Contributing to a new war-chest - SRS

There were several blogs discussions on Supplementary Retirement Scheme (SRS). For example, Seedly have good articles to summarise the pros and cons of SRS. In this article, my focus will be on my personal experiences and considerations.  

My wife and I opened our SRS accounts last year with $1 top-up. There were discussions that this could “lock-in” the statutory retirement age at 62 years old which is the current prevailing age. The “statutory retirement age” is dependent on the gov policy and this age could change in future. The exact wordings on the IRAS website are as follow:

Beyond the rhetoric of retirement savings, the key benefit to me is to reduce the amount of tax that I need to pay next year! I had performed relatively well in my job this year and this was reflected in my bonus 😄 Having already done my CPF SA cash top-ups as well as donated to charity organisations, I was still exploring to reduce my tax payable further. This was how SRS become an option.

Besides simply throwing money into SRS, it is important to have an exit strategy. This is to protect the capital in case of premature withdrawal. This spurred me to consider the 5% penalty for premature withdrawal AND that 100% of the withdrawal sum will be taxed. In addition, the withdrawal sum will stack with the total income received (e.g. from my salary) for that year.

My ultimate decision is to pick a stock with potential to increase beyond 5%, so that it could minimally cover the penalty frees. My top-up amount would be dependent on the stock purchase price. 

A few months back, I bought into OCBC at around $10.68. The target sell price is at least $11.30. Alternatively I will plan to hold the stock for 2 years to allow the annual dividends of 3.2-3.8%  to cover the penalty fees.

Hopefully, this will enable my SRS to become another war-chest to invest in opportunities when they arise.

Cheers!

GoHuat

Our 7 Simple Family Finance Habits

This is a continuation from my last post. My family follows 7 simple habits to improve our family finances. Most can be easily achieved and have helped us over the years.

Habit 1: Always check our receipts

My wife has a habit to check our receipts after paying at supermarket and restaurants. Several times, we discovered errors and promptly asked for a review in the payment. We should never pay extra for something that we should not. Do remember to check your receipts on the spot rather than doing it back home!

Habit 2: Only buy what we need

It is easy to be distracted by “special discounts” or “Buy 3 get 1 free” when you don’t really need the item or the bulk. Interestingly, there are times when “special discounts” are indeed special as they are pricier than the price from another store. Buying in bulk at times can be more expensive than buying individually from another store. No matter what, it is best to only buy what we need rather than choke up your house with more clutter.

Habit 3: Compare prices

A simple price comparison between nearby similar stores could save us some money. We had the habit of checking prices from both Watsons and Guardian, or between departmental stores before buying what we need. The price difference for similar items can be much more than we think.

Habit 4: Use discounts and cashbacks

Store discounts, Credit card miles/cashback, GrabPay discounts, Shopback cashback? Nowadays, there are many discounts and cashbacks which we can easily leverage on. Simply pay with credit card to gain miles/cashbacks or automatically gain cash back when you use a registered credit card at Shopback’s merchants. Why resist bringing in some cash back into your pocket!

Habit 5: Pay our bills promptly

Not paying our bills promptly will result in additional interest payment which will really burn our pocket bigger every month. We always aim to pay up our bills in advance at times before the statement comes in.

Habit 6: Bring own water bottle instead of order drinks

We developed the habit of bringing our own water bottle along. Drinking plain water keeps us well-hydrated and helps us to reduce the excessive sugar intake from soft drinks. Each drink cost around S$1.50-2 (US$1.10-1.50) and we could easily save around S$90 (US$66) a month per pax.

Habit 7: Stay healthy

Falling sick costs money and time. Better to stay healthy by eating right, sleeping well, exercise regularly. We make sure our breakfast is simple and nutritious – oats, wholemeal bread, 8hrs of sleep, regular jogging, etc.

Having good financial habits enabled our family to build up more cash over time. We can use the cash in many meaningful ways including spending time with family on a good holiday! What are some of your interesting family finance habits? Feel free to share!

GoHuat

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A risk mitigation framework to design our family emergency funds

This is a continuation from my previous post. What is the purpose for an emergency fund? Emergency funds is to help our family weather through urgent and sudden financial needs. The biggest challenge is to estimate how much we need as it is difficult to anticipate what it needs to be used for. We should put in time to think through our emergency funds as it will reduce our investment war-chest to achieve better returns.

First is to really ask when and what do we urgently need the money for? We assessed that key family emergencies might include:

·    Sudden loss of job income which affects payment of monthly expenses such as utilities, phone bills, food, transportation costs

·       Emergency medical treatment among family members

·       Unexpected home repairs

·       Replacement of household items that broke down suddenly

·       Unexpected car repairs

Adopting a simple framework to assess our family’s risks and come up with risk mitigation measures:

Emergency	Impact to Family	Likelihood of Occurrence	Risks	Risk Mitigation Measures
Sudden loss of job income	High	Medium	Medium	Create secondary income stream to minimally support basic monthly household expenses. Set aside 6 months of household expenses.
Emergency medical treatment	High	Low	Medium	Set aside for immediate, urgent medical treatment in case insurance unavailable.
Unexpected home repairs	Low	Medium	Low	Set aside home repair budget that sufficient to replace 2 critical household items

Risk Mitigation Matrix

High-High-High, H-M-M, H-L-M

Medium-High-Medium, M-M-M, M-L-L

Low-High-Medium, L-M-L, L-L-L

The higher the risk, the higher the priority for emergency fund allocation. We decided to set aside around 12 months household income based on past household annual expenses and to address our risk mitigation measures above. For medical risks, we planned using MOH’s historical bill and report.

My wife and I had aimed for 1 of us to be capable of supporting our annual family expenses entirely. In this way, there will be less pressure if either one decides to take a long-term break from our career. With this aim, we kept watch of our family expenses instead of allowing it to rise in tandem with our salary increase. To us, most importantly is to achieve family happiness by spending quality time together. Recall our earlier post, the key for happy family financial relationship is really to listen more, understand better, involve each other.

Hope you enjoyed this post!

GoHuat

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Is now a good time to buy RMB Yuan for your portfolio?

Our family’s cash are broadly categorised into:

(1)   Near-term and daily needs in high deposit bank accounts

(2)  Emergency funds in short-term fixed deposits

(3)  Stocks

(4) Investment Warchest in Singapore Savings Bonds and high deposit bank accounts.

(5)  Currency – NEW!

In our previous post, we shared our decision to buy RMB Yuan. We considered several investment possibilities such as options, currency, bonds, gold to diversify our portfolio before finally deciding to go for RMB Yuan first. 

Our key assessments include (1) RMB Yuan is now part of IMF’s reserve currency bucket. This means that more international contracts could transact using Yuan which would spur currency demand. (2) Yuan will likely be well-supported by China and global forces to eventually become an option to challenge USD as the global currency. (3) At ground-level, ICBC Singapore offered a good fixed deposit ranging 2.75-4.5%. This is better than Singapore Savings bond or fixed deposits.

We have been steadily building up our position in RMB Yuan. The currency is facing some near-term volatility against SGD. 

In our view, this presents a good buying opportunity. I remained optimistic that Yuan should strengthen in the near or medium-term given my assessments above. I also expect the Singapore dollar to gradually pause strengthening or weaken in order to help our exports become more competitive during this trade war climate. 

Will our investment in RMB Yuan turn out well? I certainly hope so!

GoHuat

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1. Signs of market downturn coming? 

Signs of market downturn coming?

Global banks are often the front-runners for a market downturn (e.g. bad debts, poor loan repayment, staff retrenchment, etc). Over the past 2 days, three news caught my eye:

• Deutsche Bank staff sent home as 18,000 job cuts begin (The Guardian, CNBC, 8 & 9 Jul 2019)
• Yield on the benchmark 30-year US Treasury bond briefly dipped below 2.5%, yielding less than the Federal Reserve’s short-term federal fund rate (CNN, 8 Jul 2019)
• Temasek Holdings one-year return for shareholders came in at 1.49%, down from 12.19% in the previous financial year (Straits Times, 9 Jul 2019)

The warning signs of a global market downturn have grown even stronger. For the past 2 years, our Singapore leaders have been warning the people to be more conservative through policies such as property cooling measures and public speeches. 

Even if a market downturn is more likely now, it is still impossible to time when it would actually take place. My best guess is to be around the U.S. Presidential mid-term election period (Oct-Nov 2020 time-frame). But surely many people out there would also share similar thoughts. So how accurate would this guess be? 

Instead of timing the market, my wife and I decided to diversify our investment portfolio from stocks. We considered buying currency, gold, bonds or simply build up our investment war-chest. For gold, we were doubtful if the returns were worthwhile as the US$ would likely weaken when global economy tanks. For corporate bonds, most bond returns seems unattractive with its risks. In the end, we chose to buy currency - RMB Yuan. We will elaborate more on our decision in our next post.

Do you think that a market downturn is coming soon? Feel free to share your thoughts!

GoHuat

Can investment help us to stay discipline and keep emotions in check? Yes it can!

My biggest lesson in investment is to learn how to constantly keep my emotions in check. Whenever emotions take over, we tend to easily lose discipline from our original gameplan. 

Sounds familiar? 

I made many “emotional” mistakes at the start of my investment journey. In 2011, I bought SGX when its share price rose suddenly. But after my purchase, the price dropped. Ok, my luck. Thankfully, the dividends were not too bad and the price recovered 3 years later. Twice I bought SIA and both ended in similar fate. I sold them within months at a loss when news on sharp reduction in global oil supply circulated. Then, I justified to myself that it was just a “cut-loss”. Was this part of my plan? Honestly, no. And I did not have a better answer why I did so. Thinking back, it was simply reacting based on emotions.

So how did I keep my emotions in check now? As a fundamental investor, I simply focus on numbers only i.e. to buy when price is at least 10% below its intrinsic value, and sell when the price is above its intrinsic value (usually from 20%). Using numbers has certainly helped me in making many rationale investment decisions and maintain my discipline. Sharing a quote from Mr Warren Buffett...

There might be some “feel-good” sentiments in the market including temporary easing of trade war, extension of oil supply cuts by OPEC & Russia, potential interest rate cuts by FED, etc. It might be easy to get really optimistic and buy into the market. Before deciding to go aggressive, it could be useful to first take a step back. Consider carefully whether this is part of your investment plan, or whether your remaining finances are sufficient for daily livelihood without  having to sell your stocks, even if the market crashes tomorrow. 

Returning to my investment principles, most importantly to first set aside the money for our family’s immediate needs and only invest with spare cash that I could afford to hold/lose.

Looking forward to hear from you too! 

GoHuat

3 Tips to build a Happy Family Finance Relationship

Everyone has different styles in managing their finances. So, is it possible for a couple to use finance as a way to strengthen the family relationship? Well, through our own experience, we hope to share with you the 3 tips to build a happy family finance relationship:

Listen more, Understand better, Involve each other

The key to a successful relationship is active listening. This means to listen and fully understand the other party before giving our own 2-cents worth of thoughts. In order to be on the same page and develop a happy family finance relationship, we should always strive to understand each other’s expectations and perspective towards finance. In our case, I used to assume that my wife was not keen to listen to my views on investment and finance. But I soon realised that I was wrong. I gradually found out that all my wife had wished for, was for me to bring her into my financial chain of thoughts instead of just sharing with her the outcome of my analysis. Basically I should get her more involved in the financial planning phase. It was only when we thoroughly understood each other’s financial expectations that we were able to have very frank conversations about how to move our family finances forward. From then, we finally came up with common financial goals to work towards together. As the saying goes: happy wife, happy life :)

Simplicity is bliss

Sometimes, the greatest joy can be attained with the simplest of things. When it comes to cooking, my wife and I always look out for value-for-money ingredients and then put our creativity into use by coming up with different interesting and varied dishes. This “joint venture” in cooking has certainly brought much joy into our lives. Similarly, rather than going for movies or visiting places with admission fees, we usually choose to get closer to nature (e.g parks and beaches) or spend our time together in the museum. The key thing for both of us is to be able to spend quality time together doing things that we enjoy, without burning a hole through our pockets in the process. Being financially prudent does not mean that we cannot live and enjoy life to its fullest.

Create a joint family financial record!

Are you at a loss as to how to monitor the progress of your family financial goals and to plan the cashflow to address future needs?

Well, if you have attained success with the first tip (Listen more, Understand better, Involve each other), the next step could be to think about creating a joint family financial record. To those who are new to this term, a family financial record might sound complicated. However, there is no fixed formula to adhere to for this type of record and it could be a simple one that caters to the needs of the couple. For instance, some couples might want to just keep track of their income and expenses at regular intervals while others might want to note down key family expenses so as to ensure there is sufficient funds set aside. It all boils down to what the couple wish to achieve from this joint effort.

You might be wondering what the benefits of going through all the trouble are. Well, a joint record helped us to create financial transparency and thus built greater trust and strengthened the bond between us. Furthermore, a joint financial record will often result in both parties having a shared responsibility in keeping track of the family finances. Finally, this record can also be used as a reference point to build towards shared family financial goals. No more financial shocks at the end of the month! J

I hope our 3 tips have been useful to you. Feel free to share with us your tips and experiences too!

Mr & Mrs GoHuat