media has absolutely damaged the company’s main income generator. And this damage to their old business model means that the damage is irreparable despite their best attempts to diversify into other areas such as malls, nursing homes, and student housing.

Even if they are successful, trading a much higher-margin business where they had a virtual monopoly for one that is much more competitive and capital-intensive means that the whole business is unlikely to provide the kind of returns to investors as it once did.

Therefore, the market correctly priced in lower multiples and slower future growth which explains the situation that the company finds itself in. In case you haven’t figured it out, the company I’m referring to is SPH.

There are a number of other such mistakes that I’ve made in the past decade and honestly, I find it too much work for the extra returns that a broadly-diversified portfolio might return. Needless to say, I’ve had my successes but those aren’t anything to brag about either.

The main reason for the increase in my portfolio is simply the insane savings rate that I have. By my back-of-the-envelope calculations, more than half of that increase was due to savings. Another 20% or so due to returns from dividends and the rest from capital gains.

In short, while you are young, you can have shitty investing skills and still see a dramatic increase in your net worth if you save like hell.*

I still obsess about my net worth but ideally, I’d like to arrive at the day where I honestly don’t care about money any longer because what I have is more than enough for my wife and I to live how we want to.**

In the next decade and more, I have to stick to a better investing plan. I’m already fairly disciplined about savings because it’s pretty much on auto-pilot and I don’t spend very much compared to others.

The main focus now will be to stick to an investment plan that allocates a higher return to equities and be disciplined about the re-balancing process while keeping costs low. This will be the way to go as I have many decades of investing ahead of me.

Goodbye 2019 and 2010s

You’ll notice that I haven’t talked much about what’s going on in the world and frankly, none of it has mattered much to me.

We have politics becoming a joke in the U.S., strongmen steadily gaining power in Russia and China and in Singapore, we have our own Orwellian-esque POFMA.

The climate has also gone bonkers with records temperatures being reached and yet, people rode the wave to sell metal straws while the fear-mongering grows over solutions that smart people like Bill Gates are suggesting.

In the business world, startups that blow through cash (think Uber, Grab, the disaster now known as WeWork, or almost any other unicorn for that matter) gets seemingly unlimited amounts of funding for business models that pretend to be a tech spin to an older business model.

Even in my world, the mantra seems to be “tech” and “entrepreneurship” but the powers that be fail to realise that as a business school, it’s unlikely for us to teach “tech” well. And frankly, “entrepreneurship” isn’t something to be taught so I’m not sure how we’re going to justify charging the school fees for that one.

“Hey, splash some cash for us to teach your kids the rules that they have to break.”

That’s probably the most honest marketing you’ll get from a business school trying to teach entrepreneurship.

Despite what’s happened, the 2010s have been kind to me. I’m extremely blessed to be living in a place free from strife, have loved ones that care about me, and seven cats.***

Notes:
* Of course this has diminishing returns as your net worth grows. It’s unlikely that your salary will grow in line with your portfolio and therefore the same savings rate will gradually add less and less to your net worth as the years go by.

**Skeptics will say that the day will never come but based on my current lifestyle, I’m pretty sure I’ll get there sooner rather than later.

***Of course, we’re not going to keep all seven.

So what’s new?

Well, what’s new is that this study by robo-advisor Syfe (with press coverage from both The Straits Times and TODAY) brings up two points that other surveys haven’t really brought up.

One, that younger folks aged 25-34 are headed for a comfortable retirement provided they continue their level of savings and low debt rates. And two, that those who owned a home were less prepared for retirement than those who rent.

You can read the full report here but I would also take the report with a pinch of salt. After all, Syfe is in the business of getting more people to invest with them so it’s fully in their interest to ask you to save and invest more.

Another point is that I took the survey on their site (link here) and if this is what the report is based on, then I don’t think the numbers are very accurate because some parts of the survey are badly designed.’

For example, the survey asks if you contribute to CPF but later in the survey, also asks if how much you save without specifying if the amount of savings includes your savings in your CPF account.

Also, the part on home-ownership doesn’t account for how much mortgage you have left or how much is the mortgage being serviced.

All things considered, I think the survey might be a little flawed so don’t take it too seriously.

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Why is Motley Fool Singapore closing down? Replacements? (Financial Horse)

Lots of things to unpack here but the main question I have is whether Motley Fool’s David Kuo is right in asking why their site is being asked to maintain a certain level of resources that is required of an asset manager when they are more of a media company than a financial asset manager.

Having said that, I’ve talked shit about Motley Fool SG’s articles before so I’m not sad to see them go. To be honest, anyone who reads Motley Fool and think he/she will become a better investor is being deluded.

How this climate change economist changed my world (Tim Harford)

With all the hype surrounding Greta Thunberg, I’m surprised that so few rational people have come out to explain why that if anything gets done about climate change, it won’t be because an angry young girl went to Davos to rant at world leaders.

It will be because the economics of climate change have changed and the way to do that is to understand why climate change is something that the world has ignored for so long.

How The Rich Get Richer And The Poor Get Poorer (Global Macro Monitor)

Interesting look at the change in balance sheets of top 1% of households vs. the bottom 50% of households in the U.S from 2000 to 2019. Mainly, as a group, the top 1% has seen their net worth increase by some 165.6% while the bottom 50% has seen their net worth decrease by 8.6%.

Why? It’s mainly got to do with the fact that the bottom 50% of households saw their debts increase even with an increase in amount of assets plus the fact that their assets are mostly in the form of real estate and durable goods. unlike the top 1% that has substantial assets in financial markets as well.

I suspect a similarly interesting picture to emerge if we looked at Singapore households’ balance sheets.

Imagine that I claim to have a secret formula for playing a certain game. With this formula, I keep doing well in the game and am ahead of people. Would I reveal this formula?

Even if I were altruistic and want everybody to benefit from the secret formula that I’ve learnt and developed, would people still be able to use the formula if everybody’s able to learn it?

If the answer to both questions above is a “no”, then you should automatically give the middle finger to anyone who claims to have a secret formula that they would like to teach you in return for a fee. This applies to trading in any form of financial products or physical assets like gold or property.

Some caveats

  • The argument I’m going to put forth applies only to trading systems where the bulk of returns are from price movements.
  • I’m not saying that ALL these people who claim to have a secret formula are lying or that they are deliberately out to cheat you.
  • And least of all, I’m not saying that trading is a useless activity. It’s not. I’m just saying that it’s better left to the people who actually know how to trade.

Cloning a Golden Goose

If I currently have a golden goose, the last thing I would want to do is teach others how to own their own golden goose. After all, if my golden goose produces golden eggs, then teaching other people how to obtain golden geese is going to increase their amount of golden eggs available and basic economic theory tells us that golden eggs will become less valuable and therefore, less profitable.

The same is true with any trading system for any asset. Profits from trading can only be gained from any misinformation in the market. A trader identifies an asset that the market has valued wrongly, buys/sells it and profits when the mispricing gets corrected.

Assuming the trading system works, more people being able to identify mispriced assets means that mispriced assets don’t stay mispriced for long and therefore, learning how to trade using an effective system means believing that (a) few people currently know about the system and/or (b) you’re faster than others who also use the same system.

No matter what you believe, the more people know the system, the less likely it’ll be profitable for anyone.

Double whammy if guru says the system is easy to follow

From the previous section, we can conclude that even if a trading system works, it’s going to make it hard to work for long. If the trainer says the system is easy to follow, that makes it worse.

Easy-to-follow systems mean that the chance of having more people use the system if high. Once again, more competition means less mispricing and therefore, any system that purports to be easy to follow is not a good trading system to use.

However, for most people, if it’s not easy to follow, then what’s the point of paying good money to use it?

Be skeptical of people selling you formulas

The urban legend (which is possibly true) is that Coca-Cola and KFC have their secret recipes locked in a safe that few people know the combination to. The reason for that is simply because their recipes are their secret sauce and the main reason why those companies are so profitable.

Now, apply the same logic to people who sell trading courses.

Why on earth would they be selling their secret sauce if it’s so profitable? The answer to that is perhaps their sauce isn’t so secret or so profitable after all.

I found a Straits Times article profiling one of those gurus* who sell trading courses and some bits struck me as odd. When asked about his portfolio, the reply was:

I have about $300,000 to $500,000 in equities, indexes and forex. I also have invested in insurance policies that will fetch me more than a million at maturity. Besides, I own a condominium apartment in East Coast.

First, if someone’s been so successful at trading for so long, why’s the portfolio more like any regular old investor? If I was his age, my portfolio would be easily double of what he has right now.

Furthermore, the bulk of his net worth is in insurance policies and real estate. Is that a sign of no confidence in his trading system or is it proper diversification?

In short

Those get-rich-quick workshops out there are probably ALL useless of precisely the same reasons: (1) it works until it doesn’t, (2) it’s hard to make it work if everyone can do it. (3) the trainer probably can’t even make it work for him/her so it’s more profitable to teach it to you.

If you still want to learn how to trade in any asset class, you probably should ask the company a few questions:
(1) How many students have learnt this program?
(2) How long has this program been developed?
(3) Is it easy to follow?

If the answer to (1) and (2) is ‘many’ and/or the answer to (3) is ‘yes’, you shouldn’t waste your time.

Notes:
*This is also one of the reasons why Singaporeans’ financial literacy is so bad. The ST does a big disservice by profiling these people and I suspect this is what happens when the journalist has a background is communications rather than business or finance. That’s fine for the political and current affairs portion of the paper but for the money section, it’s a huge no-no.

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China defaults may worsen with huge dollar debt (The Business Times)

$8.6 billion of offshore bonds doesn’t seem like a lot given that China’s economy is estimated to be around $14.2 trillion. But it does seem like there will be a increased stress in the credit system for China.

And given how China’s economy is integrated into other parts of the world…

Three hours spent with a financial planner at her bank and she’s still feeling lost (The Globe and Mail)

No surprises to see headlines like this because a financial planner looking out for their commissions may not necessarily have their clients’ best interest in mind.

The article’s context is Canadian but we’re not too far off here in Singapore. I still find it amusing that we’re some way into the 21st century and yet financial planning in Singapore is very much based on the same model that has been around since the 1990s.

Why hasn’t the industry moved away from selling products tied to insurance firms and fund houses?

Guest post on Get Rich Slowly: The ten-year update (Early Retirement Extreme)

The OG of the FIRE movement.

I love his emphasis that FIRE was always supposed to be about how to add value to society as it frees resources from being tied up in unproductive and unnecessary endeavours.

Of course, the FIRE movement got popular because other people started emphasizing the aspects that seem most appealing to people – being able to leave the drudgery of a mundane job and being able to travel the world ad infinitum.

This is precisely what most criticisms of the FIRE movement revolve around; That those in the movement are putting their future selves at risk but not having enough buffer for medical emergencies if they retire early.

Read ERE’s post and realise that the FIRE movement has got it wrong. Financial Independence doesn’t necessarily mean Retiring Early. It’s more like a lifestyle change where you embark on financially healthier habits that lead to a more fulfilling life, both personally and for society as well.

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This past week, I attended three meetings of a very different sort. At work, I had the unfortunate opportunity to attend a meeting that was uninspiring, drab and just a pain-in-the-ass.

Outside of work, I had two meetings – one with a student that I taught a year ago and one with one of the founders of a startup. Both were inspiring, energetic and you could tell that they really believed in their ideas.

It’s my meeting with Dexter, one of the co-founders of a startup that I want to talk about.

My initial thinking

A few ago, Dexter reached out to me via email to ask if I would do a shout-out for their site, WhatCard.sg. Initially, I was hesitant to do so as readers of this blog would know that I’m not one of those bloggers that are into squeezing out every single cent from a budget or tracking which cards gets you that extra percentage point of cashback.

In short, I’m lazy and I’m not sure if it’s worth the hassle of applying for a card just to squeeze out a few percentage points of returns. If you’re not a big spender, these extra percentage points could be nothing more than a few dollars a month. You would probably find it easier to reduce your consumption in some areas to save a few bucks a month. For example, you could reduce your consumption of bubble tea by 1 cup a week and save something like $15-20 bucks a month if that’s your goal.

Of course, the other reason is that my blog probably doesn’t get that much of a readership for the kind of target audience that would find WhatCard useful since traffic to this blog isn’t exactly high.

But I decided to meet up with Dexter anyway to hear him out and I was quite impressed with what I heard. At this point, if you’re wondering, we met over a beer and no, he didn’t buy me a beer to write this.

I’m writing this post because I think these young guys have a good idea going and it’s nice to show some support to enthusiastic young people, hustling to get ahead in life.

What’s WhatCard.sg?

Anyway, back to business.

WhatCard.sg is a site that allows users to compare which credit cards in Singapore gives you the most bang for buck in terms of getting cashback or miles.

The site allows you to search by merchant so you can decide which card to use before you pay or if you’re really looking to hack more miles and cashback, then you can decide which merchants to visit.

It’s free for users but I understand that WhatCard.sg takes a cut if you decide to sign up for (some?) cards when you click on the links on their site.

In short, you’ll find WhatCard really useful if you’re the type to maximise getting cashback and/or miles for your daily spending. From my observation, they also have a community page where users share and contribute ideas on how to hack their cashback and miles so that might be a good platform for keeping up to date on how to get the most out of your credit card spending.

Room for improvement

Dexter and team are aware of their current limitations and they have plans to roll out improvements in the future to address some limitations. In fact, Dexter shared that they plan to have a recommendation engine that allows users to know what cards give them the best rewards in terms of cashback and miles for their given spending profile.

I was quite excited to hear this because that would address the needs of people like me who want to even know which card I should sign up for given how I usually spend.

Other points I think they could do better include:

  • Optimising their site for mobile. It looks ok on the desktop but a little cramped on a mobile screen.
  • Showing you only the relevant info. Right now, searching for a merchant shows you the promo for every card but it’s probably more useful for you to know which cards, among those you already have, to use. Dexter tells me that they are already aware of this and it’s something they are working on.
  • Having a geolocation feature so that WhatCard can show you which merchants in the area offer the best rewards.

Summary

In short, WhatCard.sg is pretty useful if you’re already trying to optimise cashback or getting air miles on your credit card. The community page looks like a great resource for staying up to date on strategies to this end as well. There are limitations that the team is aware of and I think it’s a great effort from a bunch of young people in Singapore.

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TodayOnline published a piece in their “The Big Read” section which is interesting but not surprising.

The dreaded ‘R’ word — why Singaporeans need to start thinking seriously about retirement highlighted a few statistics which I thought deserves some attention:

  • Retiree households living in public flats here receive an average of S$1,522 each month for their retirement needs, with the bulk of it coming from their children or relatives.
  • Breakdown of the above: S$280 (~18%) from Central Provident Fund (CPF) payouts; S$485 (~32%) from familial transfers; S$180 (~12%) from personal investments; S$178 (~12%) from rental income including proceeds from subletting or Lease Buyback Scheme for example; and S$399 (~26%) from other sources, including pensions and government aid.
  • According to OCBC’s inaugural financial wellness survey: Around 65 per cent of Singaporeans are behind in accumulating funds to maintain their lifestyles after retirement, and 73 per cent are “not on track” with their retirement plans
  • The same OCBC survey found that 34 per cent of Singaporeans do not invest at all, and nearly half of Singaporeans also have zero passive income.
  • Market research consultancy Blackbox sampled 1,000 residents and found that 62 per cent of Singaporeans feel they are not saving enough for old age. This figure rises to 74 per cent among households earning less than S$2,500 a month.
  • The Blackbox poll also found that 43 per cent of respondents said they were relying mainly on CPF, while 38 per cent said personal savings and 17 per cent said investments.
  • Associate professor Ng Kok Hoe and Prof. Teo You Yenn did a study and found that by today’s minimum income standards, a benchmark of S$1,379 a month per senior is needed to meet basic standards of living in retirement.
  • Only 55 per cent of CPF members who turned 55 in 2013 had reached the Basic Retirement Sum (BRS). Those who set aside the BRS will receive S$730 to S$790 a month as of 2019.
  • CPF members without a property or who wish to receive the full monthly payout can choose to set aside a Full Retirement Sum which is two times the BRS. They will receive S$1,350 to S$1,450 a month as of 2019.

Thought #1: Average Retiree Households living in HDB are in trouble

If the average retiree household only receives $1,522 a month but the Ng and Teo study says that each senior requires $1,379 a month then it means that the average retiree household only meets about 55% of the Ng and Teo figure.

I wonder if anyone has come out to rubbish the Ng and Teo number but at the same time it makes you wonder about the pronouncement made by a certain senior politician about Singaporeans attaining “Swiss standards of living” or have we dropped that as a benchmark?

Thought #2: CPF is almost useless for a retirement scheme

If the CPF payout only contributes about 20% of an average Singaporean retiree household’s income, then what good is it as a retirement scheme? Note that this is for current retirees. I’m not sure whether the proportions will change for Singaporeans who are currently in their 30s-50s.

I’m pretty sure the problem is that too many Singaporeans use their CPF for housing and are/were banking on monetizing their house later on. This could come in the form of renting out spare rooms, downsizing to a smaller place or the lease buyback scheme.*

I think CPF should come out with a study on whether it’s smarter to leave your monies in CPF to compound over the same time frame as a 30-year mortgage or whether it’s better to bank it all on buying the biggest house you can afford to.

By the way, it isn’t my opinion that CPF is mostly useless for retirement. This was also in the article:

Speaking to TODAY, Ms K Thanaletchimi, the president of the Healthcare Services Employees’ Union (HSEU) and a former Nominated Member of Parliament (NMP), said: “The message should be stark and clear. CPF payouts should not be the main source of income for a retiree. It must be regarded as a complementary or supplementary source of income for Singaporeans.”

I find it quite disturbing though that official chatter is about how CPF is not meant to be the main source of retirement funds and yet the forced contributions to CPF make up a huge percentage of wages.

Although the CPF might argue that if you wish to get higher returns, you possibly could through the CPF Investment Scheme (CPFIS), the fact is that the forced contributions cause an unnecessary layer between a person and his or her funds.

At the same time, I can see how most people would have just spent any extra money that comes their way.

Thought #3: Younger Singaporeans in trouble too

If the OCBC survey is accurate, the personal finance and investing community has a lot of work in the future. We’re not even talking about how much passive income but if half of Singaporeans have no passive income, then it’s pretty worrying because as much as the Singapore government would like you to work as long as you can, passive income is the sort of thing that provides options in life.

And if familial transfer (~32%) make up the income for retiree households, then it’s no wonder that our birth rates are well below the replacement rate of 2.1.

That lack of future familial support also means that if younger Singaporeans are thinking for their future selves, then they better count on having governmental support.

I don’t know about you but I prefer sure things.

The Blackbox poll also shows a worrying disconnect since 43% of the respondents said they were depending on their CPF monies for retirement. But as the data on current retirees show, CPF monies aren’t going to help much unless you believe that things are going to be different.

Final Thoughts

I believe that I’m in a better place than most others but if you are a young person living in Singapore and haven’t thought about what happens when you stop working, I think you should.

The nice thing about the article is that you can use Ng and Teo’s number as a sort of benchmark. Of course, the $1,379 per senior per month is a nominal number so you can adjust that by an appropriate historical rate of inflation** to get a ballpark figure of how much you’ll need in 20-30 years time.

Finally, if you’ve been financially ok your whole life, I suspect you won’t have to worry much even when you’re older. But you probably might have to worry about whether your society requires you to do more.

Note:
* The lease buyback scheme contributes to about 12% of the average retiree household’s income which also shows that this hardly moves the needle in terms of adequacy.
** I should point out that the inflation rate for things like education and healthcare has traditionally been higher than things like food and electronics which kind of means that inflation rates for retirees is possibly higher than the rates reported by CPI.

Photo by Mikes Photos on Pexels.com

Cheap Money vs. Investor Psychology (A Wealth of Common Sense)

I’ve been saying this for a while (here and here) and I think WeWork is just another example of the times we live in. It’s funny how WeWork came up with their own metric to justify their valuations (or at least make their valuations seem less bad) but if you’ve read about what happened in the dot-com era, remember that at one point, analysts valued non-profitable tech companies on “eyeballs” (thank god the internet never forgets).

bItCoiN iS a SaFe hAvEn (The Reformed Broker)

‘Nuff said. Go read it for the takedown.

When Money Dies (Of Dollars and Data)

Great piece. Particularly on how The Market’s real returns in various countries is a better hedge against inflation than commodities like Gold. The article provides a logical and sensible take on what matters in the economy.

Krugman’s take on how Trump still doesn’t understand economics. Actually, at this point, I think everyone knows that Trump doesn’t understand much of anything except self-promotion.

But I particularly like Krugman’s take on how the U.S. has more to lose than China from the ongoing trade war.