No, I’m not that gifted an investment writer to give you such a resource.

Instead, pop over to this gem by Investment Moats to learn more about Real Estate Investment Trusts (REITs).

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Yes. That’s the exact clickbait-y (which obviously works) title of an article I saw on a site sanctioned by our Central Providend Fund (CPF)* and their answer is:

As an ideal, the correct amount to have saved up – at any age – is six months of your income. Any amount beyond this should be redirected into a retirement fund. This is because savings are just to deal with emergencies, whereas investments are for the long-term.

So if you have an income of S$5,000 a month, your savings are good if they are at least S$30,000. Note that your CPF doesn’t count, as it’s not savings you can immediately access.

That’s actually pretty sound advice.

At first pass, I nearly thought they were recommending you have savings of $30,000, period. I was thinking that it’s a pretty low number but after reading it properly, I realise that the article meant that if you earn $5,000, you should have about $30,000 in cash or equivalents.

What I think is more important is that people take heed of the second part of the first paragraph which tells people to invest any amounts above this buffer of 6 months’ income. Where and how you invest should be determined by the amount of financial knowledge and fortitude you have. If in doubt, consult a financial advisor you can trust. (Buffett’s pearl of wisdom about never asking a barber if you need a haircut comes to mind.)

The later part of the article is quite sad though.

Everyone’s financial situation is different. You may have responsibilities that others don’t. For example, some people have parents or siblings with medical conditions, who need more expensive healthcare. Some people have an income lower than the median, which makes it hard to save. There’s also one element that many people in their 30s have in common.

Your 30s are typically the age in which you’re saddled with your first major financial costs. It is probably the first time you buy a flat or car, and you might be settling down with your first child. It’s quite possible that you did save diligently from your 20s, but your wedding has wiped out those funds.

Seriously, if you find yourself agreeing with that part of the article, you have a serious spending problem. If you have an income so low that it makes it impossible to save any meaningful amount, then you really need to be prepared to work really, really hard.

I was looking through my records and it shows that my 30s (so far) have been the greatest period of my wealth accumulation and to be honest, without a proper savings game plan, it wouldn’t have turned out so well.

Don’t be surprised but there are plenty of 30+ year-olds out there holding very ordinary jobs who easily have six-figure bank accounts or stock portfolios. These are the people that you just never read about.

*The CPF is the name of the organisation that handles the compulsory pension savings account every Singaporean resident has.

The Sunday edition of the Straits Times has the Invest section which was the only real reason that I read anything in the Straits Times. I use the word ‘was’ because I haven’t gone through the paper in a very long time. The main reason is that I had access to copies of the Straits Times get a little more restricted and to be honest, the content in the Invest section seems to have gotten a little less useful.

Take the latest exhibit, The real cost of avocado toast. The article is obviously riding on the trend of bashing the guy who advised millennials to cut back on avocado toast in order to save for a downpayment on a house. The article does rightly point out that cutting back on certain habits every day and letting that extra savings compound will help you get quite a bit richer.

The problem with such advice is not that it’s wrong but that it doesn’t really provide you with a solution for getting it to work. It’s like telling an overweight person to eat less otherwise the chances of dying early gets higher. It’s good advice but the more important thing is how is the person supposed to use the advice to get results?

Since the article rightly points out that people need to cut back on certain habits, we must also acknowledge the fact that habits are hard to break. It takes a lot of willpower or an insanely good strategy to avoid going back onto the wrong path.

This is where I’ve found that it’s much easier to focus on how much you want to save each month and set up a standing instruction with your bank that automatically transfers that sum to an account that is relatively less liquid. i.e. You don’t normally use that account for daily spending.

Any monies that are left in the account after the automatic transfer to the ‘savings’ account is then left for spending. It’s that simple. People often think that this is not doable but I am willing to bet that it’s possible for the average person. After all, in Singapore, 23% of your monthly income gets put in your Central Providend Fund (CPF)* account and we’ve pretty much learned to live with that ‘savings rate’ of 23%.

So, try it. Start with transferring 10% of your monthly income to an account that you won’t touch unless you absolutely have to and have as much avocado toast you want with what’s left.

 

 

“The chains of habit are too light to be felt until they are too heavy to be broken.”

I don’t know who to attribute the above quote to because the first time I read it, it was something that Warren Buffett said but online sources say that it’s probably something that Samuel Johnson said.

Anyway, what’s more important is how true that saying is. We are all creatures of habit and particularly when our willpower is low in times of stress, we revert to the very things that we do without much thought. The danger is when some people fail to realise that their habits have taken them down a dangerous path that increases their chances of permanent ruin.

This morning, I watched an episode of a programme called “My 600-lbs Life”. The show follows the lives of extremely obese people in their bid to lose weight and regain their lives. This particular episode featured a man named James K. from Kentucky who is probably the heaviest person ever to appear on the show.

What struck me over the course of the two episodes that aired was that this guy and his girlfriend made all these bad choices that they basically couldn’t unwind. He’s so fat that he was basically bedridden and therefore it was his girlfriend who kept bringing him both the wrong kinds and wrong quantities of food. Her justification was that if she didn’t do so, he would get grouchy, argumentative and basically a pain-in-the-ass.

I know the guy has a food addiction problem and his girlfriend was obvious taking the easy way out by giving him what he wanted when his willpower was depleted. It didn’t help that they seem to be in poverty because at one point, her car broke down and she couldn’t get it fixed and that prevented her from going to get fresh produce which James needed in order to stick to his diet. Seeing all that, it’s obvious they weren’t going to be very successful in their goal.

Which is why I’ve realised that more than anyone else, I’m a creature of habit. I go to the same canteen every day to order the same cup of coffee, I have pretty much the same thing at the canteen in my school. When I’m home, my wife and I are watching the same few channels. Most importantly, I channel a part of my income into my portfolio automatically each month when I get paid.

That’s the trick with habits- habits can be both good or bad. What you want to do is develop good ones that help you meet your goals. And if you have bad habits, you want to make sure that they are inconsequential ones. If they are big, bad habits, then the first thing is to recognise them and set out a plan on how to correct them. It’s the old zen tale of a master who poured tea for his disciple until the cup overflowed. When asked why he was still pouring the tea, the master replied that new ideas cannot take root until old ones are uprooted.

I’m not perfect. I have many bad habits that I should work on. But at least I’m aware.

PS: There are so many people I know of that have developed terrible habits that they aren’t even aware of. Even if they’re made aware, they become defensive and think of all sorts of reasons to justify their behaviour. If you’re aware of your shortcomings, then kudos to you, you’re on the first step to putting things right.

Maybe there really is a problem with millennials after all. So, this was making rounds on my Facebook feed. It’s a very long article but essentially it makes a few points:

  1. University education in Singapore is becoming more elitist with Minister Ong’s remark that university education is capped at 30-40% of each cohort.
  2. Singapore government spends a lot of money giving foreigners scholarships.
  3. Singapore’s high cost of living means that the rich (elite graduates) become richer and the poor (non-grads or grads from private universities) become poorer.

While the young people (mostly former students and some relatives) on my Facebook page share the same sentiments as the article, I think everyone in that group is missing the point about higher education.

Before I go on, I agree that the data shows that graduates have a higher starting salary than non-graduates. That, no one will dispute. Also, if you take a look at the advertisements for jobs, almost every white collar job ad out there states that a degree is a minimum requirement.

The problem is this fixation on starting salaries and the fallacy that starting salaries will remain the same should the number of graduates increase. Another problem is people thinking that things in the future will remain the same as they are now.

In the past, a degree was a pathway to acquire knowledge. Other than that, studying for a degree also meant making friends that may eventually end up in high places plus the added signalling effect that one gets from getting a degree or even better, a degree from a reputable institution. Today, with platforms like Google, Youtube, Cousera, Udemy and the likes, knowledge can easily be acquired for free or a low fee, from many other sources. That reduces the value of a degree as a signal to employees and the university as a place to network. Some may also argue that networking can easily be done online which further reinforces that the degree may be nothing more than a signal to employers.

Since the degree is now mostly used to signal to employers, any prospective undergrad must realise that the institution and course that they are taking matters a whole lot more than before. Unless one has proof that the better institutions don’t take in the best and the brightest, employers are going to assume that graduates from more reputable institutions are more desirable than others.

Is this elitist? Possibly. But the more important question should be whether this is fair. If the institution doesn’t take in the best and the brightest, then how can they justify the reputation that the awarded degree confers on the recipient? Furthermore, those who can’t handle the course probably would have spent their time better off doing something else rather waste all that time, energy and money on something they can’t handle.

At the same time, employers aren’t dumb. If there were more graduates in the job market, employers would simply respond, and some already have, by creating more stringent job interviews to ensure that they get the most suitable candidate for the job.

I’ve read arguments on why the proportion of each student cohort going on to university shouldn’t be capped and at the same time, I can understand where the government is coming from given the conservative mindset they’ve always had. I don’t think the government is being bold enough to face the future but that’s really not the point I’m trying to make here.

The point I’m trying to make is that so many young people agree with an article like the one in the link and that line of thinking makes it so easy for them to find someone or something else to blame rather than realise that the government is not and shouldn’t be the solution to everything.

Given what prospective undergrads or graduates are facing, I think the most important task at hand is to figure out what projects of value that one can do.For example, I have a student who is currently studying at a university overseas. She’s fortunate enough that her parents can pay for her education but more importantly, she realised that she loves baking and before she left for her studies, she ran a home bakery which basically meant that she had to do things like costing, inventory management, planning the logistics of

For example, I have a student who is currently studying at a university overseas. She’s fortunate enough that her parents can pay for her education but more importantly, she realised that she loves baking and before she left for her studies, she ran a home bakery which basically meant that she had to do things like costing, inventory management, planning the logistics of her bakes and delivery of her goods as well as marketing of her business.

I’ve also had a group of students who were studying for a diploma in business information technology and they took on extra work helping us create games in HTML5 that required minimal coding. However, that project taught them the value of managing a project from start to end, dealing with clients’ redos and other things that they wouldn’t have learned in class.

So, for people who think that life is unfair because you couldn’t get into a school of your choice or graduates who think that a job is at hand just because you have a relevant degree in the field, please remember that employers nowadays have look for more than just a piece of paper.

Recently, I came across an article about how a fresh graduate from SIM Global Education (SIM GE) who graduated with a University of London degree in Accounting and Finance has been trying to get a job that pays at least $2,500 a month. However, he has sent his resume out 40 times but only received a handful of interviews and an offer of a basic salary of S$2,000 with added commission from sales.

One of those clickbait sites that pass news off as politically charged nonsense basically took the article and even offered additional commentary on how even a S$2,500 salary would be below an average graduate’s starting salary. I’ve also seen further comments on forums about how S$2,500 as starting salary for graduates is a figure from 10 years ago.

The thing is, these people don’t understand Demand and Supply. The don’t understand product differentiation or inelastic demand either.

The simple fact is that the number of people graduating with degrees has gone up over the years. While the proportion of each cohort going to NUS, NTU and SMU may have been relatively stable, we have seen much more graduates from overseas and private universities.

At this point, some people may start to go along the usual anti-government stance of how many foreign workers we have on employment passes in Singapore but before one goes down that path, I suggest thinking of how many of those passes belong to workers in jobs that a fresh graduate can’t or won’t do. If you have those numbers, by all means, make an argument.

The other part of the article that I have a problem with is the implicit assumption that all universities are equal. They are not. A quick look at the University Rankings will show that and any prospective employee should know that any employer knows this. If employers know this, then any prospective employee with a degree from a lesser-known university should have spent their time in university not just studying but thinking of how to differentiate themselves from the bunch. For example, if I went to a business school known more for accepting students who can afford the tuition instead of acceptance due to meeting a stringent entry criteria,  I would have actively participated in business plan competitions, tried starting a business, actively networked to get to know and ask business people or C-suite personnel to be a mentor.

I suspect the student profiled in the article is a sign of things to come. Graduates, as a group, need to expect lower starting salaries in the near future with the increase in the number of graduates in the job market as well as the fact that more entry-level jobs can be automated.

Some days are more special than other. 5th May is a special day for me. This year, I witnessed some students graduate which is probably one of the few days in the year where my job really means something.

This year, I witnessed some students graduate which is probably one of the few days in the year where my job really means something. For most students, I only teach them one module: microeconomics and to be honest, I don’t really care if they remember anything that I taught. After all, how many of them will go on to become economists or even study economics at a higher level? It would great if they learned how to apply some microeconomic concepts to help them make better choices but that wasn’t really what the focus of the module was. What’s more important is that I hope they see me as someone they can count on if they should ever need my help. I wish them all the best and hope that they all realise that their road ahead is long so whatever they do, enjoy the journey and take the time to smell the roses whatever their ambitions might be.

5th May is also the birthday of the future Pirate King. It’s a happy coincidence because the 5th of May also happens to be the day I got married to the most wonderful person in the world. Before getting married and having a place of our own, I never imagined that I would be washing the dishes, changing bed sheets, mopping the floor, cleaning the toilet and cooking on a regular basis. As dreary as the word ‘chores’ sound, I’ve come to realise that doing chores isn’t so bad. It’s a moment where one can just focus on the task at hand and not get lost in random thoughts or “what-ifs”. It also lets one appreciate life a little bit better and I suspect that if the day should come, I’ll be a little more resilient as well.

This year, the Mrs made a remark (in jest or was it a hint that I didn’t get?) that I thought was quite cute. She said that in the past, I’d probably plan a nice surprise, at a nice restaurant while this year, I took her to a ramen restaurant (it was good ramen though). When we’re fifty, it’s possible that we may be at a hawker centre (if they still exist then) having fish soup.

But you know what? There’s no one else I’d rather be having fish soup with.

Holy cow! 1/3 of the year has come and gone. So how’s your portfolio doing?

I just wanted to share a great insight on investing prowess vs. building wealth. Obviously, the better an investor you are, the quicker you’ll build your wealth. However, for mere mortals like most of us, I want to assure you that it’s still possible to build wealth.

Enter exhibit A. (Actually, this is the only exhibit.)

 

navVSwealth.JPG

NAV per share (in blue) vs. Growth of actual portfolio (in yellow)

The blue line (NAV per share) shows how much $1 invested in the portfolio would have grown to. So naturally, this involves removing the effects of adding more cash to the portfolio which basically shows us how good an investor I am.

The yellow line (Actual growth) shows how many times the portfolio has grown by relative to the starting date. Of course, this includes savings and additional cash added to the portfolio.

If you’re aiming to be financially free, I can’t think of why building wealth would be inferior to being a good investor. Sure, being a good investor gets you there quicker and probably allows you to enjoy consuming more at the same time but if the goal is to eventually not have to worry about working for money, then getting a big enough portfolio that will allow you to live off a safe withdrawal rate (3-4%) should be your main priority.

My experience so far is that being an average investor will help you get there too.

 

PS: Of course, once your portfolio gets huge enough, your savings will hardly matter. An average household in Singapore makes something like 80-90,000 SGD a year. If the portfolio reaches 2 million SGD, saving half a year’s income (which is near to impossible for most people) will only move the needle by about 2%. Having said that, if your household can’t retire in Singapore on a 2million SGD portfolio with your house fully paid for, you have a spending problem.

An update on the Singapore property market. For background on this, read here. All data from SRX.

SRX_feb17

Using the price of HDB flats as the benchmark, we can see that prices for private property in all categories are at a sizable premium to HDB flats. Among the different classes of private property, the premium for private landed remains the highest although the index seems to be on a downward trend. For non-landed, it appears that resale units are at a lower premium than new units.

SRX_feb17byregion.JPG

As for sales of all (new and resale units) non-landed private property, it appears that the area commanding the highest premium to HDB flats are in the RCR (Rest of Central Region).

Of course, prices will vary for individual projects and units but from a macro perspective, it’s going to be much easier to bargain hunt during periods like the early 2000s and ’09-’10 where there was hardly any premium over HDB flats. In fact, times like 1999 would have been a godsend to property investors.

I guess my two main takeaways are (1) despite the Singapore property market supposedly being in a doldrum, private property prices are not cheap right now and (2) HDB flats do keep their value quite well being the cheapest form of housing in Singapore and therefore is a reasonable benchmark for evaluating priciness (or cheapness) of the private property market.

In not-so-latest news, Minister of National Development, Lawrence Wong came out to caution people from buying older HDB flats* in hope that the government places the flats under a SERS programme under which owners of the old flat get compensation in the form of cash (with the flat valued at market rates) or a choice selection of a new flat in the vicinity.

Of course, the good minister didn’t want his words misconstrued as “all other flats not selected for SERS, which make up a majority, have a chance of their value plummeting should the leases be allowed to run its course” so he came up with additional thoughts on why HDB flats retain their value.

First thing to notice is that the good minister did not say that HDB flats are a good form of wealth enhancement. He only said “store of value” which everyone who has done econs 101 would interpret as keeping its “real value”. In other words, any monies sunk into an HDB flat will retain its purchasing power should you wish to monetise your flat. If you make money from your HDB flat, then count yourself lucky.

The second problem, which other netizens have pointed out, is that Mr. Wong’s example doesn’t reassure buyers who bought older flats which have already run through a good chunk of the leasehold life. (For details, see this link)

This brings me back to a point I made some time ago. Most Singaporeans sink their CPF monies into their property. If your property is going to, at best, hold its value, you better think twice about counting solely on your property to retire.Even

Even monetising your HDB flat through the HDB’s lease buyback scheme where you trade the remaining years of the lease for a monthly income has problems. First, the payouts are not inflation-indexed. Second, inflation for retiree households tends to be higher as healthcare and transportation are two of those components in CPI that rise faster than the average component in the basket. In short, fixed incomes and rising costs don’t make a sound retirement plan.

 

Notes:

*HDB or Housing Development Board flats are Singapore’s form of public housing. The flats are of decent size (compared to places like Hong Kong), decent quality and generally cheaper on a dollar per square foot basis compared to private property. However, all HDB flats are on a 99-year lease from the government. At the end of the lease, the flat is returned to the government. However, with Singapore being such a young country, there hasn’t been a single case of whether the government pays any compensation for taking the flat back or the value of the flat goes to zero.