Investment Moats https://investmentmoats.com Wealth Mentor for Financial Independence Sat, 16 Nov 2019 22:47:39 +0000 en-US hourly 1 https://wordpress.org/?v=5.2.4 https://investmentmoats.com/wp-content/uploads/2017/09/cropped-sand-castle-3-32x32.png Investment Moats https://investmentmoats.com 32 32 28389540 Your Compounded Growth Rate Earned Will Only be Known At the End https://investmentmoats.com/money/compounded-rate-of-return-at-the-end/ https://investmentmoats.com/money/compounded-rate-of-return-at-the-end/#comments Sat, 16 Nov 2019 23:10:15 +0000 http://investmentmoats.com/?p=10925 I went to lunch with my colleague Bryan on Friday, and we had this discussion on investment outcome. Bryan did some reflecting and realize how little assurance we can get about our investment returns: You will only know your compounded rate of return earned when you are near the end of your time horizon, looking […]

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I went to lunch with my colleague Bryan on Friday, and we had this discussion on investment outcome.

Bryan did some reflecting and realize how little assurance we can get about our investment returns: You will only know your compounded rate of return earned when you are near the end of your time horizon, looking backward.

I do see signs of a good wealth builder in Bryan. To be good, you need to prioritize your time, and spending enough time reflecting on the investing knowledge you read and distill them, then make use of them. Reflecting on what he has learned is a right step forward.

Bryan’s conclusion, however, is the unfortunate truth that each of us face.

You May Not Get the Return You Envisioned In the End

At the start of your time horizon, you need to plan for how much you need to get to where you want to at the time you wish.

In short: How much $X you need so that you can fund something in Y years.

To figure out $X, you will need to use some compounded growth rate. The compounded growth rate is usually based on historical returns.

You read some books like Random Walk Down Wall Street, Stocks for the Long Run, 4 Pillars of Investing (all are pretty good books to start).

The historical rate of return of a balanced portfolio lies between 7 to 9% a year. You then decide to be conservative and use 5% a year in your projection.

There is a problem here:

Past performance may rhyme across various rolling periods, but they do not always turn out the same way.

For example, over a 30 years period, if you get a 4% a year return versus the 5% a year return, it does not look very far off. For most people, they will still be satisfied since 4% is close to 5%.

$12,000 a year compounding at 5% vs 4% over 30 years.

However, in terms of magnitude, over 30 years, if you contribute $12,000 a year, at 4% compounded return, you will get $673,000. If it’s 5%, you will get $797,000.

The difference is $124,000 or 15.6% difference.

The difference is small when the years are short but with longer duration the difference is big. As you contribute more money, the difference in the absolute amount of wealth is also bigger.

Now, when you plan with 5% a year return, and you definitely need $797,000 at the end of 30 years, you have a $124,000 shortfall.

You have a shortfall and you need to do something about (like makeup for it from another source)

This is an uncomfortable aspect of investing. We live with markets that are part deterministic part random in my opinion.

If You DIY Invest, You have Another Layer of Uncertainty

If you are investing by yourself, by doing it yourself, you have one additional problem:

How do you know your active stock investing, forex, futures and options trading, property speculating skills will eventually give you the projected returns you read in books?

Wealth Machines - Competency - Active Investing
Investors often underestimate the effort required. It is hard to judge where you are. Sometimes good outcomes is due to luck.

The investing world is brutal in that even if you are a CFA, you are an analyst, you study finance in school, you are brilliant, you are a lawyer or doctor, you have a lot of wealth, you are a businessman, you may not eventually get to where the books tell you.

If I remember correctly, Professor Merton said that to truly assess whether a manager has an investing edge, and no luck, we require to assess a period of at least 20 years.

This means that we won’t know if we can gain real skill over our investing period or we are just lucky until we are near the midpoint or the end of the time horizon.

The opportunity cost if you don’t earn that rate of return over the time frame is big. We don’t have so many 20 year periods.  

A lot of wealth builders wake up one day 5 years later and realize their portfolio earned a compounded return of 0.40% a year when the general market earned 5% a year.

In the next 5 years, their portfolio would have to earn 20% a year to make up for the early 5-year poor performance. (but you have to take a lot more risks, and how many managers of funds out there use that kind of projected returns?)

How about Picking Good Funds?

The alternative of not doing it yourself is to invest in a reputed active manager upon the suggestion of your friends, investment adviser, financial planner.

Out of all the funds, a small number of them were able to outperform their benchmark. A large number of the funds may not last 20-30 years (we call this survivorship bias). Only a small handful of funds that were top in the last 5 years remain top in the next 5.

Even if they outperform the benchmark, you have no idea if you lived through a great period or a poor period. We also do not have much choices.

In short:

  1. We live through one period. This period can be good, it can be not good, it can be mediocre. There is nothing much we can do about it. And this impacts our rate of return.
  2. We will only know if we are skillful in our active investing or whether we picked a great fund at the end of the period. By then there are a lot of opportunity cost lost. And you need to make up for it.

So how should we handle this?

Some Possible Ways to Think About.

I do not have the perfect solutions but here are a few areas to think about:

  1. The mindset that you should have is the world going forward is unknown. We can use a conservative reasonable return in our planning. If the returns eventually fall short, your eventual plan is going to be less affected. If things turned out very well, you will reach your goals earlier
  2. Be prepared that your wealth value in the future is going to be very different from what your adviser, investment manager, or what you projected. Do not go around accusing people that “you promised this rate of return that time!” Not many people could unless there is a contractual guarantee and the firm does not default on it.
  3. Do the legwork upfront. Find out the investment strategies that have given a lot of people positive return expectations AND it is implementable.
  4. Do the investing work. Give yourself a period to see if it works out. Perhaps 3 to 5 years. Then make sure you put effort into it. After that, if it does not work out, either tweak one last time or fall back to the fallback plan
  5. #4 may not work out. At the same time, you got to have a de facto wealth-building standard. For some it is properties for some it is a portfolio of funds. For some reason, I realize when your net worth gets to a certain level, they put a lot of their net wealth in funds. Some of these funds are sound some of them are not sound. You can get people to help you to invest, but you best be at least sophisticated to be able to separate the sound ones from the unsound ones.

In all the advice, there is a sense of uncertainty whether you are going to get X% in Y years. And that is how it should be.

A lot of the times it is doing the right things, focus on the process and try to get better. Hopefully along the way even if you fall short, that short would still be immensely useful.

Lastly, if we think from the financial planning perspective, there are definite things that gives a high return on investments and within your control:

  1. Be flexible on your income expectations
  2. Put away money consistently into your portfolio
  3. Choose to delay when you need the money
  4. Optimize your expenses
  5. Curate your philosophy to spending & retirement

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

The post Your Compounded Growth Rate Earned Will Only be Known At the End appeared first on Investment Moats.

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A Strategy to Avoid The Pain of Losses? Don’t Be Naive https://investmentmoats.com/wealth-building-2/strategy-avoid-losses-naive/ https://investmentmoats.com/wealth-building-2/strategy-avoid-losses-naive/#comments Tue, 12 Nov 2019 23:10:21 +0000 http://investmentmoats.com/?p=10911 When Eagle Hospitality Trust’s (EHT) share price fell recently, I thought it is a rather good exercise to take a look at how 5 investors will experience the downside. EHT is a real estate investment trust (REIT) who master leased their assets to their sponsors. At various price points, it provides the investor with a […]

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When Eagle Hospitality Trust’s (EHT) share price fell recently, I thought it is a rather good exercise to take a look at how 5 investors will experience the downside.

EHT is a real estate investment trust (REIT) who master leased their assets to their sponsors.

At various price points, it provides the investor with a dividend yield of 8% to 14%, based on their forecasted cash flow guidelines.

When the share price fell, many investors sell. There are also investors who think there is a value somewhere and are buying.

This is, after all, a business model that is not very unfamiliar to many people. It looks like it is fixable in the long term. At the same time, there is uncertainty because it feels like the current true value of the hotels are much less than what was stated in the IPO.

The Experiences of 5 Investors

Suppose we have 5 investors that tried and successfully gotten invested in EHT at different times.

All 5 investors have the same mentality:

  1. They think that at the price they buy, there is value. While the time period they are looking at is different, they believe that given the time frame they are looking at, the total return (dividend income received + capital appreciation) will outweigh the prices they are paying now.
  2. They all don’t like to lose money. The feeling of seeing their capital in the red kills them.
  3. If given the choice they want to protect their downside
  4. They all want to get in at the price where it is the lowest

So the price chart of EHT for the past 3 months plus look like this:

The price could go three ways:

  1. Up
  2. Down
  3. Sideways

Depend on the timeframe.

Which Investors Feel the Least Pain?

When we

  1. Sell and buy back at a lower price
  2. Wait to buy at a lower price
  3. Take profit and then try to buy back lower (almost similar to #1)
  4. Buy only after a certain plunge

Behavioral wise, we are trying to minimize the pain.

So how did this work out for our investors?

The table shows our 5 investors, who sought to buy at the closest value point, where they will be able to maximize their profits, minimize their downside:

The percentage of losses at different price points

Suppose time suspended today and we take stock of the performance.

At this point, investors 1 to 4 all have unrealized losses:

  • Investor 1 lost 35.4%
  • Investor 2 lost 31.6%
  • Investor 3 lost 29%
  • Investor 4 lost 17%

Investor 5 has the best timing and managed to get out a 5.7% return.

Who was the Smart One?

Investor 3 thought he got a good deal.

Looking at the price chart, he got in at $0.655 instead of the high of $0.68.

Investor 2 would argue she got a good deal. Instead of getting it close to IPO at $0.72 she got it at $0.68.

If we were to use some hindsight bias, and we review this way, Investor 4 got the best deal out of those that currently lost money. She got in at not $0.72, not $0.68, not $0.655 but a much, much lower $0.56.

At this point, the smartest is, of course, Investor 5 who managed to end up with a profit.

In the end, the 3 investors after the first one didn’t avoid downside. They still suffered losses.

The Impact may be Different If We Consider the Potential Absolute Losses

What spook most of us with losses is that:

  1. We think we are making the biggest mistake of our lives
  2. We think we are losing a large part of our net worth and that is irrecoverable

In terms of percentage, the impact might not be as big. But what if we present it in terms of absolute dollars?

Imagine that Investor 1 to 5 invested $100,000.

Investors 1 to 3 have potential losses of nearly $30,000 while Investor 4 has potential losses of $17,000.

To some of you losing $30,000 is a very, very, very big deal and something very distressing. For some of you, this is nothing much.

What if We Layer in Net Worth and Time Horizon?

Suppose I tell you that Investor 1’s net worth is $2 million.

Do you think if you are Investor 1, you can endure an unrealized loss of $-35,417?

I think Investor 1 had an easier time than Investor 3 if we know Investor 3’s net worth is $120,000. With a $-29,000 loss, she almost lost 24% of her net worth.

But Investor 3 will feel less pain if we know that her salary is $80,000 a year and she has 20 years more to retirement.

While this potential loss is large if she can critically think, her savings from her salary over the next 20 years will more than offset this $29,000 of potential loss.

You Need to Learn to Live with Psychological Stress of Being in the Market

We all wish to avoid feeling the pain of seeing our hard earn and previous money vanish in thin air.

But if we use price as the sole indicator in our investment decision making, you might not avoid that painful feeling of seeing your portfolio in a losing position.

In this EHT example, 4 out of the 5 investors suffered the psychological stress of seeing their portfolio in a big losing position.

There is this strategy being passed around that you should only invest in a great bear market. One where the market went down at least 30%.

It is likely they wish to

  1. avoid losing money
  2. looking like a vegetable head
  3. suffering losses to their psychological capital

The math of things tell me that you can’t avoid the pain of seeing large unrealized losses in your portfolio.

You cannot avoid the pain:

  1. For those picking the bottom, only a handful would manage to do that. And they do so by luck most of the time
  2. For those buying at the bottom, if you see a stock go down from $1.00 to $0.30 and you buy it, don’t feel surprise seeing it go down to $0.15. You avoid a 70% potential loss, only to get into a 50% potential loss.

What is the solution?

Based on what I understand being in the markets this 15 years, there is not much strategy that can make you avoid the pain and still earn a great return.

It means… you need to increase your willingness to take risk by learning to endure this psychological stress.

Long term, you are likely to earn good returns.

The cost is that you need to pay for this by enduring psychological stress.

This is Your Pact with the Devil.

Being a historian of the markets, being a connoisseur of understand behavioral finance can help you cope with the pain of unrealized losses better. It may enable you to retain as much psychological capital as possible.

Lastly, in financial planning, we talk about your ability to take risks. Many pay lip service to it until they take psychological damage from the markets and see their psychological capital depleting at a much faster pace than their financial capital.

I have shown you that your position sizing, relative to your net worth, to your income and how far you are from your wealth accumulation goal, affects how much psychological damage that you may take.

If you are near your goal, your income is going to stop soon, your ability to take risk is much, much lower even though your willingness to take risk is high. If you lose a large part of your capital, it will be very hard to earn them back.

However, if you have a long time horizon, even though you have lost a significant part of your net worth this time around, you learn from this possible mistake. In the next 15 years, you would replenish your capital through savings and if the stock recovers.

Here is a summary of making pain more livable:

  1. Understand Your Investment Strategy – It has to be both Fundamentally Sound and Implementable/Applicable to You
  2. Not evaluate based on price but based on understanding the business and whether you have a margin of safety in your investment
  3. Understand your ability to take risk. This is dependent on your time horizon – how far are you from your wealth accumulation goal
  4. Size each position carefully based on
    1. Your Net Wealth
    2. Your Percentage Savings Rate of your Net Salary from Work
  5. Be a historian of the markets, being a connoisseur of understand behavioral finance can help you cope with the pain of unrealized losses better

If you like content like this, I write more of this in my Active Investing section below:

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

The post A Strategy to Avoid The Pain of Losses? Don’t Be Naive appeared first on Investment Moats.

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Thoughts on the HENRYs, Forgetting FIRE and the Appeal of Annuities https://investmentmoats.com/money/henrys-forgetting-fire-appeal-annuities/ https://investmentmoats.com/money/henrys-forgetting-fire-appeal-annuities/#comments Sat, 09 Nov 2019 23:45:13 +0000 http://investmentmoats.com/?p=10899 I still have some work to do over the weekends so its no stock analysis, less reading, all work. Meantime, I came across some stuff that you might find interesting. Something on FIRE, something on media coverage, a little on the HENRYs and my thoughts on annuities. My Thoughts on Annuities In my last Sunday […]

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I still have some work to do over the weekends so its no stock analysis, less reading, all work.

Meantime, I came across some stuff that you might find interesting. Something on FIRE, something on media coverage, a little on the HENRYs and my thoughts on annuities.

My Thoughts on Annuities

In my last Sunday article, I profiled how an insurance adviser manages the potentially volatile nature of his income.

He has a question for me that I forgot to address and so I do owe him an answer.

Basically, what do I think about annuities?

It is a weird question but this question can be about what I think about it as a wealth accumulation tool and what I think about it as part of retirement spending. I think my friend is more interested in my opinion about it as a retirement tool.

As an accumulation tool, annuities are likely to be underpowered. They should return you 2.5% a year to 4% a year. If you take on leverage, you would boost your IRR to above 4%.

You do take on more risk when you take on leverage. Interest rate movement can be 50% up and down within a short time.

As a retirement spending tool, they look appealing. Guaranteed income + non-guaranteed income. Those that are close to being retired like them a lot because they promised passive income payouts.

As I have explained in this Providend Passive Income article, what matters is the total return when we are in the accumulation phase and it is as important in the de-accumulation phase.

When a person buys an annuity, it is a vote that

  1. I wish to have passive income
  2. I am not good at having a systematic way of varying my spending up and down. I prefer for someone to tell me how much to spend on

The greatest benefit to those retiring is that they transferred the investment to the insurance company. They have also transferred the cash flow management to the insurance company.

There is a cost to this. The cost to this should be lower returns.

If this is the case, it makes these cash value endowments and whole life to be poorer wealth accumulation tools. But if you are really bad with money, you can consider getting them. But at the end of the day, you cannot run away from some financial planning problems such as how much can I safely spend.

If you have 10 streams of income, and you do not know how to spend without exhausting your capital, having 10 streams of income is less useful.

Another drawback is… I think the payouts are not inflation adjusting. Thus annuities can be used to address your core/survival expenses. But they cannot take care of the inflation adjustment of your core/survival expenses.

Start Your Financial Planning at 40 and Forget about F.I.R.E

Alvin Teo wrote this pretty popular article over at the Astute Parent. The basic premise is that life is pretty volatile before the age of 40.

The advice is that realistically, you can only start planning your retirement after 40.

FIRE is difficult because

  1. You need a high income
  2. You need low expenses. But this is difficult to achieve
    1. Cars are a necessity and expensive

Alvin is a financial planner so what he said should hold some weight.

The 25 to 40 period is said to be the most volatile because you are in your career building phase. Your income has not reached a level where your family feels comfortable with. You have 2 young children and logistically you will need a car.

I think it is not because your cash flow is volatile.

The right word will be that your expenses keep climbing and you could not have a high savings rate. A high savings rate is a very, very important part of accumulating money fast for financial independence or other goals.

So he is not too wrong there.

But I got some push back.

No one said that if you do not retire by 40-year-old, you are severely missing out.

It seems that his brain is fixated on this 40-year anchor or someone imprinted that in his head.

Alvin cited Pete Adeney as one of the pioneers in this movement. One reason that he could reach his magical number at age 30 is because they are working in software engineering. They earn a good salary and thus they have a leg up.

If you read through Pete’s route to accumulating his US$600,000, you will realize that while he earns above average, relatively speaking, it is not out of this world kind of salary.

His first salary is US$41,000 a year. I am not sure if this is out of this world high. It probably was higher than average in 1997. In today’s dollars, this is US$71,000 a year.

What was a success for them was:

  1. Their magical number is measurably smaller
  2. They control their spending
  3. They control their family dynamics
  4. They well optimized their slightly above middle-income salary

Having a high salary helps speed up accumulation and improves planning a lot but overly focus on the high income dissuades people who fit these criteria from achieving something that is useful.

The 40s and 50s Can be More Volatile

So here is more likely his plan. Manage your expenses before 40 by getting your home infrastructure in place. This means get married, renovate your home, budget for both your children, pay off your mortgage.

By the start of your 40s, you should have a much more comfortable financial situation:

  1. should understand your family budget better
  2. have less big-ticket / lump sum expenses that you would need to pay for
  3. if you have done correctly, you may have de-leverage your home mortgage loan

The problem that we may face is that the 40s and 50s may not be less volatile.

We can roughly map the milestones

  1. 30s: Child-bearing, wedding, buy-house
  2. 40s – 50s: Kids tuition, Children tertiary education, taking care of parents
  3. 60s: Retirement spending

Many of us feel the expenses never go down. It just keeps going up. And so the salary would have to keep up.

An emerging problem is that the 40s and 50s is just as challenging

  1. Mid-life crisis & depression
  2. Your job hits terminal salary growth faster than you imagine
  3. Retrenchment and having to re-climb the ladder again
  4. Taking care of parents, losing your parents

Now, imagine being middle income and having limited resources, facing the above. Not less volatile isn’t it.

In fact, you may not be more employable.

We end up funding our lifestyle to just be in time for when our salary is more volatile. (Unless you believe the old corporate ladder system still existing)

The point is that 40s and 50s are not less challenging than the 20s and 30s.

Everyone’s Situation is Different

When you write for the masses, you have to use a very average person as an example. However, there are some of you who would really do better doing what Pete Adeney did.

Your spouse and yourself earn $160,000 a year that in 5 years you could amass $500,000. A $500,000 wealth at age 33 would be able to grow on its own over time if it is deployed well. You worry less about uncertain future career in the 40s and 50s by pre-funding it now.

And since you could maintain a frugal nature, it is likely your family can use 1 year of savings for wedding, renovation, and furnishing.

Funding goals need not be spreading your money out evenly over time.

You can choose not to fund retirement first. First-year save up $92,000. That is equivalent to your 2 children’s local degree in today’s dollars. You could put this $92,000 in a balanced portfolio and let it grow over time.

Then next year, commit that $92,000 to something else.

Higher than average salary, with knowledge, plus intentional living is what pursuing Financial independence is really about.

You can choose not to pursue it and go with a traditional route. But some of you would have missed out on some great life opportunity costs.

The Surprising Part of the Eagle Hospitality Trust Coverage

Recently, in the financial space, what is on people’s minds is the Eagle Hospitality Trust saga. A seemingly not very popular REIT became one of the most scrutinized REIT in a few short weeks.

Enough bloggers write about it because we crave for eyeballs and ad dollars but also… because perhaps this is a genuinely good buying opportunity.

When a stock goes down with poor news, either they have long term fixable issues, or that there is a change in fundamentals. The former would mean this is a good buying opportunity, and we might want to stay away if it is the latter.

However, I would like to comment on a certain aspect of this EHT narrative.

We realized that established news sources such as SPH have deeply researched company pieces. The same journalist who wrote a deeply investigative piece about Best World also wrote about Eagle Hospitality Trust.

Deep scuttlebutt is not something that journalist cannot do. Even the average joe can do it if they put their minds and deductive minds to it. I have seen conscientious average retail investors try their best to do it. If you are willing to dig, you are able to find things.

I do think that if you write as a job, there are just so many things to do. So much so that I wonder if someone is providing journalists with areas to look into. I grew to empathize with analysts when people say some of their reports do not value add. I want to see you put your heart and soul into writing when you have to cover so many companies.

Would the people providing these sources have some agendas?

Let us pay attention to whether there are deeply researched articles without the crisis elements in SPH Business Times next time.

The HENRYS – Huge Opportunities that can be Lost Easily

HENRY is short for High Earners Not Rich Yet.

There is this site called HNWORTH with a rather well-researched article on it. I appreciate him trying to do the research work.

This is a group that is likely earning between $250,000 to $500,000 a year. It is probably the dream of all financial advisers to make up the majority of their client base with clients of this stature.

The take-away that I get from the article is that the gap between this group and those above them, versus the rest are getting wider. Their income and wealth are growing versus other groups which are struggling.

Not just that, the data seem to give me an impression that

  1. deposits and cash have growth a lot
  2. private property have grown a lot
  3. CPF has grown a lot

The rest have not grown as fast.

There seemed to be a pent up demand for private properties, as if, there is not enough residential private properties around for investments.

I have sort of form this view about a segment such as this. The typical higher decile Singaporean household would spend between $4000 a month to $9000 a month. Those on the high side would spend between $7000 a month to $12,000 a month. This depends on how frugal or spendthrift they are.

What this means is that it is likely they will have a high savings rate (about 40-70%), to channel into saving and investments. So there is much pent up money waiting to be invested.

The main instrument would be private properties. With the ABSD, psychologically this might deter some of them from buying another one. Other good investments for the HENRYs would be what is provided by the private bankers.

The HENRYs are in a position where a lot of people wishes to manage their money and eventually, they might end up with an assortment of financial assets that they forget the initial reasons for buying them (if there is any)

They have great opportunities, but they may easily lose all these opportunities as well if they are not careful.

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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When Europe, Singapore, and Value Smashed the United States and Growth https://investmentmoats.com/money/europe-singapore-value-outperform-usa/ https://investmentmoats.com/money/europe-singapore-value-outperform-usa/#comments Thu, 07 Nov 2019 00:08:44 +0000 http://investmentmoats.com/?p=10891 The last time all these value factors didn’t work so well, for such a long time is in the 1920s. That is a long time. Our brains would probably reason that there are similarities today to the time back then. When there are periods of extreme financial upheavals, the value factor does not seem to […]

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The last time all these value factors didn’t work so well, for such a long time is in the 1920s.

That is a long time.

Our brains would probably reason that there are similarities today to the time back then. When there are periods of extreme financial upheavals, the value factor does not seem to work so well. (When we say extreme it is this kind of financial meltdown, not your typical 20-30% market drawdowns)

Looking back, the value factors came back. As an investor having a 30 years horizon, you would have enough time to benefit from it.

There is also another dislocation.

The investors living through these past 10 years will form the opinion that the only place to be is in United States stocks. And they are not wrong.

Their experience with the market is that U.S Stocks Trounced all others (that is not true. There are more obscure markets that did better).

Albert Bridge Capital did some data crunching and present some insightful data.

They are based in Europe and thus, they are more concerned about the market performance in Europe versus other markets.

For 3 decades, the performance of MSCI Europe has matched the S&P 500. Europe did better in the first and third decade. United States better in the second.

If you are a wealth builder, I would say that if you have $50,000 on 31st Dec 1979, and you add $3,000 a year for the past 30 years, you would have amassed $652,528 at the end of this 30 years.

But after 2009, everything changed.

We can observe the difference in the last decade. United States did better.

My friend Mr 15 Hour Work Week said something along the lines that Europe and Hong Kong is Trash. I guess it is ridiculous to invest in them.

Sometimes I do not know.

Most folks expect that if these markets are so visibly poor, then it should mean they perform very poorly. Most folks are also heavily influenced by what is happening recently.

They have this idea that these correlations between asset classes, geographical markets that they just experienced will stay consistent throughout.

It is only older farts like ourselves that see the period where the United States were doing not too badly yet the markets were not performing well (refer to the second decade in the chart above)

My Judgement was Also Clouded

We recently have to help one of our advisers do up a growth of wealth comparison. Basically, we want to compare how much $1 invested in different indexes will be at the end of a certain time period.

In SGD.

Both my solutions head and myself have this mindset that the S&P 500 will do the best.

Growth of Wealth of 1 from 2010 to 2019 today for S&P 500, Dimensional World Equity Index, MSCI All Country and MSCI Singapore

We were not wrong.

From 2010 to 2019 1 or 2 months ago there was this tremendous outperformance. And for those who are saying Singapore market is shit, you are not wrong as well.

I choose to see that for our Providend clients who invested in the Dimensional World Equity Fund, their money would double in Singapore dollars.

But let us factor in 10 years before, from 1999 to 2019, and see how is the result:

Growth of Wealth of 1 from 1999 to 2019 today for S&P 500, Dimensional World Equity Index, MSCI All Country and MSCI Singapore

The MSCI Singapore and DFA World Equity Index proxy in SGD, absolutely killed the S&P 500.

My boss and I originally think this is because of the strong SGD. We shifted it back to USD. Still the same. It is not a currency thing.

Nothing is Set in Stone

Will Europe or Value factors go back to “the balance”?

I am not sure. I guess that is my posture in all this. I am currently an individual stock investor. As an individual stock investor, whether which market outperform or underperform, you can have a game plan to do relatively well.

If you are not good, you get smashed pretty badly.

If you are a passive wealth builder, this might matter to you more.

And my answer to this is, I do not know.

If you lean towards an opinion that despite what Kyith presented, I still think there is no way the United States and growth would do worse than any other markets than you should invest that way.

But if you are of the opinion that I do not know whether THIS TIME IT IS REALLY DIFFERENT, the better way is to hold a moderate portfolio that gives you exposure to all and let the market tell you.

This can be an MSCI World ETF, a low-cost global equity unit trust like the Dimensional World Equity or Dimensional Global Core fund and a global bond fund.

The takeaway I get from this is… man… we have really short term memory of things. But also the future is unknown. “the balance” in the past might not be “the balance” after factoring the future.

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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Singapore Savings Bonds SSB December 2019 Issue Yields 1.71% for 10 Year and 1.56% for 1 Year https://investmentmoats.com/saving-and-investing-my-money/singapore-savings-bonds-ssb-december-2019/ https://investmentmoats.com/saving-and-investing-my-money/singapore-savings-bonds-ssb-december-2019/#respond Mon, 04 Nov 2019 23:08:31 +0000 http://investmentmoats.com/?p=10886 Here is a higher yielding, safe way to save your money that you have no idea when you will need to use it, or your emergency fund. The December 2019’s SSB bonds yield an interest rate of 1.71%/yr for the next 10 years. You can apply through ATM or Internet Banking via the three banks […]

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Here is a higher yielding, safe way to save your money that you have no idea when you will need to use it, or your emergency fund.

The December 2019’s SSB bonds yield an interest rate of 1.71%/yr for the next 10 years. You can apply through ATM or Internet Banking via the three banks (UOB,OCBC, DBS)

However, if you only hold the SSB bonds for 1 year, with 2 semi-annual payments, your interest rate is 1.56%/yr.

$10,000 will grow to $11,713 in 10 years.

This bond is backed by the Singapore Government and its available to Singaporeans.

A single person can own not more than SG$200,000 worth of Singapore Savings Bonds. You can also use your Supplementary Retirement Scheme (SRS) account to purchase.

You can find out more information about the SSB here.

December 2019 Singapore Savings Bonds Interest

Note that every month, there will be a new issue you can subscribe to via ATM. The 1 to 10 year yield you will get will differ from this month’s ladder as shown above.

Last month’s bond yields 1.74%/yr for 10 years and 1.62%/yr for 1 year.

Here is the current historical SSB 10 Year Yield Curve with the 1 Year Yield Curve since Oct 2015 when SSB was started (Click on the chart, move over the line to see the actual yield for that month):

The Application and Redemption Schedule

You will apply for the bonds through the month. At the end of the month, you will know how much of the bond you applied was successful.

Here is the schedule for application and redemption if you wish to sell:

Click to see larger schedule

You have 02 to about 25th of the month (technically the 4th day from the last working day of the month) to apply or decide to redeem the SSB that you wish to redeem.

Your bond will be in your CDP on the 1st of the next month. You will see your cash in your bank account linked to your CDP account on the 1st of next month.

How does the Singapore Savings Bonds Compare versus SGS Bonds versus Singapore Treasury Bills?

Singapore savings bonds, is like a “unit trust” or a “fund” of SGS Bonds.

But what is the difference between you buying SGS Bonds and its sister the T-Bills directly?

Both the SGS Bonds and T-Bills are also issued by the Government and are AAA rated.

Here is an MAS detailed comparison of the three:

SGS Bonds versus Singapore T-bills versus Singapore Savings Bonds
Click to see bigger comparison table

What is this Singapore Savings Bonds? Read my past write ups:

  1. This Singapore Savings Bonds: Liquidity, Higher Returns and Government Backing. Dream?
  2. More details of the Singapore Savings Bond. Looks like my Emergency Funds now
  3. Singapore Savings Bonds Max Holding Limit is $200,000 for now. Apply via DBS, OCBC, UOB ATM
  4. Singapore Savings Bonds’ Inflation Protection Abilities
  5. Some instructions how to apply for the Singapore Savings Bonds

Past Issues of SSB and their Rates:

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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Some Thoughts on CPF Rants, Bond Tents and New Financial Adviser Money Management https://investmentmoats.com/money/cpf-rants-bond-tents-new-financial-adviser/ https://investmentmoats.com/money/cpf-rants-bond-tents-new-financial-adviser/#comments Sat, 02 Nov 2019 23:48:22 +0000 http://investmentmoats.com/?p=10876 After a tiring day, I don’t really feel like putting out an article that was supposed to be meant for this Sunday. However, there are some comments to be made. How Should A Financial Adviser Manage His Own Money? My friend Jason here heeded my call to have more self-employed folks show us how they […]

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After a tiring day, I don’t really feel like putting out an article that was supposed to be meant for this Sunday.

However, there are some comments to be made.

How Should A Financial Adviser Manage His Own Money?

My friend Jason here heeded my call to have more self-employed folks show us how they manage their variable income, or how they kick start their business in the initial years.

Jason applied my Phase 1 and 2 planning. He worked out how much is his Essential expenses ($24,000 a year).

He would have a 1-year runway to proof that he could get business off the ground.

You can see how he is going to get a diversified stream of advisory income going forward. I think the family (his wife and himself) is being pragmatic about it.

To be fair, if phase 1 for this kind of business lasts 1 year, then setting aside $50,000 before taking the plunge would be adequate. If Jason is a fresh graduate, then he may not have the luxury of such a safety net. But then again, as a fresh graduate, Jason would also have a much more frugal lifestyle (this is not to say that Jason is not frugal).

I think he has a lot of buffers but he chose to compartmentalize it away. For the time being, he could cash flow from his dividend portfolio. However, he is pretty clear that he is in the stage where he would rather reinvest the dividends so that the portfolio will be able to grow.

I do wish Jason all the best in his new job. If you look at his finances, it is in tip-top shape. Cleared off his mortgage, build-up a portfolio that allows him to do career transition.

If You Solely Depend on CPF for Your Retirement, You May Not Be the Best Person to Manage your CPF

A certain Clifford Theseira decided to follow a certain Toh Thiam Hock’s footsteps by complaining about his CPF on social media.

Mr. Thesiera complained that his CPF payout of $575 a month is rather measly and not enough for his wife and himself to live on. He would have to drive Grab to supplement and at 72 years old, he might not be able to drive for long.

So CPF came up with a swift rebuttal on a Sunday (!)

There were some who felt that CPF should not be opening up the people’s details to respond this way. However, what were they suppose to do when it seems Mr. Theseira wishes to use his own situations as evidence of our CPF’s failure?

CPF revealed that $140,000 was withdrawn from his CPF since he turned 55 and that the Medisave contribution from his pay would be 1% of his monthly income.

Here is my guess. There is a few information not reveal to us at this point but I believe Mr. Theseira pledge his 5-room flat so he set aside half his minimum sum (the old scheme) which goes into his CPF retirement account. Upon turning 55, about $140,000 was taken out. At the same time, he also had $60,000 in his CPF Medisave.

If you ask me, that does not seem like a person who does not have much money.

In February this year, Josephine Teo provided some figures on how much older Singaporeans are getting from CPF Life and Retirement Sum Scheme. It looks like what Mr. Theseira got is much higher than the average.

To top that, the Medisave is super healthy.

I think Mr. Theseira have inevitably showed what a “success” the CPF has been for Singaporeans like himself.

TOC came up with a rebuttal to CPF’s response:

Of course, the CPF Board did not disclose that from 55 to 65, there is no payout from one’s CPF Life. To survive, one will either have to work, assuming he can find a suitable job at the age of 50s to 60s, or to start using his withdrawn CPF funds from 55 to 65 to survive.

Assuming Mr Theseira used up the $140,000 from 55 to 65 before getting his monthly payouts of $575 after 65, on average, he would be surviving on $1,170 per month for both himself and his wife during the “lost decade”.

This is, in fact, a sum already less than the minimum $1,379 a month by a study for a single elderly aged 65 and above, in order to attain a “basic standard of living” in Singapore

– The Online Citizen

Even the SDP decided to jump on this bandwagon and criticize the government on the CPF:

The SDP also questioned, “To date, the Government has refused to provide data on how many individuals squander their savings and turn to the state for help. Does the number warrant a blanket punishment for the vast majority of retirees like Mr Theseira who are responsible and astute managers of their own funds and lives?”

“Another crucial question that the PAP must answer is why at the age of 72 must Mr Theseira and others like him continue to work to support himself and his wife?

The answer, if the PAP cares to admit, is that many retirees are now asset rich but cash poor. In simple words, Singaporeans have had little choice but to use their retirement savings during their working years to pay for their HDB loans.

These loans are often stretched to 25 to 30 years because of the inflated prices of the flats. When they now have to retire, they find themselves with insufficient savings”, they added.

– SDP

SDP brought up some good points. Home too expensive. Asset Rich Cash Poor. Both are not the CPF’s problem.

It is an Asian mentality problem. We just love properties. And the HDB can be purchased at less than 5 times price to combined income. If you are conscientious, you can finish paying in 12 years.

In fact, I am 39 this year. Most of my friends are like finish paying, almost finish paying and thinking of upgrading to EC. They have a choice. Yet they choose to upgrade. They finish paying for their HDB and decided to upgrade.

I will tell you of another group of people that have to work at 70-year old to support their lifestyle. These are the friends who need $5,000 a month to have “bare minimum living”. They have no choice because that is what they believe in. Whether you are 70, 50, if your CPF is not enough, you gotta find a way to have a residual stream of income.

The beef that Toh Thiam Hock, Mr. Theseira have with the system would always be the shifting goal post, not allowing them to withdraw all their money at 55 years old. Whether they die or not die is none of the government’s business.

But the problem is real. For the better part of 30-40 years, if they have not been able to engineer a more comfortable situation for themselves at age 50 or beyond, what are the chances that they are likely to be able to manage their wealth well when they get all their money at age 55?

Put it another way, if you complain that you can only depend on your CPF money, I shudder to think if I were to let you have all your money at age 55, where would you put it to, so that your savings interest can beat the 4.78%?

The 2 Main Problems of FIRE in Singapore

Someone asked me about my thoughts on a Financial Trainer’s hard-hitting article on 2 main problems of FIRE in Singapore.

Here is the summary:

  1. You cannot estimate your expenses. Your expenses will rise from $50,000 to $100,000. You need other residual income
  2. Inflation in Singapore have been rather low. We are underestimating. You need to have 20-30% buffer
  3. 4% withdrawal rate based on the fact that the USA is a superpower. When you live in Singapore and you are not a superpower, your returns may be drastically different. If you use 4%, you are being lured into thinking your framework is sound
  4. Bond rates are low. How low can it go? Most likely it will go up
  5. SGD is strong. If you are in a portfolio of S&P 500 and 20 Year Treasury index, your returns may be cut due to forex risk
  6. His solution is an actively managed all-weather portfolio

I think the are valid concerns.

I do wonder how many people really understand how that safe withdrawal rate methodology work.

You might want to find out how to tackle FIRE from him. He has a course and have a solution to this tough monster.

Bond Tent in Singapore Context

Life Finance put out a good article discussing the traditional glide path during wealth accumulation and the bond tent.

The Traditional Glide Path happens when you increase your bond allocation as you approach retirement. This will gradually reduce your portfolio’s volatility over time.

The Bond Tent is a strategy to tackle the negative sequence of return risk.

Life Finance tries to test the bond tent out with Singapore data. I am not sure how much sample he has, but his conclusion is the traditional glide path does not work so well, the bond tent does not work so well.

Based on my research, the bond tent, as elegant as it sounds, does boost the success rate by a lot.

The overall idea is that you need adequate stocks to have a greater chance of lasting a longer retirement duration. But if you have too much, the volatility reduces the success rate. So the allocation tends to vary between 40% to 80% equities. The best result happens when we can ramp up to 60-80% equities in a smaller window.

Overall I think the 60% equity 40% bonds is still the preferred allocation.

Lastly, most people need to look at bonds, not in the traditional sense, but bonds from a total return perspective. Active bond managers are able to gain certain returns by switching to different bonds when the yield curve flattens or steepens. They can choose to find a higher-yielding bond with the same credit quality.

What this means is that it is not a buy and hold, collect coupon game. This means your return will look like an equity fund, which fluctuates year to year.

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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How to Generate Regular Income from No-Income Funds https://investmentmoats.com/financial-independence/generate-regular-income-from-no-income-funds/ https://investmentmoats.com/financial-independence/generate-regular-income-from-no-income-funds/#respond Wed, 30 Oct 2019 23:20:42 +0000 http://investmentmoats.com/?p=10871 On some occasions, I feel the need to write some articles over at Providend. If they benefit Investment Moat’s readers, management is OK for me to share them over here. We observe certain misconceptions that are rather pervasive when it comes to funds our clients held, what we recommend to them, and what they are […]

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On some occasions, I feel the need to write some articles over at Providend.

If they benefit Investment Moat’s readers, management is OK for me to share them over here.

We observe certain misconceptions that are rather pervasive when it comes to funds our clients held, what we recommend to them, and what they are considering to purchase.

The really popular produces are the First State Dividend Advantage kind of distributing unit trusts. This is pretty similar to a Lion-Phillip S-REIT ETF, which is a distributing ETF.

What is common among the unit trust and the ETF is that both provides a dividend income. For investors that are nearing retirement, they have this idea that their portfolio would need to be filled with stocks, bonds, unit trust, ETF that distributes income.

That is why endowment/whole life that provides a cash flow is massively popular as well. Such as this and this.

In my post this week, I have laid out my argument of using a dividend only income strategy.

This post explains to readers how an accumulating fund can also provide regular income that you need in your financial independence days. An accumulating fund is a fund that does not pay out an income. The dividend income or interest income the underlying shares earned are reinvested back into the fund.

The way to do it is to sell the units when you need them.

Suppose we have a $1 million portfolio, and we spend an initial amount of $35,000 in the first year. For subsequent years, the previous year’s spending is adjusted to prevailing inflation rates.

We invest this portfolio in a 100% DFA Global Core Equity Index with a total annual all-in cost of 1%.

We start off with 1,000,000 units valued at $1 each.

Every year, we sell the equivalent of the annual expense worth of units.

The following illustrates how this portfolio will live through the 29-year period of 1989 to 2018:

Click to view larger image

This period has 3 bear markets. The average compounded returns is 5.68% net of cost. Average inflation is 2.5%.

The portfolio ends up back with $1.1 million.

The investor enjoys inflation-adjusted income from $35,000 to $71,634 at the end of 2018.

I doubt its easy for you to find a low-cost product that gives you inflation-adjusted income over such a long period.

We can see that the 1 mil units held gradually fell to 237k units but the price rose from $1 to $4.96.

The point I wish to drive across is: Separate the financial planning function from the investing function.

The fund does not know you so why should it carry out the financial planning part of figuring out how much income should it give out to you be sensible?

It should focus on the execution of the strategy, keep costs low, rebalance in the most efficient manner.

Read the Rest of the Article here >>

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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The Story of One Sibei Old Ship https://investmentmoats.com/money-management/reit/eagle-hospitality-trust-queen-mary/ https://investmentmoats.com/money-management/reit/eagle-hospitality-trust-queen-mary/#comments Mon, 28 Oct 2019 23:20:48 +0000 http://investmentmoats.com/?p=10855 There is a ship in trouble and everyone seem to be talking about it. The Edge Magazine ran an article titled Eagle Hospitality Trust could get wings clipped as key asset The Queen Mary sinks into disrepair. Basically, Eagle Hospitality Trust (EHT) a REIT with full-service hotel assets in the United States owned a ship […]

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There is a ship in trouble and everyone seem to be talking about it.

The Edge Magazine ran an article titled Eagle Hospitality Trust could get wings clipped as key asset The Queen Mary sinks into disrepair.

Basically, Eagle Hospitality Trust (EHT) a REIT with full-service hotel assets in the United States owned a ship called The Queen Mary. It is an old ship. If you multiply Kyith’s age by 2 and it will still be older than Kyith.

Anyway, the ship is moored in the harbor and tourists, locals can stay in the 347 rooms and have fun there.

The Queen Mary Long Beach was acquired in Apr 2016 by Urban Commons and this year sold into Eagle Hospitality Trust.

There are 347 rooms, 1600 parking lots, 80,000 sq ft of meeting room spaces.

Owning the ship is one thing, but another aspect is the land surrounding where the ship is anchored.

The City of Long Beach holds the land title and lease it to Eagle Hospitality Trust (EHT) for 66 years. This land has the potential to be developed or subleased for other purposes.

Urban Commons (UC), EHT’s sponsors, lease the ship and the areas around, from EHT as a master lease (officially Urban Commons Queensway LLC).

The master leased tenure is 20 years + 14 years. The ship is moored at an X flood zone area which means there is minimal to moderate chance of flooding in this region.

The majority of the rent is fixed, with escalation, plus a variable component computed as 8% of the Gross Operating Profit.

The Queen Mary is a significant contributor to EHT’s bottom line and net asset value.

Unlike the rest of the hotels in the trust, Queen Mary is operated independently and the operator is Evolution Hospitality, a subsidiary of Ambridge (which operates the other EHT hotels)

In Nov 2016, Urban Commons and the City of Long Beach started a large scale improvement plan addressing both structural items at the property as well as repositioning and reopening unused public and revenue-generating spaces. This includes meeting spaces, restaurants, and attraction venues.

A total of US$23.5 mil is spent by Urban Common before the IPO. This was matched by US$23 mil spent by the City of Long Beach.

The money is spent repurposing of unutilized public spaces and structural works.

There was disruption during this period to both business and therefore, revenue. However, as work slowly competes, the revenue and profit margin slowly got better.

EHT’s purchase consideration was US$ 139.7 mil. The valuation is US$159.4 mil. (looks like we got a steal there, or….)

What is the Fuss About?

In the Edge Article, the City of Long Beach’s economic development director John Keisler said the operator (Urban Common) may lose its 66-year lease agreement if it fails to meet its obligations.

Since 2016, both the City of Long Beach and Urban Commons have sunk money into repairing it. However, inspection done by Independent inspector Edward Pribonic has shown that the condition of the ship is getting worse.

The article also states the following:

Three years ago, Urban Commons is reported to have taken on the lease despite a marine survey that unveiled that the ship’s deteriorating condition was “approaching the point of no return”.

 According to that report, the total cost of ship repairs could range from US$235 million ($320 million) to US$289 million. In addition, it estimated that the work would take approximately five years to complete, with some 75% of repairs deemed “urgent”.

Keisler keep sending a letter to Urban Commons’ CEO but he had yet to respond.

Now if EHT loses this 66-year lease, it will effectively means US$159 million (the Queen Mary’s valuation) goes up in smoke.

Thus there is volatility in the share price.

How Should We Look at This

This is a tough cookie and in investing, we have to make decisions like these (so it makes you wonder how passive this income is).

The thing we need to ascertain is whether this is a long term problem or not. My take is, I don’t think it is.

But I cannot be totally sure, like most of the things I come across.

The first thing I think about is just write off the whole ship and see whether the valuation is attractive.

How the Financials if we Take Out Queen Mary

In the 2nd quarter result, EHT’s distributable income records about 36 days of operation. If we annualized it, we get around US$56.7 mil. Queen Mary is forecasted to contribute US$12.5 mil in rental income for FY2020.

This works out to be US$44.2 mil.

With 868 mil outstanding shares, the dividend per unit after excluding Queen Mary would be about 5.1 cents. The dividend yield based on the last share price of US$0.545 is 9.3%.

Hospitality properties tend to have more volatile rental earnings because a large part tends to be based on revenue. Thus, they should command a higher yield for margin of safety. Perhaps 7-8%.

Given the overseas property and difference in currency, we can add 1% to it.

Thus 9.3% in dividend yield looks fair.

The other aspect is the net asset value.

EHT has a total asset of US$1353 mil and total liabilities of US$579 mil. Out of this liability, US$497 mil is debt. Cash comes up to US$67 mil. The investment property comes up to US$1200 mil

Queen Mary is last valued at US$159 mil.

The debt to asset of the whole trust is 48%. If we take out the cash then it’s 46%. If I don’t take all the liabilities but only interest-bearing debt, the debt to asset is 41.6%. From what I can see, Queen Mary was not used as a collateral to secure any of EHT’s loan.

But from the prospectus, there should be loan covenant should the trust breach certain debt to asset ratios. This will eat into the dividend. There is also the need for a REIT to try their best not to be overly leveraged.

The revised NAV is US$0.70. Thus EHT is currently trading at a 22% discount to this NAV.

Based on this, it is a bet whether someone is making a mountain out of a molehill.

Urban Common may have Realize this is Bigger Than

What they originally anticipated. Keisler explained more about the situation in an Oct 10 article.

Keisler said Urban Commons has pushed back the timeline as it works to navigate the complicated regulatory process, but the company has been clear that it intends to move forward with the project.

“One of the challenges in the short term is they’ve realized how complicated and expensive the ship is and how complicated the development environment is,” he said. “But they’re indicating that they’re still all in, and now they’re looking at how they can make it work.”

Sometimes I feel that folks like Keisler are trying to put this in the news so that Urban Commons can expedite things. I wonder how this would look on his resume if this whole thing fails on his watch. It is as if he is trying to show his guys or the people that “Hey, look! At least I am trying to do something to expedite the thing!”

After the update yesterday evening (28th Oct), I am still very confused about what is Mr. Keisler trying to do. Is it because Urban Commons is not doing a good job keeping up with the repair timeline or they have a change of heart and Mr. Keisler would like some public pressure to keep them obligated to go through with this.

Responsibilities of EHT and Urban Commons

How much contingent liabilities could EHT suffer from?

Here are some information on termination of agreement gathered from the EHT IPO Prospectus:

Termination Events

The master lessor and lessee can both terminate the agreement, in the event of the following:

  1. material damage to the premises or
  2. the whole or part(s) of the premises is condemned by any public or quasi-public authority, or private corporation or individual, having the power of condemnation so as to make it impracticable or unreasonable in the Master Lessee’s reasonable opinion to use the remaining portion as a hotel of the type and class immediately preceding such compulsory acquisition

EHT, the master lessor can terminate in the following conditions:

  1. EHT sells and assigns its interest of the premises and pays the master lessee a termination fee equal to the fair value of Master Lessee’s remaining term
  2. In the event of default of rent
  3. In Queen Mary case, termination of the ground lease

It feels to me, that UC can terminate this master lease agreement if the City of Long Beach condemns them.

The question is after that, the ship is returned to EHT. Is EHT liable for anything else (such as their commitment to repair the Queen Mary)?

This is an area that shareholders can seek clarification from management.

Update on 28th October: Eagle Hospitality Trust provided some answers to the queries by SGX. In the answers, EHT updated that should Urban Commons break the master lease, the amount of repair that EHT is liable for contractually is US$7 million.

That is a pretty manageable sum.

Someone at Valuebuddies also posted an update from Kiesler to the Acting City Manager of Long Beach on the progress of Queen Mary projects and Long Beach Cruise Terminal Domes. This was sent in September 2019. You can read it here.

It contains much information about the background of these repairs, what was completed, what is in progress and how much it cost.

The total projects that were completed and are in progress is valued near US$23 million.

In the above section, we can see what the inspector has identified as critical and have asked the lessee (Urban Commons) to start scoping. It comes up to US$7 million.

In the 2 slides above, we are able to see the projected cost of the individual projects and the actual cost.

Looking at this brings back some haunting memories of my old engineering life. We can see there is a fair bit of cost overrun. This would probably be what Mr. Keisler mentioned as a more challenging task than anticipated.

I am no expert but based on this, it looks like this is work in progress in an effort to ensure the ship does not sink. While there are many red areas, I guess this is what the repair is supposed to achieve.

Here are some of my conclusions:

  1. The CAPEX required is not to get the ship into sailing state. Rather it is to ensure that the whole thing is safe
  2. There is a lot of work to be done
  3. Majority of the work is work-in-progress or completed
  4. There are some cost overruns
  5. These should be funded by the existing CAPEX of US$23 mil. Not sure who will bear the cost overrun. Based on my project management experience, costs should be shared by the vendor and the client. In this case the City of Long Beach and Urban Commons
  6. Urban Commons have just received money from the IPO of EHT. They should still have funding for this
  7. Based on the agreed work-to-be-done it does not seem like it will come up to US$200 mil.

How Eagle Hospitality Trust Could Recover or Die

In investing is not just about looking at things in a dualistic manner. It is thinking through what are the outcomes and how we can benefit or risk manage our position.

So here is how I look at things.

I think the repair job keeps progressing it should be OK. I am not certain Queen Mary is going to be a good experience. If you read the next section, I wonder if Evolution Hospitality, a subsidiary of Aimbridge, the operator of the hotels are the kind of folks you want to provide good customer experience.

The one who appointed them should be the sponsors. At this moment, these issues would result in investors giving the management negative points. And management is one of the key factors in assessing whether a REIT is quality or not (along with the future business, economic outlook of the area of operation and valuation)

I lean towards that EHT is not a good long term hold there.

Next, we think about the short term. How would this play out?

If the Queen Mary defaults, and EHT loses the 66-year land lease, then we can write off that part of the value and rental income.

Share price might spiral when there is dilution without accretive acquisition.

Even without the contingent liability, EHT is also very close to the 45% gearing limit. To be more sound, they might need to call for a rights issue to deleverage. That would kill the share price as well.

In this scenario, management would not be seen in a good light. It will be challenging to get any form of share price support.

The above scenario at this point seems unlikely to me.

The opposite is the share price will stage a recovery. But to what level? This will depend.

EHT’s share price is at a stage where people are asking a lot of questions about it and they are not giving good answers. Without strong support from investors share price will continue to languish.

Over the long term, even if this issue is behind us, the hotels in EHT would have to show some great results. This is to give investors confidence this is not a scam REIT or someone dumping assets into it.

Good results leads to share price recovery. This would make acquisitions easier. This is a favorable scenario.

So How is the Actual Condition of Queen Mary?

I have no idea. The air ticket to America is a bit pricey plus I do not have much leave days.

But if you are interested, take a look at TripAdvisor and see what the visitors say.

Here are some interesting ones:

I was a little bit anxious about staying on the ship. I’d heard reports that it had been ruined a bit and lost some of it’s character but that’s not the case at all. You actually feel like you have stepped back in time as you walk on board.
Sir Winston’s Restaurant is very good and the bar is adequate and there is plenty to see on the ship in the way of history. I didn’t take a guided tour but the ones I happened upon seemed very informative.
The bed was super comfortable but the room was not very soundproof. We endured the ecstasy of a couple in the next room for the best part of a minute. We almost applauded.
I think you could describe the stay as an experience rather than out and out comfort but we did enjoy the stay.

Sep 19

The Queen Mary was a beautiful ship, especially the elegant wood used everywhere. A gorgeous piece of history has descended to chairs with holes, duct taped floors, dirty carpeting. I only hope that future plans for this stunningly appealing ‘idea’ (who doesn’t like the ‘idea’ of visiting wonderfully restored parts of history?), are to completely refurbish the entire place. That would be a great thing!

Oct 19

Great experience! – Check in very smooth. We stayed in an outer stateside room and what you would expect from the time very traditional fittings and decor. Room spacious and quirky. The ship itself steeped in history. Observation deck great for a drink. We ate in Winston Churchill restaurant and couldn’t have been treated better. Beef Wellington was amazing. Celebrated wedding anniversary and they brought cake, chocolate strawberries and decorated chocolate which was a lovely surprise. Check out was seamless.

– Oct 2019

No hot water and staff lied to me about it – At check-in I inquired about upgrading to a harbor view room. I was told I could for $20 a day. I gladly paid the $20 and upon arriving to my room discovered that there was no hot water. I went back to the front desk to ask about this and was told all cabins in my section had no hot water and that they’ve been working on it all day. The next morning on before checking out we left our room and overheard an employee asking on the radio when they are going to start fixing the water because people have been asking him. So it turns out they never had anyone working on it and lied to me at the front desk when I went back to inquire about it. On top of that the front desk agent failed to even mention to me there was no hot water if I upgrade and just allowed me to upgrade to presumably boost her numbers. This is insanely bad customer service and I would urge everyone to not stay here.

The no hot water can be excused because it’s an old ship and stuff happens. What bothers me is that the lady at the front desk never once thought to tell me that there was no hot water if I upgrade and pay more and also lie to me about it being fixed.

Oct 19

I will say first that if you want to experience staying on the ship you should. But we found the bed was super small and the walls were super thin. The room was clean, but the shower was too short, which I feel like is more the era but worth knowing. We also got so many hidden fees it wound up costing quite a bit more than the original quote. It was unique and the ship itself is very beautiful and full of so much interesting history.

Oct 19

The general feeling you get is that this ain’t the best functioning hotel, this ain’t the best experience when it comes to hotel stay and people tend to really like visiting it and staying there.

Ok that is enough blabbering about this ship.

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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Why Living Off Dividend Income in Retirement is Not Perfect https://investmentmoats.com/financial-independence/living-off-dividends-retirement-income/ https://investmentmoats.com/financial-independence/living-off-dividends-retirement-income/#comments Sat, 26 Oct 2019 23:10:30 +0000 http://investmentmoats.com/?p=10837 When I first went down this financial independence rabbit hole, the dividend model looks pretty sound. Spend only the income that is paid by your portfolio of dividend stocks Your capital is untouched Since I am invested in a 100% stock portfolio, if I manage the portfolio well, stocks should give a high probability of […]

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When I first went down this financial independence rabbit hole, the dividend model looks pretty sound.

  1. Spend only the income that is paid by your portfolio of dividend stocks
  2. Your capital is untouched
  3. Since I am invested in a 100% stock portfolio, if I manage the portfolio well, stocks should give a high probability of keeping up with inflation
  4. Markets can go down. However, since you do not touch your capital, if your capital goes down, and you will only spend the income distributed, your capital will have the opportunity to recover back.
  5. Since you are not selling or drawing down your capital, the dividend income model mitigates the sequence of return risk

The capital is sacred. It cannot be touched.

I have a certain degree of confidence that the dividend income model can work for my financial independence. This is because I have been investing in stocks for a while and have lived with managing a dividend income portfolio.

So based on this model, computing how much we need is pretty simple. What is a conservative average dividend yield that we can get in Singapore?

Probably around 4-5%. In truth, you could find stocks that give more but let us be a bit conservative. 5%. If your annual expense requirement comes up to $24,000 a year, then I would need to accumulate $24,000 / 0.05 = $480,000. Sounds doable! If I wish to be conservative, I would use 4% and I would need $600,000. Tougher but still looks doable.

As a risk-averse person, I saw the appeal of this structure because if I have the capital, I have greater flexibility whether to leave it as a bequest or choose to pivot in life in different ways.

As I went deeper into this area of research, I realize there are certain flaws in using such a strategy for your financial independence. I came across this research piece and I thought it is a good time to put out my thoughts on this.

The Evolution of Providing Income for Retirement

In order to compartmentalize our options for retirement income, perhaps we can recap how we got to this place.

The most obvious form of retirement income comes from our government. That is something not within our control. Humans realize that depending on the government might not be enough.

So they started to build wealth themselves.

This is how it is evolved:

  1. Spend interest on bonds. Then inflation reared its ugly head so…
  2. Spend dividend income from stocks. This is during the period where dividend yield on United States stocks was 4%
  3. #2 + Spend down capital gains. They found that you could spend more if you spend dividend and capital gains (our GIC model!)
  4. #3 + Spend down principal. Dividend yield became so low that it became a problem just by depending on dividend income

The dividend retirement income model thus existed for quite some time. It is not something new and I believe there were seniors who used it extensively.

What is the Requirement for Retirement Income

There are a few criteria we looked for in our retirement solution:

  1. Provides a stable cash flow
  2. We must have a certain level of purchasing power protection of the retirement cash flow
  3. It needs to last for the entire period you need it
  4. Optional: Some of you would wish for the capital to be relatively intact so that you can pass it to the next generation

That is largely it. Notice I didn’t mention about the return on investment or compounded average growth. It is not they are unimportant. They are.

However, if we look from a utility perspective, in order to provide 1 to 4, your compounded growth rate needs to be there. If you find a solution that gives you 1 to 4, most likely, the compounded growth rate is there.

I also tend to think a lot of people scrutinize the investment performance portion too much during the financial independence phase and there was less emphasis on the above.

The Problem: Volatile Inflation-adjusted Income

I find the main issue with the dividend retirement income model is that most of us think the inflation-adjusted income is more stable than the reality.

I have profiled a retirement risk management software called Timeline this year and last week they did some data crunching in this area.

It is quite difficult to model the dividend retirement income model because we do not have enough data. However, Timeline allows you to model whether your retirement strategy can stand the test of historical sequences and Monte Carlo simulations. They definitely have some data.

So they sought to model only spending the dividend income in the United States and United Kingdom context.

They have historical monthly data for the United States and United Kingdom equities and also the CPI data to model inflation (Jan 1924 to May 2019 for UK and 1900 to 2019 for US). That is almost 95 and 119 years respectively.

The portfolio is made up of 100% UK or US equities.

If we have those data we can find out how the monthly dividend income, capital value will look in a total of 792 30-year periods.

Fees were ignored. This benefits the portfolio to survive better.

The United Kingdom Results

The chart below shows the monthly inflation-adjusted dividend received by a retiree invested in 100% UK Equity for every 30-year rolling period since 1924:

Inflation-adjusted income from 1 million pounds invested in UK Equities (click to see larger image)

Do note that when we say inflation-adjusted it means that if the income is below the starting point, you are losing purchasing power.

Think of each of these lines as a clone of Kyith. So, in this case, there are 66 Kyith. Each of these Kyith lives off a 1 million pound UK dividend portfolio.

The first thing you will notice is that the starting dividend income is different. In some years the dividend yield is higher so you start off in a brighter note. In some years the dividend is lower, so you start off lower.

Going strictly by this, it means the starting income you get to spend will vary, and you have to retire in a period where the dividend yield matches your retirement.

Your dividend income for retirement is very very volatile. And in some years you lose purchasing power, in some years you do better.

The real balance of the $1 million invested

The above chart shows the capital for all 66 30-year instances. You would realize that your capital value is never zero. However, there are some sequences wherein the end, the real value is less than the starting. This does not mean that it is lower than the starting. You could end up still having $1 million after 30 years but this $1 million is very different from the $1 million 30 years ago.

This table shows the result ranked by cumulative income provided. In the worst case, the total income provided was $1 mil, which is about the capital amount. The ending balance is $1.89 mil, which is almost double the initial amount.

The worst year is again one of those 1965 to 1970 years. Those high inflationary years are the toughest.

The income is volatile. There are some months you spend $4716 a month, some months $1754 a month and a lot of month $2972 a month.

Of course, in the median, you end up spending more, but nevertheless there is volatility in the income.

A median income of $2972 a month in the worst case is about $36,000 a year which is almost a 3.6% yield. That is a pretty good initial yield if you asked me.

Now let us take a look at United States data

The United States Results

Inflation-adjusted income from 1 million invested in US Equities (click to see larger image)

Same story here. The blue line is especially interesting. It shows us that for that retiree the real income can really fluctuate.

Again the tough year was the 1965 to 1970 years.

The volatility for the worst years looked lower. However, in the worst year, the median income that you could spend is around a 2.4% dividend yield. I wonder if that is acceptable for a lot of people.

Timeline’s Thoughts

You can read the Timeline’s piece here.

The writer summarizes the following points:

  1. Relying on dividend for a stable retirement income is a fallacy. It is an optical illusion
  2. The income is less stable than a retiree can tolerate
  3. If you adjust for inflation, it is even tougher to tolerate
  4. If you implement this strategy, you have to tolerate volatile inflation-adjusted income
  5. In 25th percentile scenario (1968), a $3500 a month income fell for 7 years, reached a low of $2400 a month
  6. In median scenario, a 4466 a month scenario meandered for 15 years making budgeting hard
  7. Because the investor refuses to draw upon the capital, they have little flexibility
  8. The Investor leaves a significant legacy, but it is pointless when the income needs cannot be matched.
  9. Under the Safe Withdrawal Rate method, the investor makes no distinction between dividend or capital growth. The income drawn is consistent. If the income is less than the amount needed, capital is sold. If the income is more than the amount needed, income is banked.
  10. In some countries, dividends are taxed heavily. This makes it not very efficient. Very much so if you are thinking of early retirement.

How do we make the Dividend Retirement Model Work?

The overall conclusion is that the dividend model does not give a stable inflation-adjusted income.

Timeline contrast this model with the Safe Withdrawal Rate model, which gives a more stable income.

The weakness of the Safe Withdrawal Rate model is that you might run out of money if your withdrawal rate is too high. If it is too low, you will need more money.

Those who wish to make the dividend model work would say… I will spend less.

But “I will spend less” is not a solution. How much less?

If you have $1 million and your dividend yield is 5%, your first-year dividend income is $50,000. Then, if the results are poor and you spend $15,000 the next year that is workable for some. But for others, that is a drastic cut.

A more quantifiable way of implementing is “I will spend X% or $X less”.

The problem with that is that… it is pretty difficult to help you plan how much you need to save up.

A more sensible way is to use my best rule of thumb retirement planning model:

  1. Split your expenses to Essential and Less Essential Expenses
  2. Aim to build up your wealth so that it is able to generate an income that covers the essential expenses in a conservative manner. This would be about 3.0% of your initial wealth. However, you should aim to make a portfolio of dividend stocks that gives you a conservative dividend yield of 5%.

So suppose your portfolio is $1 mil. The starting year, the portfolio produces $50,000 in dividend income. Of this, $30,000 is spent on essential expenses. The other $20,000 you can choose to spend part of it, all of it. The rest you reinvest it.

If the portfolio does not do well, it should still distribute $30,000 worth of dividend income. You should still be able to cover the essential expenses.

If you implement well, your dividend income may be volatile, but in the worst case, it should still at least give you the initial 3% worth of dividend income.

This dividend income is more… stable.

Does this Modified Dividend Retirement Income Model Sound Pretty Familiar?

If you look at my conservative dividend retirement income model, it is not so different from a Safe Withdrawal Rate of 3%.

By planning with a more conservative dividend yield for the essential expenses, it is the same as choose to spend a conservative starting sum of money.

I realize if you understand the withdrawal rate, it explains a lot of things pretty well.

To value add, we take the worst United States Scenario of 1966 and see what will happen if we spend a safe $35,000 in expenses on the initial year.

30-year period of 1966 to 1994

The CAGR for the period is 9.81%. The average inflation is 5.47%.

Income is adjusted for inflation and starts from $35,000 a year. At the end in 1994, your income would have been $164,024. You end up with a capital of $1.88 million at the end of 30 years.

The income is more stable and inflation-adjusted.

The trick to make a lot of retirement planning work is really to split the expenses to 2 layers and be more accommodating to live with a more variable layer 2.

The solution of many people to make the dividend retirement income model work ends up being a very close cousin of the withdrawal rate system.

Conclusion

What a wealth builder wishes for, when planning for his or her financial independence, is a reliable, inflation-adjusted income that lasts long enough, yet able to retain capital after that duration.

This is tough.

And you realize there ain’t many products out there that has all these characteristics. Especially the reliable + inflation adjustment.

If you wish to replace the management of a dividend portfolio, you can use a good performing exchange-traded fund that is dividend focus, or a unit trust that is distributing.

The STI ETF gives out dividends, the Hong Kong Tracker Fund, which tracks the Hang Seng Index gives out dividends. There are the favorites like Schroder Asian Growth and First State Dividend Advantage.

But it is likely their dividends are volatile as well (something for me to expand next time)

The reason is… not many firms have the compliance to guarantee that.

It is only our friends at Aggregate Asset Management have the balls to put out a piece showing a high withdrawal rate is possible because they trusted their long term returns projections. Even then, they are not guaranteeing it.

Bottom line is this:

  1. To earn a higher expected return, you have to take on market risk. You have to put your capital in a position that the capital may go down. This means you need to live with volatility
  2. Cash flow only from fund, stock, bonds payout only is going to be volatile
  3. You can make it work if you are OK with volatile income

One last thing, remember I have started this thinking this dividend model is the right framework to think about the money part of financial independence. And I realize there are certain flaws to it.

I want you to know that this is how reality will be for most of us. You try to be as great of a critical thinker as you could and come up with a good solution or implement the best solution you could find out there. However, the reality is that you would realize something doesn’t work so well and you have to adjust it.

It is the same for a lot of things in life. And this think, execute, review, think, execute loop is what is needed for life (not just in financial independence). Can’t always chase after the perfect solution.

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.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  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
  7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

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Rich and Poor both can Ask for Assistance https://investmentmoats.com/uncategorized/rich-and-poor-both-can-ask-for-assistance/ https://investmentmoats.com/uncategorized/rich-and-poor-both-can-ask-for-assistance/#respond Sat, 26 Oct 2019 01:00:00 +0000 http://investmentmoats.com/?p=10829 Trade and Industry Minister Mr. Chan Chun Sing has an interesting dialogue at a public policy conference on Friday. The Today newspaper posted some parts of what he raised during the dialogue. Mr. Chan raises some of the people that looked to him for help to make their lives better in his ward: Providing examples […]

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Trade and Industry Minister Mr. Chan Chun Sing has an interesting dialogue at a public policy conference on Friday.

The Today newspaper posted some parts of what he raised during the dialogue. Mr. Chan raises some of the people that looked to him for help to make their lives better in his ward:

Providing examples from his personal experience, Mr. Chan said he met a single mother of six children who came to his Meet-the-People session to seek help for employment, and financial assistance of S$300 through the Community Care Endowment Fund (ComCare) for lower-income households.

In contrast, there was a young couple in their 20s — who earned a combined five-figure monthly income — who expressed frustration that they had received only half of an S$20,000 grant from the Housing and Development Board.

The difference in their needs, and the way they had asked for help was a “surreal experience” for him, said Mr. Chan.

There is a difference between elites and those with elitist attitudes: Chan Chun Sing

This might sound very WTF to some people at first glance. The mother with six children clearly needed financial help.

If you put that things this way, the young couple in the 20s don’t need so much help.

Everyone is Trying to Give Themselves a Fighting Chance

This might befuddle the Minister because for someone growing up struggling and having “made it”, he can see along the spectrum of Singaporeans ranked by wealth, which set of Singaporeans needed help the most.

The problem is… the people don’t see it that way.

The mother of six is struggling, and to be fair the young couple is also “struggling”.

Living in today’s society is not easy.

If a couple earns a five-figure salary in their 20s, it gives them a leg up (going by my wealthy formula, they have a massive advantage here).

However, a $6,000 a month income would most likely put you with colleagues that spend like they more than $6,000 a month. The peer pressure is going to be massive.

And judging by this meet the people’s session, they lived in a ward where the flat or home is not so cheap.

The most challenging part? Not everyone has a good grasp of this wealth formula of success.

How you see yourself in this rich and poor divide

If you try to line everyone up based on certain metric so that you can rank how rich and poor each household are, you could probably do a reasonable job.

The 5-year household expenditure survey is one way.

However, we got to know that the mother of six and the young couple do not know each other. Both might have a faulty operating system when it comes to money.

If you are confident, you would think that you are in the top 2 deciles in the wealth spectrum. If you are less confident you would think that you are at the 3rd decile from the bottom.

It befuddles the minister because he has that meter to judge people but the people don’t have. He has this idea that those who are in a good position do not know that they are in a good position.

But I don’t care really because all I care about is that I am struggling and I am trying to get better for myself.

To put it in a very harsh way, those who are really poor need help. Those who are pretty OK, think they are not in a good situation, and sought to try and squeeze every drop out of the system.

You cannot fault them, because you created that system.

No Different from the HDB System

In recent months, the government has made it even easier for those who have not graduated to obtain their BTO flat.

This has always been the most befuddling thing for me. I guess it is befuddling to me because I look upon it as a subsidized way so that those that needed it the most can have a home.

Perhaps the way I look at it is wrong.

They wanted it to be a way where ALL can have a home at an affordable price, regardless of your income level. If we think like this, it may be what they are looking for.

It makes BTO sometimes of a lottery because those nearer to the central part of Singapore is more expensive. To comfortably afford them, your income must be high enough. Closer to central is desirable. They appreciate faster.

So this system widens the rich and poor divide in a way. It does not serve to help social mobility for the not so well off.

The well off ones are also the smart ones that can game the system.

The system allows this to be gamed.

So the minister should not be surprised by this because it is human instinct to game the system as much as they can.

So is Elitism a Big Problem?

If I were to comment on the main topic of discussion, I really have no idea.

It sort of makes it seem like being an elite is a vulgar thing.

My problem is… I dunno whether if someone is elite it is actually a compliment or we are pigeoning them into a rich and poor class.

If you treat being an elite as someone really good at what they do and therefore are acknowledged to be “sibeh strong” then it is a good thing.

However, I feel it is the latter we are talking about.

And even as the latter, I wonder how much wealth, status, and power you need to be an elite.

Anyway, if you are not there, you don’t like the elites.

If you are there, those truly elite probably don’t think they are one. Those that are not so elite, would think they are elite.

That is my take.

Me? I am an elite financial blogger.

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