I hope to put something out here so that some of you could help one of our readers.

One of our readers signed up for Saxo Markets Online upon the glowing recommendation from some financial bloggers.

He wishes to use the account to trade overseas market and thus there is a need to convert his home currency (SGD) to USD or GBP.

For Saxo, there is a currency conversion cost.

At Saxo’s Commissions, Charges and Margin Schedule, they explained about this currency conversion cost.

From my understanding, each conversion will cost you 0.75%. This feels like a service fee, and I am not sure on top of this fee, the firm earns a bid-offer spread from the conversion.

For reference, you can compare against Standard Chartered Online Banking’s LiveFX spread, which I talked about here and here. They are not the best but they do not seem to come to 0.75%.

My reader attempted to convert SGD$10,000 into USD so that he can purchase the stock he wanted. However, he was astounded by the total cost of the conversion.

From what I can see on the screen capture, there were some commission costs of $10 each and then 2 times 0.75% worth of conversion fee.

In total, this adds up to 1.71%!

Personally, I am not familiar with Saxo Markets. I would like to think that if they wishes to operate and thrive competitively, the conversion cost will not be so high.

This might what we term in the IT world as a “user problem”.

If you are familiar with or are currently using Saxo Market to do retail trading, and can help me make sense of what you are seeing on your end, do comment below.

Thanks a lot.

A long time reader wishes to purchase a condo that is valued at $1.65 million.

Currently, the family is staying at a 5-Room HDB valued at around $500,000 that is fully paid-up. This HDB can potentially rent for a gross rental income of $2,500 a month.

He considered 3 options.

Option 1:

1. Sell current HDB
2. Use the sales proceed + CPF + cash to buy the condo
3. Do not leverage up

Option 2:

1. Sell current HDB
2. Use the sales proceed + CPF to purchase
3. Also loan $300,000

Option 3:

1. Keep HDB
2. Use CPF + some cash to buy a condo
3. Also Loan $900,000
4. This will incur an additional ABSD of $198,000 since this is the second property they would own.

Other assets the family own include:

1. CPF OA: $900,000
2. Cash: $500,000
3. Stocks and Bond: $1,500,000

So he asked for my second opinion. I can’t give much advice since I am not his planner. But I think I can provide him some guidelines how he can go about to identify which option is most ideal for his situation.

He needs to know what is the life he wishes to live

The toughest thing to work out is if you do not know what you want.

If you want everything, then it is tough because that would mean you need a lot of resources.

A plan that gives you a lot of flexibility often comes either with greater hidden costs or needs a lot more resources.

My friend here knows roughly what he wants:

1. Move closer to their workplace to cut traveling time
2. Their child is older and do not need to be near the HDB anymore
3. Retire in X number of years

Given this, we can at least apply some sound, fundamental planning concepts to it.

He needs to have One Eye on the Longer Term Ideal Life

Buying a home that provides a better lifestyle today needs to fit in with his longer-term goals.

Sometimes by trying to satisfy one goal, other goals get impacted.

My friend would need to ask what is his desired retirement lifestyle.

A typical one would be living in this prospective condonmium, with enough assets to provide an income to last for X number of years.

Typically, you would like to have a peace of mind in retirement, you would prefer to pay off the mortgage for your residential property you reside in. Or at the very least, you can service the mortgage but have enough cash to offset that mortgage.

With that in mind, the best option would be the option that allows him to

1. Fund his condo purchase and pay off the mortgage at retirement
2. Accumulate enough for retirement

The option that allows him to do #1 and #2 the earliest as possible is the best option.

Calculate Which Option Gives the Greatest Net Wealth at Retirement Date

1. Each of his current assets have a rate of return. Cash earns something, Stock portfolio earns something, Mortgage incurs some interest, CPF earns something
2. Use the least costliest or lowest return asset to fund the property purchase and loan repayment
3. Leave the assets that earns the highest rate of return for accumulating towards retirement

So what he can do is that if his targeted retirement date is 55 years old, then for each option:

1. Fund the purchase of the home and pay the mortgage if the option requires a loan
2. Any residual surplus from his work income after expenses will go towards wealth accumulation, together with his other assets
3. At retirement, clear off any outstanding loan with his other assets

Compare his net wealth for each option less the value of residential property.

The highest net wealth is probably the best option.

Do we need to care about which assets are More Suitable for Retirement Income?

Money is fungible.

If you grow your money with Bitcoin till US$5,000,000 and that is not suitable to provide retirement income, just rebalance that US$5,000,000 into a portfolio that is more suitable to provide retirement income.

The important thing is to grow your money to the right targetted amount that can conservatively give you that retirement income.

For example, if you need $4,000 a month 10-years from now, a suitable way to generate retirement income is a low cost, portfolio of diversified equity, and bond. If we factor in the return profile of this equity and bond portfolio in retirement, the math estimates this person needs $1.8 million at least.

So your job is to grow your cash, CPF OA, stocks and bonds, HDB flat equity value + rental income to hit $1.8 million. If there is another asset that gives you a greater chance to do that, then go ahead and switch to it.

Too much opportunity is lose by people believing they need an instrument that throws out passive income so they lock their money in a plan that provides that mechanism but the actual returns during accumulation is rather lacklusture.

How to Model The Option of Keeping the HDB Flat for Rental Versus Selling It Off?

In order to evaluate which of your asset is the least costliest or lowest return, you need to know the return of your HDB flat.

This is probably a bit tough to do. How do you get a rate of return to compare against the CPF OA, cash and stock portfolio?

In some previous article, I worked out the longer term internal rate of return for some private condos. We can do the same thing here.

In planning we try to be realistically conservative. If the actual performance is better, then we can reach our goals earlier.

I try to estimate the net rental yield of his place and it works out to be around 4.7%.

I use a property growth rate of 3% a year.

I have also worked out the range of internal rate of return that he can get for holding on to his property over different timeframe:

If he held on the property for 10 years, earn rental from it, and then sell off the flat before retirement and shift it to something else, the internal rate of return is 6.6%.

That looks good. If the capital growth rate is 1.5% instead of 3.0%, at the same point, the internal rate of return would be 5.35% instead.

Now the difference is that if he held on to the HDB, he would need to incur the additional buyer stamp duty (ABSD) which comes up to $198,000.

We can factor in this ABSD into the cost of this HDB flat as a first-year cash outflow. Then we re-compute the internal rate of return.

At the 10 years mark, the internal rate of return fell to 2.11% instead of 6.6%.

Conclusion

Unfortunately, I could not determine which is the better option (nor do I wish to cross that chasm to do that).

I suspect the mathematical, better option is to borrow as much as he can, then for the rest, take the cash and invest well to capture returns at the appropriate risk levels.

The reason is that if you look at the returns/costs of what is available:

1. Cash: 0.25% or less
2. CPF OA: 2.5%
3. Stocks portfolio: 4.5% (assume as a conservative estimate)
4. HDB Rental + ABSD for new Condo: 0.9 to 2.11% (depend if the growth rate is 1.5% a year or 3.0% a year)
5. Mortgage Interest: 1.3% to 1.5%

The return/cost rank from the lowest to highest is Cash, Mortgage Interest, HDB Rental+ ABSD then Stocks Portfolio

We can see based on the guidelines what may be the most appropriate steps to take.

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 the first meeting to understand how it works

One of the bigger problems that I have growing up was in the conflict with my dad.

You can attribute that to partly adolescent insolence and immaturity but there were a lot of cases that he mistook that I refused to carry out some chore because I was lazy.

Some times I was lazy, but a lot of times… I really do not know how to do that thing!

Like how to wash the clothes when the washing machine is just stting there for me to use? The reason why I procastinate to do it, or refuse to do it was because… the washing machine does not come with a user manual.

I do not know how to use it.

The problem is I did not tell him I do not know how to do it, and he assumed that I know.

This could very well be resolved by showing me how to do it.

The tough part of transiting from being a poly kid and a junior college kid to becoming a young adult is that people expect that after school you become a young adult and are fully equipped with all you need to know about being a successful young adult.

I came across this podcast that resonated with me and I wrote about it over at Providend. You can read 3 Areas to Help Your Youth Ease into Adulthood More Successfully here.

I like the article because it comes from not a researcher, but someone who have been helping parents who have a frustrating time with their kids.

He identify 3 main areas parents can better communicate or do to help their kids ease into adulthood better.

The 3 areas he shared that parents can help work their kids on are:

1. Be more responsible by asking them to do the mundane, administrative things well. Provide instructions to them
2. Be more of a consultant rather than a supervisor. Your kid is already 17 years old. You cannot use the style of parenting more suitable for a child
3. Be more relevant. They are leaving a structured world for a very unstructured world. You need to make them see that in the past, you have struggled as well and it is not special to struggle when you are transiting to adulthood.

For those of us who are young adults, you can read it and see if you identify with some of the problems Mark McConville shared.

For those readers with kids and struggling with them, let me know if this is of any help.

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 the first meeting to understand how it works

One day, when my colleague and I were taking the train back after work, my colleague suggested that the CPF should be flexible enough for people to withdraw their money to fund their sabbatical or mini-retirement.

I think that is forward looking.

But I do not think the government will go that far to allow such dynamism in the CPF.

On a very high level, the purpose of CPF is to fund the traditional retirement of those folks in the 2nd quartile of Singapore.

If you have the means, fund the sabbatical or mini-retirement with your surplus from work.

The CPF is probably not ready for such flexibility. It would be ready if the private pension portion is ready. This would allow Singaporeans to voluntarily contribute more of their money into private pension for some tax incentives.

But I wonder why it is not a good idea for the government to let the citizens tap their CPF during this time.

Commerce has come to a standstill. Consumer spending has dropped drastically and investments are probably put on hold. In this year’s National Budget, stimulus aid was announced to help families.

After the National Budget, two more support packages were announced to help businesses and individuals in different areas.

The Singapore reserves have been activated.

We Spend Our Working Lives Building Up Our Own Reserves

Singaporeans have put away about 37% of our gross lifetime salary into our CPF as a form of forced savings.

A lot of us use our CPF Ordinary account to repay our residential mortgages. But our Special account is untouchable and meant for our traditional retirement.

For those who are employed but taking no pay leave, perhaps the government can allow controlled distributions to be made.

1. Maybe allow the disbursement from CPF SA equivalent to one month’s salary for a start.
2. If the lockdown is extended for one more month, let us tap one more month.
3. If you have worked for about 2 years, you should have an equivalent of one month’s salary in your CPF SA.

I think this will be more useful than giving Singaporeans $300 to $900 here and there.

We have a Good Taxation and Payment Infrastructure in Place

Unlike other countries, our government has built up a system where they can make money from us, but also disburse money to us, so process-wise it is not a problem.

In exceptional times like this, you got to ask yourself whether it makes sense that you have saved a bunch of money (in your CPF), and you have no means to get access to it.

The money is for a long term financial goal, but if you cannot live past today, who would have the time to worry about the long term goals?

I think we can all agree that the rules to build wealth is to delay gratify, forgo spending today so that we can meet our goals in the future. This means that giving access to the CPF SA should not be a very frequent thing.

As a general cohort, we might not always make the soundest financial decisions. In times of stress, we make even poorer financial decisions. This is the role of the government.

If you use it strategically, it will also quell the murmurs that our CPF money is not there.

But Access to Funds in CPF Special Account do not Solve The Problem for Everyone

Unfortunately, one of the biggest group affected is self-employed. There is a fairly large group of them who needed to be physically out and about to work. They cannot do that now and this creates a big problem for their cash flow.

They are also the ones who have the option not to contribute to their CPF Ordinary Account and Special Account. So even if the government allows the disbursement from CPF Special Account, they might not have this buffer to use.

For those who are against contributing to the CPF, they could look upon this episode and think there is another valid reason for topping up their CPF SA.

There are a number of people who commented that the CPF is a shifting goal post. It remains to be seen whether they want such a shift in the goal post this way.

Giving to Those Who Do Not Have the Means

Locked down is a strange event for me.

I think it forces some of our habits to change. It is likely when lockdown ends, some of us would do shopping in a different way. A lot of people will be more comfortable ordering from a supermarket online.

For myself, I still prefer the old fashion way by going to the supermarket to buy what I need. It is quite hard to teach an old dog new tricks. And this might be my Achilles heel. For all other things, I am perfectly comfortable doing things online.

Being cooped up at home, I do observe that I am more willing to spend on little online purchases. These purchases are a want and not a need.

It feels that when you are trap at home, you fall into a routine of waking up, eating, working, exercising, you want something to surprise yourself.

Buying something online, and seeing someone dropping things off, not sure what time they will come creates that surprise effect.

We cannot go out and enjoy something that we like to do, so we fill that void with online purchases. At least I think I am in control of my spending but I can envision some of you will only realize what you have done when it is too late.

One online purchase is to donate to those who are in need.

I have a friend on my Facebook who asked for help.

So I donated to Beyond Social Services. Beyond Social Services is a charity dedicated to helping children and youths from less privileged backgrounds break away from the poverty cycle.

The parents in a lot of low-income families worked in jobs that cannot be done remotely. With all these locked down, they lose income. They do not have much cash on the sides (since every dollar is put to use immediately).

The government support seems to have omitted those who are already on ComCare assistance. As they cannot send their kids to school, all these just increases their stress levels.

You can read this Channel News Asia article to get a better picture.

As a recovering saver, donating is not something that comes easily to me.

I can donate my time into coming up with posts to improve peoples financial situation but I realize those posts are not going to reach the people who most needs it.

You could argue that I make an impact to people’s lives at work, but honestly, I spend a large part of my life writing to people with means not without means.

A recovering saver first needs to learn to give money to help without much judgement. So this is helping them as well as helping myself.

But if you ask me, I find it quite difficult to look at the situation of the family in the video above with my rational brain and not judge at all.

One of my former colleague stayed in estates where a lot of families are in need of such help (in pre-COVID-19 times). At one point, his family needed such help as well. He shared that when you are in an environment where you cannot break out of that social cycle, you get consumed in it.

This means that what some will do is to put their family in such a situation that they qualify for these government help.

This is like a programming While Loop where the exit condition is seldom triggered.

This is no different then the difficulty of the sandwich generation to escape the rat race, or move up the social ladder.

They have got more life levers to pull. (A lot probably can be found in my Wealth Foundations series)

But because their friends around them mostly do the same things as them, they do not hit that exit condition from that While Loop as well.

I slowly come round to the idea that the real way to help if you are financially independent is to commit the time I free up to work directly with these people. Whatever I write probably hits the upper 2 quartiles of Singapore.

If you can, do help to donate as well.

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 the first meeting to understand how it works