SSB T-Bill Cash Strategy

 

I have redeemed a $13.5k 2.9x% SSB this month in order to apply for the upcoming 3.4% SSB which is really attractive to me. 

However, I wouldn't redeem my 3.1% SSB to apply for this because the interest rate gap is smaller, there is a $2 redemption fee, and more importantly, the risk that an overly large application may not be fully allocated. I think $20k or thereabouts is pretty safe but if too may people apply, there have been previous cases where the allocation was closer to $10k.

Strategy

As the 3.4% SSB provided an opportunity for me to review my cash/cash-equivalent holdings, this is probably a good time to summarise my strategy. Cash-equivalents are generally seen to be highly liquid holdings and while there are technical definitions out there, I adopt my own informal definition. 

SSBs, which can be redeemed in about 2 weeks are cash-equivalents to me. The T-bill ladder I have is 'liquid' insofar as I can have access to $10k a month.

6 month T-bills: Cash bond ladder with $10k maturing each month. Total value: $120k

1 year T-bills: Cash bond ladder with $10k maturing each time. Total value $40k

SSB: $200k (Cash and a little bit of SRS)

Bank Account: cash float for monthly expenses, bill payments, etc.

Gold+Silver: I also have a collection of Gold and silver bullion, with the bulk of the value being in Gold bullion as Gold will keep on shining while Silver could oxidise ('milk spots'). I keep them in a low humidity dry cabinet but thats no guarantee where silver is concerned. 

Gold Bullion if valued at spot prices is pretty liquid. I can sell gold bullion at spot faster than I can redeem a SSB, for example. However, this would only be for emergencies as a fairer value is more like the midpoint between UOB bid-offer price for Gold. But it will take longer to liquidate above spot

 

Planning for additional spending

One of the benefits of having a reserve in cash or cash equivalents is peace of mind that you can cope with expenditure volatility, which is something covered in a recent blogpost by Kyith from Investment Moats.

However, one should not overreact and think that one day, you will encounter a need to have immediate access to your cash, and you are given no time to liquidate. Kyith cites a T Rowe Price study which talks about roof repair which may be a sudden expenditure. As a condo resident, I'm glad I don't have to maintain a roof, but Singapore's weather is not as extreme as US or even Australia, where roof damage due to weather are more common (not just Tornadoes or Cyclones).  However, its good to know that home insurance does cover damage due to extreme weather.

Anyway, back to the point about additional spending. The good news, TL:DR is that the study suggests that most of the expenditure volatility came from housing expenses which does not affect Singapore as much. We have a lower incidence of housing damage due to bad weather and fire than the US (though with all the news about battery fires it makes me wonder if we are catching up). Not to mention that most of us don't live in landed.

Finally, I suspect that most of the expenditure volatility is predictable. For example, Condos 'predict' that some sort of maintenance/ repair work will be done from time to time, and they may even have a schedule, so they collect S&C,, contributions to sinking fund, for this to be done. If the houseowner doesn't create his/her own sinking fund for the purpose of such maintenance/repair, then its on him.... there is nothing magical about landed, it needs repair/maintenance just like condo and HDB.

If I have upcoming predictable expendtiure, such as needing to change my car (since I just bought a car, not so soon), or maybe a major home renovation. I may start adding more to my T-bill holdings to take this into account.

Oct-Nov Investments

 I bought the dip in end October and early November, picking up LLOY, LGEN, VWRD, VUSD, GSK, IOZ, VDPX, VHYD. Thats 2 individual stocks and 6 ETFs by the way. 😄

For Singapore market, the only counter I purchased was FLCT. I mentioned previously that I decided that any counters that I planned to hold for the long-term, I should even enough conviction to accumulate at least $50,000. I took a hard look at my SG REITs and noticed that FLCT had not reached $50k valuation yet. So I bought 7000 FLCT @ $1.05 using FSMOne. The flat $8.80 commission makes it better than SCB's $13.23 commission (0.18% for priority banking). However, SCB has the advantage for small purchases since it has no minimum commission.

As I type this, it seems that the US market is rallying and that has helped my portfolio a bit. I am at 9%+ YTD so less than 1% to hit my target return of at least 10% this year (and thus cancelling out my single digit loss in 2022). 

However, anything can happen. If market crashes again, well I guess I just have to continue buying and hope for a better 2024. 😥

Dividends Collected: Oct 23

 

Slow and steady growth of dividends this month.

Trying iShares 2028 Term Bond ETF ID28

 I bought a little of iShares 2028 Term Bond ETF (ID28) to try it out, having been reminded about it in the HWZ forums. I was aware of it previously but the prices were above face value because of low interest rates.

With the constant increase in interest rates and the 10yr US Treasury Yield touching 5%, there has been a rout in bond prices. 

If you were holding an individual bond and the price fell, if you held to maturity, you would technically not lose any money and would have collected the interest payments along the way. However, most bond ETFs do not hold to maturity, and they have to follow a preset rule and sell the bonds when they reach a certain maturity. For example, iShares LQD which is a 'medium term' bond ETF has to sell the bonds when they are 3 years to maturity to their short term bond ETF which holds bonds of 0-3 years maturity. Hence you will get hit by mark to market losses.

The iShares Term Bond ETF holds investment grade fixed income that matures in a certain year, after which all the bond redemption amounts are handed over and the ETF shuts down. So you can get the face value of the bonds back as long as you hold them to the ETF 'maturity' date.

 By implication, the purchase price is important. If the ETF price is higher than the redemption value per unit, you could end up getting less on maturity than what you invested (though you are supposed to be compensated by the interest payments of course). 

 But if you can buy the ETF at a lower price because of the bond market rout, then you are sort of guaranteed a higher amount on maturity as long as there are no defaults.  Furthermore, if interest rates drop, you might also be able to exit earlier by selling for capital gain. 

ID28 has a YTM of 6.09% and a maturity in December 2028 which does not seem like a fantastic interest rate compared to say Astrea 7 Class B which is returning 6.2%  (diversifying into Astrea 7B is something I would seriously consider as well except that Stanchart no longer allows investors to buy Astrea). However, ID28 is a bucket of more liquid bonds vs Astrea so it is more interest sensitive - any interest rate will probably lead to potential capital gain.

At the end of the day, its a small amount, more to 'test' and see how the ETF works.

COE record highs - any lesson for stock market investing?

 

I replaced my car earlier this year. While the COE felt rather expensive to me at that time, I reasoned with myself that I had been saving my money with a plan of getting a car. If I delayed my purchase because 'price can go lower' I would be embarking on a speculation exercise whereas the car purchase was a long term purchase. I was also worried that my old car would break down which would be a hassle (have to repair before trading in).

I sort of see a (bad) analogy with stock market investment here, but I hope the point gets across. High can get higher, low can get lower. If you plan to wait for a better buying or selling price, ask yourself what is your objective and what is your plan. If you have no plan or objective, then you are at the mercy of the idle chatter and 'noise' on the internet saying market going to crash and a recession coming.

Dividends Collected: September 2023

 

Vanguard ETFs paid out this month so there was a healthy increase in passive income.

FIRE and travelling

As someone who is no longer 'young', I told myself that once I reached FI, I would fly business class for long haul flights (Europe/USA).

When I was younger, I had the endurance to fly to East and West Coast USA a few times on economy (not even premium economy) and somehow survived, but I probably still can since I am relatively fit but I would probably need maybe 24-48 extra hours after landing to 'recover'. For example, I wouldn't trust myself to be able to jump into a rental car and start driving after a long-haul economy flight. 

Having occasionally flown business class for work in the past, I was familiar with the 'advantages' of business class, which to me is the flat seat or seat that converts to a bed (depending on the airline) that makes it possible to get a decent nights' sleep without neck pain after waking up.

Recently I had the opportunity to upgrade one leg of my flight to First and the surprising thing is that I found the First class 'bed' in SQ was not as comfortable as the Business class 'bed'. 

The reason is that the First seat has a hard and rigid back which becomes your "bed" when you fold down the seat. Over this hard back, SQ puts a mattress topper or foam insert (don't know what you call it) that is really not good enough so you end up feeling the hardness of the seat back. For Business class, the seat back is non-rigid, so it feels less 'hard' as a bed than First. 

Obviously the First 'bed' is a lot bigger but the SQ Biz seat is more than enough space for me (the SQ biz seat is bigger than a few other airlines like BA for example).

So having tried SQ First, I am happy to report that SQ Business class is great and some may actually find the bed more 'comfortable' than First.  When it comes to Business class seats, SQ's Skytrax ranking for the seat category is no.3, bested by only ANA and Qatar, none of which I will fly Business (i.e. Japan is too near for me to fly business, I would save the money and eat expensive Tuna sashimi).

Finally, one tip for better sleep is really to order the lightest meal possible (for SQ you can order online) or maybe even consider skipping the meal immediately before you go to sleep during the flight (load up with all the food you want in the lounge). First class you will be tempted to eat too much when your priority should be a good night's sleep 😂