Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Monday, 28 December 2015

Effective Interest Rates on CPF Accounts

Is it always good to have a lot of money in your CPF?
Maybe, maybe not!
As the amount of money in your CPF account increases, the amount of interest you get from CPF increase (and they pay pretty high interest).
However, as your account balance grows, the effective interest rates you are getting from CPF also decreases.
What is Effective Interest Rates?
EIR is the total interest you are paid on the total amount of money you have.
Eg: Total CPF Interest for the year divided by your total CPF balance (express in percentage).

MORE LINKS
Accrued Interest More than Housing Profits?
What CPF means for those in their 20s?
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
The Christmas Stock Market Rally

For money in your Special, Medisave & Retirement Account (SMRA),
a) each account will earn a 4% interest on its money
b) first $60,000 will earn an extra 1% interest
c) in 2016, those age 55 & above will earn an extra 1% interest on the first $30,000

Below is how the interest curve will look like

2015:

















The first $60,000 in your CPF will earn an interest of 5% (excluding Ordinary Account)
The rest of the money in your CPF SMRA will earn 4% interest.
Because the first $60,000 is earning an extra 1%, your effective interest rate on your CPF will always be above 4%.
However, the effective rate will keep decreasing to close to 4% as your SMRA grows larger.


2016:

















If you are belong age 55 in 2016, the chart for 2015 will still apply to you.
If you are 55 or above in 2016, the new chart above is for you.
The first $30,000 in your CPF will earn an interest of 6% (excluding OA)
The next $30,000 in your CPF will earn an interest of 5% (excluding OA)
The rest of the money in your CPF SMRA will earn 4% interest.
Because the first $30,000 is earning an extra 2% while the next $30,000 is earning an extra 1%, your effective interest rate on your CPF will always be above 4%.
However, the effective rate will keep decreasing to close to 4% as your SMRA grows larger.


PS: It is actually more complex than this because there is an Ordinary Account section that also earns this extra 1%. We are unable to however show the graphical relationship because adding in OA would make the whole picture harder to understand

We recommend you refer to the above links to "Bonus 1% extra interest from CPF" posts for more in detail information!


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Friday, 25 December 2015

CPF Bonus +1% Interest for Age 55 & Above

Distribution of the CPF Extra +1% of Interest between your CPF Accounts

There is a sequence in how the bonus CPF +1% interest is distributed into your CPF account.
The sequence would determine how much money goes into your 4 different CPF accounts.

MORE LINKS
CPF Bonus 1% Interest for Below Age 55
Accrued Interest More than Housing Profits?
What CPF means for those in their 20s?
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
The Christmas Stock Market Rally

If you are age 55 and above, the order of the extra 1% interest goes like this:
1) Retirement Account (RA)
2) Ordinary Account* (OA)*
3) Special Account (SA)
4) Medisave Account (MA)

*Bonus 1% interest earned on your OA goes into your RA. The rest of the interest earned goes to the respective account (Eg; interest from MA amount goes into your MA)

Up to $20,000 comes from your Ordinary Account, the rest from Special & Medisave Accounts.
If your RA has $60,000 or more, the $60,000 will earn the full 1% bonus interest. No bonus interest will be given to the other accounts.

If you have less than $20,000 in your OA,











Retirement Account
In all 3 Eg, your RA will earn 5% interest.
Ordinary Account
In all 3 Eg, your OA will earn 3.5% interest.
Special Account
In all 3 Eg, your SA will earn 5% interest.
Medisave Account
In Eg 1&2, your MA will earn 5% interest.
However, your MA in Eg3 will earn less than 5% interest.
The first $20,000 in your MA will earn 5% interest.
The remaining $10,000 in your MA will earn 4% interest.


If you have $20,000 or more in your Ordinary Account,












Retirement Account
In all 3 Eg, the RA will earn 5% interest.
Ordinary Account
In Eg 4&6, your OA will earn 3.5% interest.
In Eg 5, the first $20,000 in your OA will earn 3.5%, the remaining $10,000 will earn 2.5%.
Special Account
In Eg 4, your SA will earn 5% interest
In Eg 5, your SA's $10,000 will earn 5% interest while the other $10,000 will earn 4% interest.
In Eg 6, your SA's $20,000 will earn 5% interest while the other $5,000 will earn 4% interest.
Medisave Account
In Eg 4, your MA will earn 5% interest
In Eg 5&6, your MA will earn 4% interest (no bonus interest at all)



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Monday, 21 December 2015

CPF Bonus +1% Interest for Age below 55

Distribution of the CPF Extra +1% of Interest between your CPF Accounts

There is a sequence in how the bonus CPF +1% interest is distributed into your CPF account.
The sequence would determine how much money goes into your 3 different CPF accounts.
The higher the percentage your OA & SA make up of the $60,000, the higher the chances of you drawing out your CPF at old age.
If you are below age 55, the order of the extra 1% interest goes like this:
1) Ordinary Account (OA)*
2) Special Account (SA)
3) Medisave Account (MA)

*Bonus 1% interest earned on your OA goes into your SA. The rest of the interest earned goes to the respective account (Eg; interest from MA amount goes into your MA)

Up to $20,000 comes from your Ordinary Account, the rest from Special & Medisave Accounts.
If you have less than $20,000 in your Ordinary Account,










Ordinary Account
In all 3 Eg, your OA will earn 3.5% interest.
Special Account
In all 3 Eg, your SA will earn 5% interest.
Medisave Account
In Eg 1&2, your MA will earn 5% interest.
However, your MA in Eg3 will earn less than 5% interest.
The first $20,000 in your MA will earn 5% interest.
The remaining $10,000 in your MA will earn 4% interest.


If you have $20,000 or more in your Ordinary Account,











Ordinary Account
In Eg 4&6, your OA will earn 3.5% interest.
In Eg 5, the first $20,000 in your OA will earn 3.5%, the remaining $10,000 will earn 2.5%.
Special Account
In all 3 Eg, your SA will earn 5% interest.
Medisave Account
In Eg 4 your MA will earn 5% interest.
In Eg 5, your MA's $10,000 will earn 5% interest while the remaining $10,000 will earn 4% interest.
In Eg6, your MA's $15,000 will earn 5% interest while the remaining $10,000 will earn 4% interest.



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Tuesday, 15 December 2015

The Christmas Stock Market Rally

December is the month of the Stock Market!

MORE LINKS
Accrued Interest More than Housing Profits?
What CPF means for those in their 20s?
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest

https://www.cnbc.com/2015/11/30/86-years-of-history-point-to-year-end-rally.html

December has been a time where the market has never performed worse than any point in the year.
December also has a history of posting gains from the start of the month to the end of the month over 86 years.
When the market starts the month of December above the 200-day Moving Average and in an uptrend, there is an 80% chance for the market to gain 2%.
December is also the month that frequently sees the expansion in valuation (rising P/E, P/B etc).
So seasonally, December is the month to invest in the market.

With S&P500 priced at 2102 on December 1st, there is a very high chance of S&P500 ending the year in more than 2150.
Considering that currently, the price of S&P500 is at 2020+, it is a pretty good entry point.
The S&P500 is also down 1.85% year-to-date, we shared an article that mentioned that 2015 will be a good investment year, read up here why (LINK)
Of course, the US Fed is expected to raise rates next week, which might create a little turmoil in the markets, but if you can hold and ride through the week, historically, the odds are in your favour!

As Warren Buffett always says: "Be greedy when others are fearful and fearful when others are greedy!"

Disclaimer: I am not suggesting any claims that the market will rally. I am only stating that the historical trends point that there might be a rally. It is by no means any form of recommendation to purchase stocks in the market. Investors are recommended to do their own assessment of what they should or should not invest in.


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Wednesday, 9 December 2015

What CPF means for those in their 20s

CPF, in short for Central Provident Funds, is a "social security system that enables working Singapore Citizens and Permanent Residents to set aside funds for retirement. It also addresses healthcare, homeownership, family protection and asset enhancement.".

Source: https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-overview


.s This is quoted from the CPF website and as defined by CPF. While most people would think that CPF is just applicable for old people, youngsters should definitely not neglect it. This is especially true due to the magic of compounding interest. So what are the schemes that people in their 20s should know?

1. CPF Education Scheme

This scheme allows you to use your Ordinary Account (OA) savings to pay for your own, children’s or spouse’s subsidised tuition fees. Applications can also be made to use CPF savings to pay for your sibling’s or relative’s subsidised tuition fees but will be assessed on a case-by-case basis.

However, one point to note is that this is effectively a LOAN from whoever's CPF you are using to pay for your education. Hence, it is necessary to pay back this loan with interest. The effective interest rate payable is then pegged to the OA interest rate, which is adjusted quarterly.

The student has to start repaying the loan one year after graduation or termination of studies, whichever is earlier. Repayment must be made in cash either in one lump sum or via monthly instalment over a maximum of 12 years. The minimum monthly instalment is $100 and the rate will be computed for the student based on the loan amount and repayment period.

2. CPF Investment Scheme

As we graduate and take on our first job, it is imperative to consider investing for retirement. If you are thinking of that, then this is the scheme that you do not want to miss out. This scheme allows you to invest your Ordinary Account (OA) and Special Account (SA) savings in a wide range of investments.

Conditions to be met before you can adopt this scheme:
  1. are at least 18 years old;
  2. are not an undischarged bankrupt;
  3. have more than $20,000 in your OA; and/or
  4. have more than $40,000 in your SA.
You can find the range of products which you can invest in here. One of the products is Exchange Traded Funds (ETFs) which our blog had been advocating!

3. CPF Nomination Scheme

We might be thinking we are so young, filled with hope and energy. Death might be the least of concern. This is especially so after the recent hoo-hah, where CPF stated that CPF funds are not covered under a will.

For more info: https://www.straitstimes.com/forum/letters-in-print/cpf-monies-not-covered-by-a-will

The nomination procedure is very simple.
All you have to do is fill in a form found on the CPF Nomination Website.
Download the form, fill it up and submit it to CPF Board.

Here are some other information that are useful to you!

What does a CPF Nomination cover?

Covered under CPF NominationNot covered under CPF Nomination
  1. CPF savings in your Ordinary, Special, Medisave and Retirement Accounts
  2. Unused CPF LIFE premiums, if any
  3. Discounted SingTel shares
  1. Properties bought using your CPF savings
  2. Payouts from Dependants’ Protection Scheme (DPS)
  3. Cash and investments held in the CPF Investment Account under the CPF Investment Scheme-Ordinary Account (CPFIS-OA)
  4. Investments held under the CPF Investment Scheme-Special Account (CPFIS-SA)

More information can be found here: https://www.cpf.gov.sg/Members/schemes/schemes/other-matters/cpf-nomination-scheme

Conclusion
CPF is definitely not an organisation for the elderly. In fact, youngsters should harness such national scheme, especially since it affects us for the long term!

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Wednesday, 2 December 2015

NSF Private's Pay on Li Ka Shing Advice

In our previous post, we shared how we can adjust Li Ka Shing's advice on money management to Singapore's version and circumstances.
The link is here: Li Ka Shing's Advice - SG Version

Being an NSF, I think it is only fair that I break down my salary and how I match it to Li Ka Shing's advice on money management!
Of course, I did it with some adjustments to my circumstances.

MORE LINKS
Difference using Cash or CPF to pay Housing Loan?
Accrued Interest More than Housing Profits?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
Reducing CPF Housing Accrued Interest

Basically, I'm in an everyday book-out unit, so only lunch is provided.
I have to settle my own breakfast and dinner.
My pay as a Private is $480.
The breakdown is as per below

81.3% ($390) - LIVING - transport, food, cabs (late for work), groceries etc.
                         $62 goes to transport. Basically left with a budget of $10 per day for 2 meals.
8.3% ($40) - SOCIALIZING - bulk of it goes to pay bills. Where got pay to treat! Furthermore, I won't promote faster or earlier even if I treated my officers/Enciks, so let's save that cost.
0% ($0) - LEARNING - took up no courses, but went to the library to borrow books to read.
0% ($0) - TRAVELLING - where got excess pay to save for travelling.
10.4% ($50) - SAVE/INVEST - saved in my bank account.

Depending on you are in a stay-in or stay-out unit, it will vary.
But, if possible, it's always best to save more than less, spend less than more.


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Tuesday, 1 December 2015

Li Ka Shing Advice - SG Version

http://e27.co/li-ka-shing-teaches-buy-car-house-5-years-20150408/



There was an article in the past that went viral.
It talked about the advice given to young people by Hong Kong's richest man - Li Ka Shing.
In the article, he talked about splitting our pay into 5 parts, each for a different purpose

MORE LINKS
Difference using Cash or CPF to pay Housing Loan?
Accrued Interest More than Housing Profits?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
Reducing CPF Housing Accrued Interest

30% - Living Expenses, paying for food etc
20% - Socially, paying of phone bill + creating connections
15% - Learning, buying of books or signing for courses/training
10% - Travelling, go overseas once a year to broaden your horizon
25% - Invest, SAVE to INVEST or start a Small Business

He used a guy earning RMB 2,000 (roughly SGD $400) as an example of how to split the money.
His example is for a people living in HongKong or in China.
In my perspective, there are some parts I think we can change to suit it to Singapore's context.

The allocation below is for a Singaporean whose take-home pay is $1,500 after CPF deduction.
Some adjustments were made to the allocation and I do not recommend following strictly to the guideline because every individual is different and every month is different.
If you spend more on 1 month, make sure to balance it back the other month.
I think a little flexibility in the allocation is okay, but not too big a difference, less than 5% movement range for each category.
But do try and keep the last part (INVEST) intact or increase if possible, because that is for the future, YOUR FUTURE!

55% ($825) - Living Expenses, paying for food, transport etc (a)
10% ($150) - Socializing, paying of phone bill + creating connections (b)
10% ($150) - Learning, buying of books or signing for courses/training (c)
10% ($150) - Travelling, go overseas once a year to broaden your horizon (d)
15% ($225) - Invest, SAVE to Invest or Start a Small Business (e)

a) The unfortunate part of not earning much is that a huge portion of our pay goes into necessities, rendering us with minimal for other things.
Items like groceries, utilities, meals etc often take up a huge portion of our pay.
Find ways to cut cost and keep them within the 55% budget!
DO NOT OVERSPEND!

b) Li Ka Shing advised us to treat 2 people who are able to help us in our career to a meal each month. Allocating about 3% of your pay to treat each person sounds reasonable. And hopefully, if your phone bill is not too expensive, it would probably be less than 5% of your pay

c) Singapore's National Library has got a good variety of books, thus there is not really a need to buy books. Save that money for other use, go to the library to borrow more books to read and learn.
There are also a lot of e-courses online that are free, some even available via Youtube. Do make use of these sites to learn and save on the learning expenses.
Of course, if a certification is required, then go for the paying courses that provide certificates.
The government is also providing a $500 subsidies for qualifying courses, make good use of it!
Money saved here should go to the 'Invest & Save' portion

d) Depending on your income, travelling every year might not be possible, unless its to neighbouring countries. Either it is travelling every 2 years OR you could roll over your money to the 'Invest' or
'Learning' portion.

e) Read up on basic investments, long-term investments. Read up on our post on investment under our 'Investment' tabs to learn more!

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Wednesday, 25 November 2015

Accrued Interest More than Profits from Selling of House

Today's post if to answer if you need to top up cash to cover your housing loan's accrued interest should a shortfall occurs.
The answer is, NO.
Illustrations are below

MORE LINKS
Difference using Cash or CPF to pay Housing Loan?
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
Reducing CPF Housing Accrued Interest


1) Accrued Interest ($20k) > Profits from Selling of House ($15k)
  • Profits will ALL be used to cover the accrued interest.
  • Any accrued interest not repaid by the profits will continue to accrued interest ($5k will continue to accumulate interest that will require you to repay some time in the future).
  • You DO NOT NEED to TOP UP CASH to cover the difference ($5k), unless you wish to.
2) Accrued Interest ($20k) = Profits from Selling House ($20k)
  • Profits will ALL be used to cover the accrued interest.
  • No cash profit will be given to you.
3) Accrued Interest ($20k) < Profits from Selling House ($30k)
  • Profits will be used to cover the accrued interest.
  • Excess profits will be given to you in cash ($10k).

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Tuesday, 17 November 2015

What we know about risk is all wrong

As you can search in Google, Investopedia defines clearly what risk is. Schools preach on what risk is, how it is calculated and how it is quantified. But after reading this book, I am questioning the method that we were taught.

MORE LINKS
CPF Voluntary Contribution Rates
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
Reducing CPF Housing Accrued Interest

The book I am recommending today: The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks.

Honestly, from just skimming through the content page and back cover recommendations, this book looks like any other investment and finance book which "sells" you on conventional knowledge offered in many other books. However, what it presents is a wealth of knowledge that average investors do not note. An example of such is the following definition of risk, defined by the author himself, Howard Marks.



The diagram above shows the typical risk and return ratio that school generally preaches about, whereby higher risks should equate to higher returns and vice versa.

Image result for howard marks risk return graph
Credits: The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks


However, what Howard Marks came out with, was this diagram above. While the general theory of higher risks equates to higher returns, he adds in 1 more variable into this consideration. The higher the risks, the higher the median of each rate of return and the greater deviation of the possible rate of return.

This basically means the higher your risks, the higher the chances of your expected rate of return fluctuates. 

I came to realise the significance of this after taking a while to digest but I feel that it is something important to account for and not just taking unnecessary risks without accounting the consequences of it.

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Wednesday, 11 November 2015

Difference Using Cash or CPF to Pay Off Housing Mortgage

This post is dedicated to another reader of ours who posts us the following question:
Is there any difference if I use cash to pay off my mortgage and not use the CPF vs I use my CPF and then add in the equivalent in cash into my CPF account.

MORE LINKS
CPF Voluntary Contribution Rates
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
Reducing CPF Housing Accrued Interest


Scenario 1: Use Cash to pay Mortgage, CPF money remains in CPF.
1) You are earning interest (2.5% + 1%) paid by CPF.
2) No accrued interest from housing loan needs to be paid back when the house is sold
3) You will have less cash on hand, thus it is not recommended to do this UNLESS you have quite a sum of cash or income to sustain your monthly mortgage

Scenario 2: Use CPF to pay Mortgage, THEN contribute the same amount of money to CPF
1) Not earning interest from CPF
2) When you sell your house, you need to return back to your CPF account the accrued interest
3) When you voluntarily contribute money to your CPF, it is subjected to the Voluntary Contribution Rate Requirement (click for more info), which splits your money into different accounts
4) You will accumulate interest faster, at a double rate. 1 set of interest from selling your house (the accrued interest) and 1 set of interest on the amount you voluntarily contribute into your CPF.

Do note that regardless of choosing Scenario 1 or 2, CPF will only pay you 1 set of interest


Advantage of using Cash
1) Less Cash at hand, less likely to spend the cash (money bites us, once in a while)
2) Your money is earning higher interest from CPF, instead of being in bank earning miserable interest.

Disadvantage of using Cash
1) Opportunity cost: can your cash be used to invest at a higher return?
2) Voluntary contribution got limit - refer to the above link for more information about voluntary contribution

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Tuesday, 27 October 2015

Reducing/Preventing CPF Housing Loans' Accruing Interest

One of our readers asked us this question on our blog: Understand that the accrued interest have to paid back when we the property that is used to finance is sold. So if the property is not sold, the amount of OA used will still be incurring accrued interest, in this case, can we settle the amount to our CPF OA account using cash to stop it from accruing interest? 

We went to do some research and asking and we got the answers for you!
The answer is below:
Yes! You can actually voluntarily choose to use your own money to pay back into your own CPF account the amount of money you used to buy your house.

It has become common for Singaporeans to know that CPF current charges an accruing interest (currently at 2.5% p.a.) on the amount in your Ordinary Account you use to pay for your house.
This accruing interest is not the interest you pay for borrowing money to buy your house.
This accruing interest is the interest you CONTRIBUTE BACK TO YOUR CPF in the future when you sell your house.
This is to make up the difference for what you could have in your CPF account IF you did not use it to buy your house.

More Links
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
CPF Housing Interest

Benefits:
If you have spare cash, and unable to find a good place to save with higher interest rates, you can put it to cover your accruing interest.
By reducing the amount of CPF money you used to pay for your house, more of your money will end up earning the CPF interest (2.5% + 1%) instead of coming from the appreciation of your house.


If you sell your house in the future, the accrued interest going back to your CPF comes from the appreciation of your house value.
Your RIGHT Pocket transferring money to your LEFT Pocket - There is NO NET GAIN IN VALUE!

If you put more of your cash into your house, keeping your CPF money intact, then your CPF money can earn Interest from CPF instead of from your house.
CPF Pocket going into your Pocket - You GAIN money paid by CPF!

Of course, the big point is you should have spare cash that cannot earn interests in excess of CPF interest (2.5%+1%).

More information can be found in the link below under "General Information on Housing Matters".
https://www.cpf.gov.sg/Members/FAQ/schemes/housing/

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Wednesday, 21 October 2015

Jack Bogle 4 Investment Rules

https://www.cnbc.com/2015/10/14/jack-bogle-follow-these-4-investing-rules-ignore-the-rest.html

Jack Bogle, founder of the whole's largest mutual fund, Vanguard Group, is a long-term advocate of simple long-term Index investing.
He has a basic portfolio consisting of ONLY US Stocks and US Bonds.
As you grow older, more percentage should shift toward Bonds instead of Stocks.
At 86 years old, his current asset allocation is 50% Stocks 50% Bonds.
This is very different from what most financial books advice regarding asset allocation: taking 100 minus away your age, that should be your stock allocation, and the rest are bonds. This would result in Bogle having only 14% in stocks, which is a little under-invested.

More Links
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2

The 4 rules Bogle set for investing under such investment period:

1. Bogle doesn't rebalance — if you must, once a year is enough.
You reduce the brokerage fees you pay.
You don't end up selling your winners too early just to keep your portfolio "balanced"

2. Bogle doesn't invest overseas — at least, not directly.
He focus only in US because of legal protection available in US for investors. So invest in places that have a safe political and legal playing field.
Simultaneously, US companies also derive more than 50% of their income from overseas (developed and developing markets), so you ain't exactly missing out on overseas investment opportunities and growth!

3. To Bogle, diversification means bonds — and it doesn't need to mean anything more than that.
If you are okay with short-term volatility (aka risk), investing 100% in stocks is not a bad idea because historically, it give the best returns.
However, a little bonds are good for some emergency short-term needs like sudden medical bills - especially when the stock market is not doing very well for the short-term.
Bonds have reduce chances of massive drop in portfolio value

4. Bogle believes that if you make the 'simple' portfolio choices, you'll spend a lot less time worrying.
A simple Low-Cost Index Stock-Bond portfolio with minimum re-balancing will gives him the peace of mind because it is a simple strategy. No need for huge reports or massive phone calls on great investment ideas. 
just a simple monthly investment savings plan will do

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Saturday, 10 October 2015

What to Own During Rate Hikes

CNBC recently have an article regarding what stocks should investors own if the Fed decides to raise interest rates.
We figured it would be good to reproduce the piece here for our readers' reference.

Below is the link to the original article
http://www.cnbc.com/2015/09/15/when-the-fed-raises-rates-heres-what-happens.html

MORE LINKS
GE Effect on STI
Raising of Re-Employment Age to 67
Singapore Finance Minister on Personal Finance Part 1
Singapore Finance Minister on Personal Finance Part 2
Getting out of CPF Retirement Sum

Investment Play when Interest Rates go Up

WINNERS
Majority business dealings in the US will benefit
Strong Balance Sheet companies tend to outperform in the first 3 months of a rate hike
High Return on Capital companies tend to outperform their lower quality counterparts
Low Volatility Stocks tend to outperform their higher volatility counterparts

LOSERS
Multinationals with lots of debts do far worse


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Wednesday, 7 October 2015

Fine Print of CPF Money Withdrawal

Everyone knows that when you reach the age of 55, you need to set aside a sum of money in your CPF.
You can start drawing
That sum is known as Full Retirement Sum (FRS, previously known as Minimum Sum)

MORE LINKS
What is Full Retirement Sum(FRS)?
What is Basic Retirement Sum (BRS)?
Singapore Finance Minister on Personal Finance
Singapore Growing ETF Choices
Raising of Re-Employment Age to 67
How to Escape Minimum Sum?

What you do not know is, there are fine prints to this.

Withdrawal above Basic Retirement Sum (BRS) is only savings - aka money, you contribute in via your salary or voluntary contribution.
*BRS requires you to pledge your property to withdraw the amount in excess of your BFS.

Money that comes from the below options cannot be withdrawn no matter what
1) Interests earned from Retirement Account
2) Government Grants
3) RSTUS Top up Money

However, chances are, the sum of all 3 money most likely will never reach half your FRS amount. Thus this is actually not too big a concern - BUT, it is good to know if you happen to be the special 0.1%



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Sunday, 4 October 2015

To a whole new world!

As the blog marches on towards more and more viewers, we are also looking for ways to engage you better, more effectively and via a convenient channel. Few months before, we launched a mailing list for you to receive updates as well as feedbacks on our blog easily. It is a simple mailer that anyone could scrap up from the vast resources that the internet now offers but it was a humble beginning for us to connect to our readers. Some might have noticed that we changed the layout of the email updates slightly to make it more readable and a better user experience. This is compared to the previously more cluttered and wordy layout.




Just few weeks ago, we created a Facebook page to allow our audience to have access to our articles at a even more convenient platform and also to share the information that you think that your friends deserve to know as well.

Today, we would like to invite you to like our page and share it with your friends to catch up on our blog updates instantaneously.

Our Facebook Page

As we strive to improve the site as well as the content that we would like to offer, a survey was created to gather readers' opinions. We value your opinions but as much as we hope to quickly correct for the better, there are limitations as to what we can offer and provide. We can only ask for your patience and continuous support.

For those who had missed out on the survey, do help us and provide your feedback here.

We are also looking to expand our content in order to provide more for our audience. If you think you can create great articles in the aspect of finance relating to any topics, such as travel, eating or even having fun, do write to us at Investmentstab@gmail.com.

Sunday, 27 September 2015

5 things that you need to start doing to improve your financials during your early 20s

Most people in the early 20s would think that they still have a long way before retirement and financial planning is too "kewl" for them. Contrary to that, early financial planning can go a long way. This is especially due to the power of compounding. Well, here are 5 things that you NEED to start doing to improve your financials during your early 20s.

MORE LINKS
GE Effect on STI
Raising of Re-Employment Age to 67
Singapore Finance Minister on Personal Finance Part 1
Singapore Finance Minister on Personal Finance Part 2
Getting out of CPF Retirement Sum

1. Tracking your expenses

This is one of the most important things that you should do as part of a personal finance regime. Without tracking where your money is flowing to, you can never find excess money that is going to redundant spendings. It is also a good habit to have is when you are constantly tracking your expenses, it creates a conscious psychological mental note that you should be spending within your budget. You will also feel the pinch.

There are multiple expense manager apps out in the market which provides lots of functions such as visual display of your spending. It is also extremely convenient as you can just log an expense in it anytime. 

2. Using automated recurring transfer for savings

I was discussing the topic of savings with a friend and there were some interesting pointers that I wish to share. Initially, I was using a model where "Income - Expenses = Savings". My reasoning was to keep the savings as high as possible while maintaining expenses low. However, the other side of it is to maintain a fixed amount of savings. This is to ensure that there is a minimum amount kept for savings.

With technology, this is now increasingly easy. You can use Internet Banking to set up the automatic transfer at specific times of the month. So simple!

3. Making use of credit card rebates and various promotions

Many people seem to take credit cards as a finance taboo. It is one of the best tools that you can use to increase your savings and even earn rewards. However, this requires some discipline whereby you must pay the bills promptly at the end of the month or the interest when compounded could be hefty.

Based on your income and age group, there are several credit cards out there in the market which you can apply for. Anyway, this could be potentially a whole new topic on which credit card offers the best rewards, but for more information, here is a site which you can visit: https://www.moneysmart.sg/credit-cards

4. Reading up to increase your financial literacy

It is extremely important to increase your financial literacy. Heard of the saying that knowledge is omnipotent? It not only opens you up to the different tools which you can use for investment but you can also adjust it accordingly to suit your risk tolerance. Most importantly, you get to have choices.

As suggested previously, here is a book which we recommend reading:

              

5. Get out of debt

As cliche as this might get, the fastest and fool-proof way to get returns on your money is to repay your debts and your returns will be the interest that is owing to your debt.

Debt management is critically important for financial success. Besides the cost of an education and a primary residence, if you can't pay cash don't make the purchase. As far as education and the home, pay off the education before you buy the home.

As for the home, do not stretch your budget. Buy what you can easily afford and pay it off. Luckily for Singaporeans, there is a robust system in place in terms of CPF and the housing loans are carefully structured. Source for one that suits you in terms of its repayment schedule and are within your payment means.

Bottom line

Having the right mindset and attitude is the most important. Once you have these, you will be well on your way to building a secure financial future. While the journey is long and the road not always easy, be sure to take the time to appreciate what you have. It is also crucial to savor the small victories which will help you stay on your long-term course. After all, you earned it.


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Tuesday, 22 September 2015

Singapore Finance Minister on Personal Finance - Part2


Following up to our previous post on Singapore Finance Minister on Personal Finance
We decided to do some statistics on how effective the method of prudent financial planning was.
He mentioned using Government Assets to generate Investment Income, and that income can be used to pay for anything as required by the country - a never-ending stream of cash inflow.
We think the same would work for financial planning - using your cash/savings, invest long-term, and use the cash inflow to pay for your lifestyle.

OTHER LINKS:
GE Effect on STI
Raising of Re-Employment Age to 67


Setting
Investment in: Singapore Straits Time Index (STI)
Time frame: 26 Years, 1988 January to 2013 December (we did this research last year actually)
Investment Amount: $50 every month
Invest during the last trading day of the month
Assuming 2% annual dividend rate distributed every half-yearly
Dividends: Re-Invested into the STI

Conclusion:
Over the period of 26 years, $50 dollars investment into the STI every month, at the end of the period, would produce a sum of $33840.46, providing an average annual dividend payout $676 (and growing).
That's an average annual growth rate of 4.08%, excluding the subsequent annual dividend yield of an average 2%!

Keeping all conditions the same, if we increase the monthly invest from $50 to $100, the sum of money at the end of the period would be $68,319.85, producing a possible annual dividend of $1366!
The growth rate increases to an annual 4.17%!

Of course, past performances do not guarantee the same future performance, but it does serve as a good gauge on how the future will be like!
So start investing your savings young, keep it consistent, and watch it grow over time to provide you with a money cash inflow!
Stay Tune to Part3 of our post where we will discuss how we can increase the cash inflow from this strategy!


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Wednesday, 16 September 2015

Rate Hike = 9.5% Return


The 2-day Fed meeting is beginning today, with its focus on whether the Fed will raise interest rates or not!

LINKS
S&P500 Statistical Investment Opportunity
STI 3rd Year Investment Trend
Singapore Finance Minister on Personal Finance

While the markets are reacting negatively to the potential interest rates raise, believing that it will cause markets to drop; the reality is that markets actually do better when interest rates go up!

This is statistics from CNBC:
http://www.cnbc.com/2015/09/08/risk-parity-trading-is-causing-volatility-and-scaring-the-public-leon-cooperman.html

From the article, we can see that after every rate hike
1) Markets are usually up for the next 30 months
2) Markets are up 9.5% a year after the rate hike

So keep a lookout for those interest rates!
A hike might be a buying opportunity! - Especially if it brings with it a short-term drop of several percentage points!


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Saturday, 12 September 2015

Singapore Finance Minister on Personal Finance

On a recent rally speech, Singapore's Finance Minister Tharman Shanmugaratnam gave a talk about how important prudent budgeting is for the country.
We felt that his point was suitable not only for managing of the country's finance, but also for everyone's finance!
As such, we will be elaborating how it can be used for our personal benefits.

OTHER LINKS:
GE Effect on STI
Raising of Re-Employment Age to 67
Singapore Finance Minister on Personal Finance Part 2
VIDEO LINK:
https://www.facebook.com/ChannelNewsAsiaSingapore/videos/10153132279632934/

First 3 Minutes of Video: Prudent Budgeting & Asset Management
Last 3 Minutes of Video: Explaining CPF (government retirement fund) returns
We will be talking about the First 3 Minutes in this post

In the video, the minister mentioned that in Singapore,
1) We've had more than 30 years of the budget surplus being saved away in reserves
2) We sold land for money and kept the money also in reserves
3) The reserves are then invested, which allows us to draw continuously on the reserves every year by using the income on reserves
4) Half the returns generated from the investments are used to spend for many different purposes (education, infrastructure, medical etc)
5) The other half is kept away in reserves, re-invested to create future cash in-flows


Translating this to a personal level,
1) When we are working, we should always save away a portion of our income (a budget surplus).
2) If we have additional income (ang baos, bonus, etc), try to save most of it also
3) Your savings should be invested. Only then, will it be able to generate income every year, allowing you to draw on it continuously for many years
4) You can choose to spend half of your annual returns from investment on things you need or want (an overseas trip, a new laptop, renovating your house etc)
5) The other half of your annual returns should be saved and re-invested to generate even more income in the future


Our Views:
1) We think that if you are young, if and when possible, try to re-invest as much of your annual investment returns back and draw it when you are older/retired. Grow your future income while you still have a stable monthly income. Although this is rarely possible (it is always tempting to spend, I totally agree!), try to save and invest as much as you can.

2) Singapore saved vast reserves, invested them and thus have huge annual investment incomes that can be spent for many different purposes. You too can do that for your future generations. Save and Invest CONTINUOUSLY! IF you end up spending only your annual investment returns for retirement, you can pass your "vast reserves" to your kids. If they too follow this prudent budgeting, they can add their savings to your "reservers", benefiting them and their future generations even more!

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Wednesday, 9 September 2015

Singapore Market's Growing ETF Choices

Today, we have more Exchange Traded Fund (ETFs) option than we did 5 years before.
The number of ETFs that grew during these 5 years was more than 100%!
With a growing number of ETFs to choose from, this makes an investment for the average person much easier!
ETFs are great investment tool/vehicle for both the amateur, the average, and the professional investor.
A wide range of strategies and purpose can be used with ETFs!

LINKS
ETFs are the New King
ETF Strategies
Key Take-Away from The Edge ETF Forum 2015
Using CPF to Invest in ETFs
https://sgx.com/wps/portal/sgxweb/home/products/securities/etfs

87 ETFs listed on the SGX available for trading
The bulk of it was listed in the last 5 years.
It ranges from individual countries' ETFs, to Regional ETFs and to Fixed Income ETFs.

Individual Countries ETFs:

  • Australia
  • Bangladesh
  • Brazil
  • China
  • India
  • Indonesian
  • Japan
  • Korea
  • Malaysia
  • Pakistan
  • Philippines
  • Russia
  • Singapore
  • Taiwan
  • Thailand
  • USA
  • Vietnam
Regional ETFs:
  • Asia-Pacific
  • Emerging Markets
  • Europe
  • Global
Sector ETFs:
  • Asia Pacific Consumer Staples
  • Asia Pacific Information Technology
  • Asia Pacific Real Estate
Commodities ETFs:
  • Precious Metals
  • Broad
Fixed Income ETFs:
  • Bonds
  • Money Market

For more information on the available trading ETFs and their ticker, click on the link below:
https://sgx.com/wps/wcm/connect/cfb2a4004983d70bb8befb2574a59187/ETF+Summary+Info+Jun+2015.pdf?MOD=AJPERES&CACHEID=cfb2a4004983d70bb8befb2574a59187

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Wednesday, 2 September 2015

How to Escape the Retirement Sum?

Today's post is on how to avoid the Retirement/Minimum sum in your CPF when you reach age 55.

LINKS:
3 Types of CPF Retirement Sums
Disadvantages of Private Annuity Fund
CPF Life VS Annuity Fund
What is an Annuity Plan/Fund?
What is CPF LIFE?

There are currently 2 ways to avoid having to set aside a minimum sum.
Today, we will be sharing about one of it: Buy a Life Annuity Plan

Buy a Life Annuity Plan.
A life annuity plan is an insurance plan that is set to pay you a fixed amount of money each month/year in the future (usually when you retire) for as long as you live.

Buying an Annuity Plan
1) Buy an annuity insurance plan using your own cash (out of your pocket)
2) Buy an annuity insurance plan via the CPF Investment Scheme - using your CPF money.

Avoiding Retirement Sum
1) You must be 55 years old when you are trying to apply for this exemption.
2) When you cancel your annuity plan after withdrawing out your CPF Retirement Sum, CPF has the right to claim your annuity plan's cash surrender value and top it up to your CPF Retirement Account.

3) You can avoid the Full Retirement Sum (FRS) or you can partial avoid the FRS.

Avoid Full Retirement Sum
If your annuity's monthly payout meets or exceeds the monthly payout given by CPF, you can apply for an exemption from FRS. CPF upon approving the request will return you your FRS.

Partial Avoid Full Retirement Sum
If your annuity's monthly payout is below the monthly payout given by CPF, you can apply for a partial exemption from FRS. CPF will base on your annuity's monthly payout and determine the amount that will be "refunded" to you from your FRS.

Disadvantages of Annuity Plans
1) Most annuity plan pays you a fixed amount for as long as you live.
If you live long enough, chances are you are bound to benefit from this scheme.
However, if you, unfortunately, do not live too long, say you live till only 80 instead of the projected 90, the "cash value" left in your annuity plan is usually not returned to your dependents.

This is different from the CPF LIFE scheme, which is an annuity insurance plan, but has a feature that if the amount you paid (your minimum sum) is not used up by your monthly payouts when you pass away, the remainder will be passed to your dependents.

2) You are unable to know the monthly payout you will get in the future - the numbers are only disclosed in the year you reached age 55. This creates uncertainty in what size an annuity plan you should take up, which might lead you to over or under-size your annuity plan.

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Sunday, 30 August 2015

Raising of Re-Employment Age to 67

Today, we will be talking about the raising of Re-Employment age.
More links below on Retirement

MORE LINKS
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55
Everyone Should Invest to Retire
You NEED Stocks to Retire
Reaching Full Retirement is Tough Work
Steps to help you reach Retirement

During this year's National Day Rally, PM Lee mentioned that the Re-employment age will be raised from 65 to 67 by 2017.

When people tell me that the Government is insane, making us work more and more, consistently pushing the retirement age backwards, my response to them is as per below:

There is a difference between the Retirement Age and Re-Employment Age.

RETIREMENT AGE (Singapore's minimum retirement age is set at 62)
The age most people stop working - in some cases, by law.
What it means is, companies cannot force you to retire before you reach your retirement age.
However, this is not the age that you must work to.
If you strike the lottery at the age of 30, you can quit your job and enjoy for the rest of your life!

RE-EMPLOYMENT AGE (Singapore's re-employment age is currently set at 65)
Companies are required by law (in Singapore) to hire their workers (those who reach the retirement age of 62) until the Re-Employment age of 65 if the worker wishes to continue working.
If you do not wish to continue working at age 62, you may just retire from your job (or quit).
This is done to ensure that older workers who wish to continue working do not get forced into retirement by their employers.
Plans to raise the Re-Employment age to 67 are set to kick in in 2017.

Share this knowledge with your family and friends who tell you that the Government is making them work until 67!
Sharing is Caring!

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