When to be IDEALISTIC or REALISTIC as a Self-employed

Being self employed, it's important to always have the ability to pay off your monthly expenses because your income does not come in the form of a pay check at the end of the month. Due to the variability of the income, I think it's easy to be either too slack or work too hard. I know what I'm talking about because I've been to both extreme ends. The hard part is to find that fine balance between working hard enough to pay off your bills, save up enough for future needs and yet utitlise the greatest benefits of being self-employed - controlling your own free time.


I think a good way is to start by knowing how much you spend annually. This includes all the fixed and variable expenses. The best way to do so is to track your expenses at least for a year, then you'll have a good idea of when those bills come in (like those from health insurance, road tax etc). I've a list of fixed and variable expenses, so I'll just list it off here.


Expenses categories:

1. Food court/coffee shop meals
2. Groceries / household items
3. Restaurants
4. Utilities
5. Personal grooming, gym
6. Entertainment
7. Clothes, shoes etc
8. Medical
9. Transport
10. Parent
11. Mobile phone/home fixed line/internet
12. Mortgage/rent
13. Insurance (whole life, H&S cash, term, accident, disability income, home mortgage etc)
14. Conservancy fees
15. Tax / property tax
16. Household repair fund
17. Gifts/ang bao
18. Charity
19. Vacation
20. For those with cars: road tax, fuel, cashcard top ups, carpark coupons, car repair/servicing/wash


For those who are really really opposed to tracking down expenses, then make a informed guess to each category. The list should be quite exhaustive since I've been using that list for a couple of years. All other categories that do not fit will go into this big lumped category called 'Others'. This works for me so far.

Being a money whore i.e. dumping passion for money

Once you've known your expenses per month, you have to be a money-whore and take whatever money is there on the table, whether you like it or not. The first tranche of money that you earn will go towards paying your monthly expenses, so no what, you'll have to get this taken care of. Only once I've taken care of the overheards, I'll worry about whether the extra jobs that I've taken is too hard, too far or too tedious for me. In other words, once my expenses per month is taken care of, only then can I afford the luxury of not being a money-whore. The rest of the jobs that I take after this basic will go towards my savings, but these are not really compulsory but rather good to have. I'll try to hit my savings target by taking enough jobs, then I'll relax and can afford to be a little more choosy. I always believe that passion is worth pursuing only when it can afford to pay the bills.


I'm of course saying this with the context of being a full time tutor. But I guess it's the same whether you're an insurance agent, or a taxi driver, or any other self-employed person. Unlike those who have a fixed salary, you can afford not to take the extra money and spend the time doing the things that really matter to you. I think this will be a good system for those who tend to work too hard and simply can't say no to extra income.


In my own situation, my monthly expenses with everything included is around 3.5k. About a third of that goes to mortgage payment. Parents and insurance take up another third, and the remaining is for personal consumption. This means that once I've taken enough jobs to cover that 3.5k, whatever additional jobs I take will go towards savings. I've mentioned that my savings target should be around 30-40k, so that means I'll have to try to hit a income range of 6 to 7k average. Well, not saying that I will hit it in 2014, but that's the target in sight, and I'll do my best to achieve it. If I do hit it, I've have another at least another 12k to do partial capital redemption for hdb, another 12k to do my own retirement fund and the rest for maybe a short vacation and play fund for gadgets.


Good luck to me and for everyone in the year 2014!

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Sg bonds listed in SGX

This is the last of the 3 part series detailing all the fixed income listed in SGX. For those who just came in to read about this article, a little background of why I'm doing this. I'm trying to plan out my parent's retirement fund. They gave me 50k not too long ago and I guaranteed a 2% pa, capital guaranteed LP bond to them, so I'm fulfilling my part of the bargain by doing the necessary background research in order to make their money work harder for them. Since I'm already put in the time and effort, I might as well share it with others.


Here's the first 2 part of the series:

1. Retail bonds listed in SGX
2. Preference shares listed in SGX


First of all, about the terms bills and bonds. Bills refer to short debts (< 1 yr maturity )issued by the government while bonds are longer debts (>1 yr maturity). In my post, I'll treat all the debts issued by SG govt as bonds, to make it simpler.


Here's the chart that I've compiled:

Click to enlarge. I might be wrong, so do your due diligence.

A few comments:


1. You'll notice that the yield are not fantastic, ranging from a coupon yield of anything between 0.25% to 4% pa. The yield, if you bought it at near current price, is worse off. Almost all the bonds are traded above par, so you'll get lower than the coupon yield listed on the name of the bond. This range from near 0% to 3.1% max. Usually for fixed income, the yield is inversely proportional to the perceived risk of the underlying issuing the debt. Since SG govt is quite unlikely to default, don't expect their yield to be like those in the Eurozone. You'll also notice that in general, the longer the maturity date, the higher the yield too. This is because the longer the period that you're holding the bond, you're exposed to more circumstances possibly leading to the bond being defaulted, hence you should be compensated for taking that greater risk.



2. We all know that in the near future with US stopping or reducing their printing, the interest rate environment would not be the same as it is now. It'll probably rise up, and that's a near certainty. Just how much and when. If you hold a bond till maturity, you don't have to worry about the rise of interest rate and the fall in price. Whatever yield you get is calculated at the extreme right of the chart above, because I've included the gains/loss due to the difference in par values and the market price of the bond. That being said, you'll notice that shorter maturity bonds are less sensitive to interest rate risk. So, if you're looking to put some money while waiting for the market to crash, for example, you might want to put into shorter term bonds. This way, you can still switch between asset class towards equity when the need and circumstance arises.



3. How safe are these instruments? If you treat fixed deposits as the ultimate safest, then sg bonds will rank right after it as the second safest. The difference in risk between the safest and the second safest is probably just a tiny gap, because even banks invest the money that you deposited with them in the fixed deposit accounts with Sg bonds, possibly along with other high grade bonds.



4. I would really like you to consider looking at those bonds between number 8 and 10. A typical fixed deposit with local financial institutions will be around 1.25% (possibly less) pa. If you lengthen your investment horizon to 5 yrs, you'll get around 1.6% pa by buying bond number 10. Increase a little more to 6.7 years, you'll get around 2% pa by buying bond number 9. I know it's nothing to shout about, but for those who have stashed aside a sum of money for wedding or for some major event happening in the near future (like within 6 years), then this is not such a bad place to park your money. With this short horizon, it's silly to put it into the stock market. You might lose the cost of a wedding banquet because you want to earn the interest to buy a rose!



This is not the only way to get sg bonds. The other way is to bid for it. I've never done it before, but I've seen such an option in internet banking. You can also get it through fundsupermart but there are fees involved.

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Preference shares listed in sgx

Preference shares are quite similar to bonds. Unlike bonds, preference shares might not be able to pay out dividends in certain years, but that usually means that the ordinary shares holders won't get their dividends too. If bond issuers are unable to pay out coupons, they will be in default and that's very serious because it means that a lot of debtors will also be howling for their blood.

Click for a bigger pic. Check the data yourself, I might be wrong.

I've written extensively about the basics of preference shares so I'm not going to repeat. Here's a backlog of articles if you want to find out more:


1. Preference shares Part I
2. Preference shares Part II
3. Preference shares Part III  
4. Preference shares Part IV  
5. Hyflux preference shares Part 1, 2, 3                                        


I will highlight a few keypoints though:


1. Unlike bonds, preference shares often have a optional redemption date. That means if the issuer wants to redeem back the preference shares, they can only do so on or after that date. If they didn't redeem it on that day, or if they don't have a optional redemption date, that means the preference shares will run perpetually. This is very different from a bond because bonds must expire on its maturity date. No ifs and buts. There is a very real possibility of having your money stuck inside here if the issuer choose not to redeem back at par, though you can choose to trade it off on the secondary market like normal stocks.



2. Some preference shares are convertible. For example, Citydev NCCPS has this convertibility option where each preference shares held can be converted to 0.136 CDL 'mother share' + $0.64 cash. While waiting for that event to occur, you'll be compensated with 3.9% pa coupon yield. Most preference shares are not convertible, and neither do they hold any voting rights.



3. Newer preference shares are smarter. They have different coupon rates before and after the optional redemption date. For example, OCC 5.1% NCPS 100, which replaces a recently expired one, has an optional redemption date of 20th Sept 2018. Before this date, the bond will pay out 5.1% pa coupon yield. After this date, if they choose not to redeem back the preference shares, they will give out 2.5% + 3 months SOR. The payment schedule will also be different. Before the optional redemption date, it's paid out semi-annually on Mar and Sept. After, it's Mar, Jun, Sep and Dec.



4. There's this cumulative and non-cumulative part too that needs highlighting. Cumulative means that if in a particular year, the preference shares didn't pay out any coupons, this missed payments will be accumulated and paid out in full in the next year, together with next year's payment. If they miss payments for 10 years, and they decided to pay out on the 11th year, they will have to pay a total of 11 years of payment altogether on the 11th year. Hyflux preference shares is a cumulative one, while all the banks offered are non-cumulative in nature. Whether it's cumulative or not speaks less about the safety of the preference shares and more about the perceived riskiness of the underlying company. More had to be done by a riskier company to entice the market to bite their offered preference shares. Hyflux is the only cumulative preference shares among the lot listed in SGX.

5. Whatever applies to bonds generally applies to preference shares too. Preference shares is like a hybrid between stocks and bonds. The upside of preference shares are capped, but so is the downside. In between, you'll be getting a higher dividends than ordinary shares to compensate you so there's really nothing to complain about. Just don't get into preferences shares to participate in capital gains.


So, here lies the ultimate question: between bonds and preference shares, which is better? In my opinion, bonds are better. The thing about bonds is that you want to invest into something, get paid yearly without caring much about the ups and downs of the price, and upon maturity, give you back the entire capital invested. You just need to worry about whether the company issuing the bond can survive that period that you invested in their bonds. Worry and fuss-free, you can almost treat it like a high class fixed deposit, with a fixed interest rate and capital guarantee upon maturity. For preference shares, there's always this problem about whether you can liquidate them when you need the money, since it can theoretically run forever.


If you have a far investment horizon, had set aside a sum of money that you won't need until you retire, then bonds or preference shares wouldn't matter anymore. The best is still to buy below par value, so that a capital gain is locked in upon redemption. If not, the earlier you buy, the better. Just look at it this way: if you have a preference shares that pays out 4.5% pa and the price is 109 now, you just need 2 years to break even. So the first 2 years are the 'riskier' period of this investment. After that, anything more is your bonus and according to bro8888, your pillow gets stuffed with more and more feathers.

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Retail bonds listed in SGX

I'm sharing this summary of the retail bonds that are listed in sgx for those who are in the same boat as me - trying to piece up a portfolio of fixed income instruments for your own or your parent's portfolio. Those who do not know about bonds, I can share a bit here.

Click to enlarge. I might be wrong, so do your due diligence

Crash course on bonds:


1. There's a par value for every bond. In the case of all the retail bonds listed in sgx, they all have a bond value of $1. This is important because a bond will be redeemed by the issuer at the par value, not matter what market price you bought it at. For instance, if you bought a bond at market price of $1.05. Upon redemption, the issuer will only pay you back $1.00. This means that there is a confirmed loss of $0.05 and there's no doubts about it. Conversely, if you buy a bond below par, say $0.990. Upon redemption, you'll get a capital gain of $0.010, on top of whatever interest you got between the time you bought and redemption.



2. A bond holder will be paid coupons (it's something like dividends). Most will pay out semi-annually (that's twice a year). So for instance, SIA 2.15%b150930 has a coupon yield of 2.15%, they will pay out 1.075% (2.15/2 = 1.075) on every end of Mar and end of Sept.



3. The coupon yield (the % that is found on the name of the bond) might not be the actual yield that you're getting, especially when you didn't buy it at par value. I prefer to calculate the actual amount of coupon payment that I will receive until redemption, then added to the capital gain/loss from the difference between the par value and the market price of the bond you had bought the bond at, then divided by the number of years to hold the bond till maturity, in order to get the % returns pa.


So, my total % returns per year = (Total coupon payments till redemption + difference in purchase price and par) / number of years till maturity


For example, LTA n4.17%160510 10k gives out interest per year at 4.17%. The maturity date can be seen from the name of the bond, given in YYMMDD. In this case, it's 10th May 2016. From now till that maturity date, there's still 2.4 years left. Since they issue the interest on end April and Oct, I would have missed the payments for 2013 already. From now until maturity, I'll have received a total of 5 payments. Hence, the total coupon payout is 4.17/2 x 5 = $0.10425. Assuming I bought the bond at market price of $1.065, I'll have lost $0.065 once the bond is redeemed (the par value is $1.000). So, my total returns is found by adding the total coupon payout plus the capital loss upon redemption, which is 0.10425 - 0.065 = $0.039. The % returns per year = (0.039/1.065) x 100 / 2.4 = 1.55%


(Side note: I don't like to use the easier YTM or yield to maturity, because it assumes that the coupon payments are re-invested at the same rate as the current yield of the bond. Easier said than done. Anyway, I'm not re-investing the coupon, so I shall use my own common sense way of find the % returns, thank you very much.)



4. You don't really have to hold out the bond to maturity. You can sell it anytime you want by trading it off, but you'll be subjected to the buy/sell bid at the point you want to sell. Liquidity might be an issue for these instruments since they are not traded frequently. If interest rate is going to go up in the next few years, you might see the price of the bond being lower than the price you bought in. If you hold the bond till maturity, you don't really have to worry about the price of the bond in between, since you already 'locked' the capital gain/loss. I guess this worry and fuss free thing about bond is the best deal about this class of instrument. You just have to worry about whether the company can keep up with the payments. As long as it don't go bust, you're safe.



5. Bond is safer than stocks in general, but whatever guarantee is only as safe as the underlying company that issues the bond. Bear that in mind. Usually a high risk company will put up a higher bond in order for the market to 'bite'. That's why those very steady business and established companies will issue bonds with lower interest rates.


(Thanks to Lee Chin Wai who posted a comment below, I've realised I've missed out on a lot of small fine details regarding the early optional redemption of the bonds. I've made amendments in the chart posted above)

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Issues to think about for portfolio allocation

With other people's money comes great responsibility.


Well, over the last couple of days, I was doing intensive research on the various preference shares, corporate bonds and sg bonds. I decided that I'll just put those funds in fixed income instead of equities so that things are a lot more predictable. I'll have predictability in cash flow and more stability in portfolio value. I'm always thinking that I'm the one who's guaranteeing the money, so I better play it safer. It's always a compromise between yield and risk of loss of capital, so I'll have to balance it to seek the returns that I want.

First of all, after doing a table of all the instruments that I'm looking at, I did a spreadsheet to see how different portfolio allocation can affect the overall yield, the actual cash flow and also the possible gains/losses if there's early redemption (this is really just for preference shares, and most, if not all, are trading above par values). After playing around with the numbers, I have a few sets of portfolio allocations. I initially wanted to settle for one at 5% portfolio yield, but decided not to, because a big part of it will be put in a rather high risk bond (Olam's, if you must know). Before I typed out this article, I really had the intention to follow this portfolio's plan. But I guess I chickened out in the end, so I settled for a more modest portfolio yield of 4%. Still, the 4% per year is still way higher than the 2% that I guaranteed for my parents, so I'll be covered. No point coveting an extra 1%, which is just $500 per year!



Secondly, I have to think about how much to give to my parents. The terms of LP bonds are listed here, and I'll have to hit at least 2%. It'll be good to have a bonus of 0.5% to 1% given to them too. Even giving them 1% more per year, I should have a healthy buffer of cash to pay out in case shit hits the fan on my portfolio. Being able to earn 4% yet guaranteeing only 2% will be my safety margin, but this must not be achieved on potentially higher risk instruments.



Thirdly, I have to stress test the portfolio. I made an important assumption that all the underlying of the bonds, sg bonds or preference shares are not going-concern. If they are, then I won't be able to save it anymore. Therefore, to make this assumption true, I must be rather vigilant at looking at the underlying company for the instrument concerned. 80% of it is to be invested in banks/sg bonds, so I think it should be a pretty good assumption. I'll share more about my portfolio allocation when I'm ready to reveal. I make a 10%, 15% and 20% drop in prices and see if my remaining cash flow that I didn't pay out (after paying out 2% min) is enough to hold it afloat. I figured that I should be able to take a hit of around 10 to 15% losses if suddenly my parents want to liquidate the portfolio and withdraw their principal when the market is not doing well.



With that said and done, I'll just have to wait for the funds to flow into my trading account. After the initial fishing for the best price in the market, I'll just sit and wait for the cash flow. I really don't want to worry too much about this portfolio, nor do too much work for this as it's supposed to be a low fuss portfolio.

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LP bonds are oversubscribed!

La Papillion is now officially a fund manager.

I don't know whether this is a good development or not...I'd like to see it as a positive one. Before you start thinking I've joined some fancy company as a employee, nah, I'm not. I've simply the fund manager of my parent's retirement money. This follows my post a week earlier regarding an assignment that my mum tasked me to do. Following some readers comments that I should issue my own LP bond with a fixed rate and a term, I've decided to do it because I think I should confidently be able to beat the fixed deposit rates offered now (around 0.25% to 1.25% pa) and yet also be able to provide them security by guaranteeing that the capital that they had trusted with me will be returned as and when they require. Seems like I've built a certain trust level with my parents because ultimately, the security of the bond is as safe as the issuer - which is me.

The terms of the bond are as follows:

1. Fixed guaranteed yearly interest of 2.0% pa, paid out per year on 1st Jan.

2. No fixed duration, which means it's perpetual until redemption by parents, or liquidation of funds by issuer (i.e. me). Before either can happen, there will need to be at least a 6 months notification to the affected party.

3. Non-guaranteed bonus per year, ranging anything from 0.5% pa to 2.0% pa. This is in addition to the fixed guaranteed yearly interest of 2.0% pa.

4. Capital guaranteed by me after a minimum period of 5 years. If they take out the capital before 5 years, any losses will be born by them. If they take out the capital after 5 years, I'll take the losses if any.

You thought a fund manager will be like this...nah, it's not fun but lots of hardwork

I've 50k at hand here sitting around for a week already, with possibility of another 40k to 100k coming in next year. Wow...I didn't know that they will be sold so easily after presenting to them the different options. However, I didn't do anything for a week so that I can approach this issue with a calm mind. First of all, I didn't know they had squirred quite a sum of money for retirement. This is probably good news for me because it means that I've got 3 layers of defense for any emergency medical fees - insurance under H&S, their retirement money, me and my brother's money. This makes the whole financial burden a lot easier to shoulder. Secondly, I can only guaranteed 50k at this point in time. If they wish to put in a total of 150k, I don't think I can guarantee that kind of sum. Hence, I suggested to them that they evaluate my performance first. If it's satisfactory and most importantly, that I'm confident that I can guarantee both the returns and the safe return of their money, then I'll take it. This is better for them and for myself.

In the coming days, I'll be thinking hard on my portfolio allocation. How much of the money should be allocated to bonds, fixed deposit/cash equivalents, equities etc. If anything, this 50k is even more important than my own 50k because I can lose my own money but I can't lose theirs. 

Now, if only bankers would think like that, we'll have a lot more trust in them.

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Where to invest your mum's 50k

Interesting assignment that my mum gave me this morning.


She wanted to put in 50k for her savings to get more returns instead of the usual savings. I think she got this lump sum after her previous fixed deposits expired. She wanted me to look into some instruments where she can get better returns but she don't want to put it into the stock market for fear of eroding her capital. I also won't recommend that she put it into the stock market when I cannot guarantee her capital won't be lost in the process.


Here's what I found out:

1. Firstly, most fixed deposit rates suck. The three local banks are so full of money that they don't even pretend to like more additional funds. Certainly, that's the idea I had when I saw the returns on their timed deposits. The rates are not worth mentioning - better than savings accounts of course, but not much better. Usually foreign banks are more generous, so I looked into that direction but came out disappointed.


2. Certain banks/financial institutions have a special fixed deposits for senior citizens aged above 55 year old. I looked into Hong Leong finance. They have a 1.21% pa for a period of 24 months for people with some bird's nest thrown in as well. That's a notch better than most DBS/POSB, which gave about 0.55% for the same time period. People's bank? Bah. Maybank is not too bad either. For a period of 24 months, you get to have 1.25% pa, slightly better than HL finance and way better than any of the 3 local banks.



I'm still not satisfied though. So I looked into money market funds from POEMS. In it's heyday, it's giving 2% pa which is really a good deal. But that's the time when interest rates overall are high too. Anyway, it's now less than 0.5% pa. For people considering putting in less than 50k in a period of less than 2 years, that still beats fixed deposit rates in most banks considering that the money market fund is so liquid and safe. But no, money market fund isn't going to do for me.


Next, I looked at SG bonds/bills. As safe as the solvency of this government, if you hold the instrument to maturity, you'll be able to get back the capital. The interest, in the form of coupons, are usually given twice a year. I looked at the fundsupermart platform, which charges 0.1% custodian per annum on the coupon payments and also 0.1% for initial processing fees. That's okay, considering how they make life easier for me. I worked out on their calculator for this NX11100X, with a coupon of 2.225% and maturity on 1st June 2021, which is about 7.47 years to maturity.

What I'm concerned is how much I'll get over how much I paid for the instrument, on an annual basis. Based on the estimated amount that I've to pay ($49,829.40), I'll get $1,057.50 per year, spread over two payments (each $528.75) on 1st June and 1st Dec per year until maturity. At the end of 7.47 years on 2021, I'll get back $47,000. My only concern is that the yield will be 2.122% (1,057.5 / 49,829.4 = 2.122%) ; I'll leave the rest of the jargon to academics.


That's a lot better than the fixed deposits that my mum wanted initially, giving a returns of about 70% better and not significantly more risk. In fact, the fixed deposits will also be invested directly into high grade bonds and bills like the one that I'm looking at, so effectively I'm just cutting the middle layer of fees by going semi-direct (direct will be to bid straight from MAS).


Then there's the problem of getting bonds in a low interest rate environment, knowing that the tapering of funds injected into the system will probably slow down or stop in the near future. I reasoned it out that it doesn't matter because any drop in price of the bond when the interest rate increases is of not concern to a investor holding the bond to maturity. Just don't sell it before maturity.


I suggest doing this in stages:

1. First 20k to put into the sg bonds to get a yield of 2.122% pa

2. The remaining 30k to put into 12 or 24 mths fixed deposit with Maybank at 0.95% pa or 1.25% pa respectively

3. After the fixed deposit matures, look at the interest rate environment and decide whether to put in the funds into fixed deposit again or sg bonds. When the interest rate increases, we might be able to get more from either fixed deposit or from the sg bonds.


I'll meet up with my parents and tell them about my plan. Ultimately it's up to them. Knowing them, they will instinctively flock to fixed deposits but I'll have to try to convince them that it's worth taking that extra tiny risk to get almost 70% more returns.

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Far from the madding crowd

When we’re in a social context, we tend to look at each other’s good points, totally ignore the bad, and lament how far behind our peers we had fallen to. Some occasions, you might be far better than others but there are always others better than you. That's how the game is to be played and that’s also the reason why I don’t like social occasions – those meet-your-primary-school-mates or meet-your-secondary-school-mates gathering. I think it’s human to be jealous and envious of other people’s success. I’m certainly not immune to that. It’s present in everyone in different degrees.

Since I’m usually quiet and listen more often than talk about my own life, I usually end up nodding to their account of how their work lives sucks or what good things had happened in their lives. Some of them are teachers, so they talk about how bad the politics are like in school, and how the quality of the teaching goes from bad to worse. Nod, nod. Some are from the financial industry and they talk about how big a deal they are cutting and the sacrifices from days of work and over-time needed to achieve it. Nod, nod.


For those who have children, depending on the stage of growth, they might talk about things ranging from milk powder and diapers, maid and mother-in-law issues to enrichment classes and exam results. It’s like whoa, suddenly everyone had a different thing to do in life and I’m like left behind. I’m still a tutor since 10 years ago and my career don’t seem to progress like they do. I don’t have a name card or a fancy title to boast, nor horrible colleagues out to politically sabotage me. I don’t have unyielding KPIs to achieve, company dinners at luxurious hotels to attend, or year-end bonuses to fight for. Over-time? Yeah, I do but not to the extent that I have to go home at 2 am, taking a cab that is to be reimbursed by the company. There’s nothing as interesting or dramatic as those who I meet, so perhaps it’s understandable that they are not so keen to listen to the story of my life. Maybe it’s just that I’m mixing with the wrong crowd or perhaps it's the right crowd but with a different frequency now. Regardless, it’s the same feeling after meeting them - a feeling that you had been left out of a normal life. It’s weird because even though a normal life can be sucky, you still want it because you’re not part of something bigger if you don’t have it. It's irrational, yes, but emotions are seldom rational.

On stronger days, I can deflect it away with ease. But it's those days when my will is weak that I start to have self-doubts regarding the choices I've made so far. Are they all leading me towards a lifetime of irreparable doom? It’s a strange mix of despair thrown in with jealousy, mixed with a dash of envy and a generous handful of bitter anomie. It’s hard to know whether on any particular day, whether I am strong willed or not, until it’s stress tested. In other words, I won’t know until it’s too late. It’ll take me several days to a week to regain my balance. These days, I think about why I should even do this. It’s 1 week of my life, over-thinking about my past choices and feeling like the lowliest pond scum in the universe. I do all that to what end, I wonder.


Hence these days, I’ll likely decline all such invitations to get together for old time’s sake, to reminisce about the past and share the feeling of nostalgia. Let’s be realistic – our lives shared a common path long time ago and it had long deviated from each other. The past will always be more romantic and rose tinted in our memories than it really is in real life and we can never be that close again.  Perhaps, things that are buried should just stay buried. At least the happy moments are also buried in your memories and you leave each other’s company with a sweet lingering taste long after the sweetness had been replaced with sourness and bitterness.

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Thoughts about STI part 3

After looking at Drizzt's blog regarding the yearly percentage returns from Dow Jones here, I wanted to have a look to see how our very own STI would look like if the same information is sliced up and presented.

Source:

The raw data of ^STI is taken directly from Yahoo! Finance site here. The adjusted closing price is used and according to the same site, it refers to the closing price for each day adjusted for splits and dividends.


Calculation of yearly returns:

I take the adjusted closing price of the last market day of each year, divided by that of the first market day of each year, then subtracted by 1 and multiplied by 100%. Each calculation is rounded to 0 decimal places. Dividends are also not included in the returns, so are the costs of ownership and brokerage.

For example,

Adjusted closing price for 2012 (31st Dec) is 3167.08
Adjusted closing price for 2012 (3rd Jan) is 2688.36

[(3167.08 / 2688.36) - 1]*100% = 18% (0 decimal places)

Since 2013 is not yet over, I use the latest adjusted closing price for 5th Dec 2013 to estimate the yearly returns. Unless something drastically happens, I think it should be a fairly good estimate.


Results:

Here, this is how it looks like for our STI:

Yearly returns of STI from 1988 - 2013. Click to see a bigger version.

Observation:

1. It's interesting to note that there's a general bias towards gains throughout the (short) history of STI. 15 out of the 26 years recorded (58%) are gains, while the rest of the 11 years (42%) are losses.


2. 1 out of every 2 years (50%), there'll be a double digit gains. If you look back at Drizzt's blog, it's about the same for DJ (49%). On the other hand, 27% of the time, there'll be a double digit losses for STI, compared to 22% chance of double digit losses for DJ. As mentioned in point 1, there's an inherent bias in the index towards gains.


3. For STI, 15% of the time, there's more than 30% gains. To give an illustration as to what a feel of 30% is, consider for a moment that for a base of 3000, a 30% gains will be 900 points added, so that's quite a massive increment yearly. On the other hand, about 8% of the time there'll be a more than 30% losses. To compare with DJ, it's 6% of the years having more than 30% gains, and 5% of the years having more than 30% losses.


4. The median returns is 6.6% and the average returns is 8.8% (it has, however a standard deviation of 29.1% - which means it's as volatile as a boat out in the sea on a typhoon).


5. For those years that posted a yearly gain, the median gain is 24.6% while the average gain is 27.8% (with standard deviation of 21.3%). For those years that posted a yearly loss, the median loss is 14.4% while the average loss is 17.9% (with standard deviation of 12.4%). It's funny to see that the losses are more consistent that than the gains.


Thoughts:

Does it mean that we should scramble and go get STI index straight away? Well, yes and no. Do take note that while the results here suggests that it's more likely to have gains in STI every year, implying that you'll gain more likely than you lose if you hold STI, the results are based on a yearly returns. This means that you'll have to buy at the start of the year and sell at the end to mimic this result, assuming that the past is any indication of the future. If you hold STI over a period longer than 1 year, your returns will vary significantly from the results shown here.


Let's pretend that you have $100 in year 0. After you lose 30% of it in year 1 and lose 30% of it in year 2, you still lose 9%. In other words, timing and the holding period matters a lot. I blogged about this years ago here and here that if your average holding period is 14 years, then you're safe from having negative returns (there's some assumptions in this conclusion too). Any shorter period of holding may result in a negative returns or it may not. It depends on your entrance price and exit price. In other words- timing.


I guess the take away is that if you want to do dumb-idiot-proof averaging (I'm not against it, btw. In fact, I'm quite for it if you don't want to care a hoot yet want to have a reasonable returns for your money), then you better choose a stock that is inherently bias towards safety. And what safer stock is there then index because of all the gains-bias and survivor-ship bias? Since the underlying is already there, you just need to worry about the cost. Find the lowest cost of holding index and you can just carry on your life with other more interesting stuff compared to finance and investing.

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Finding the lemonade out of the lemons

Maintaining a household is not cheap.


After about 2.5 yrs of wear and tear through usage and plain old 'depreciation', things start to break up a little for my home. Initially when well informed friends told me that I need to set up a fund to pay for such eventualities, I brushed them off saying that there's no need for such things and I can live with the wear and tear. I bravely and foolishly thought that it's just cosmetics (I can live with that). Nope, things can wear off to such an extent that they don't work anymore.


Here's my list of breakdowns in the last 2-3 months:


1. Home's air con

For my air con at home, it's quite important to have it to work properly because I switch it on whenever I hold lessons at home. My wife also can't live without it so she'll complain that it's so hot and all. Initially the problem is that the air con didn't seem to blow out cold air, so I thought that it needed servicing. However, the problem didn't go away so I've to sent a team to inspect and find out what's wrong. It needed a change in the motor so I've no choice but to order the parts and have it fixed.

Cost: $140 for servicing + $306 for changing of motor
Total : $446

The lemonade out of the lemon: The problem got to the point where before I switched the air con on, I'll do a little rain dance and talk to the compressor, coaxing it to work and not give up on me. Occasionally it'll try but most of the time it'll splutter and die. I'm super thankful that it did work even though it's ill. For the times that it didn't work, I'll just tell my wife that Mr Air con is having a bad day and he's not cooperative. It's quite fun personifying the air con as being temperamental. Oh no, it's not spoilt - it has character.

Mine's something like this, also from Daikin.

2. Car's air con

For my car's air con, the compressor is making a hell lot of noise when it's stationary. I was told that the symptoms will become worse as time progresses until eventually it'll not blow out cold air at all. I thought I'll get it fix the next time I go for my bi-annual servicing, and it'll probably cost maybe 1k? Ouch.

Cost: currently none, but estimated to be 1k

The lemonade out of the lemon: I discovered the joy of winding down the windows and enjoying the breeze whenever I drive! It's so addictive that we do it all the time except when we're stuck in a jam (which isn't that often) and when we enter an basement car park. Doing this is not only good for improving one's mood when driving, but it also saves a lot of fuel. I guesstimate it saves another 20 - 30% on fuel consumption. Instead of pumping fuel every 7 days, now it can drag to 9 or 10 days before needing a refuel.

I should get a car like that. But then, I forgot we're in Singapore lol

3. Kitchen tap leaking

My kitchen tap keeps dripping water. Not only is the noise irritating, but it's a real waste of water. On average, it can fill a 600 ml water bottle overnight. I wanted to find a plumber to do it but didn't really have any good contacts, so I keep procrastinating the repair. Eventually I got so fed up that I looked up you tube to see if I can fix it myself. I wanted to be self reliance instead of asking someone to fix everything in modern life.

Cost: none

The lemonade out of the lemon: Again, I personify the leaking tap as a old cranky person who is having a flu. Instead of being angry at the problem, I see it as a person needing help. Oh, how re-framing the problem helps so much! I remembered that I was at the kitchen sink trying to figure out what's wrong with the cranky tap. Somehow I realised that by turning off the tap gently, the problem can be reduced drastically. Counting the time between drips, it can change from 1s (very very fast drips) to 8s (tolerably slow drips) just by turning the tap gently! I don't know the reason why but it works that way. Because of this episode of dripping taps, I started putting a water bottle to catch all the runaway water to reuse. This act also started off a series of actions that makes me water to conserve water. I started to become more conscious of how much water we use and see what ways we can recycle them. To update, this leaking tap problem solved itself one day. As sudden as it came, as sudden as it went. Today, it no longer drips at all. Perhaps the lesson from this episode had been learnt. Or perhaps the tap recovered from his flu.

LOL! Lemonade taps

4. Windows at balcony dripping water

Whenever there is a super heavy rain with the wind blowing from a certain direction, my balcony will have water gushing out from the gaps between the frame and the window. It is so bad that I can collect a medium sized pail of water when it happens. My neighbor directly below my unit also complains that his ceiling is bloated with water retention so the town council stepped in and tried to solve the problem. The problem is attributed to some external wall and they are sending contractors to rectify it (at no cost to me, thankfully). But I suspect the inspector made an observational error. I didn't tell him at that time because I wasn't sure...so I think even after the repairs had been done, we'll still be in the same situation. We'll take one step at a time.

Cost: Tens of dollars (see below)

The lemonade out of the lemon: I tried to make some repairs to bridge the gap between the window frame and the window itself by getting some silicon sealant from DIY shops. It worked, but it wasn't an elegant solution, so I redid it again. This time, I bought foam tapes from Daiso. It should work now because since I installed it like 2 months ago, there's no more water gushing out. Then again, this problem only comes when it rains a certain degree of intensity and the wind comes from a certain angle, so I wasn't sure if my newest solution is a success or it simply hadn't been tested. We'll see. But this desire to be as self reliant as possible makes me want to learn how to solve my leaking tap issues. In modern life, we forgot how to live and we always solve problems by outsourcing to specialist. We should try to capture that can-do spirit as much as possible again.

This is something like the contraption I use to catch those gushing water

In summary, I think I was pretty methodical in solving my those little problems that crop up in my household. Scientific even. Re-framing a problems helps to put it in a different light. Try it! Always look on the bright side of lie :)

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3 Things to be grateful for

Since this month is December, a great holiday for students and a more laid back month for those working, I thought I should do a post to reflect upon the things that I'm grateful for in my life. I think in life, we focus a lot on the things that we do not have and not so much on the things that we had. It's a good time to put things in their right perspective. I don't know who said this, but I'm pretty sure it goes something like this: If you can't have what you love, then love what you have.


3 Things in life that I'm grateful for:

1. Good health

When we're healthy and everything is fine, we tend to take good health for granted. We do silly things that abuse our body, thinking that when we're older, good health is still a given. No it's not. When you're in your mid thirties, you feel your body slowly down and that's completely natural. You don't have as much energy as you would when you are in your twenties. You can't stay up all night and go to work the next day and not suffer the consequences. I'm thankful for my relatively good health so far.

2. Loving and supportive wife

I'm in a job where the pay is not fixed and certain months I'm basically eating grass. If not for the strong family support that I have, I might not last that long. During my winter months, she's been paying her share of her expenses and more, so that it's easier on me. For her support, I'm eternally grateful and thankful.

3. Cats

Ah, these godly beings who lie around in plain sight while minions like us work and slave around them. I believe that cats are here for a purpose - to teach us how simple a good life can be. While most are not as enthusiastic as how dogs show their love, they do so in their purrfectly tender and soft way. There's this cute little cat who lives at a carpark near my home and I always see her around. She recognises us and will scamper towards us when we call her out. I'm grateful for these little gestures shown by cats that teaches us how little we need to be happy. In the presence of cats, we're just sniveling, sycophantic minons. Happy, nevertheless.

I made a few posts like this in the past too. It's interesting to read about the things that I was grateful for at the time of writing, haha

1. I'm grateful for...

2. Don't take things for granted

3. You need both rainy and sunny days to make life's rainbows

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New clothes for BullyTheBear

It's time to change a new template for bullythebear.


It had been 5 years since I've last changed a new template, so I guess the time is ripe for another change. This change will make the 3rd major change since I started since blog. As always, it'll be dark themed. So if you're waiting for Bullythebear to have a white based theme, haha, wait longer! I think darker themes is easier on the eyes when reading, at least to me. Since the current template had been with us for 5 years, I guess that there'll be more resistance. But as always, trust that the change is good, if you can be patient and grow to like the new changes, as you've always had done so in the past :)


These days, more people are reading off hand phones and tablets, rather than desktop and laptop. The on-the-go kind of mobility means that the template got to have less loading time and also be able to fit aesthetically into the palm size screen of tablet and hand phones. For the current template, I always have to scroll horizontally, if not the fonts are too small to read comfortably on the handphone. I'm not sure if I'm the only one to have this problem, but no one had complained to me about it before. The usual complaints are that the screen/fonts contrast are too weak, so it makes reading the words hard. Well, I'll try my best to make the contrast a little better, but it'll never have that strong in-your-face contrast of white background against black fonts for white themed templates - something I really hate reading on.


The usual elements of bullythebear will be there, like the cbox, some nuffnang ad elements (lesser and hopefully less intrusive) and some ads that I designed. I'm not so hard up about ads anymore. Financial bloggers earn peanuts from ads anyway, so let's not kid ourselves. Obviously, I'll have to change the colour themes of the cbox to make it more suitable for the new template, but I think a lot of regulars will complain too, haha! 5 yrs is a long time to grow attach to something that I check everyday :)


For records sake, I'll be putting screenshots of the current template here. It's good to see how far we've come to by looking at previous post.

Huat ah....be well and prosper :)

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Tightening my belt in December

As December approaches, I'll be careful to monitor my mental health for signs of depression. Why? I think I'm sort of a workaholic. Work fulfills me, not just in terms of the obvious financial gains that I will get, but also it's therapeutic to me. I cannot recall the countless times that doing my work (tutoring) makes me feel better. As year end approaches, I get 'retrenched'. Whatever amount of salary that I accumulated from the start of the year by getting more assignments gets blown away. I start off the new year with much reduced pay and I work my way upwards, before the dreaded winter months wipe it off again.


December is also a period of time where people get informed of their year end bonuses. Generally it's a festive month for them as the hard earned bonuses makes them spend a little on themselves and their families. For me? It's a month of tightening my belt. My income probably become less than 1k during the winter months - not even sufficient to offset my fixed expenses of 3.5k. Usually it's not a problem but this year is bad due to a variety of reasons that I don't wish to explain, hence there's little excess from the good months to tide over the winter months.

"It's time to tank behind a shield and wait for the harsh months to pass"
Pic by zgul-osr1113 from deviant art

As I've less work and more time at hand, I usually take the quieter period to think about whether this is the kind of life that I want to be in, or is it time to do something different. Always it's the same few thoughts:

1. Have faith - Think positively and fulfilling work will come your way. So much so that I will have to reject some of them because I don't have time to take them up.

2. Have a break - I've been working hard for the months leading up to my winter months, so relax and give myself a hiatus before cheonging again for the coming new year. I rest now so that I can walk further later.

3. Have a life - Work, though it seems like play to me, is fulfilling but there are other aspects to life as well that can be equally fulfilling. I take this opportunity to experience life, spend more time with loved ones, exercise hard, sleep late, devour tonnes of books and play games that I wouldn't have the time/energy to do in my peak months.


I guess ten years being a full time tutor already allowed me to understand what it is like to be in this business. I voluntarily choose to have no paid leave, no paternity leave (if I have a kid), no bonus, no CPF employers contribution, no medical benefits, no chance to travel overseas, no colleagues, no career track, no company functions, no fanciful resumes and no corporate titles. Instead, what I do have is a lot more free time, a meaningful work that doesn't even feel like work, and a goddamnit will to survive years of seasonal retrenchment and pick myself up again and again.


Time to sit tight in the winter months and wait for the robins to appear.

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Desktop productivity tools

I'm always very interested in improving my workflow. I don't own a laptop and most of my work is done on a desktop pc. For me, a non-cluttered pc desktop, a non-cluttered physical desktop, a clean and aesthetic software and stationery that boosts my productivity are paramount before I start something heavy (and possibly dreary). Take it as a planned procrastination, but that's how I gear up my momentum before I dive into something big.

I'll list down some of the programs that I use very often to improve my productivity. In no order of importance, here's my best 5:

1. You Need A Budget

I've written extensively about this software that aids in managing and tracking my personal finance here. Having used for for 2 months now, I'm still very pleased with how it cut short so much of my time keying in my expenses. It comes with an android / iOS app that syncs with the desktop version. I foresee myself using this for a very long time.

2.  TuneUp utilities 

This is those clean up program that everyone should have. It does a couple of functions like optimizing your memory usage, cleaning up temp files and clearing all those broken shortcuts and invalid registry - in other words, it boost your pc performance. You know, after a few years of using your laptop or pc, it starts to slow down as more junk are added. Without clearing them frequently, it slows down to a crawl and even opening a browser or a doc will take ages. This is what you need.

3. Fences

I started using this recently and shared it on my facebook too. This is a fantastic piece of software, especially for people who likes to save downloads onto their desktop (and who don't?). It helps to compartmentalize the shortcuts and saved files into neat little, well, fences, so that you can sort them out. I've a 'Follow up' fence and a 'To be sorted' fence that I dump my new downloads into, so that I can sort them out later when I've the time. It even have a function where you can create multiple 'home-screens', like in your handphone, so that you can scroll horizontal left and right. In this way, you'll end up with multiple desktop, so to speak. Most important find of the year for me.

4. Snagit

I've been using this software for years. It's a screen capture program that allows you to, well, capture screen shots. There are so many ways to capture screenshots, like capturing vertically scrollable web pages, windows, even video clips. After capturing, you be launched into their editor, where you can annotate and add in small pictures or highlights, changing the resolution etc. Lastly, you can also change the file type to be saved, like pdf, jpeg etc. Good for putting those stock charts and drawing trend lines.

5. PDF X-change Viewer

Adobe reader is one of the worst pdf readers because it's so slow. After changing to this, pdf files open up so much faster. They also allow you to annotate and add comments (depends on the version), something that is not possible on the free version of adobe reader. To think that I've been stuck on adobe reader for so long! If you don't like this, there are other free and better software than adobe reader. Stop using that bloaty software for your own sake!

This is not an advertorial and I don't get paid for promoting these. These are some software that works for me, and by hopefully for you too. I hope you'll find some of these helpful. If you do, please let me know. Share some of your best productivity tools with me too!

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The relative size of your problems

"To be successful in life is to continuously be defeated by bigger and bigger things".

I was just showering when I suddenly remembered that phrase I've read it from somewhere. I tried googling it but couldn't find anything remotely close to it. Doesn't matter. I think this phrase ties in with two blog posts that I've written many years ago here and here, about growing bigger than your problems so that the problems that you had seems like flies buzzing around you instead of dragons - a mere annoyance rather than a fiery death-threatening problem.


In other words, the bigger your problem is and the smaller your annoyance, it means that you've grown bigger and correspondingly, your problem smaller. Congrats! Challenges that seem like mountains years ago are now dwarfed by your growing size. But there's a Chinese saying that goes like this: There's always a taller mountain. So to be successful, you have to grow bigger, again! That's why if we're continuously defeated by bigger and bigger things, it's a sure sign that we've outgrown ourselves. On the flip side, if you find that the problems that are causing you severe stress seems to be getting smaller in nature, I think you're getting smaller in size. That's the road to a lifetime of misery and depression.

So how do we grow bigger than our problems?


1. Always push your limits. If you don't test your limits, you can never push beyond your comfort zone. In investing, there's always Buffett fans saying that we should not invest beyond our circle of competence. But have you asked how you even get that circle of competence in the first place? You certainly don't get born with one.


2. Don't be afraid to try new experiences. Black swans work both ways. You want low probability events with huge consequences to act in your favour. The best way to do this is to expose yourself to things that you're too afraid to try.


3. Be comfortable with failure. If I'm an employer, I'll look for someone with track records of failing and picking himself up again. Then I'll know for sure that the person had gone through the trials of fire and survived. If you're looking for someone with the best track record, you never know if he can handle failure and how he'll respond to it. Better look for a proven survivor than a unproven one.

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My plan for my wife when I pass away

While having lunch in a subway outlet, me and my wife started talking about something morbid. It's about our plans for each other when we pass away prematurely, like within the next few years. It wasn't a morbid topic for me though. I thought that we should talk about such issues so that we have a feel for each other's plan. In the eventuality that we pass away, we can do so in peace with the knowledge that the other party is well taken care off. That's the important part - to leave peacefully and to know that whoever we leave behind is well taken care off, at least financially.



When I pass away,

1. All the outstanding mortgage payments to HDB will be paid up for. That's like $450k we're talking about.


2. The death benefits from my insurance depends on how I pass away. If it's before 2023, it'll be $275k in total. If it's accidental death and I'm younger than 64 yrs old, it'll be $350k. If none of the above, it'll be $250k. Since we're talking about dying in the immediate future, let's just treat it as $275k.


I think my wife will have no problem taking care of the car loan which is about 10k. I haven't even included my bank accounts, stock portfolio and CPF money to the whole equation, but I'm pretty sure my parents and wife is well taken care financially. That's very good. But money isn't always the only problem that needs to be taken care of. Actually emotional and mental health is just as important.

With that in mind, I even thought out a plan for her:

1. With all the money left, she should just let it sit in the bank for a while and not touch it for at least 6 months to a year. This is the cooling off period to make sure that she don't use the money emotionally.


2. The 5 room HDB that we're currently staying is too big for her needs. She should not sell it but rent it out at maybe 2 to 3k if it's after 5 years of minimum occupation period. If it's before 5 years, ask her parents to stay over at my home and rent out her parent's home. This will free up cash to take care of her parents and also to generate positive cash flow for her own retirement.


3. Look for investment opportunities in the stock market or property investing. This will require the help and advice of my good bullythebear friends, whom she also keeps in constant contact. I'm sure she'll have the best advice from them. Get a small property if necessary, pay off enough as down payment to make sure that the rental from the HDB can cover a big percentage of the mortgage of the new property. This will ensure that in the event that the property market is not good after the purchase, she'll have enough to pay off the mortgage monthly without breaking a sweat.


4. Ask her immediate supervisor for a pay raise. If they refuse, just leave them and concentrate on those work that is satisfying for her. She probably don't have to work so hard for money anymore, so she should find something she likes to do to earn some income. Maybe like just work for 2 or 3 days in a week. No stress.


5. Use the time freed up to take care of her health by going to exercise more often, eat more healthily and bring herself and her parents/my parents overseas to enjoy life.


6. Find herself a good husband if she can, to take care of her.


Good plan? With all these 'morbid' thoughts in mind, I think I'll treasure my time here with her more.

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The advice from an economist lecturer

This is an interesting story that I heard, the source of which I will not mention to protect the people involved.


There is an economics lecturer in a university, and we shall call him John. He is middle age, with adult kids. The kids had migrated over to Australia for reasons unknown to me, but he's still staying here in Singapore, earning a more than decent living working part time as a lecturer. The other part time work that he's doing is that of a land lord. He didn't say much, but it's reasonable to deduce that he is semi retired and had reached a certain degree of financial freedom so that he can quit his job and still maintain the same standard of living as before.


I'm not sure how many properties he had, but it should be more than 1 and that excludes the residential property that he's living in now. He had many advice for the young people he taught and some of the financial advice he mention are listed below:


1. You should buy a private property as soon as you can. Suppose an affordable property cost $1 million and you need a down payment of 20%, that is easily 200 k.


2. You should study lesser and go out to work early so that you can earn the first drop of capital to start investing. Investing, together with hard savings, will make it possible to get that down payment of 200k to begin your financial freedom journey.


Okay. Decent advice to young people (in fact, to all people) trying to make a decent living here in Singapore. But when asked whether the opportunities that enabled him to buy several properties, and reach financial independence way before the standard retirement age of 65, are still available to young people these days, not withstanding all the property cooling measures and the very recent measures by the G to clam down on the high household debts, he said a thoughtful no.


On the first point, 200k is quite impossible for a young person to amass in a short time at all. Say, that a person can save 25k a year, or slightly more than 2k a month, that would be possible after 8 yrs. But 2k a month savings on a salary of what - 3 to 3.5k? It's going to be a tough 8 years. Make it very lean and very tough 8 years. If you're a non-graduate, it's going to be like running in the Gobi desert for 8 years. Barefooted.

Oh yeah. Just like that. Running barefooted in the desert.

On the sheer difficulty of young people even getting that first bucket of money, John proposed that getting married is the key to young couples amassing enough capital to make the first down payment. 200k is difficult for 1 person? Maybe 100k is much more manageable for each unit of a couple. To save 100k, that's about saving 12k a year or 1k a month for about 8.5 years.


That's pure savings, with zero elements in investing. John mentioned that the money saved should be invested in safe, recession proof stocks (he mentioned a supermarket chain). Hmm, I would think STI might prove to be a better bet if you want to be invested in something robust. I worked it out a spreadsheet, injecting capital of 12k per year and investing all in a suitable STI fund that gives a returns of 3%. In about 8 years, you'll get your 100k. But of course there's a risk that you might end up with something lower than 100k because you have to sell it when it's not doing so well at the end of 8 years.


In other words, investing in the stock market when you need a property in 8 years might not be such a guaranteed thing that John mentioned. By investing in the stock market, based on my spreadsheet, 96k of the 100k is through pure savings (12k per year over 8 yrs = 96k), while the remaining 4k is your returns from investing. 4k! I might as well save 1k per month over 4 months - it's much more guaranteed and certainly less stressful!


In other words, it's not easy.


An interesting wrap up to this is that John regrets that his parents had sent him to school overseas. They might had better investment returns if they had used that tuition fees to buy a property. Again, totally agreed, but isn't that looking back on the rose tinted, fantasy laced view from the rear mirror? He even suggested that young people should study less and go to the workforce earlier so that they can amass that all important first bucket of gold.


Alas, things are not so simple. If you're not decently educated, chances are you'll not have a decent pay, which makes everything downstream much harder. To tell the next generation to follow the recipe of your success that happened in the past is too much of a prediction for me. In my parent's time, they see the highly educated doing office work and getting very good pay, so they advised us to study hard and get a good job in the future. A future that (most likely) our parent's generation do not possess because they are not highly educated. When it comes down to our generation, we teach our children not to study so hard because the rich are those towkays who are not highly educated but they have a strong entrepreneurial spirit. We tell them it's okay not to be good in studies and should go start a business if and when they can in order to secure a good future. A future that (most likely) we do not possess because we are too highly educated and had too much to lose if we start a business.


What's the next generation going to advice the future generations?


Date: 12-Nov-2013

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Paying down your debts or invest the cash?

If you have spare cash, would you dump it to make a partial payment of your mortgage loans or would you invest it so that you can generate more returns? Sooner or later, I think that's the question that you will have to face in your life. The philosophy and the baggage that you carry with you will determine which decision you'll make.


Let's put in the context. I used HDB's loans with interest of 2.6% pa, spanning over 30 yrs. My monthly mortgage, all paid in cash since I have no or little CPF, is about 2k. Each year, based on the monthly mortgage payment of 2k, I would have paid a sum of $24k (2k per month x 12 months). Me and my wife had saved up $24k and I was wondering if it's good to make a partial repayment of our loans. Since the loan is by HDB, there isn't any penalty for early repayments for loans, so this is quite unlike most private bank loans. I guess even bank loans have their own terms and conditions, so penalty for early repayment is not a given; it depends on the contract you've signed on.

Pay down your debts or invest it?

Effectively, if I were to make a partial repayment, that means I'm paying a total of $48k this year - twice as much as I'm obligated to. What's good and bad about this? The good thing is that if I maintain this yearly, I can shorten my remaining 27.5 yrs loan to just 11 yrs. There is going to be huge interest savings in this. The bad thing is that I'll have less cash available for investments. This is especially true for me because I pay off in cash, not using CPF. In other words, I have a higher opportunity cost than if someone pays off in CPF (yes, I know CPF earns 2.5% interest pa and cash inherently has near 0%). What kinds of investments are we talking about? Not just restricted to stocks, but also property.


I've blogged before that I would take the middle path. I would pay off a big portion in the form of partial repayment in my early years of the loan period, until the monthly mortgage becomes 'manageable', before conserving the cash and reserve it for investments/property etc. I've changed the plan a little though. Initially I wanted to make partial repayments and choose the option that allows me to reduce the monthly mortgage instead of the option that reduces the mortgage loan duration. I didn't take into account the fact that the paper work involved for both of them differ. There's a whole lot of paper work that needs to be done to reduce the monthly payment, like changing the GIRO amount, writing in to HDB etc etc. Nah, too much trouble. I'll just tweak my plan to reduce the loan duration initially. When it makes a substantial difference then I'll switch to reducing my monthly mortgage amount.


Anyway, it's not as if all these is going to end in 2-3 yrs. It's more likely going to be an arduous 10 to 15 yrs. Long journey to go, so no point being caught up in paper work every year. Maybe after the 5th year of such repayments, I'll review and see if it makes sense to reduce the monthly amount.


Interest that you owe to others is guaranteed. Investment returns are not. I guess we have to make a compromise between these two.


* After putting in the extra cash of 24k, I noted that I've shaved off 2.5 years off my 30 yrs loan period. A future payment of 1 yr equates to 2.5 yrs of savings from future payments. Hmm, depending on inflation, it might or might not be worth it.


Date: 7-Nov-2013

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Thoughts after 1 month of YNAB

I've finally reached the 1 month mark of using the personal finance software, You Need A Budget (YNAB). It's the first time that my expenses are measured to the cents, inclusive of all the accounts that I had. In the past, I didn't include the cash in my wallet and neither did I group all the spending I had using my credit card and cash together. For example, if I've spent $100 on food using cash and another $50 on food using credit card, I didn't take into account that I spent $150 on food. It's a simpler inclusion in my spreadsheet to do it, but I just didn't do it. I guess there's no real reason for me to do it.

Well, using YNAB didn't give me a choice.

Hence, I uncovered a few things about my spending:


1. I spend about $540 on food. These includes groceries trip, hawker/food court and also restaurants. Since me and my wife take turns to pay for restaurants, my restaurant bills also includes her share. But I think it averages out, since my wife also help to offset my bills by paying for me. 30% of the food bills come from restaurants trip, another 68% from hawker/food court and the rest are groceries. I think if I need to cut anything, it'll be restaurant bills.


Another interesting thing is that I grossly underestimated my food expenses. As a rule of thumb, I count it as $10 per day ($5 per meal) for 30 days per month, amounting to $300. Then I include another $100 for restaurant bills, chalking about $400. I didn't include groceries at all in the past. So now, the new metric should be $20 for food per day, everything in.


2. I used to be very concerned about spending a lot on gadgets. I mean when I don't spend, I really don't spend. But if I do, it'll be $xxx to $xxxx in one shot. This is something quite different from my wife, as she is used to spending $xx but very reluctantly to do $xxxx. I set up an account called 'play fund' to purchase all these computer gadgets/games/peripheral computer stuff. Busted it this month when I spent a few hundreds for my handphone. At least I don't feel so guilty now, since I already put in a budget for it. That's one of the main reason why I wanted to do a budget - so that I can spend without feeling guilty, otherwise I could save too much. A happy problem, but a problem nevertheless.


3. I have missing cash here and there in my 'wallet' account and occasionally, extra cash. It's not a lot of money. $1 here, 50 cts there, 20 cts there. It's funny because I recorded in every single transaction. The only way that I could lose or gain these small sums of money is because I seldom count in detail the change that I get from others. It's just a quick visual look and I'll put the change aside. Either that, or my wallet has a small hole that I'm unaware of. This unaccountable sums of money that I can get from time to time is classified under 'reconciliation balance', and it happens when my actual amount of money in my wallet is different from the amount of money I should have in my 'wallet' account in the software.


Things are much much cleaner and clearer. I thought it's good enough using spreadsheet but now I probably couldn't go back to using just spreadsheet. The integration between mobile phone and desktop is perfectly suitable for my needs and it saves me a lot of time double checking.


Certainly one of the best things that happened in this aspect of my life. I'm a big fan of anything that improves my productivity.

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I don't know

It's so easy to say the three words, "I don't know". By saying that, you don't have to put more effort anymore. You don't have to try anymore and you certainly don't have to blame yourself for not knowing. Just by saying I don't know, you absolve yourself of all responsibilities. Suddenly, it's other people's problem - those who 'know' - and you just have to wait for them to help you solve it.

The difference between a good student and a bad one can be seen by how easily they say those three words. Good students face as much difficulties as bad students when they encounter something new, but their attitude makes all the difference. They seldom say I don't know. In fact, they seldom give up. They'll work on a problem until the problem gives way. If they can't do it, they'll try it again and again. If they can't solve it without some guidance, they'll seek the necessary guidance and find the necessary skill set and knowledge to solve it. They own the problem. They want to solve it. It's their focus and never say die attitude that makes them winners, eventually. Good students work on a problem longer than others, outlasting those who say "I don't know" the instance they encountered difficulties.


Bad students are just like tissue prata on a rainy day. The moment the first raindrop hits the prata, it crumbles and soften, losing all shape and structure. They lack the tenacity to fight and they certainly don't own the problem. If you don't own the problem, it's not your problem, so you don't have the motivation and determination to finish it till the end.

Like a prata hitting the first drop of rain. Can you imagine it?

This kind of attitude will last long into your adult life and beyond your student days. If someone ask me what's the point of learning 'cheam' trigonometry and differential equations and integration, this is what I would tell them. In learning a particular subject, there is a set of syllabus laid out by MOE and a hidden set of syllabus of LIFE. The syllabus by MOE are the learning objectives for that particular subjects. These outcomes will be tested in the exams but will be soon forgotten once the student leaves school. However, the hidden curriculum - the syllabus of LIFE - these are much much more precious and have long lasting effect in your life, well beyond the context of the subject. To succeed well in maths, besides knowing how to do the content well, you also need to have a set of characteristics. In maths, it could be logical thinking, carefulness, tenacity and creativity. For example, no matter how good you are, if you're not determined, as soon as you hit an obstacle, you'll give up. In that way, you'll never be able to do well in the subject. Those little habits you do while doing maths - like forcing yourself to try again and again, or checking, or asking around for help but working through the sums yourself - reinforces good character over and over again throughout your study life. These things last, long after you forgot the solution to the integration of ln x and differentiation of cot 2x.


I must have learn tenacity by playing computer games. In those days, SEGA games seldom comes with autosaves or save-any-time-you-like. You only save at a certain point, or mostly, none at all. I remember playing contra or sonic, carefully working through levels and levels and not having a save point anywhere in sight. You die often. You try again. You die again. You try again. UNTIL THE GAME GIVES UP OR YOU GIVE UP! The reward for not giving up and winning the game is often just that you can see a lousy pixellated victory at the end game and perhaps some sob story to convince you that the hero won against all odds.

So, do yourself a favour. Don't say "I don't know" so easily. Fight hard and fight harder.

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