Investment Moats

High Yield Dividend Stocks Yield Just Got Even Higher

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How? When their stock prices got ever lower.

I decided to take some time to check through the Dividend Stock Tracker to make sure the numbers look correct.

Click to view a larger table.

Think the new readers did not know much about this but prices are updated at the end of the day. You can have a good, quick glance on the dividend yield, debt leverage and valuations for the high yield dividend stock(s). Just bookmark the dividend stock tracker page.

Prices look as depressing as my mood. It feels that there could be a few reasons why it was beaten down so much, chief among them is funds and institutional investors selling and exiting in a wide-scale manner.

I think with the lockdown, the majority of these companies are not going to look good. Vacancies will rise, rental reversion stagnates, but valuations may also get more compelling in this phase.

The prices reflect uncertainty. Due to that, likely the compensation from equity will be higher.

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

Singapore Savings Bonds SSB April 2020 Issue Yields 1.63% for 10 Year and 1.46% for 1 Year

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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 10-yr and 1-yr Singapore Savings Bonds Rate since the first issue in Oct 2015

The March 2020’s SSB bonds yield an interest rate of 1.63%/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 1.46%/yr.

$10,000 will grow to $11,634 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.

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 1.71%/yr for 10 years and 1.43%/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 on 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 the first meeting to understand how it works

The Affluent of Singapore: Rich but not Rich Enough

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There is this report in the Straits Times talking about half of the affluent in Singapore may not be hitting their retirement goals.

This sounds very short of details, but the actual report is quite interesting.

The news article talks about a Standard Chartered Wealth Expectancy survey done on 10,000 individuals around a few countries. Let us just say that we are not the only one falling short. So it is less of a Singapore problem.

The report sort of concludes that we may have too much in savings and equivalents. We may not be diversified enough and are not able to reap a higher return expectation due to our high cash and high property asset allocation.

Standard Chartered’s methodology is rather interesting.

How Wealth Expectancy is Derived

The report is made up of both opinion and economic modeling. This means that qualitative answers were asked but also they were able to tap their client database to form a better picture of the various segments they are reporting on.

They target 1000 wealth creators each in 10 different countries to form this survey.

The report assesses a few metrics that we have seldom heard of. They are based on Standard Chartered’s proprietary model.

The 3 groups are:

  1. Emerging Affluent. These should be similar to the HENRYs, who have good income and are banking with Standard Chartered but net worth wise, they are not there yet
  2. Affluent. Amongst the top decile of their earned income in their countries and with USD1 million under management
  3. High Net Worth Individuals (HNWIs). Similar to the Affluent, these group of people have AUM of USD$1 million and above. The difference is that this group may not have the income

If you look at the salary gauge of Singapore, this report seems to be talking about individuals. The emerging affluent are the people that have an income that ranges from SGD5000 to 10631. These should be above the 50 decile to 80 decile of Singapore individual income.

Their definition of affluent are those that earn in the top decile of Singapore.

Next, what is Wealth Expectancy?

In the previous slide, they define wealth expectancy to be the highest total wealth you will reach in your lifetime. This is likely to be based on your income, growth of your income, your savings rate, the rate of return you will get, what is the total wealth you could achieve.

The peak that they used universally is 60 years old. This is the average start of retirement age for all countries.

Standard Chartered separates consumable wealth from normal wealth. Not all of your wealth can be consumed. They then divide this consumable wealth by 12 to get the monthly consumable wealth.

This is then measured against their wealth aspiration, which is the amount of wealth they need to live comfortably in retirement. They derive the wealth gap from there.

The rough formula to derive the monthly consumable wealth expectancy is shown above.

They probably derive what you earned from your human capital up to 60 years, deduct away 80% of your residential property value, add in your CPF pension amount.

It is pretty good that they show that not all your residential or investment property can be turned into cash flow.

Then they divide this sum by the number of months based on your life expectancy. If your life expectancy is longer, the monthly amount is smaller.

Based on what I see, this methodology does not overcomplicate things too much and the consumable wealth that you can spend is likely not inflation-adjusted.

How did the Richer Singaporeans Do?

Click to view larger image

Singapore and Hong Kong have the highest average wealth expectancy. This means that by 60, you have the potential to build up a lot of wealth.

US$2.4 million is the average and here is the break down:

  1. Emerging Affluent: US$622,000
  2. Affluent: US$1.9 million
  3. HNWIs: US$4.6 million

We have a long life expectancy at 31 years, but our wealth-income would only provide us for between 16 to 19 years.

One problem is that our aspiration wealth is pretty close to our current income.

For example, the emerging affluent think they need US$5.1k, which is slightly higher than their current income of US$4.8k.

However, based on Standard Chartered’s projection, they might only be able to have US$3.3k in monthly consumable wealth.

I take note that the affluent want US$13k but likely will have US$6k and the HNWIs need US$22.7k but they only have US$10.7k.

Almost all these numbers are very high to Kyith.

I think richer Singaporeans are doing better than their peers in other countries in that they are quite close to their aspiration. But the majority are far from where they want to be.

For the rich, their children’s education is of the utmost importance. This is followed by retirement and investment property.

It is so very strange that we have a separate category for Investment Property. The first 2 are life goals, investment property feels like an aspirational goal.

The problem is that the favored wealth-building financial asset happens to be overwhelmingly savings account. This is followed by property investment and time/fixed deposit. Fixed deposits are pretty close to savings and if we look at this as a whole, overwhelmingly it seems a lot of people’s money in Standard Chartered is not investments but their savings account!

They do not know the Best Wealth Transfer Approach

There were some interesting data points brought up as well.

Wealth transfer is a big thing and will become a bigger thing in the future. About 63% of wealth creators have a wealth transfer strategy in place.

This is higher than the 45-50% average for Asia that I came across previously.

However, nearly 47% do not feel the best approach to take.

55% of them want their bank to do more to help them.

Emerging Affluent of Singapore is More Concerned About Retirement but Really likes Savings Products

Saving for retirement is a top financial goal for 2/5 of the emerging affluent (42%).

This is more than any other markets. This is double that of the HNWIs and Affluent.

Perhaps they are surveyed at a different stage of their lives. The HNWI might already have more assets and thus they have higher priorities than retirement.

The divergence here is that the emerging affluent tends to focus on savings products while the HNWIs and affluent are more open to advanced products.

Compared to other markets, they prefer savings accounts and less of real estate investment trusts (REITs). This is a strange result, considering we have such a big REIT market here.

They use fewer digital wealth management tools than the affluent and HNWI.

In the slide above, you will notice that the wealth aspiration becomes smaller if they are very far from where they want to be. Reality set in when we realize we are so far from where we wish.

In terms of adequacy, China affluent is the most power. Their consumable monthly wealth is so close to their aspirations.

For the HNWI, they have so much more than their life expectancy! Interesting is that instead of investment property, a large part of their wealth building is from fixed income investments.

My Own Takeaways

Here are some conclusions that are relevant to me.

  1. Consider the top decile to be the affluent. The 50 to 80 decile may get there but most will likely stagnate in their income after a while
  2. These are people with at least 1 million in AUM. Not investible assets. Likely their net wealth is much higher than this.
  3. We should note the current income and the income aspiration they are looking for.
  4. What people think they need is close to what they have now. The “End of History” Illusion is very strong it seems. Probably only the affluent show some deviation from this trend.
  5. The emerging affluent have a US$622,000 or SG$840,000 wealth potential. That is probably as close to what local university degree graduates can get. What would you do if you have this amount today?
  6. Almost all groups have a high preference for safe assets. This means that most likely, either they do well in their career or their business. If not they will not meet their retirement aspirations.
  7. If their database show so much cash, it means even the banks have a problem converting their clients to higher risk instruments.

To build wealth towards your retirement aspirations, you need a certain rate of return. Your rate of return depends on your overall asset allocation. If your overall allocation is at a low rate of return financial asset, then that is all you gonna get.

Very far from your goals.

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

How Do I Know If I Have Safely Won the Financial Game?

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Dr William Bernstein gave the following advice when asked: “How much exposure should people have to stocks?”

“A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take the risk by investing in Equities.

Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.

I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?

How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.”

– White Coat Investor

In another interview, Dr Bernstein further elaborates what he meant by “won the game”.

“When you have acquired enough money to sustain you for the rest of your life, stop risking it. If you are financially independent but still working, you can dramatically lower the financial risks in your life by continuing to save and letting your investments compound, even if you use a less risky portfolio.

You may go from a 4% initial withdrawal rate to a 2% withdrawal rate. Perhaps you can go from a 60% stock portfolio to a 40% stock portfolio. You do not have to invest on margin either. FI without RE can allow you to lower risk.”

Dr William Bernstein wrote the book “The Four Pillars of Investing”, which is a pretty good data-driven book if you wish to understand markets and why longer-term investing works.

As I grew older, I tend to pay attention to folks who have dived deep into subjects like these and are older. I realize that with age, you tend to balance your technical views with real-life experiences.

Dr Bernstein probably has enough friends who got caught in this investing game even though in his opinion they do not need to.

Why We Continue to Stay In the Game

There are a few reasons why they still do:

  1. They do not know that they have won the game. Either they didn’t measure, do not know how to measure whether they have enough. If you do not know whether you have enough, you assume you do not have enough, and just keep ongoing
  2. Fear of missing out. It does not make sense to leave money on the table when it is there for you to earn
  3. Not understanding that being invested has downsides. This downside is that in the short term, your wealth could suffer from severe downside volatility
  4. It is a sport for them. This is more ego-driven

We overestimate our ability to take a lot of downside volatility. When you are young, you can take it because you could take reference that your future earnings potential is many times the unrealized losses in your portfolio, or that your unrealized losses are just 1 year of your annual salary.

De-risking Your Portfolio When you Have Sort of Won

When you are older, near the tail end of your official earning years, the unrealized losses are many years of your annual salary. Thoughts that you are making the gravest mistake of your life will soon cloud your judgment and force you to do irrational things.

If you needed $1 million for your purpose and you have $1.2 million, do you still need a high rate of return?

Perhaps not. You could make do with a lower required rate of return.

To achieve that, instead of a 100% equity 0% bond allocation, you can shift to a 50% equity 50% bond allocation.

In an equities bear market, the returns for this 2 asset class may be as follows:

In the last bear market, equities had massive drawdowns. Bonds have shown to be a natural counterbalance.

A 60-year-old investor didn’t realize that he can have exposure to the markets and have a much lower maximum downside risks. A $150,000 unrealized loss on $1 million is more liveable, less haunting, and you have a night of better sleep than a $400,000 unrealized loss.

He still thinks he needs the 7-8% a year return when in reality he can make do with a 4-6% a year return.

How do We Gauge That We have Safely Won the Financial Game?

I was asked recently: How do we know whether we have won the game?

This is a subjective question.

I believe most people have an adverse side to them.

By asking this question, most likely they wish to find out that they have to build up enough wealth such that they do not need to entertain the prospect of going back to work, when they are out of the workforce for so long, just to make ends meet.

I believe the answer is: Your financial situation is so comfortable that you have adequate buffers. Given a few possible downside scenarios your financial situation will still work out comfortably.

You have not won the game if there are some very realistic scenarios that could still derail your plan.

Examples Where You May Not Have Safely Won the Game

For example, you think you need an income of $50,000 a year to provide for your expenses. Based on the 4% withdrawal rate, you have accumulated $50,000/0.04 = $1.25 million.

We can think of certain future low return scenarios where $1.25 million might still not be enough. In some situations, you do not know how long you will live and if you lived longer, you might need more.

If it is an initial 3.5% withdrawal rate, I think it is a pretty reasonable balance between saving enough and a high probability of working out well enough for 30 to 40 years.

But still, we can think of low return bond or equity, high inflation scenarios that may jeopardize the plan. Strictly speaking, the game is not won.

Examples of Scenarios Where the Game is More or Less Won

Now suppose, like what Dr Bernstein said, you have so much that your initial withdrawal rate is just 2%. This means you have $50,000/0.02 = $2.5 million.

The 4% withdrawal rate already factors in some atrocious high inflationary, deflationary periods and is the worst-case scenario.

A 2% withdrawal rate ensures that you spend an even smaller initial amount. If you are living in retirement and your wealth gets shaved 50%, you are spending a 4% withdrawal rate. There are some crazy buffers.

Realistically, you could live with a 50/50 equity/bond allocation to balance growth and volatility.

There are some crazy ones who could have a withdrawal rate of 1%!

Another measure that you have won the game is that your expenses are $50,000, but you buffer in 50% more expenses ($75,000 a year in total) and you can cover this with a bond ladder averaging a 2% interest yield. You need $75,000/0.02 = $3.75 million.

Bond ladders protect against inflation because there is always a bond maturing in the coming year which can be invested in higher coupon bonds in an inflationary environment. The downside is that you need a lot of money to make it work.

In both the very low withdrawal rate and the bond ladder, inflation is considered.

Why It Is So Hard for Someone Who Has “A Lot” To Know He has Won the Financial Game

You will only know you have won the game if

  1. you have really good knowledge or have someone who is a real subject matter expert in this area to validate and tell you that
  2. your financial independence strategy is fundamentally sound
  3. you have adequate buffers
  4. your annual expenses are well rationalized, and you have enough money

The above is hard to find because frankly speaking, you can have someone validate your situation and you do not believe them.

You either question their (or your) competency, the reasoning behind why they (or you) think you have enough.

There is a lack of trust.

And so the game may be won but you do not believe you have won it.

There are many who get trapped in this.

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