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

Monday, 1 February 2016

What Bond Buying Taught me about Car Buying

Buying a Car in Singapore can follow the same principles as Buying a Bond.
Mainly it is not the car but the Certificate of Entitlement (COE).
COE prices are like Bond prices.
Although COE are not affected by interest rates movement like bonds, they follow similar buying patterns in terms of future expected prices.

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If you expect interest rates to be going up, you will want to hold short-maturity bonds so that your money will be returned to you fast and you can re-invest it back into new higher interest paying bonds.

Cars - mainly COE
If you expect COE to go down, buy cars with COE that are expiring soon - 1 year or so. When your car's COE expires and the price of COE has fallen, you can buy a new COE (10 years duration) at the lower price. This is cheaper than buying the full COE at the high price, even though you expect COE to fall in the coming years.


IF after 1 year passed, and the price of COE did not go down as you expected it to, you will be drawn into a higher COE price. At that point, you would need to decide if you wish to lock yourself in with a longer period COE or buy another short-term COE while waiting for the prices to drop.

This is the same as buying a short-term bond (hoping interest rates to go up soon), but interest rates drop. Resulting in you being required to buy another bond that pays you a lower interest.

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