Yesterday, OCBC put out what they called the “first time such a comprehensive study of Singaporeans’ state of financial health has been conducted”.

They call it the Financial Wellness Index.

I thought a few companies have done studies like this, but I could be wrong. I do have poor memory at this age.

Nevertheless I do appreciate data like this, especially now that I am in a job that needs to look at things like this.

I wanna see whether there are more interesting data points and the more detailed report (my boss was surprised 37 slides is a detailed report)

Here are some interesting things picked out:

1. Majority of us are still behind in terms of the financial wellness index
2. Our savings rate looks high at 26%
3. 70% have a budget set and stuck to it
4. 18% do not invest yet have passive income (how is this possible?)
5. 52% have passive income
6. 37% of the people do not know how to build wealth
7. 51% on track in funding their emergency fund
8. 20% of those in their 30s spend a large extend above their means to keep up with their peers
9. The debt problem
   1. 18% of Singaporeans are worried not able to pay off unsecured debt
   2. 30% of those with credit holders pay the minimum
   3. 30% of 40 to 54 year old singles have problems paying for the mortgage loans
   4. 20% of 40 to 54 year old married have problem paying mortgage loans

Let us go through it in more detail.

If you take care of your health, what about your wealth?

Based on OCBC’s observation, Singaporeans seem to be taking care of their health. However, they are not sure if they are trying to excel in their wealth or not.

I have also observe this trend. We organize talks in the past. I have been savaging food from buffets as part of my Freegan lifestyle.

And we do know that organizers tend to give less of the good stuff and more of the carbs. However, I think that if Singaporean’s like carbs, they could have taken more of it.

But most of the time, there are just so much left over. I think it is also an increased awareness among Singaporeans they should control their carbs, and thus they are placing more emphasis on their health.

So they decide to create their first OCBC Wellness Index.

OCBC’s financial experts list 10 pillars that help them define how financially well someone is. A lot of pillars are rather new to me.

To a certain extent, it feels like me judging people.

Thought the questions asked was interesting.

The sample of people surveyed was sizable, and spread among a wide spectrum of Singaporeans.

OCBC tries to zoom in on 3 different segments of the population. The most customized was the Sandwiched generation.

This was the generation that on top of taking care of their primary family, they also had to take care of their parents.

Data shows that Most are Behind

Overall on a spectrum of 100 points, Singaporeans scored an average of 63. This is not so good because to be considered on track, they would have to score 75 and above.

In this chart, we can see how these 2000 participants are distributed. There are a good number of people that are doing well, but the majority are deemed behind on most indicators.

And it is good that I do find the distribution skewed to the on track side. (This means that more are getting better instead of getting worse.

We have Good Savings Rate and 70% of Us have a budget

It seems as a cohort the people saved on average 26%.

This looks very good until we wonder does this include the mandatory 20% CPF contribution. If it does than the savings rate from take-home pay is only 6%. Then it is not so good.

82% of the population have gotten medical insurance, but we are not sure whether the coverage is adequate.

I was wowed that 69% set a budget and managed to stick to it!

This is because almost all the people around me:

1. don’t track their expenses (which is different from budgeting)
2. are seldom tough on how much they can scan in a single category. You do not see them reference them breaking their limits. They either have very lax budget limits or that they are failing at this game

Overall, this report shows that Singaporeans are not in a good position.

So if you budget well, then how come there is this dislocation?

A budget (check out my comprehensive budgeting article) when done right, should map your spending close to what you value in life.

So either what they value is really not what they are concerned about, or that they are not doing things right.

One Third of Them do Not Invest

When it comes to investing, 34% do not invest. I expected as much.

OCBC said 48% do not have passive income but I chose to read the opposite.

Does that mean that 52% of the Singapore population DO HAVE passive income? That is pretty good!

Out of the 66% who invest, 36% of them say their investment is not performing to their targets. 27% of the 66% who invest also said their speculators.

So almost 1/3 of investors are under-performing (they think) and are speculators. These 2 groups are not the same.

I think under-performance data might not mean much because most people have a hard time judging what is under-performance. It is likely they mean psychologically, the amount they accumulated is unsatisfactory.

Investing to Us, is still Gambling

33% of Singaporeans think investing is gambling. 37% of Singaporeans don’t know the best way to grow their money.

You can see that the percentage of people who do not know the best way to grow their money is almost similar to the percentage of people who do not invest.

If you do not know what to do, you tend to procrastinate and not do anything about it.

The opinion on investing as a form of gambling is not all surprising as this is what I thought about stock investing before I started in university.

Back then, I have secret thoughts that my friends are going to lose their pants by gambling their money this way.

Now I am gambling my money on a very frequent basis!

Emergency Fund: Half of us are on track to have well funded emergency fund

42% are on track to accumulate enough funds for an emergency. That means 58% is not on track! 51% can stretch their savings to last 6 months.

How much is enough emergency funds? (you can read my comprehensive emergency fund guide here)

The standard is 3 to 6 months.

This is befuddling. If 51% can stretch their savings to last 6 months, then how come only 42% are on track to have enough for one emergency?

Does that mean an emergency to those survey, is of an amount greater than 6 months of their expenses?

The surprising for me was that there are 42% of Singaporeans who know what is an emergency fund!

They probably did not know it, but the question introduce this concept to them. If that is the case, it is not so surprising because Singaporeans tend to be cash heavy.

Retirement Plans: Conflicting Conclusion

Only 27% of Singaporeans are on track for their retirement plans. Most are not.

65% are behind with accumulating enough funds for maintain their lifestyle after retirement.

That means there are 8% who are not on track but are on track to accumulate enough funds to maintain their lifestyle after retirement.

How is this possible?

In general it looks like the participants think they are not ready and do not have enough.

The question is: How do Singaporeans know how much is enough for their retirement?

I have a hard time determining this. So for a long time, my rough retirement goal was really rough. I think for most people, they are likely to have over or under estimate how much they need.

Of Course We are Worried about Money!

Due to these gaps, 40% of us are worried about money the week we surveyed them.

I think the idea of worrying is whether you have enough time to think about money, or that your income to expense ratio is so low that you need to constantly think about budgeting your money on a daily basis.

These participants were given enough free time to think about this subject and I was surprised 60% do not worried about money the week we surveyed them.

This means that

1. Their experiencing self do not worry so much about money
2. Their remembering self do not recall incidents where they worry about money

Women tend to be Less Sophisticated in Building Wealth

In general, women, versus the men, have less investment, less aware of how to build wealth well and no passive income.

I read that probably 60% of Singaporeans have investments, 60% know the best way to grow wealth and 45% have passive income.

This more or less is consistent with the figures presented before this slide.

The Sandwiched Generation

Surprised that only 51% of this sandwiched generation find it tough to support both.

I infer that 50% of Singaporean’s annual household income is pretty well to fund allowances for both children and parents BUT they think they have a problem hitting their retirement targets.

31% of them have unsecured debt (which are usually personal loans, credit card debt.)

29% are investors who speculate excessively for quick gains. This is largely consistent with the gambling mentality data in the investing section.

41% of them worried about money over the previous 7 days.

This is consistent with the previous slide, but it is the way this is worded that got me worried.

If you think about your situation in the past 7 days, it means your financial situation is not so good that it bubbled up to a high point in your priority list.

So they are doing more to get them to a financial stable state.

They are

1. Reviewing their financial plans yearly more
2. Arranged for finances to be taken care of after their death
3. Making sure themselves are able to sustain 6 months if they are jobless

This is befuddling.

How do you come to this conclusion and I wonder how was the questions asked.

If I want to put myself in a better position, I try to put away more money! Period!

The furthest thing on my mind is think about who I leave my money to and reviewing my plans. Yes they are important, but….

This seemed weird in that OCBC recently offered a free will service. Is that why there is this weird conclusion?

Some Worries of the Sandwiched Generation

I think largely they want to show the sandwich generation worry more than normal.

I urge readers to reset your brain to the baseline.

The data for the sandwich is not too far off from the Singapore average. They might worry more but what is important is that

• 26% worry about teaching their children the value of money
• 70% worry about economy not improving next 12 months
• 18% worry about not being on target to pay off unsecured debt

18% of Singaporeans are worried not able to pay off unsecured debt is something to take note.

For the sandwiched generation, 2 problems stands out versus the average:

1. They don’t know the best way to grow their money
2. They are worried about not able to spend comfortably on their basic needs

Married versus Single

OCBC seem to think those married have made more plans for the future.

The data seem to think so.

I guess it is because as a couple, there are more responsibilities. You need to think more. Singles tend to be less conscientious there.

The Financial Wellness Index gets better with Age

OCBC showed some data point on the average financial wellness index score. They tend to get better with age.

It does seem to show that we do not think about money so much when we are younger, so we are behind.

We get better with age. But we are only slightly better.

The interesting data point is on when each cohort wants to retire at and how much

1. 20s: 56 years old and $1 million
2. 30s: 59 years old and $900k
3. 40-55: 62 years old and $800k
4. > 55: 67 years old and $500k

Those that are young wanted to retire early!

But notice those that have their CPF transferred to retirement account (age > 55 years old), they wanted to retire later.

The sum they need also go down.

Those that progress to 30 year old actually think they need less than in their 20s!

Why is that the case?

Shouldn’t they have higher expenses that they should want more retirement savings? Shouldn’t they want to retire early as well?

My inference is that expenses do go up, but they cannot save as much.

So they actually lowered their expectations.

We will see more of this later.

20s: Higher Savings Rate

Younger ladies do show more lack of awareness how to best grow their money. They tend not to invest compared to men as well.

Majority of their investing do not meet their target or below their target. Only a slight handful meet the target.

Again, I find it questionable how Singaporeans judge it.

30s: A Group is Struggling with their Mortgage Loans

In the 30s, we start seeing people with more unsecured debt versus the average. 38% of them is made up of personal loan and credit card debt, but curious what about the rest.

The huge data point is that out of the 51% servicing their mortgage loan, 30% have trouble paying their monthly loans. This means they missed paying on time, able to pay but with some problems, and may be forced to downgrade!

Another Worrying Slide

This slide shows a lot of problems.

What is new to me here is

1. 30% of those with credit holders pay the minimum (!)
2. 20% spend a large extend above their means to keep up with their peers
3. 12% of them borrow money from friends/relatives
4. 17% can only spend on the basic and cannot spend above that

40 to 54:

Here we see that those that is edging every closer to retirement:

• 30% of singles have problems paying for the mortgage loans
• 20% of married have problem paying mortgage loans

This loan situation is a big problem.

Some Average Personal and Household Income for the 40 to 54 year olds

This slide is suppose to show that 1 in 2 have problems supporting both parents and children. This is largely consistent.

What is interest is the income data points:

1. 15 out of 30 person earns average $8,600/mth and as a household earns $12,600/mth
2. 2 out of 30 people struggle to pay for both children and family. Their monthly income is $5,200/mth and as a household $7,700/mth
3. Almost all of them are middle management. Those who did better are in senior management, those who are struggling tend to be office workers

Note the sample is only 30 people. When sample size is small you get some extreme results often.

Just read. I pick up nothing special.

If you do not have enough to meet daily needs, of course you do not think about retirement plans!

Notice that ladies tend to be more into insurance savings plan.

OK that is a wrap!

The interesting thing is OCBC will conduct this research every year, so we can see how the figures change.

Here are some things I find it challenging to resolve:

1. If so many of us budget, how come we are still behind in the financial index?
2. 20% of those with mortgage loans in their 40s and 50s have a problem paying their mortgage loans
3. A household income of $12,000/mth would struggle to meet the modern living needs

I might think deeper about some of the ramifications from this data, but I suspect I cannot trust all the data. It really depends on how the survey was done.

You can check out the slide deck here.

I want to hear which of the data stands out to you.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free

On 4th Jun 18, MAS issued a consultation paper seeking comments on two proposed set of guidelines, regarding the provision of financial advisory service and the design of advisory and sales form. This ended on 5th Jul 18.

4 days ago, on 10th Jul 19, MAS published the Guidelines on Provision of Financial Advisory Service, Response to Feedback received on that consultation paper.

You can read the guidelines in the link above.

I interpret the report as this is the basis how MAS will expand the regulation in this expanding space of new media that Investment Moats is operating in (which is not really that new considering I been writing for more than 10 years)

The impact of this is likely

1. What I can say on this blog
2. How I say it
3. Who and what I can take on as partners and who and what I could not

This article is for me to make sense of this new update and probably as a form of transparency to readers.

And I have that sly spider sense this is going to be part of my day job, I better get comfortable reading stuff like this.

This new guideline should be read with the original FAA

This Guideline No: FAA-G17, should be more as an addendum to The Financial Advisers Act (CAP. 110).

With the increasing convergence of investment products and common distribution channels, there is a need to harmonize the regulatory regime for similar activities across investment products. The FAA streamlines the laws governing the provision of financial advisory services in respect of investment products, including securities, futures and life insurance, into a single piece of legislation. It provides a more flexible and integrated regulatory framework for entities engaging in financial advisory activities. In addition, having a common set of requirements and regulations that is applicable for all market intermediaries engaging in financial advisory services will help maintain consistent professional standards across the industry.

FAA FAQ

You can read the FAA FAQ in the link above.

The Financial Advisers Act sought to regulate:

1. Advising others concerning any investment product, other than advising on corporate finance
2. Issuing or promulgating analyses or reports concerning any investment product
3. Marketing of any collective investment scheme including unit trusts
4. Arranging of any contract of insurance in respect of life policies

Sounds like a lot of things your financial advisers will do, but increasingly as bloggers do more report and analysis it gets closer to being “advice” and “analysis”.

We could do it as a hobby, but when we start taking money as a business, the lines become blurry.

This is because in the process of trying to connect our experiences or other people’s experiences with products or a collection of products, we may be seen as providing “advice”. And when you are paid to do it, it gets more blurry.

What are considered “Investment Products”?

There are some things we have to get it right, if not these reports make no sense. One of them that occur again and again is Investment Products.

What are they?

I had a hard time finding the definition of this and the first thing that I found is what are not investment products.

So that means that deposits like advertorial on UOB One, Maybank SaveUp for example, is OK since this is not covered in the act.

Recommendation of loans and mortgages seemed to be a go as well. The caveat here is that if it is not regulated under this act, perhaps it is regulated in another act.

In the footnote of the document, I have finally found some definition of what are investment products:

1. Any capital markets product as defined in section 2(1) of the Securities and Futures Act 2001. For example
   1. Collective Investment Scheme
   2. Derivatives contracts
   3. Spot Foreign exchange contracts for the purposes of leveraged foreign exchange trading
   4. Securities
2. Any life policy as defined in the First Schedule to the Insurance Act (Cap 142)
3. Structured Deposits
4. Any other product as may be prescribed

What the fx#k does #4 mean! It is basically a back door in case they missed on something they did not cover.

In a published Response to Feedback received for these same guidelines, MAS provides some further clarification:

1. Shares and bonds are each considered an asset type
2. Unit Trusts, options, futures contracts, insurance policies, deposits and and tangible assets such as property are also asset types.

A class of investment products refers to a subset of asset type. For example, bond funds, structured deposits, endowment plans, and annuity plans are subsets of an overarching asset type and would be each considered a class of investment products.

MAS 2 Stage Test to Assess whether You are Providing Financial Advisory Services

In general the guideline lists out MAS’s 2 stage test to assess if you are providing a financial advisory service.

If you are, you should get a license. But it seems a financial advisory license cannot be gotten unless you joined one of the firms.

It should also be noted that this MAS document is more of a guideline.

This means that it serves as a guidance and that if you follow this guidance and determine that you are not providing financial advice, and are not remunerated for it, MAS reserves the final evaluation whether you are providing financial advisory service.

The 2 Stages are briefly:

1. Whether the activity leans close to providing financial advice
2. If #1 is True, is the person carrying on this as a business

The guideline also provided 2 other areas of advice:

1. Guidelines for channels that passively distribute research reports
2. MAS stance on providing portfolio allocation advice

MAS clarifies that the 2 stages should be view together. Each factor, on its own, will be assessed with consideration to the other factors in that stage.

The whole guidelines does not add up very well, until you see the last flow chart. Then things become more clear.

MAS further clarifies that a person to be providing financial advisory service only if both Stage 1 and Stage 2 are satisfied.

The following are some of the guidelines in more detail. We will then take a look at some of the examples given in the guidelines.

Some Stage 1 Examples

The MAS guidelines also provide some examples, to help us better make sense of what leans close to financial advice and what does not.

My general interpretation is :

1. You provide factual stuff is OK
2. But if you provide factual stuff but purposely leave out some of the risks, then that is considered as financial advice
3. We should put disclaimers, but just because you put disclaimers does not mean this is not financial advice. Disclaimers is not a blanket get out of jail card
4. If you are not tailoring the opinion to individual then it is not considered a financial advice
5. If how you write tells a person to take action on some investment product or a class of investment products, then it is financial advice
6. If you say you are not a financial analyst, a research house, you are less likely to be providing financial advice
7. The above points are interpret together

I think this is the general bulk of the content on broad based wealth building education. Case studies will be used and likely to mention some companies, investment products.

As long as there is no communication specific to an individual then it should be OK.

This would be a very common content here as well. We try to de-construct a specific product, their pros and the risks associated. This is likely OK.

One example that will fit this could be my article explaining Dimensional Funds here. It is providing the low down on a specific class of investment products.

However, if I say something along the line that suggest or recommends a specific product or a class of products, then it will be seen as providing financial advice.

We might be inadvertently providing financial advice if we say we should overweight this group of healthcare stocks in Singapore.

Then there are the ones who say, here are the top 5 REIT stocks that I am interested in. The disclaimers would say this is not an inducement to buy, but your narrative favors a particular investment product over some others.

I think one of the key statement that seem to be all covering will be when they mentioned “a particular investment product OR a class of investment products.”

In the portfolio allocation advice, they define a class of investment products as a subset of asset type, for example, shares of pharmaceutical companies or bond funds. That sounds damn broad and it will hit many of our content.

If we look at the flow chart in stage 1, there are 2 sub-stages to it. Saying that these are the top 5 REIT stocks I am interested in is telling people indirectly I am favorable to this.

However, if we look at the context side of things, if I

1. do not know your specific situation
2. did a call to action and tell you, you should overweight this sector

Then this should not be a financial advice.

#2 in this sense may be a financial advice if you are in a seminar as a speaker and you were ask should you sell your REITs now.

REITs should be a sub-set of an asset class, and if you provide an opinion, that would constitute as a call to action, which may mean it is a financial advice.

However, you could always put across an opinion based on the factual metrics, and that should be not considered as financial advice.

This one looks all good.

I think this one will concern those platforms that let you compare investment products.

The one that comes to mind are CompareFirst and MoneyOwl. If they have a component that knows more of the users details, then it is not generic and leans closer to providing financial advice.

MoneyOwl have 2 modes for insurance:

1. Find out What I Need
2. I know What I Need

The first one should lean closer to be financial advice since the user would need to give the income level to replace, dependents and age.

But it is not a problem for them since they are a financial advisory firm and regulated.

This looks OK.

Scenario 2 is something very common in that we are often asked what they should do. Should they sell off?

If we answer, then it will be providing financial advice. I would have to tell folks to find a financial adviser to get some sound advice. The financial adviser will probably ask them to sell all and buy some more stable investment linked policies.

Scenario 3 is quite clear cut to be providing financial advice.

The significance of Scenario 4 is that it is not tailored to individual reader’s circumstances. This is the second part of the stage one evaluation.

Suppose Kyith writes a book, and he advise every of his readers to invest in an Astrology Bond Fund, which is a basket of bonds of companies in which an astrologer have evaluate to have “all the stars aligned”, gives the safest quality yield and growth.

If we follow this scenario, I am not addressing a specific individual, so this is OK.

The key thing to note for this example is that the context of conversation is not taken when you are a professional in this business. There is also a layer of security in not giving your friend advise whether he or she should buy, sell or hold an investment product.

Some Stage 2 Examples

MAS seemed to state that if you are getting remunerated and getting it repeatedly that is a business. Random and one-off activities are less likely to be considered carrying on a business.

However, no remuneration may not mean you are not a business. That is a bit vague. I think after all, this is a guideline and they give themselves some levers to pull for special cases.

Let us look at some examples:

I guess the best example is that suppose you are not an adviser, yet you really believe in a whole life insurance plan X.

You tied up with the company behind whole life insurance plan X that if you are able to market plan X to your readers, you earn an affiliate income.

That would probably fall fowl to this because it is an investment product, you have a call to action, you keep pushing it a few times, and for each sign up, you are remunerated.

The vague part would be if you have set up an affiliated channel, and you put one very popular blog post up.

It is a one time blog post, but because it is so well ranked, you keep earning affiliate income again and again for a long time.

X would be prevalent in that in order to offer higher value, platforms venture to collect more of users data.

This will make it seem like they are offering these users financial advice. If they are getting remunerated, then it might fall foul.

Imagine if Kyith creates a version of my Stock Portfolio Tracker as a software-as-a-service. Instead of just tracking your portfolio, it also looks at your portfolio and suggest how you can tilt the portfolio with a subset of investment products.

Users pay a certain fee per month to use it.

This leans close to providing financial advice.

X will be like majority of the blogger who are more hobbyists. Y are like most blogs who are growing up and are remunerated by Google Ads or a third party ad network.

Z will be remunerated like my relationship with MoneyOwl.

I told everyone you should check out the MoneyOwl Dimensional based portfolio. That is a call to action involving a financial product. I have listed out some factual pros and cons about investing through this way. However, with the call to action, it does lean towards this being a financial advice.

And since I have an advertising relationship with them on a regular basis, this looks like a violation and I should have a financial license to do this.

Re-evaluating the Commercial Side of Things

Not sure whether we will get audited one of these days but I think it is likely I have to re-evaluate some of these partnerships.

Firstly, whether I get paid or not, if some of what I communicated is not going to be seen as financial advice. What I write about has to be factual and less of a call to action. (which makes me wonder why would folks still pay attention here)

There will be not much post on

1. 5 stocks I am looking at right now
2. Why you should sell all your REITs now
3. I bought this, I am selling that

One of the contentious one is my current portfolio, which I put it up just so you can see how the Stock Portfolio Tracker can help you.

The tracker do communicate what I hold, and my recent actions. While it is not a call to action, based on the portfolio allocation advise, it is drilling into the sub-type of investment products.

So that is likely to go.

The Dividend Stock Tracker will likely remained.

In terms of partnerships, the most contentious ones are the one with MoneyOwl and Wilfred.

Both are regulated entities and the contentious thing is that since one is a long running relationship, and another is an affiliate model, which is also continuous, it becomes complicated.

The rest should be fine.

I think when it comes to investment products, the government is more sensitive about what would happen if unlicensed people like myself starts offering advice, people follow and they do very unsound things with their money.

And I do want to do the right thing. If it is wrong, I do apologize to readers.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free

This must be an old man problem because I think most people this day and age won’t have this issue.

I am just not sure whether you guys and gals have so much things to store locally nowadays.

I remember during my time, I have seen:

1. 5 and 1/4 inch diskette
2. 3.5 inch diskette
3. magnetic hard disk
4. IOMEGA disk
5. mini disc
6. CF card, SD card, memory stick and their variants
7. CD and then DVD
8. LD
9. Cassette Tape
10. Video Tape

And perhaps this generation, they do not have much things to store. In this age, we use storage as a service. So there are not much use cases to store backup or large amount of data.

We rely on syncing service such as Google Drive, Dropbox or Box.com.

For the entertainment there are Netflix, Spotify such that you do not need to download so much entertainment.

For some reason, I do still have some data to store. Not a lot but you got to back up some stuff in case Dropbox’s decentralized storage farm burns down.

That should not happen.

How I accidentally formatted a Working Partition

Dropbox have saved me in the past.

There was once when I had a brain fart, and accidentally format a used partition. (This is why I hate making a computer dual boot into two OS).

In fact, in my life, I have a lot of these brain farts, such as running straight into a wall thinking I was short enough to go below it (and ending up with stitches, causing my future army colleague to sign extras for it)

Thankfully, most of the stuff that I need to work on are stored in Dropbox.

So to regain back to a working state,

1. Reinstall the Windows operating system
2. Reinstall Dropbox
3. Re-syncing takes place

These storage solutions such as this is helpful

1. To sync a few device so that you are working on a shared copy
2. As a form of backup to a server
3. Usually allow you to restore a previous version of the same file
4. Access the files from many location
5. Prevent you from losing your data when your whole office gets burned down

These data sync solutions are not good if

1. Your PC get some ransom ware, encrypting my whole hard disk, unless you pay them some ransom
2. Particular segment of the local hard disk to be corrupted. The we end up syncing corrupted files (in truth you may be able to recover a previous version with a sync solution. But how many files are corrupted? You would take a long time to search through them)
3. Privacy. You do not wish for others to see your data (despite what their privacy policy says)

The old fashion man believes that a once per quarter backup of these data would be good

1. Identify what are the data you cannot lose. Identify which are the folders
2. Every quarter either manually copy them over or use a folder syncing application that is available for free out there (there are a few) and sync them to a portable hard disk

For some reasons, I have slowly accumulate a few of these 2.5 inch hard disks. These are the hard disk used in laptops and also most portfolio hard disk.

I like them better than the desktop 3.5 inch hard disk because those 3.5 inch are bulk, and they require another external power source.

These 2.5 inch

1. Are persistent
2. Portable

USB 3.0 to Sata Adapter Converter Cable

For most people, they would need to find a portable hard disk case for each of these hard disk.

My problem with those portable hard disk enclosure casing is that, in order for me to connect 4 to 5 hard disk to the computer temporarily, I need to buy 4 to 5 casing.

And the circuit or the cable to those cheaper casing is so flimsy.

Even those hard disk casings that come with portable hard disk tend to get into trouble quite fast.

My solution is to purchase a USB to Sata Adapter Converter Cable

The hard disk it self is rather sturdy, unless you subject it to water. So this cable can be short or long, you just connect to the one you need to use, and it will work.

Get it from AliExpress

The nice thing about AliExpress, which is a Expensive Custom Shop by Alibaba is that the payments are very seamless.

You can use a Singapore credit card and payment will go through seamlessly.

The shipping takes some time, so normally it is not so good if you need something immediately.

I treat it as a surprise for the day when I received it at home.

And for items that are small, AliExpress tends to be good because:

1. There are a lot of small stuff that you don’t know you need but for some situation you realize you need them
2. They tend to be slightly cheaper if you buy them in Singapore

So I got this for around SG$4 bucks including shipping. And it worked better than a lot of the casing I bought in Singapore because they stopped working a lot!

This is the one that I went for.

Like I said, probably an old man’s need, younger folks might have a better suggestion.

Do let me know.

I will probably share some of my little cheap purchases here once in a while.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free

Since we are on the topic of job switching, I thought of writing some financial and non-financial decision points I considered when making these decisions that I had over the years.

However, these thoughts are rather jumbled up in the head. And this week, is not the most conducive to think about these things because I am picking up some stuff… that requires a little bit more manpower.

So perhaps that will be left to next week.

One book that have been on my mind to write about was this book called Family Inc.

This is not a very popular book, but you can find a few in your national library. I planned to see if I can do a series on this book because I find a lot of what he talked about my resonate with my readers here.

Family Inc was written by Douglas P McCormick. The way I will describe to you is that this is a personal finance book, for the experienced wealth builder. It is ideal for those who have gotten your financial house in order, and have lived a life of working, getting married, having children for probably 7 years.

Then this book will be really helpful.

And it is not so hard to read as each chapter is rather short. It does require some context on what you know about personal finance, and wealth building. That is why I think it is better to read some simpler book as a start.

Doug, in his life have been a

1. Active duty army officer
2. Investment banker
3. Private equity investor
4. Founded HCI equity partner where he was the managing partner overseeing strategy, investments and operations
5. Brother of Bridgewater Associates Co-CEO David McCormick

So this book is how an investment and management guy look at personal finance.

If you think about it, someone in our family should be the chief financial officer, or the one looking into the finance. However, not many of us have someone in that position, or have someone there but not as sophisticate. Doug tries to use bring home his work experience and us that to see how we can visualize and structure our home finances.

Maximizing Your Labor

In a lot of the books that I read, they come from an angle of trying to fix slay the biggest monster in your life.

And for a lot of people that is the debt you have, the unhappy, unfulfilling lives you live, that does not match your internal value system.

To connect, they try to build symmetry about their lives, with your life, or establish authority on how they can solve your problem.

The first 3 chapters of Family Inc, is about your Labor.

Because to Doug, that is probably the biggest determinant of your eventual wealth.

There are those that believe with higher education, you will be offered higher paying professional opportunities.

This is generally true from the data he gathered.

The labor statistics data show the net present value of the labor versus the cost of education makes it worth while.

This is the right way to look at things, because we often do not view our human capital as a asset on your family’s balance sheet. One of the reason might be that our career nowadays are so volatile so how do we value it?

In the USA context, there might be a bigger case for higher education because there are a sizable population that are less educated. In that context, pushing for higher education make a lot of sense.

It remains to be seen the impact of spending on higher education to your value of lifetime labor.

Not all Degrees are Created Equal

Having said that, Doug acknowledges that not all degrees get compensated well, despite we spending a lot of money on it:

“The conclusion is pretty straightforward: Quantitative and other skills that are commonly applied in a business environment garner compensation dramatically higher than “softer” skills focused on humanities.”

Family Inc

The Huge Asset that is Your Human Capital

If we look at our family balance sheet as a bunch of assets and liabilities, your human capital is probably the largest. In this chart above, Doug showed us the expected value of our after tax labor.

At the start it can be worth $2 mil. You have the chance to enhanced it by doing well in school, learning a valuable skill. This allows you to earn a compensation. If you continue to improve upon it, and it is in demand, your compensation will grow at an above average rate.

Thus in this example, $2 mil.

Overtime, your human capital will come down, because there is less time left, and the net present value depends on time.

Here are the danger for many:

1. If you make poor career decisions like myself, then your actual human capital when you look back at age 65 will be much less than the projection
2. That is a lot of money! If you do not allocated this wealth that you earned from human capital well, you are more likely to suffer. (realize that there is a decay to your human capital, the asset is not maintained over time!)

You would realize that from the age 67 to 90, you are depending on your financial assets built up (red) and the government pension plan (purple)

No surprise why Doug put this in the front 3 chapters because if you do not get it right…

Educated people work longer

Doug said something that is a little controversial but I think generally it makes sense.

In blue collar work, what you may need is energy. There might be a point where your energy goes down, or in some worst case severely impaired.

White collar office work would allow you to work beyond 65 years old.

Working longer puts less stress on your retirement as well:

1. You are spending the money from your work compensation for these 3 years
2. You are extending your investment assets by adding on to it, which extend the longevity of the asset
3. You are not spending down your investment assets for the 3 years

By doing this you might extend how long your financial assets last probably by 6 to 8 years. You could spend a larger sum in retirement as well.

Pursue Work Experiences with the Broadest Range of Applicability

My thinking before reading this is that it pays to be a specialist.

When you become really (I mean really) good at something, you are in demand and you are compensated really well. The downside is that, if you are in a role, or scope that is sunset, your career risk is very high. (in this case, you better have made use of that great earning power to build some financial assets!)

Doug tries to answer the question of what company or job they should pursue.

He thinks the question is wrong. We should be asking what choices provide the most professional opportunity now and the most options for future growth. Today’s workplace is too dynamic and our expected career is far too long to attempt to make good job choices based on future prospects for one company or position.

Doug thinks we should develop varied expertise in more business functions such as finance, IT, HR, sales and marketing and general management.

What this allows us is not choose companies BUT specifically industries.

He cites specialized profession such as airline pilots, general practice medical doctors where the industry have undergone changes such that they have underperform the general markets.

The contradiction here was that he was advocating both being specialized and general. He tries to explained this better:

Specialized education with a bias toward the hard sciences and quantitative skills fosters one’s problem solving ability that can be applied broadly.

To maximize the value of your labor, specialize with a bias towards hard skills in your education and seek varied professional roles and challenges in the work place.

The idea that I get is that when you moved up to a certain level (maybe only a managing partner will understand this better than a grunt like myself), which domain of company matters less than how well you are in those general roles (sales, marketing, general manager, HR, CTO, CFO, COO)

How a Growth Investor Allocates Human Capital

As a investor, Doug has a unique way of looking at a persons career. He explains that he invest his labor by emphasizing high reward opportunities in spite of higher risks.

This is counter to the value investor way.

The main reason for this is difference in approach is that there is no risk of loss for your labor other than opportunity cost.

If the risky venture does not work out, you simply take your labor, your recent experiences and battle scars to another opportunity.

He views job choices as stock options.

There are many parts to a stock option:

1. Time. This is the duration of your professional career.
2. Volatility. This refers to the likely up and down of the labor markets and industry where you work.
3. Price Differential or how above or below the current price is the exercise price. This refers to your compensation (in salary, stock options and human capital investments) and the market compensation for your skills.

This makes it worth while to go for a job that pays $40,000 per year when the market rate is $50,000 per year. While the current return is lower, this is compensated by the ability to earn more in terms of

1. new skills
2. equity ownership
3. marketable skills
4. building your brand

Evaluating your Career Opportunities as a Stock Investor

Chapter 4 was a really good chapter to read because I have always thought you could look at your career as if you are investing in a stock.

However, what metrics do we use to evaluate whether this career or industry is good? Will we fall into the trap by evaluating our career on one metric like our parents, which sometimes turned out to be disastrous?

1. instead of buying a stock with cash, you are exchanging your time for compensation in salary, experience
2. prioritize opportunities that provide a best mix of cash compensation, ownership, professional development and options for different employment in the future

Doug then takes us through the path that 3 of his Harvard MBA friends took:

1. Doug chose investment banking. Low risk of layoff and high cash compensation for junior professionals. Provide valuable branding or personal franchise skills in finance and investing, as well as access to professional network
2. Susan was a Mckinsey consultant but chose a job that have startup risk and lower initial cash compensation. But the industry is rapidly growing. She eventually got into a leadership position in Google
3. John return to a large retail company he worked before taking the MBA. Cash compensation was high. The industry growth was low, but business model was sound and access to good but not great business network
4. Jason who was an engineer joined a company that made construction equipment. The company has a long history of success and gives a good cash pay. This was seen as a low risk move. However the location was not ideal for professional networking. The industry is slow growing, and market was cyclical

Doug identified that most of the more successful ones embraced market risk. But not just that they:

1. identified businesses with good growth prospects
2. sound business models
3. have professional networks that they can exploit

From here, Doug gives us a few angles how to evaluate our career opportunities

i Establish the Risk-Return profile

The first is to be able to understand the relationship between risk and reward of the career and industry you choose.

Like investing, you must develop a thesis about the career and industry that you choose. By understanding this, it allows you to know whether you should “hold” or “sell” this company you work in.

For example, your company have long been rather stable. It is like a stable bond. However, in recent years, organization development may point to that in the future, that compensation structure has changed.

Critical evaluation may lead you to the decision to leave this job.

ii Evaluate the Long-term growth potential

Doug says the for a long term investor , the growth is the largest driver.

For a person with a 50 year career, the growth rate is even more important. Not just cash compensation, the non-cash compensation such as professional opportunity, chance of advancement, less likelihood of layoffs is also better.

Doug gives an example of two workers with same amount of stock options, at the same valuations. One has a 10% earnings growth rate and the other 3% earnings growth rate.

Had the price earnings stayed the same, the first one would make 12 times that of the second one.

iii Use Return on Tangible Invested Capital to check your Company’s Capital Efficiency

Doug prefers this to ROE, ROA or ROIC because it gives the purest picture of a company’s cash flows from operations relative to the invested capital to run the business.

A good figure would be above 20%. This would be higher than the cost of capital investors demand.

A good ROTIC indicates the good demand of the company’s services and products. It also indicates high differentiation from competitors.

These businesses tend to have lower assets and based on human capital. This would indicate that since human capital is important, they will pay better.

iv Look for a Robust Business Model

Doug gives a list of things to evaluate the business model of the company you work for:

1. Predictability of revenue
2. Fixed versus variable costs. More variable cost are industry more susceptible to boom and busts
3. Safety of business assets.
4. Local service delivery model and minimal risk of technology disruption

v Favor a conservative capital structure

If the firm that you work for is highly leveraged, that might not be the most stable place to work for, if you plan to stay there long.

vi Employ the concept of portfolio diversification in your labor decisions

Lastly, Doug gave some areas to think about when it comes to creating more resilience in your home finances

1. Have a broader breadth of skills
2. Evaluate the size of the industry. The bigger the better
3. Evaluate the geography of the opportunity. The bigger the better
4. Diversify the family labor. Do not have both the husband and wife all from the same industry

Conclusion

This might be a bit cheemology for some of you but I do appreciate him listing everything down and create a framework for us to think about.

I think that is the greatest value because we do not know what we don’t know. And having someone who was successful in his career explained what he sees is great.

Let me know where you agree with, and where you don’t.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free