April Strategy: Europe's turn to outperform?

 

You can discern from my Portfolio page that I am overweight UK and European equities which has resulted in underperformance in the past. It is not because my UK/Euro equities lost money (they are also overall green thanks to my top Euro holdings being ETFs, Financials and Commodities). It is that I tended to pick Euro stocks that are supposed to be boring dividend payers rather than growth stocks with higher expected capital gain.

While I have Vodafone in the red, it has not been one of my top holdings though I have been adding to it after it crashed further, as I had mentioned in an earlier blogpost).

I was cheered by the fact that European markets have moving up slowly and steady with the UK FTSE 100 hitting a record. 

As a result, there appears to be a marked divergence between my portfolio performance and Vanguard World. I predict that our local forums and maybe even some local bloggers will start posting about investing in European stocks (eg: late to the party / FOMO sort of posts like "XXX has risen 100%, should you still invest???")

However, I will never underestimate the power of the S&P500, which means that I will continue to put at least 50% of my free cash flow into World/US ETFs.

Strategy: April 2024 - REIT 'correction'

 While Global Indices show a slight down trend, SG REITs have been falling sharply.

Today, Frasers Logistics Trust ("FLCT") went below $1.00 and I am happy to accumulate more under $1.00 so I bought more at $0.97. My average buying price is above $1 so this is one of my 'red' counters. 

I had noticed that earlier this week, a lot of local bloggers have been posting about SG REITs and some even shared their purchases of local REITs. That is usually a sign that there is going to be a correction. 😐

Nevertheless, I feel that fair value is above $1 so I will continue to accumulate at current prices. Previously I mentioned it was ok to buy even between $1.01-$1.05 and had been buying in that price range as well.

At the same time, I also bought more VWRD last night. As mentioned many times, I have resolved to be disciplined about adding to both my Global ETF holdings and individual stocks. 

Long time ago, I may have gone all in on cheap SG REITs but now, I am more diligent about dividing my purchases between individual stocks and ETFs. 

Comfort Delgro price rally

 

I have been holding Comfort Delgro for the longest time since the GFC. After the price crashed in 2022 and 2023, I have been accumulating more since I find it easier to buy good shares when their price is below my original buying price. This is sunk cost fallacy at work, and I freely admit that I'm susceptible to it. 😊

When it comes to reasons to buy Comfort Delgro, there seemed to be quite a few. The EPS crash during COVID was terrible but there was nothing preventing it from recovering to pre-COVID levels, in which case CDG would be seriously undervalued. The company generates steady cashflow in an industry where the Capex is not too high (compared to say Telcos). The barriers to entry come from the regulatory environment where the company has to bid for contracts to operate transport routes. Grab/Uber was no doubt a disruptor but the threat is receding as there is only so much cash Grab can burn before investors start insisting that they make a profit.

As you can see from the chart, there was a major crash in June 2023 where I think the price touched $1.00 briefly. So in June 2024, the 1 year performance of C52 will shoot up to the 40%++ region. Which is an illustration of how to 'cherry-pick' time periods to present a more favourable return.

Next recovery I am waiting for is Singtel. The rumours that they are planning to sell Optus have pushed up the price in recent weeks.

SIA 3.03% bonds redeemed!

 

In 2019, I subscribed to $85k of SIA 5-year bonds. Last week, SIA redeemed the bonds and I got all my money back.  

In 2020 after COVID struck and I was running out of cash to invest, I sold about half of bonds at slightly above $1 to fund more stock purchases.  

So at the end of the day, the bonds did their job which was to preserve wealth and provide a source of liquidity to buy stocks. 

Unfortunately, the market for retail bonds have dried up. Temasek is no longer issuing Astrea PE bonds as well. On the flipside, T-bill and cash management account rates are pretty decent. As I'm not very sure what to do with $45k, I will park it in the FSMOne cash management account to earn 3%+ for the time being.

Collecting passive income means that you have lots of cash entering your bank accounts every month, so you have to be prepared to spend a little bit of time doing cash management. Its not that hard as all you need to do is to park them in T-bills or in 3%+ cash management accounts like FSMOne. 

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Original Post: BuyafterCrash: SIA 5 yr 3.03% bonds

Dividends Collected: March 2024

 

My forecast is for a slower dividend increase of about 15% this year, because I have put more of my fresh funds into fixed income like T-bills, which don't yield as much as equities. Based on 1Q24, it looks like I am on track to achieve this.

1Q24 Finally caught up with Vanguard World

 

The first quarter of 2024 is basically over and my IBKR portfolio has finally caught up with Vanguard World. Whether I will be able to overtake VT is an interesting question. I failed to do so in the last 2 years, but maybe third times a charm. 

We are looking good for a 10% return at the end of the year, which would provide a nice boost to my retirement savings. 

Why I still like FSMOne (2024 edition)

 

Internet forums have remarked on the appearance of new financial youtubers (labelled cleverly by someone as influenzas) who seem to be pushing affiliate links and trying to get people to sign up to one of the new broker-custodians. This may give the new investor the impression that these new brokers are the only game in town when there are actually some pretty good local platforms.

As I was reviewing my FSMOne account holdings and editing some RSP orders, this was a good opportunity to record my 2024 thoughts on FSMOne. I admit that when they imposed platform fees, I thought that they were goners, as the need for platform fees suggested that they had some inefficient cost structure whereas platforms like Poems were able to manage fine without platform fees.

Product Availability

When I talk about product availability, I am talking in terms of products that I find worth investing in. In 2024, the product offering is pretty good but not perfect:

• HKSE ETFs
• US ETFs
• LSE ETFs (GBP only) 26/3 Edit: USD ETFs now available
• Low cost unit trusts
• Bonds

ETF RSP Fees

FSMOne has been offering 0% commission RSP on selected HKSE, US, and SG ETFs for several years. Here's my invoice from a recent $900 RSP into a HK ETF. The fees were HKD 5.93. So this is really a great deal. More significantly, investors can choose 1 of 4 days every month for the RSP transaction. Previously, all the orders were done on the 8th of the month. For less liquid ETFs, it seems that FSMOne's market order results in a price spike - since everyone "knew" that FSMOne was going to place a market order on the 8th, it was easy to front run the order. Spreading the RSP volume across 4 different days helps.  

26/3 Edit

USD ETFs listed on LSE are available but not part of the 0% RSP Promotion.

No unit trust platform fees for Diamond Tier

 

When you reach Diamond tier at 500k, there are no more platform fees for unit trusts! You can reach Diamond tier by placing cash in their 3%+ cash management account and via the AUM of your ETFs and SG shares (for which they are no platform fees)

If you are buying only low expense ratio unit trusts, it actually means that FSMOne Diamond might actually be 'cheaper' than Endowus because the Endowus 'rebate' is minimal for low-cost funds but you still have to pay the Endowus platform fee. At time of writing, Endowus platform fee is 0.5% for $200k-$1m AUM.

Finally, since the webpage says no platform fee for unit trust for Diamond, this implies that the platform fee for bond is still applicable, so no free lunch for bonds.

 

Vanguard's Ireland domiciled Vanguard Global and Vanguard US 500 funds are pretty reasonable with ongoing charges of 0.18% and 0.10% respectively. The minimum initial investment is US$1,000. I am planning to buy some instead of holding all my Vanguard World in Interactive Brokers. Note - you have to fill in an accredited investor declaration before buying.

Auto-sweep accounts of US$ and S$

The yield for the US$ and S$ auto-sweep accounts (i.e. cash management accounts) are 4.7% and 3.2% at time of writing. Pretty decent place to park some spare cash compared to the pitiful interest rates in Standard Chartered- I use SCB trading a lot so I have a 'float' of US$/S$ that is earning hardly any interest. (Note: cash management accounts are not SDC protected).

Conclusion: Will be increasing my holdings in FSMOne

FSMOne is a pretty good platform. One is always worried that FSMOne may revise its pricing structure but so far, the 0% comms ETF RSP has been around for a long time and so has the platform fee waiver for Diamond tier. If these remain, FSMOne is a great choice as a broker-custodian. 

IWDA 'progress report'

 

Last month, I talked about the onward march of the US market and even wondered if IWDA would hit $100. Since then, the market has continued to march upwards. I really need a lot of discipline to continue to DCA with these sorts of prices. 

While I always on the lookout for bargains in non-US markets, I am not so confident that a China market rally is a guaranteed thing. The problem is that so many 'experts' are predicting that the China market will rally, probably the same experts the predicted a recession in 2023. When a lot of people expect something to happen, it might not happen.

However, having said that, I think the China market will be green this year, but it will be a 'weak' green rather than the massive rally that many are claiming to predict. 

Dividends Collected: Feb 2024

 

STI ETF paid dividends this month.

CPF Strategy when turning 55

This blogpost is for me to record my thoughts on CPF so that I have some notes to refer to when I start approaching 55.

I have had not the opportunity to think about reaching CPF withdrawal age at 55 as I have some time left to go. However Budget 2024 with the 2 major CPF changes, and the financial blogosphere posting their analysis about CPF, I took this opportunity to have a think about this.

Removal of CPF-SA

Sad but sort of expected.

ERS changes from 3x to 4x BRS

Before budget 2024, I only had a vague idea of what all these terms meant, and also, how they related to CPF Life. Now I have a slightly better picture but not sure if my knowledge is 100% yet.

CPF Life is sort of some type of longevity insurance (website says it is insurance not investment) and everyone can signup. Those that are healthier and have longer life expectancy will be expected to get more benefit from CPF Life, while those that die early are donating their CPF monies to fund the payments to members with above average lifespans. 

CPF Life on first glance seems attractive to me since I do try to live a healthy lifestyle. I go for regular blood tests and just manage to keep my total cholesterol below 200 and BMI between 24.0-25.0. Triglycerides are optimal for me. Thanks to circuit-breaker and WFH, I have also developed a regular gym-swim routine during WFH days. Genetically, no family history of heart disease or cancer (so far).

According to the CPF website, setting aside ERS, choosing the Standard plan, and deferring payments for 10 years will net you $3,330 per month. Internet chatter seems to think that this is a good deal. The lure of regular passive income is just so attractive. There are also comments to the effect that if you get dementia and get cheated of your money, at least you still have CPF Life payments to support you.

If I live past 80 (I think there's a reasonable chance), the risk of dementia is there, but this means I am setting aside a lump sum at age 55 in order to make arrangements for a possibility that could happen 25 years later, thats a lifetime (to someone who is 24 years old)! Based on parents and grandparents experience, I will likely be pretty mentally alert between 65-75, and shouldn't I be asking if I can generate more return if instead of setting aside ERS, I just set aside FRS and invest the rest?

Nevertheless, the idea of a 'protected' income stream is indeed appealing. I am leaning towards setting aside FRS though I am also thinking about ERS if I manage to keep myself in good health at age 55. (Cholesterol under 200, 5km run in 30min - i.e. still able to average 10km/h at age 55), since good health puts me in a good position to benefit more from CPF Life. 

Another consideration is how much more my passive income grows. For example, if I reach 30k passive income, I might view ERS as the better choice to insure against catastrophic loss of my passive income versus using the difference between FRS and ERS to reinvest to get a few percentage points more return.

99% of CPF members have less than 4xBRS (i.e. the new ERS) in their CPF-SA when they turn 55

This seems accurate. I am an above average income earner and I should be close to 1m in CPF by age 55 (including CPFIS investments) but my CPF-SA is still under 4xBRS. I did do some CPF-OA to CPF-SA transfers when I was younger - not huge transfers but I did transfer small amounts regularly to CPF-SA but I'm not sure when I hit the limit and could not top-up anymore. 

 

IWDA $100 in 2024?

 

I am happy to buy ETFs which they are cheap, and they were still cheap as early as late 2022: BuyafterCrash: Strategy: Sep 2022

One glance at the latest prices for IWDA, an MSCI ETF, will show the prices have risen quite a bit since 2022. In fact, I would say fair odds to reach $100 this year. IWDA is currently 70% US stocks so one wonders whether it is useful as a global ETF. After all, the expense ratio of a pure US ETF is lower than IWDA. In contrast, Vanguard World is 'only' 61.6% USA.

However, I am terrible at buying ETFs when they are expensive. I see that my average buying price is so much lower than current prices and I conclude that its too expensive. This is not necessarily the correct way to invest.

I suppose that's why we have the idea of regular dollar-cost averaging to remove the psychological aspect of investing. Like I mentioned a couple of posts earlier, I had sunk US$15k into global ETFs and this week, I have put in $3k more for a total of US$18k YTD. My idea is to bring forward my buying, and start waiting once it goes above a certain price level. Using IWDA (which tracks MSCI World) as a barometer, I would say we are not far off and I would want to take a break from buying World ETFs when IWDA goes 2% higher and crosses $95.

I may also consider buying only the Global Dividend ETFs VHYD and WQDV because they have less of the "Magnificent 7" versus the regular Global ETFs. The assumption being that if market corrects, the Magnificent 7 will correct more than other stocks.

 

Safely Ignoring the Withdrawal Rate

With a lot being said about Safe Withdrawal Rates, I had to think about why it played no part in my thinking about FIRE. As I've mentioned before, as long as passive income > current standard of living, that's FI to me. To be safe, I can add a 20% buffer in case there is a 20% drop of income like during COVID (but since I didn't travel, my expenditure was much lower as well).

My current passive income is above the lean FIRE level as it pays for a lot of discretionary items and not just survival expenses. So for my type of FIRE, all I need to do each year is to make sure I don't spend more than my passive income that year (if I spend less, it means there is some money saved to be spent during a bad year).

The following graphic represents my "approach". The percentages do not reflect my current situation as my 'margin of safety' has gone beyond 20% since I am still in the accumulation stage. The numbers are meant to show that passive income is used to pay for different types of expenses, some are discretionary, some are essential, and some are in-between.

I fully appreciate that retrenchment/ ill health may cause people to involuntarily stop work. In which case learning how to calculate SWR is important, not for FIRE, but for 'survival'. Voluntarily quitting your job with only just enough money for bare survival is not something people should aspire to. 

Investmentmoats linked to a chart showing the dividend volatility of the S&P500. What is interesting is that the drawdowns were "short and sharp" like COVID in 2020 when my passive income dropped by 20% and promptly recovered the following year.

The dividend drop in GFC was not as bad as it seemed because there was price deflation. During GFC, COE prices dropped (unlike COVID19) and you could get a parallel imported Mercedes C180 for $135k and property prices were soft because of lack of liquidity (I bought my current condo just after the GFC). Whereas now COE alone will set you back $100k+++

Links

Can You Live On Dividends From Your Portfolio? - A Wealth of Common Sense

What is the Safe Withdrawal Rate for CPF LIFE, Income from Rental Property and Dividend Stocks? - Reader Question | Investment Moats

Strategy: Feb 2024

 After a review of Macro factors relating to the economy and the markets (amateur level analysis), I have concluded that 2024 is likely to be a green year for world markets. The economy has done pretty well despite the multiple interest rate increases as shown by US jobs data and business in general. From here on, interest rates do need to drop to revert to the mean and it is a matter of time that they do so. Industrial production (and arms/ammunition manufacturing) should remain strong.

Therefore, I feel that my 2024 strategy would be to continue to accumulate World /US ETFs rather than to build up a warchest by buying T-bills. I have set a target in terms of how much I will invest in World/US ETFs each month and track the target. 

As I feel that the US market is a little bit overpriced, I might not be able to reach my target as I may be tempted to buy other stocks that seem "cheaper", but its still good to track, to see how far off from my target I end up. So far, YTD, I have bought US$15k worth of US & World ETFs. However, if S&P500 continues to rise, its going to be psychologically difficult for me to continue buying, as I like buying 'cheap stocks' However, I have also learnt to never underestimate the power of the S&P500 😅  

Dividends Collected: Jan 2024

 

The year usually starts off quietly with not many dividends being paid

An actual 'benefit' to Premier Banking

 I had previously mentioned OCBC Premier's lack of benefits but I just got this in the mail. Its only 2 visits a year but its free so I should be appreciative. My total spend on my OCBC Premier Banking Visa Infinite is $0 so its nice they still gave this to me. Lucky I have lifetime fee waiver for the card.

While I am still on Stanchart Priority Banking, I don't have Priority Pass. I cancelled my Stanchart Visa Infinite because there is no lifetime fee waiver. Previously I could easily waive the fees every year because I was using the card for petrol, but now I no longer need to buy petrol so my card spend will be $0 and SCB is unlikely to waive for $0 spend.

That leaves UOB Privilege Banking with no lounge access I think. However, milelion.com rates the UOB Visa Signature card very highly for "mpd" (miles per dollar) so no harm keeping my UOB card.

Strategy: Jan 2024

The market has sort of moved sideways in the first 2 weeks of January with a slight downward bias. Its a good time to continue regular DCA of ETFs and I have done so.

I decided to add more Vodafone to my holdings while at the same time knowing its a risky bet. My Vodafone holdings are in the red as the price have really crashed. I suspect that companies with high debt when interest rates are rising fell out of favour with investors. It works the other way as Comfort Delgro, with its nett cash balance, has performed admirably.

At the same time, steps have been taken to lower Vodafone's debt pile and dividends are still flowing (and covered by revenue). I think the upside is more than the downside, especially with rate hike pauses and even cuts on the way (I'm not betting on the latter but the former is pretty certain).

China is highly uncertain, but since I have an overweight exposure to China/HK and I'm doing small FSMOne RSP each month, I am not making any big moves to change my China/HK exposure.

However, I should still stick to my resolution to mainly DCA World ETFs. It is getting harder to do so with the US (being 50%+ of World Indices) outperforming UK, Europe, Australia, China (i.e. almost everyone else) in 2023. But history has told us not to write off the US, so I will definitely still be buying, but perhaps not as aggressively as I did in 2023 when prices were still pretty ok. 

Reflections on $15k passive income

 Passive income is quite literally money that appears in your account automatically. You don't have to do anything for the money to appear. While there are many different strategies and ways to Financial Independence, I consider myself financially independent when passive income > current standard of living.  

To me, this is an easy to understand idea which is one reason why I have adopted it. There are small details such as whether there needs to be a margin of safety (my view is that only lean FIRE might require such a margin, other forms of FIRE have discretionary expenditure such as holidays that can be cut in years when passive income is reduced). 

In 2023, I was fortunate to receive $15k passive income. Furthermore, the increase in my passive income was higher than inflation so that is one issue sorted out. While a lot of people talk about lifestyle inflation, I did not feel the urge to 'inflate' my lifestyle further. Instead I hope to continue to reinvest any extra free cash flow in order to generate more passive income.

My 2024 target will be to grow my passive income by 15%. The reason for a more modest target is that I have been putting a fair bit of money into fixed income including T-bills, where the S$ yield is in the modest 3-4% range. I will be getting the 'interest' on these investments in 2024, and obviously the return (and risk) will not be as high as equities.