Monthly Update of Portfolio [September 2015]

Accumulated

Accumulated Silverlake Axis, Penguin and China Fishery (10 lots) to my portfolio. This is because these stocks have fallen to attractive values, especially Silverlake. While the verdict of Silverlake's investigation has not been released, my personal sense is that there will not be much adverse news of contagion liabilities lurking in Silverlake's balance sheet.

Divested

I have divested KSH in the run up of its share price. This is because its MOS became relatively much lower than Silverlake to warrant a switch. In addition, I am not optimistic of its Prudential Tower project (approx 20% of assets post bond redemption) given the poor office outlook and slow strata sales (only 7 floors sold). 

Future

Currently, Silverlake seems to be the most attractive stock. Selling at a forecast 6% dividend yield with little debt, it seems to be better than Vicom (3% Dividend yield). I am also eyeing other stocks such as FCL, Teckwah and BBR; however their prices have not fallen to low levels to be attractive.

Starting work to support my hobby

a

As many of you will know, I have a very expensive hobby of growing “money trees”. It takes seed capital, effort to source for fertile soil and time to grow these “trees”. And to add to my frustration, these trees sometimes become diseased and die on me.

While investing has not been easy, it has been a fruitful experience and I have gained much knowledge.

Unfortunately, I am running out of seeds and my planted “trees” have not bore fruits. Hence, I will be working to obtain the seed capital for investing. As such, frequency of my posting will be reduced. 

And if you asked:

a

Thoughts on "Diamond are a sham..." and are Diamond Rings a Financial Mistake

Came across an interesting article by Robin Dhar titled "Diamonds are a sham and It's Time We Stop Getting Engaged with Them". It is interesting to learn when we buy a diamond ring; more than 50% of its value is lost as soon as we leave the store. Imagine learning that the $10,000 diamond ring you had bought yesterday is only worth $4,000 in resale value today. That's worse than buying gold or silver which only loses 5-10% of its value.

Hence, the diamond ring is perhaps the biggest financial mistake, ranking higher than owning a car - a depreciating asset but with benefits of convenience.

In addition, it is an eye opener to learn diamonds are not as rare as the price may imply. They are expensive due to the marketing delusion that “diamonds are forever” and the monopolistic nature of the diamond industry where companies work to restrict the supply of diamonds sold to the market. Furthermore, there are synthetic diamonds which cost a fraction of natural diamonds. And is something the common woman on the street is unable to distinguish from natural diamonds (unless she owns a laboratory). You can read here about synthetic diamonds.

Challenging Societal Norms

What mystifies me is how De Beers had marketed diamonds and in the process ingrained into us that the Diamond is a symbol of love and social status:

"It is essential that these pressures be met by the constant publicity to show that only the diamond is everywhere accepted and recognized as the symbol of betrothal."  and

"Promote the diamond as one material object which can reflect, in a very personal way, a man's ... success in life." 

This phenomenon was only a recent campaign in 1938. But with the invention by De Beers that diamond is essential in courtship, males have unwittingly parted ways with a large chunk of their wealth for a ring which loses more than 50% of its value upon leaving the shop. A brilliant marketing gimmick by De Beers.

Similarly in Singapore, it is a norm that we turn to a financial adviser or banker to grow/ protect our wealth. However, if one stops to think, these parties may not be the best. This is because Singapore’s wealth management industry is dominated by commission based agents who rely on the sale of financial products for salary/profits. There are very little fee-based financial advisers. As a result, there is a conflict of interest where the highest commission product for them may turn out to be the worst financial product for you (e.g. ILP). In fact, I have written how even whole life insurance is not optimal. We can create our own product which is likely to provide a better return than whole life but it gives very little commission to agents.

This is probably why many Singaporeans have difficulty saving for retirement. The adherence to societal norms results in financial mistakes that drains our savings that otherwise could be invested in better assets which will compound over time.

My Past Investment Mistake

In recent times, I had purchased a stock called Penguin International. Then it was 20+ cents and had price earnings and free cash flow ratio in the low single digits. It was a value investor's dream reporting strong growth and was priced attractively at its reported numbers. However, the share price has moved south and is now at 12 cents.

What Changed?

I had overlooked the fact Penguin's earning could be affected by a downturn. Penguin’s customers were companies in the oil & gas industry. Unfortunately, a downturn did happen and now deliveries and orders for its vessels has slowed. As a result, lesser revenue was recognized with increasing inventories. Penguin’s profitability only decreased one year after the slump of oil price.

Learning Points

This episode showed how reported numbers are merely the rear view mirror of a car; no matter how good they are, what matters is where the road is heading to. And to learn about the future earnings of a company, it is down to our ability to comprehend the industry's outlook. This is particularly true for cyclical industries such as: Oil gas, Property/REITS, Commodities and Shipping.

For example, while local properties companies have reported slightly increased profits, their share prices have stagnated or declined. This is likely due to their revenue recognition method. Majority of revenue currently recognised are for residential projects which had been sold in 2011/2012. Their Singapore segment will experience a decline later as residential sales had slowed since 2013. This too is applicable for Sembmarine and Keppel, where order books are only starting to decrease only a year after the oil slump.

Hence when investing in cyclical companies, it is always important to understand where the industry is heading before investing. While the financial ratios may look good at the current share price, there may be a reason why Mr. Market is still pricing the company at a low figure.

Save $25 for the first $60 purchase of online groceries [Only for DBS card members]

Came across this coupon on Honestbee which is only applicable for DBS credit/debit card members.

https://www.honestbee.com/promotions/dbs

Sign up before 30th September 2015 to enjoy a one time coupon of $25 discount when you spend a minimum worth of $60 at any single store on Honestbee website. Furthermore, you get free delivery (though you may have to wait 2 weeks or more for your orders)!

Best Way to Utilize

The simplest way is to buy $60 worth of essentials from NTUC Fairprice online via HonestBee. First, draw up a list of essentials your household needs such as 10kg bag of rice, Shampoos, Soaps etc. Then use Honestbee to buy from Fairprice Online to clock $60. It is worth noting a bag of 10kg Rice is $15.50 or $28.50 (Hom Mali Rice grains). So it may be easy to hit $60 if you are stocking on rice or shampoos.

After getting the one time $25 discount, feel free to return to your ordinary grocery shopping habits. In case you are wondering if I benefit from this shout out; I am not receiving any money or "referral credits", just sharing a tip to save some capital to Invest Wisely.

Why the STI ETF is better than most unit trusts

Are you a full time employee who finds it hard to make time to monitor one’s investment due to commitments? Or feel daunted by the market jargon and maze of financial statements when investing in the stock market?

If your answer is yes to either question, it may be good to leave your investment to fund managers. In my opinion, the best way is by investing in an ETF which tracks the Singapore Stock Index.

What is the Straits Time Index fund (STI ETF)?

Alvin from Bigfatpurse has written a comprehensive post about it.

For those who are busy or daunted by the lengthy article. Below are 5 points to know:

1)The Straits Time Index (STI) comprises of 30 companies listed on the SGX and is a net market capitalization weighted index

2) You do not invest directly into the STI index; this is done by investing in either the i) SPDR STI ETF or ii) Nikko AM STI ETF. There are listed on the SGX with stock codes ES3 and G3B respectively

3) While these 2 ETFs attempt to track the STI index, there is a small degree of tracking error

4) Investing in ETF is ideal for individuals who have a small investment capital or has no interest or knowledge to pick stocks

5) ETF are passive management funds while there is an alternative group of funds doing active management of funds called unit trusts

Bigfatpurse did an analysis on the returns of the SPDR STI ETF against unit trusts who possess a long track record investing in Singapore equities. Based on the 10 year performance of these unit trusts, the SPDR was ranked second in his analysis as of Feb 15.

How about at end August 2015? For the past two months, we had witnessed a stock market rout. Perhaps given the top dollars paid for these unit trusts’ managers, their brilliance would have protected our money better than the passive SPDR STI ETF. Here are the 10 year performance:

1 SPDR STI ETF – 5.7%

2 Schroder Singapore Trust – 5.7%

3 Nikko AM HIF Spore Div Equity – 5.5% 

4 Aberdeen Singapore Equity Fund – 5.5%

5 Amundi Spore Dividend Growth – 4.8%

6 Deutsche Singapore Equity – 4.7%

7 Nikko AM Shenton Thrift –3.8%

8 LionGlobal Singapore Trust –3.4%

9 United Singapore Growth – 3.3%

As of end August 2015, the SPDR STI ETF is now tied for first place on a 10 year performance basis. This is despite the higher expense ratios paid to fund managers who supposedly possess a wealth of investing experience or are top graduates. If we were to account sales charge, the STI ETF will lead the unit trusts.

Hence, for the lazy or time strapped individual, passive investing via ETFs may be a simple way to invest wisely. 

Why Keppel REIT and Office REIT are still not attractive

Came across S-REIT Investment blog's write up on Keppel REIT where its price has fallen to "attractive levels". While the financial ratios do look attractive, it is only one side of the story and I do not find Keppel REIT attractive yet.

Poor Office outlook

According to URA, there will be 545,000 square meters of new office space available for 2016. And judging from the office space demand during the past 5 years (2010-2014), the annual net demand is 110,000 square meters. Therefore, it is likely office space vacancy will rise by approximately 400,000 square meter. Currently there is a vacancy rate of 9.8% (746,000 sq m vacant space vs total current supply of 7,583,000 sq m). In 2016, vacancy rates are likely to spike above 11%. The last time Singapore experienced an office vacancy rate above 11% was during the GFC and 2001-2004 period.

Office Space Supply from URA

Furthermore, this oversupply is set to persist because more office spaces will be built from 2017 to 2019 and across each of these years, annual supply is greater than annual demand. Hence, in order to spur more companies to take up office spaces, rental rates are likely to fall by 15-20% from current levels. Lastly, the increase in office spaces are due to completion of new Grades A office buildings such as Guocotower and Duo. Hence the argument that Keppel or Capitacommercial are protected due to their quality grade A assets does not stand.

What does a fall in rental income mean?

Lower Distributable Income

Lower rentals mean less revenue and thus less profit. Hence, the current yield of 7.28% is set to be lower when the full effects of an office supply glut kicks in. It is worth noting majority of Keppel’s REIT tenancy contracts only expires in 2017 and after. Hence there will be a time lag in a profit fall because lower rental rates for Keppel’s office space are likely to happen after 2017 when tenancy contracts are renewed. Hence dividends are likely to be affected in the future.

Lower Valuation of properties

REITS tend to use the capitalisation methodology to value their assets. The formula is simple:

Value of Property= Net Property Income/ Capitalisation Rates (Cap Rate)

Firstly, with property income being lower in the future, Keppel’s property value will fall.

Secondly, cap rates for office spaces are likely to increase. This is because a rise in global interest rates will increase the cap rate. Also, a lack of growth in office space rental prices result in a higher cap rate as well. In short, the impending rise in global interest rates and lack of growth will increase the cap rates of office buildings.

With a fall in property income and rise in cap rates, the value of such REITS office property value are set to tumble. This can be seen in CapitaCommercial Trust’s (CCT) presentation below where the cap rates of its buildings are lower than previous years. Cap rates in some CCT assets are now creeping back to their old levels of 4+%. This phenomenon will apply to Keppel REIT as well because their office properties are similar to CCT.

CCT Capitalization Rates Table

A lower valuation of properties means a higher gearing ratio. This is because of the formula:

Gearing = Total Debt/ Total Asset

Hence for Keppel REIT, with an impending fall in valuation, it means lower value for its assets and hence a gearing ratio higher than its current 38.8%. This is not good because MAS requires all REITS to maintain a gearing level of 45% to its total assets. Should Keppel's gearing exceed 45%, it will have to raise money to pay down its debts by placing out new shares or asking shareholders for money. This will dilute the stakes of current shareholders and reduce dividend yield. The alternative is to sell off its assets which also reduces dividend yield.

Keppel itself does not have much cash in its reserves to pare down debts because it is obligated to pay at least 90% of its cashflow as dividends. Furthermore, many REITS pay only the interest and roll over the principal at the end, commonly known as Bullet Loan.

Conclusion

To conclude, given the impending fall in rental income due to a supply glut, Keppel REIT is likely to be affected and its shareholders will experience lower dividend yields. In addition, its NAV is likely to fall with lower asset prices. Hence Keppel REIT's current price to book ratio is not reflective of the actual situation.

This too may be explain why CCT/OUE Commercial (another office REIT) are trading below its book value and at a high trailing dividend yield. While Mapletree commercial and Suntec have office properties, they have a significant exposure to retail and are not as heavily weighted in office than Keppel and CCT/OUE.

Has an entire generation been ill-advised on Financial Planning? (Part 2)

In the previous post, I have talked about the steps to create our own insurance which has an investment component comprising 60% “CPF bonds” and 40% “STI ETF”. For this post, I will touch how it generates a better return.

Projected returns

From the SPDR STI ETF’s track record, the annualised return is 7.11% as of end August 15. While for the “CPF bonds”, we have to assume under two scenarios: i) 4% returns or ii) 5% returns. This is because while the Singapore government guarantees 4% for the CPF SA, the first combined $60,000 yields an additional 1%. Also as some will purchase whole life when young (25 to 30), the voluntary contributions may result in “CPF bonds” that are likely to yield 5% instead of 4%.

Assume “4% CPF Bond return” scenario

The formula is simple where the weight of each asset class is multiplied by its returns and then added up to calculate the projected returns

Hence projected is 0.04*0.6 + 0.0711*0.4= 5.24%

However like most insurance products, despite the projected returns stated in the benefit illustrations (i.e. 4.75%), the actual returns we receive will be lower because of distribution cost.

Hence for the DIY plan, the annual projected returns is $1200*0.04+ $800*0.0711=$104.88

The returns in percentage will be $104.88/$2153.60= 4.87%

Assume “5% CPF Bond return”

The projected return will be 5.84% and actual returns will be 5.43%.

This return is higher than the bonus projections of any whole life!

While people may note after the age of 65, there is no longer term coverage. A reason for it is because after 65, you would have accumulated more than $100,000 in savings through CPF and STI ETF which can be withdrawn anytime. Furthermore, at the age of 65, it is likely there are no dependents/housing loan obligations. Therefore insurance for dependents is not required.

Back testing the strategy

Using the period of April 2002 (SPDR STI ETF’s inception) till now, and comparing between the returns of our DIY plan and whole life. The DIY plan has returned 5.24% annually. On the contrary, many whole life have difficulty meeting their projected returns [4.75% (from 2013) or 5.25%] stated on their benefit illustrations table. 

Conclusion

So there you have it, a replicated DIY insurance plan offering a matching/better returns. This was achieved mainly through investing in AAA rated sovereign CPF bonds yielding a 4-5% annual return and equity investing through STI ETF.

Furthermore, it’s worth noting should Jerome fall in financial hard times, he has the option of cashing out the STI ETF proceeds anytime. Similarly, he could cash out his “CPF bonds” anytime if he is above age 55. This is unlike whole life where if we are to surrender our policy, it results in a drastic reduction of our cash bonus returns (probably in the region of 1-3%).

I have provided the projected return of this plan below. Do note this plan assumes that the policy starts from age 27. You may compare it to the benefit illustration tables of insurance products you will receive in the future but just remember the starting age will be different.

Has an entire generation been ill-advised on Financial Planning? (Part 1)

Whole life insurance is a financial product which many of us own or are recommended by banks and financial planners. Recently, I came across a 15 year premium whole life product with a sum assured of $100,000. Its annual premium is in the region of $2,155. It got me thinking: Are there ways to obtain better returns, at lower risk but with the same amount of sum assured?

For whole life insurance, it is a combination of term insurance and an investment component. And while the benefit illustrations of this product states the projected returns are 4.75%, the actual return calculated from the table will be slightly lower, around 4.2% to 4.5%.

Creating the Common Man’s DIY Insurance

Jerome (age 27) decides to create his own product which replicates a similar 15 year premium whole life. To replicate the components of whole life, he does the following:

Term Insurance

Jerome buys the AVIVA NS Term which covers him for a sum assured of $100,000. The plan costs $153.60 per year (for public servants, you can use the POGIS which costs $60 per year for every $100,000 of sum assured).

Investment component

As mentioned, most insurance consist of an investment component where majority of funds are allocated for investments in different asset classes- bonds, stocks etc. This is to generate the projected returns.

Jerome mirrors this and creates a portfolio with two asset classes, bond and equities. He will put $800 in the STI ETF and $1200 into “CPF bonds”, to form 40% equity and 60% bond portfolio. To buy these “CPF bonds” for his bond component, Jerome does an annual voluntary contribution to his CPF SA. As the “CPF Bond” is backed by the Singapore government, his bond component is triple A rated of very low risk. The returns of these "CPF bonds" are guaranteed ( 4%/ 5% for the first $60,000 combined).

With only 40% of portfolio subjected to market risk, Jerome’s portfolio is far less risky than any insurance’s. You can read here about voluntary contribution to the CPF SA.

Total Premiums paid

The annual premium Jerome pays for his own DIY is $2,153.60

Premiums paid

It is worth noting, Jerome still has to pay premiums of his Aviva NS term insurance from the age of 42 to 65 unlike for a 15 year premium whole life. In my analysis, Jerome’s premiums are covered during this period for the following 2 reasons. Firstly, the NS Aviva term provides returns during good years (about 1-2 month premium is returned). Hence during good year, Jerome receives 1-2 month rebates which he invests into the SPDR STI ETF. Since inception in April 2002, this ETF has generated an annualised return of approximately 7.11% as of end August 2015. This includes the market rout witnessed during the past two months.

Secondly, as Jerome had been topping up $1,200 yearly into his CPF SA, he received a tax savings of $84 annually. Similarly, he invests the tax saving proceeds into a STI ETF (annualised 7.11% returns) and then start depleting it from age 42 to 65, hence covering his premiums. In fact, Jerome still has $2,352 leftover from this method after paying the premiums until 65.

So it seems our very own DIY product is viable and less risky. In my next post, I will explain how this plan generates a higher projected return. 

Click here to continue.

Planning your finances and retirement using CPF

CPF has been a much talked about topic in recent years. However, most discussions has centred on how it works, why it’s good etc. Little has been discussed on how best to work with it to optimise savings for retirement or for monthly expenditures.

Make CPF our savings

Our CPF savings comprises of three accounts: ordinary account (OA), medisave account (MA) & special account (SA). It is funded by us and our employers’ monthly contributions. For different age groups, a certain percentage of our salary goes to the respective accounts. The table below shows the allocation rates.

CPF OA

In my opinion, the CPF OA should never figure prominently for retirement. It should be utilised almost fully for our housing purchase. This means we should purchase homes where the loan’s monthly instalment is approximately 20% of our salary. This is so that our mortgage instalments are funded by the OA with a bit leftover being able to enjoy a 3.5% interest and can be used for later loan repayment.

Paying our mortgage entirely through CPF means we can use our take home salary for other purposes such as equity or bond investing or provide comfort to the family. It makes our life easier as no cash form our pocket is needed. Lastly, HDB housing loan is a strategic debt.

CPF MA

The CPF MA should be used for retirement, pay hospital bills and meet the stipulated minimum sums at 55. As it yields a 4% annual interest, it is strongly advised not to draw down for insurance premiums unless you are a pretty good investor. Otherwise, please do not touch it as it makes a good “long term bond”.

CPF SA

The CPF SA is your retirement and bond fund. To buy into this statement, it is important to accept this point.

We can meet the minimum sums

In my analysis, I painted a scenario where an individual starts off with a pay of $3,000 (inclusive of one month bonus), works from age 25 to 55 with a 3% annual increment. Eventually he will accumulate $360,077 in his CPF SA and MA accounts. This figure is higher than the current Basic healthcare sum and retirement sum set at $48,900 and $80,500 respectively. Adjusting for 3% inflation and 30 years period, the figures is only $314,087. Regardless, you would have accumulated more than the minimum sums.

Furthermore, my assumption is simplistic because for females, they are likely to start work at 23. Hence, accumulating slightly more than the $360,077 projection. For males, it is important to note we will receive $3,000 to $9,000 more in our CPF SA due to completion of national service and reservist cycles. This was not factored in my analysis; hence it is likely we can meet the minimum sums.

Bond/Retirement Fund

Having established we can meet the minimum sums. It can then be said: Voluntary contribution to our SA account is a “bond investment fund”. This is because whatever is voluntarily topped up into SA can be withdrawn in full at the age of 55 since the minimum sums are met.

With the ability to tap on a “CPF bond” yielding a 4% return (CPF SA’s interest) and AAA rated, it is a great bond to be invested in. Due to the low risk but decent returns, we can use the CPF SA to create a product better than insurance products sold by banks. I will advise for individuals to top up into the CPF SA preferably between the ages of 30-35 to capitalise on it.  

After 55, we can opt for our “bond investment” to be converted into an annuity plan through CPF Life. Alternatively we can withdraw and enjoy its fruits during retirement. It is important to note as we get older, our portfolio should not just be chasing returns but focus on income stability. This is why annuity plans are catered for older folks.

Click here to learn more about voluntary contributions to CPF SA.

Planning finances

So there you have it. CPF OA for housing expenses, MA for medical expenses and retirement; while the CPF SA for our retirement/bond fund.  

Purchase of Silverlake Axis Shares

Purchased 16,500 shares of Silverlake Axis at a weighted average of 0.55 per share (after commission) today.

Brief description of Silverlake Axis

Silverlake Axis's main competency lies in the core banking system industry. It produces a software which is used to run the operations of banks. After a bank purchases it, Silverlake helps to maintain the software and charges a recurring annual maintenance fee to the bank. As the core banking system is a critical system for the bank, there is a high risk and high cost nature involvedif banks switch from one core banking system product to another. Hence, this is where Silverlake's business moat lies. It is difficult for customers to switch out. 

Based on my guess estimate, banks will only change these system about every 20 years or never at all.

Customers

Silverlake customers are mainly in Malaysia and Singapore. Main Customers are CIMB, Hong Leong Bank, OCBC, UOB and Siam City Bank.

Business Fundamentals

Due to the nature of its business as a software company doing maintenance, Silverlake generates consistent free cash flow and needs little working capital. From its recent FY results, the company was able to generate RM 270 Mil of free cash flow. Adjusting for exchange rate and no of shares, the company’s free cash flow generation is about 3.3 Singapore cents per share. Furthermore, the company has frequently given out its entire free cash flow as dividends.

Balance sheet wise, the company has little debt and its gearing ratio is less than 20%.

Using the above information, I have assumed Silverlake will not grow further; hence projecting that Silverlake gives out 3.3 cents dividend constantly in the future. At its current price of 0.55, it is selling at a 6% dividend yield. This is better than most REITS who are giving dividends yields in this region but are more heavily geared.

Risk

There is an ongoing accusation that Silverlake has inflated its results through a series of related party transactions. As the verdict is unknown, this is the risk I am assuming when investing in Silverlake. If it turns out to be true, a large amount of capital is likely to be lost.

As on Silverlake's part, I sincerely hope the company puts up a detailed report to rebut the accusations after Deloitte Singapore's investigations.

<Vested at 0.55>

A long term alternative better than the Singapore Savings Bond (SSB)

Many of you have heard about the Singapore Savings bond which offers 2.63% returns if one holds it for 10 years. But did you know there is a long term bond instrument presently in the market, is as low risk as the Singapore Savings Bond but yields a higher return?

Introducing the CPF Special Account (SA)

Yes no mistakes here; the CPF bond is it. However, do note unlike the SSB, it cannot be redeemed at any time, only after you are 55.

How do we buy these bonds?

If you are interested in buying the "CPF bond", just make a voluntary contribution into your CPF Special Account (SA). Furthermore, the CPF Bond accepts any amount; there is no minimum of $500, no $2 application fee charge or risk of not getting your full no of bonds. It is advised only individuals who meet the below criteria makes a voluntary contribution to CPF SA:

(a) Earn $6,000 and below in monthly wages and; 

(b) Are very likely to meet the minimum sums

There are two reasons. Firstly, it is due to the annual contribution limit of $31,450 into CPF. Any amount higher than this, you will not be able to voluntarily contribute. For an individual earning $6,000 monthly, his total monthly CPF contributions will be 37% (20% from employee and 17% from employer) or $2,220. Hence, it is likely he will be close to the CPF contribution limit. CPF will just refund you the amount without interest for amounts above the contribution limit.

Secondly, it is important to meet the minimum sums because we do not want our voluntary contribution trapped in CPF forever. Currently, with the Basic healthcare sum and retirement sum set at $48,900 and $80,500 respectively, I believe it is easy for majority to meet it should we work continuously from age 25 to 55. Using a basic scenario where an individual starts off with a starting pay of $3,000 (inclusive of one month bonus), works from age 25 to 55 with a 3% annual wage increase; the eventual accumulation of CPF proceeds in MA and SA accounts will be approximately $359,077. Hence it is safe to assume we can meet these minimum sums (even if they are adjusted for inflation), and whatever is voluntarily topped up into our CPF SA can be withdrawn in full at the age of 55. After all, CPF are our own savings.

CPF Bond is AAA-rated

When one contributes to the CPF SA account, the money is used to buy special government securities backed by the Singapore government, therefore we are in fact buying a triple A rated sovereign bond.

Do note, as our CPF SA proceeds can only be withdrawn at the age of 55, there is a maturity date for our “CPF bond” (depending on the age you top up the money). For example, if a 27 year old investor voluntary tops up $3,000 into his SA, he will be buying a “28 year CPF bond” (since he can only withdraw the money at 55) which will yield a 4-5% annual return.

Benefits of contributing

There are two benefits. Firstly, the interest provided by “CPF bonds” is much better than ordinary Singapore bonds sold in open market. Let's use the example of a "28 years CPF bond". On the open market, a similar 26 year SGS bond is sold at 3.01% yield. Hey, that is way much lower than my "28 year CPF bond" returns! 

Singapore Government Current Bond Yields

Now let’s use another example of an older folk who makes use of these to invest in bonds; Mr Tan (aged 45) makes a voluntary top up to his CPF SA. Using this mechanism, Mr. Tan is in fact buying a "10 years CPF bond" which still yields 4%. Again cross referencing with the open market, a 10 year Singapore bond is sold at 2.70% yield!

Secondly, you will obtain tax savings for voluntary contributing to your CPF SA. For example, a voluntary top up of $3,000 into your CPF SA will gain you a tax savings of $210 (assuming 7% tax bracket range). This extra $210 can be used as to treat your family to a meal or be used to invest in the STI ETF to grow your wealth.

We are already heavily weighted in bonds

While you may be tempted to invest in these bonds, it is important to know this.

As Singapore Citizens and PR working in Singapore, 37% of our salaries are already channeled into the Central Provident Fund (CPF). Given what I have explained earlier where the proceeds in our CPF are being used to buy special government securities bonds (returns of 2.5% to 4.0%) to fund our retirement. This means much of our net worth is already in bonds. Hence, it is unwise to invest more of our wealth into bonds as we will become over weighted in bonds and thus affecting our returns. Personally, I will recommend for approximately 40-50% of our net worth to be in bonds.

So how do we calculate our portfolio weightage? Suppose Mr. Tan has cash savings of $50,000, stock holdings of $50,000, a 5 year retail bond of $50,000 and a CPF total balance of $50,000. From this scenario, Mr. Tan will have a portfolio of 25% cash, 25% stocks and 50% bonds (CPF + retail bond).  

To conclude should you feel you need a larger allocation to bond; you may consider the “CPF bond” for long term bond investing.

Get 15-16% rebate for your first $500 credit card expenditure

DBS Live Fresh card is offering an $80 cashback for new members who sign up for the card online and spend a minimum $500 within their first month of approval. The link is found here

T&C

Before you rush off to sign, here are a few things to take note. Firstly, you must be the first 5000 to sign up in that month and two; you must spend at least $500 within the first month of approval. Also, you must not have cancelled your DBS Live Fresh card 6 months prior to the promotion. Please read the full T&C to find out more.

Some will notice this is not the only credit card offering cash bonus as promotion. Similar cards have a “minimum transaction of $xxx” to qualify condition. And you may be put off by the high amount. Here are some strategies to help you.

Plan your expenditure

Every year, there are items we will spend on (be it needs or wants). Hence why not plan your expenditure so that you can stretch the dollar to the fullest.

For example, if you had bought tickets to travel (say Jan next year) and have not booked an accommodation yet, why not sign up for cards such as DBS Live Fresh. Upon receiving the card, you can immediately proceed to rent a room via Airbnb or book a hotel room online as accommodation. In addition, for new sign up members, DBS Live Fresh is offering 6% cashback on online transactions (min spend of $500 needed) and DBS points for a limited period of time. You will be getting up to 22% rebates.

If one is meticulous in planning expenses, we can stretch our dollar to the fullest. For example, we can use the credit card to pay for expenditures on necessities (such as grocery, mobile phone bills or EZ link uto reload) or for others like a new mobile phone during re contract. If we can plan for all these to happen within the first month of credit card approval and subsequently hit the region of $500 perfectly to qualify for the $80 cash rebate. How nice would it be to know DBS is paying approximately 16% for our expenses ( necessities or otherwise)!

After hitting the $500 spending criteria, you may set it aside and use your preferred credit card.

When to sign up

I can’t emphasis this more. Please read the Terms and Conditions as they may be extra terms such as “the first 500 or 5000 sign ups”. If you encounter such terms, it is good to sign up for these cards at only the early stages of the month to obtain the highest chance. Hence if you think you do not have a high chance of being the first 5,000; wait for the next month etc. Furthermore, there are some expenditure which are excluded from the "$500 spending criteria", so please read carefully.

Other cards

So there you have it, plan plan plan your expenditure wisely! Then hunt for credit cards and you will be able to stretch your dollar to the maximum. Do note this post is not a paid advertisement; DBS Live Fresh was chosen because it offers the highest percentage rebate. The POSB Everyday card offers similar promotion for online sign up. There are other cards which offer similar sign up promotions such as ANZ and Standard Chartered.