Financial Matters & Tips #Ep 3 - Fuck-you Money

Saving Up Freedom

Here's a test question: how much would you have to earn per year in order to feel that additional income would no longer have any effective impact on your perceived wellbeing? Write down the figure before reading on. 

Research offer clear answers: If you are living in poverty, money plays a major role. Financial difficulties are sheer misery. If you are living on a moderate income per year, money plays a more moderate role. Above a certain threshold of household income, the effect of additional income shrinks to nil - and remains there even if you reach the million dollar mark. 

It's not all surprising. Imagine the life of a billionaire from sun-up to sundown, moment by moment. Even rich people need to brush their teeth. They sleep badly sometimes. They feel like crap, argue with their families, fear age and death. 

In a well-known study from 1978, researchers analyzed the life satisfaction of lottery winners. The result? A few months after their big win, the brand new millionaires were no happier in any significant sense than before.

One famous economist in the past measured the life satisfaction of his country citizens in 1946 against that in 1970. Although living standards nearly doubled during this period ( had fridge, car, washing machine and hot water), life satisfaction had remained fairly stable. 

The economist found similar results in the eighteen other countries whose data he compared. In other words, people were no happier with their lives in 1970 than immediately after the war. Material progress was not reflected in increased life satisfaction. This shows that once basic needs have been met, incremental financial gain contributes nothing to happiness.  

Why then do we keen yearning to be millionaires - in the face of all scholarly consensus? The main reason is that wealth is relative, not absolute.

Imagine you manage to buy a Mercedes after years of saving, and your friend drive up beside you with a Lamborghini. What happens? Your blood pressure rises and life satisfaction drops - even though you are still living very well. 

Money is relative. Not just in comparison to others, but in comparison to your past. If you earned $50,000 per year during the first half of your career and today you earn $75,000, you'll be happier than if you first earned $75,000 and now earn just $60,000. This is despite the fact that, averaging the figures, you come out better off overall in the second scenario.

Simply put, your level of wealth - above the poverty line - is primarily a matter of interpretation. But this is good news; it means it's up to you whether money makes you happy or not.

There are a few rules of thumb for dealing with money. The first has been termed by some linguistically adventurous individuals fuck-you money, in reference to the last two words - ever presumably - you will yell at your boss before storming out of the office.

Basically, fuck-you money refers to the savings that would allow you to quit your job at a moment's notice without ending up in dire financial straits. One year's salary, let's say, Fuck you money is freedom.

More important even than material independence is that fuck-you money allows you to see and think objectively. So if you haven't saved up your money yet, keep your fixed costs low. The lower your out goings, the quicker you'll reach your goal. In any case, it's a nice feeling to have money without spending much of it. 

Two: don't react to minor fluctuations in your income or assets. Has the value of your stock portfolio risen or dropped by one percent today? Don't let it worry you. Basically, don't think so much about money. It won't multiply more quickly the more often you think about it. 

Three: don't compare yourself with the wealthy. It will make you unhappy. If you must, compare yourself with those who have less than you do - but it's better not to compare yourself with anyone at all.

Four: even if you are filthy rich, live modestly. Wealth makes people jealous. Anyone who has enough cash can buy a luxury yacht - there's no skill to that. If you are a millionaire or billionaire, it's more impressive not to buy one, to live modestly.

Essentially, once you have left the poverty line behind you and saved up a financial safety net, money is not among the factors that contribute to a good life. So work on those other factors instead of hoarding money. 

Genuine success, as we'll see in our lifetime is anything but financial.

Regards,

SG Cashflow Investor

Stocks Investing #Ep 3 - What happens when you invest wrongly and when do you cut loss?

Today I would like to discuss about the mistakes that I have made during my investing journey.

Throughout my investing journey since Year 2013, I have made numerous mistakes when it comes to investing but I guess this is part and parcel of my process in learning to be a wiser and more experienced investor.

I'm sure many experienced and savvy investors would experienced such situation before. When do you cut loss when your investment is wrong and when is the right time to cut loss?

Personally I have invested in a number of counters which feels like a value trap for me, especially when you see that the share price has plunged to a new low point of no return. I always encounter the hard decision of whether to hold on to the stock (HODL) or decide to cut loss which is usually a painful one.

Personally, I always try to follow what Mr Warren Buffet has mentioned "Do not make your temporary losses into Permanent ones" hence I will try to hold long term for all my investments to see if there are improvements over the long term but might change my mind if I see that the stock is not improving or if the manager of the particular Reit or company is not actively doing any enhancement or activities that will further improve the value of the company.

Over the years, I have developed a set of criteria on whether I should cut loss for some of my holdings to prevent further losses and to preserve my capital as much as possible when my investment goes South.

Below are a list of stocks that I have cut loss in the past although it's painful:

Current Price as of 15th July 2021:
Ying Li (China) - Bought at $1 and sold at $0.30 - Current price at $0.081 (My worst purchase of a stock)
Lippo Malls Trust - Bought at $0.41 and sold at $0.25 - Current price at $0.064.
Starhub - Bought at $2.75 and $1.74 and sold at $1.66 - Current price at $1.21.
Sembcorp Marine - Bought at $2.53 and sold at $1.66 - Current price at $0.119.
Cache Logistics Trust - Bought at $1.029 and sold at $0.675 - Current price at $0.89.
Fraser Property - Bought at $1.847 and sold at $1.704 - Current price at $1.14.

It is indeed painful to realize your losses however looking back at my decisions made during that time, it seems some of them was right on hindsight to save my remaining capital.

However I understand that we cannot always be right in our decision, such as for Cache Logistics Trust where I have decided to cut loss right before it was acquired by ARA as sponsor and their price have climbed steadily until today at $0.88 although it would still be in the red.

Indeed when it comes to investing, we are constantly battling with Greed vs Fear. Decision after decision. When is the right time to buy and when to sell. Definitely there will not be a perfect answer for us and what we could do is to learn from our mistakes in our investing journey.

Although all of us can't predict how the future will turn out, I believe that our decision making process based should include the following criteria:

1) PE vs NAV
2) Is the DPU falling year on year?
3) Dividend Growth
4) Who is the Sponsor and are they strong?
5) Free Cash Flow of the Company
6) Gearing Ratio
7) Any improvement or expansion plans
8) Any other macroeconomic factors affecting the stock

Everyone have their own mindset and strategy when it comes to investing. And I truly believe that your investment portfolio reflects your vision, personality, risk appetite and the kind of investor you are.

Up till now I continue to upheld my belief in my strategy of holding on to winning stocks and cutting loss on losing stocks. Of course I have made some profits from selling some of winning stocks as well which I will share in the next article but often, we sold too fast when there are further room to grow.

My Investment Strategy:

1) Identify and acknowledge the type of investor are you.

2) Do your research on the stocks that you are interested to invest during your free time including the entry price and exit price that you are ready to take action.

3) Patience is key when it comes to investing. Wait for the right entry point whilst accumulating your War Chest.

4) When price is right or drop to your required level, have confidence and do not hesitate and buy at one lump sum amount to minimize fees as the window of opportunity will last for a short period only before rebounding.

5) Hold long term for your stocks especially winning stocks after investing. However do ensure you are able to hold it long term which can be mean from 6 months to 3 years.

6) Cut loss on stocks that have lose their fundamental value, quality, revenue and DPU. Preserve your capital for better stocks.

7) Do you average down? Yes, I will average down when the price has plunged and if I think the quality and the fundamental value of the stock that I want to buy remain unchanged.

8) Aim for US markets for higher growth and capital gains but ensure you have the stomach for higher volatility.


Regards,
SG Cashflow Investor

Portfolio Update as at 31st December 2020 (after 1 Year Hiatus) - From Time of Crisis to Vaccine Hopes and Phrase 3 Recovery

Hello Everyone,

Finally I am back with some updates on my blog after 1 year hiatus. 

Have been rather busy juggling a number of things such as work, family life, monitoring of markets and attending some courses for the past 1 year hence do not have time to pen down my thoughts.

However as Year 2020 is coming to an end where today is 31st December, I thought it will be good for me to record down some quick updates for the Year 2020 which I can come back and read it in future.

Year 2020 is one of the most unfortunate year for majority of us as Covid-19 started spreading throughout the world since early January. There were many series of events happening that send the financial markets various ups and down. 

From 2020 market stock Market Crash in March, US-China trade war, UK Brexit, Hong Kong protest, oil crisis due to fall out from OPEC to Covid-19, all these happened within a short span of 2 month periods.

My portfolio at that period just went from record high of more than S$30k gains to $78k losses on one of the worst day ever, with more than 40% to 50% drop ever in history.

A quick glimpse of what had happened in Mach 2020:

2020 Stock Market Crash

The stock market crash of 2020 began on Monday, March 9, with history’s largest point plunge for the Dow Jones Industrial Average (DJIA) up to that date. It was followed by two more record-setting point drops on March 12 and March 16. The stock market crash included the three worst point drops in U.S. history.

The drop was caused by unbridled global fears about the spread of the coronavirus, oil price drops, and looming recession. Only two other dates in U.S. history had more unsettling one-day percentage falls. They were Black Monday on Oct. 19, 1987, with a 22.61% drop, and Dec. 12, 1914, with a 23.52% fall.

Although this dramatic 2020 market crash is still fresh in everyone’s mind, let’s take a closer look at what happened and why. That will allow us to anticipate what may happen next with the economy.

Fall From Record High

The 2020 stock market crash began on Monday, March 9. The Dow fell 2,013.76 points that day to 23,851.02. It had fallen 7.79%. What some labeled as Black Monday 2020 was, at that time, the Dow’s worst single-day point drop in U.S. market history.

On March 12, 2020, the Dow fell a record 2,352.60 points to close at 21,200.62. It was a 9.99% drop, almost a correction in a single day. It was the sixth-worst percentage drop in history.

On March 16, the Dow hit a new record. It lost 2,997.10 points to close at 20,188.52. That day’s point plummet and 12.93% freefall topped the original October 1929 Black Monday slide of 12.82% for one session.

Prior to the 2020 crash, the Dow had just reached its record high of 29,551.42 on Feb. 12. From that peak to the March 9 low, the DJIA lost 5,700.40 points, or 19.3%. It had narrowly avoided the 20% decline that would have signalled the start of a bear market. 

On March 11, the Dow closed at 23,553.22, down 20.3% from the Feb. 12 high. That launched a bear market and ended the 11-year bull market that started in March 2009.

Aftermath

After the stock market crash in March, the market enters into bear market level for the next 3 weeks before a surprise mini bull rally came along and bring market back by another 20% gains.

At that point of time, my portfolio had approximately -$46k losses in terms of value with STI at the level of 2551. It recovered slightly from my worst day loss of -$78k having just registered a positive gain of SGD 30k in the year end of 2019.

I was worried on my portfolio having invested almost 90% of my net worth however I knew that this recession pains are temporary. Luckily I am able to remain calm, stay invested and refrain from panic sell off.

I managed to pick up a few gems with the lowest price allowing me to make some profits, such as picking up FCT at $1.70 and $1.80 range which you would never see such price in the good days. 

However my war chest is limited hence I could only select a few gems to buy. I am sure whoever manage to nibble whatever stocks during that time would be sitting on a handsome gain of 30% to 50% at least. This again taught me the importance of having a readily War chest to be able to deploy to the market at any time.

Series of Events happening From March 2020 till December 2020: 

1) Around the world, countries are infected with Covid-19 with increase in numbers on daily basis.

2) Lock down in various countries to control the spike in Covid-19 infections including Singapore from May.

3) People are losing their jobs or having their incomes cut due to lock down.

4) Companies in various countries start to ask their employees to work from home including Singapore.

5) Governments are coming out with stimulus packages and grants to support the economy and businesses.

6) Federal Reserve keeping its benchmark interest rates near to 0%. Oil crisis due to fall out of OPEC.

7) Trade war and increasing tension between China and US. US blaming China for the cause of Covid-19.

8) Biden won the US election in Nov/Dec 2020.

9) A number of pharmaceutical companies releasing vaccines with 90% to 95%

    efficacy around the same time.

10) Singapore managed to control the virus and Circuit Breaker Phrase 3 started on 28th December 2020. Hopefully life can start to normalise in Year 2021.

My Portfolio Updates 2020 as of 31st December 2020:

Here are my top 10 stock counters.

As of 31/12/2020:

Total Cost: SGD 292,688.67

Current Value: SGD 292,235.79

Current P&L: - SGD 452.87 (outcome is positive given we are still not out of Pandemic and my overall Portfolio loss in March was -SGD 78,000)

Current P&L including Dividends: + SGD 15,466.21

Portfolio Current Yield: 4.50%

Dividend per Annum: SGD 13,165.00

Dividend per Month: SGD 1,097.00

Milestone Achieved in Year 2020!

1) My Portfolio reaches SGD 250,000 in capital investment in June 2020.

2) My Portfolio reaches almost SGD 300,000 in capital investment in December 2020.

3) Dividend collected in Year 2020 total up to SGD 13,165 which translates to more than SGD 1k passive income per month.

My Investing Journey in the Year of 2020:

1) Learning about Trading:

Trading Medtecs a few times and managed to achieve a few times profits of several thousand when it shoot up from 0.50% to 1.98% despite it falling as fast as it goes up within the next few days. At one point of time, my profit was 5 figures however I failed to realise the profit at the highest price. Managed to sold it at the middle range of 1.65 and 1.45 before it plunge further. 

Trade with caution and this is not for the weak-hearted.

2) Adding Positions to my Core Stocks:

I am a big fan of Industrial Reits followed by Retail Reits and have added my positions through out the year of 2020. I have added Ascendas Reit, Mapletree Logistics, Frasers L&C Trust and others especially when they are looking for preferential offering.

This is the best time for investors to add to their position when prices drop to even lower than their preferential offering price, which makes it such a valuable opportunity to add. Looking to add more to MIT and others.

As for retail reits, I am still holding to CICT, FCT, Lendlease and Sasseur Reit which are all making good profitable gains for me. I am looking to add more positions in my selected reits once the price has drop to my targeted level which often might not happen.

3) Started to invest in U.S equities with Tiger trade (which is my favourite mobile app for U.S equities).

I have initiated long positions in BABA, NIO, AI, LMND, PINS, TSLA, SE, PLTR and TIGR. Indeed U.S market is much more interesting compared to STI where you will see much faster growth. 

I have also started to learn about trading options i.e buying calls and puts after taking a long time to understand the concept.

My Conclusion as a Long Term Investor:

While the wild sell-off and elevated volatility in Year 2020 can inflict massive stress on investor, it can create opportunities. 

Investors are encouraged to stay invested and refrain from panic selling. Instead, investors should take the opportunity to rebalance and pick high quality securities at reasonable price points. These are prices at which the impact on earnings growth and valuations have been already been factored in.

Prices of these securities may endure further beating in the recession, but when market recovers and valuation re-rates, the upside potential may offset initial losses. 

As such, staying invested and deploying money periodically throughout the recession is crucial to avoid missing the market rebound (which could be sharp and strong). It is also beneficial to hold on to some dry powder in case markets move lower.

Deploying money periodically will also help to remove emotional stress and achieve a realistic return over a longer period.

Remember that Recessionary Pains are temporary in nature.

Investors should remain disciplined in a recessionary environment.

Investors are also encourage to maintain portfolio diversification. This not only helps to curtail portfolio risks but reduces potential huge losses in recessionary times as gains in one asset class may offset the other. Diversification has also shown to improve annualized return and reduce maximum drawdown in the longer term.

Regards,

SG Cashflow Investor

Office Worker by Day, Investor by noon, Writer by Night.

Property Investing #Ep 1 - Freehold vs Leasehold

Hi Everyone,

Today I would like to talk about another of my favourite topic beside for Financial Matters & Tips and Stocks Investing; which is Property Investing.

As we all know, everyone in Singapore generally loves Property besides food because it is relatively a stable asset that can beat inflation, allows for capital gain and provides investment or rental yield. It is an asset which you can call Home but at the same time, can be used for investment or rental purposes due to shortage of land in Singapore with the increasing amount of population due to influx of foreign workers and PRs.

However there are often various interesting debate or perceptions between buyers, sellers and agents on different topics of property investing. Of course, there are no right or wrong answers hence let us examine more in the topic which I would like to discuss today: Buy Freehold Condo vs Leasehold Condo?

Often I would hear people mentioning "If I want to buy a condo, better to buy a Freehold one than Leasehold" or "I can leave a legacy to my kids in future". However I would flinch a little whenever I hear that because in my mind, I will be thinking "Is Freehold Condo always better than Leasehold?"

Having a freehold condo is good, however what is more important is the location (accessibility) and their surrounding amenities. The rest of the details would include the price, size and layout of the unit and whether the development is a large one compared to smaller development.

Often you would see smaller development having Freehold status, and this represents lesser amenities within the development and maybe higher maintenance fee due to smaller number of units in the development. Majority of them would be "Apartment" status instead of "Condominium" status (I will discuss about this topic in the next Episode). 

Some of the location are rather inconvenient and out of the way, otherwise why would the Government agree to sell Freehold land tenure to the developer if it is highly sought after?

Hence does freehold status condo or properties in Changi, Pasir Ris or Tampines fare better when compared to a Leasehold Condo in CCR or RCR (let's say Queenstown, Bugis or Boon Keng)? 

Which one would you choose to put your money into in terms of own stay or investment? 

I think alot of us would prefer the one in Queenstown or in Bugis even though its Leasehold. Don't forget that Leasehold Condo have the possibility to enbloc as well. 

From my personal opinion, the most important factor for a Property is always Location follow by property type then entry point. If given a choice, I would think that the leasehold Condo in a better location would be far safer compared to Freehold Condo in the outskirt. 

Another point to take note is whether you are getting value back by purchasing the Freehold Condo which is usually at a premium price compared to Leasehold Condo. If you are looking for investment, would the tenants pay you more just because its Freehold status? Probably not. In this case, your ROI would be higher if you buy a Leasehold Condo at a lower price. Most of us would either stay or hold on to a property for 10 to 20 years time horizon, after which we would sell or change location due to our needs at different timeline of our life. 

Let's say you want to leave a freehold property as legacy to your loves ones. Would your loved ones prefer to receive cash, liquid assets or an aging freehold property? And by the time you pass on maybe at 65 to 85, your kids or loved ones that are receiving this would probably be in their 45s to 50s plus with their own kids.

They would have their own place to stay and will they care about the Freehold status of the Condo or would a better location leasehold condo be more attractive to them? And would your Children fight over the Freehold condo if it is located in expensive prime locations like Orchard? Would it be better to sell the property and use the money for your retirement and the remaining to be distributed according to your will to your loved ones after your passing? How would the Property be split if you want to pass 50% each to your two kids for example?

As such, freehold condo is not so appealing unless you intend to hold on for legacy purposes.

Pros of Freehold:

1) Able to leave a legacy to your loved ones.
2) No worries of depreciating asset due to lesser years of lease.
3) Stable price generally.

4) Not many developments with freehold status (or as much as Leasehold).

Cons of Freehold:

1) Usually at premium prices.
2) Lower rental or investment yield due to higher entry price.
3) Location may not be prime area or slightly further away from MRT.
4) Some freehold condo are small developments with few amenities and facilities.

5) Maintenance fees higher if there are only less than few hundred units in the development

    to share the cost.

6) Don't have much advantage over Leasehold.

Pros of Leasehold:

1) Some of the locations are convenient and near to MRT station and shopping mall.
2) Bigger developments with more units and more facilities to enjoy.

3) Price is at acceptable range for the mass market.

Cons of Leasehold:

1) Depreciating value due to decaying lease.
2) More loan restrictions and harder to sell when the remaining lease reaches 40 years.
3) Too many of such developments out there.

4) Question of whether the development would be En-bloc.

Conclusion: 

In conclusion, many of us would choose Freehold Condo in Prime Locations like Orchard or in CBD area IF Money is not an issue. But in reality when it comes to Practicality, I would choose to buy a more affordable Leasehold Condo at RCR or OCR location which is relatively near to MRT so it will be more convenient when going to work.

Having a lower entry price means it will be easier to achieve capital gains on our properties upon TOP compared to those high end properties located in CBD area or prime districts. 

As I am a Dad of a boy, I would be looking at some developments which is situated within 1km radius to some reputable schools in my opinion. Focusing at some developments located within an area where the Government has big plans to develop is another option. GSW, Greater Southern Waterfront was just announced by the Government during this year's National Day rally and all the hype is about that area now with new launches coming up.

In this way, you can better safeguard or prevent the price of your property from dropping too drastically in times of economic crisis due to stable demand where there are more jobs opportunities for locals and foreigners (for rentability).

Good school and education for their kids is one of the most important indicator that Parents look at when buying a Property and price entry and capital gain would be the next important factor to consider when buying a property as well.



There are definitely more factors to look at beside for Freehold vs Leasehold and I will discuss these topics in time to come:

Episode 2 - New Launch vs Resale Condo
Episode 3 - Condominium vs Apartment Status

Regards,
SG Cashflow Investor

Disclaimer: This is my personal opinion and does not constitute any recommendation to buy any Leasehold or Freehold property. Do your own due diligence before making any purchase.

My Portfolio Performance - October 2019 Update

Hi Everyone,

This is my Portfolio update in the month of October 2019.

Not much changes for my Portfolio in the month of September but there were various or rather exciting moments for S-Reits. IPO for Lendlease Reit also happen in the month of October.

As of now, Reits prices have rallied up to their peaks thanks to the low interest rate environment. US-China trade war and uncertain Brexit deal coupled with the looming of economy recession contributed to the volatility of shares prices on a daily basis.

However this have not affected the confidence of investors in quality Reits with a number of them announcing further acquisition with Private and Preferential Offering to fund their purchases. CRCT starts in the month of August followed by Keppel DC Reit and Manulife Reit in the month of end September to early October.

Even MAS is considering to raise gearing limits for S-Reits to 45% and if that happens, it definitely will boost S-Reits even further with more acquisitions.

We are now seeing a trend of quality Reits purchasing properties from their Sponsors. CRCT is one of them where they are purchasing 3 Shopping Malls from Capitaland. We are also expecting results announcement from majority of Listed Companies and Reits in the month of October.

Below is an extract of my top 10 Counters at the moment.

As of 16/10/2019:
Total Cost: SGD 188,529.28
Current Value: SGD 196,772.73
Current P&L: SGD 8,242.75

Portfolio Current Yield: 4.99%
Dividend per Annum: SGD 9,396.25

For those who is interested to see my whole Portfolio, please follow me at:
https://stocks.cafe/user/profile?username=sgcashflowinvestor

For the month of September and October, I have done the following:

1) Initiated positions on Manulife Reit
2) Applied for Preferential Shares on Keppel DC Reit
3) Applied for Preferential Shares on Manulife Reit

Lastly, I am waiting for Mapletree Commercial Trust preferential offering which to me will be one of the most exciting deal in Year 2019. MCT has proposed an equity fundraising comprising of 406.5 million new units via in a private placement and preferential offering to raise at least $902.30. The funds will be used to acquire Mapletree Business City (Phrase 2) for $1.55 billion.

MCT is one of my favourite top holdings and I have been holding them since IPO time. I first bought it at $0.88 and divested it when it reaches $1.55 around 3/4 years later. Subsequently I bought it back at $1.585 and have been holding since and added another 2 lots at $1.99 few months back.

Through this, I have personally experienced the Time-Weighted returns of holding quality Reits on a long term basis. I feel there is a lot to gain with share price appreciation and increasing DPU year on year and a lot to lose if you sell too early. 

Sometimes, you will never be able to buy back the shares at the same price that you have sold as the next low would be higher than the previous low. However this only applies to quality stocks and Reits which you have hand-picked and I'm not saying you should be doing the same for every counter.

As such, this increases my confidence and faith of my strategy being a long-term investor with majority of my money invested into the market. I am focused on long term returns instead of short term gain. Of course, it's never wrong to take profit when you feel the price has reach its ceiling with the risk of global economy recession lurking round the corner.

Financial Horse has given their comments to sell MCT early this year January when their share price has driven up to $1.74 but no one would expect MCT to be elevated to be part of STI few months later with share price richly valued at $2.30 now. https://financialhorse.com/sell-mct-reits-2019/

Sometimes the price will get higher even though the price seems unreasonably high over their NAV and P/B ratio. So when is the right time to sell your shares or Reits? No know can give you a definite answer except yourself.

I am waiting for the Preferential Offering to open on 30 October and will be bidding in excess of my allocated shares for MCT.

Disclaimer: This is not a Recommendation to buy or sell any Stocks and please do your own due diligence and research before making any decision.

Regards,
SG Cashflow Investor

Financial Matters & Tips #Ep 2 - How to think about Money

I was reading this book titled "How to think about Money" by Jonathan Clements which I bought recently.

This book highlighted a few interesting points and offers different perspective about Money and Investing which I find particularly true. It is very refreshing and allow readers to make smarter financial choices and squeeze more happiness out of your cash.

Here are the final thoughts from the Author:

There are all kinds of explanations for why we are so poor at handling our finances. We can blame our hardwired instincts, conventional wisdom, relentless corporate marketing and the financial industry's greed. But while I can understand why people go astray, my sympathy is in shorter supply. In the end, nobody stick a gun to our head and forces us to spend too much or buy overpriced investment products.

We all still have a choice - and we should be especially careful with our financial decisions, because the stakes are so high. Make the wrong choices, and our lives could be dogged by financial worries. Make the right choices, and we could have the financial freedom to lead the life we want.

These are the 12 suggestions for getting the most out of your money:

1) We favour possessions for their lasting value, but often we get greater happiness when we spend our money on experiences. Forget the new car. Instead, travel across Europe and other Continents.

2) We should use our pounds, Euros or dollars to create special time with family and friends. Take the kids to a sports event and your spouse to a theatre. Have dinner with friends. Book a trip to see the grandchildren.

3) We should design a life for ourselves where we can spend our days doing what we love. To that end, we should save every penny and dollar we can early in our adult life, so we quickly buy ourselves some financial freedom. In our 40s to 50s, we might use that freedom to switch into a career that's perhaps less lucrative, but which we may find more fulfilling.

4) We should worry less about dying early in retirement, and more about living longer than we ever imagined. Faced with that risk, most of us should delay our pension or CPF to get a larger monthly cheque, and also consider buying immediate annuities that pay lifetime income (we have CPF Life).

5) Our investment time horizon is measured not in months and years, but in decades and decades. We should strive to look beyond market's short-term turmoil and instead aim to collect the staggering gains that can accrue to those who globally diversified stock portfolios for 30 or even 50 years. Indeed, while a long bear market can impoverish retirees who don't have enough in bonds and cash investments, it can be a great gift to young adults who are good savers, because it offers the chance to buy stocks at bargain prices.

6) We should hold down our fixed monthly costs, such as the sum we devote to mortgage or rent, cars, utilities, groceries and insurance premiums. Those low fixed costs will give us more financial breathing room, which can ease our sense of financial stress, leave us with more money for discretionary 'fun' spending - and allow us to save voraciously.

7) Good savings habits don't come naturally, so we need to make socking away money as painless as possible. That means signing up for payroll contribution to our employer's retirement plan and setting up automatic investment plans, where money is pulled from our bank account each month and invested directly into the funds we choose. It also means adopting easy-to-follow financial rules, such as always adding $100 to the monthly mortgage payment and always saving financial windfalls, including tax refunds or bonus and income from a second job.

8) The harder we try to beat the market, the more likely we are to fail, thanks to the hefty investment costs we incur. To avoid that fate, we should stop trying to outsmart other investors and instead embrace humility - in the guise of a globally diversified portfolio of low-cost index funds.

9) We should never forget that stocks have fundamental value. For a diversified stock portfolio, that fundamental value will change much more slowly than market prices. To keep ourselves grounded, we should focus on the dividends and earnings we buy with every dollar invested, we should have a handle on the market's likely long-run return, and we should think like shoppers, viewing market declines with the same enthusiasm that we view a sale at the local department store.

10) Chronologically, retirement might be our life's final financial goal, but we should put it first. Retirement is the most expensive of our goals, and hence we need to save and collect investment gains for many decades to amass enough money. Retirement is also distinctly different from other goals, like buying a home or paying our children's education. What's different? Retirement won't be optional for most of us and we can't expect to pay for it out of our pay cheque, because at the point we won't have one.

11) We should take a broad view of our finances - and the unifying notion should be the income from our human capital, or the lack thereof. The pay cheques that we collect over our lifetime are like a bond that generates 40 years of fairly steady income (assuming not being retrenched). The income stream can diversify a portfolio that's heavily invested in stocks, provide the savings we need to set aside for retirement, and allow us to take on debt early in our adult life and then repay it by the time we retire. We also need to protect our human capital, be ensuring we have adequate health coverage, and sufficient disability and life insurance.

12) The goal isn't to get rich. Rather, the goal is to have enough money to lead the life we want. We shouldn't put that at risk by incurring excessive investment costs, straying too far from a global index strategy and failing to buy insurance against major financial risks.

None of this is especially complicated or clever. But putting these ideas into practice takes thought and effort. We need to ignore our instincts, rein in our emotions, take a deep breath and focus relentlessly on what's best for us - for our happiness and our financial freedom over a lifetime that might span nine decades.

Sounds like a lot of work? It's nothing compared to the potential reward. With a sense of mission and the simple steps outlined above, it is amazing how much wealth we can amass - and how much happier our financial life can be.

Regards,

SG Cashflow Investor

Financial Matters & Tips #Ep 1 - Rich Dad Poor Dad (Cashflow Quadrant)

I recalled when I was young, one of the first financial book that I read was Rich Dad, Poor Dad by Robert Kiyosaki. 

He mentioned about how the rich earn their money through businesses and real estate, while the poor focus on their jobs and save money. And of course, the rich always get richer and the poor always get poorer. Hence is life fair to the poor? It never was.

Subsequently, he came out with another book titled "The Cashflow Quadrant" and I didn't complete reading the book as I couldn't totally apprehend what it was trying to say entirely at that age of mine. However there was this cashflow quadrant which caught my eye and I find it very interesting:

Basically this is a Cashflow Quadrant where each and every of us are being break down into one of the four categories based on their financial intelligence. Some of them could belong to two categories but no one could possibly be in all four categories. The trick is to move from an Employee (E) to Self Employed (S) and to Business Owner (B) and eventually Investor (I).

The left quadrant are the guys that are earning active income constantly using their own time, effort and energy whilst the right quadrant focuses on earning passive income from your businesses or investments. The question is how do you actually move on to different sectors from E, S, B, I and with B and I being the most valued categories.

However I have slightly different perspective when it comes to Cashflow Quadrant. Robert Kiyosaki focuses on how the people from the left column could successfully move to the right column to achieve success. In this current age and time, I believe we could actually be able to take part or be in four categories at any one time but this involves master prioritization of tasks, expert time management and hard work.

Will you rather choose to have SGD500k cash sitting in your bank with no income coming through for the rest of your life or would you choose to be secured with multiple cashflow of example SGD10k coming to you each and every month for the rest of your life? I will choose the latter.

Therefore, my financial aim is to build multiple streams of positive cashflow coming to my bank account each and every month. Of course some of it you need to use your time and effort to exchange and maybe some with lesser effort until passive income take over.

For me, I will be trying to build positive cashflow from all categories at any one point of time. That is how my name of SG Cashflow Investor came from, which is primarily the cornerstone of my strategy.

Employee (Active Income):

This is your full time job where you earn your main active income. At the start of any person's working cycle, this would be the main source of income. The income which is being earned from the employment should be saved, retained as much as possible and transfer to investment.

The key risk is being stuck in a monotonous job where there are no job progression. Many office workers dread the coming of every week Monday where the usual routine of travelling in packed public transport rushing to work place to clock 8 to 10 hours of work and then back home. There are risk of having horrible bosses and political colleagues to work with, and you have to constantly prove your worth in order to survive in the competitive corporate world.

In addition, there is also increasing risk of retrenchment especially for PMETs in their 40s and above in this current volatile economy. At the point of writing, I just received news that one of my childhood friend whom is in his mid-40s was out of job since March this year and he has nothing to do at home beside looking for job? As such, you should always prepare a back-up plan while you are still employed to minimize any risk of job/income loss in times of crisis.

Self-Employed (Active Income):

Self-employed means you could own your business such as insurance agent or property agent being full-time or part-time.

There are also many side hustles which you could do during your free time and hopefully one day it could generate revenues to replace your main income. Blogging is one of the hustles which I'm working on. Other examples you could do is setting up online websites and advertising, selling of items online or developing other interests or hobbies you might have and where it could convert to some small sidelines.

Self-employed sits on a slightly higher-tier than being an employee as you are your own boss, you manage your own time and income depending on the Clients you serve. There will not be any risk of retrenchment however you need to be disciplined enough to continuously find and develop new business and sales to maintain or increase your income. The only set back is you still have to work to continue receive your income and once you stopped working, the income stop as well.

Business Owner (Passive Income): 

Business owner is the most difficult to achieve for majority of us here in this category. Being a business owner involves large amount of money and risk, and there is always an element of risk and uncertainty as all businesses are not guaranteed for profits. Do you have $100k or $200k to start a business from scratch? Do you have time and expertise for that? Are you willing to risk it to succeed? Do we have enough capital to endure the period?

Indeed there are so many uncertainties where the business could fail however we do witness some great businesses breaking even within the first 6 months or less than a year, and subsequently the company is making profit for the Business Owner months after months. This can be a great source of back-up plan and you do not have to be physically there once the business is up and running by a team. Examples are investing in a franchise business or some other small businesses with a couple of friends or partners.

Investor (Passive Income): 

Investor where you focus on investing your extra money for dividends and passive income. We are now at the right time to invest in great stocks and reits where 20 years ago all these were not available. Being a reit hub in Singapore offers opportunity to investors like us to invest in different real estate and to be rewarded with dividend yields ranging from 4% to 9% on an annual basis.

At the beginning, you will not see much returns but you have to be patient and persevere to build your portfolio day by day with dividends as reinvestment until one day, your passive income coupled with capital gains will surpass your expenses or even replace your employment income.

Of course, the aim is to invest as much as you can building a million worth of portfolio so you can achieve FIRE. One of the few bloggers that inspire me is Dividend Warrior and AK71 with their portfolio and I do inspire to build a similar one like them.

The rewards could be very enriching on a long term basis and you don't have to spend any of your time and energy in maintaining the portfolio except for some re-alignment or management once a while.

As such, one of my most favourite quote for investing is by Charlie Munger (the right-hand man for Warren Buffet):



In conclusion, I would say Cash is King but healthy positive Cashflow is Father of King.

Regards,
SG Cashflow Investor