Saturday, 30 May 2020

If I have excess 100K now, how should I invest over the next one year?

If I have excess 100K, how should I invest over the next one year or so? This is assuming I already have consider all factors such as emergency funds and personal expenses to be taken care of and have decided not to pay down your mortgage. This excess 100K is the amount in the worst case scenario even if I lose all of it, my livelihood will NOT be affected, with the exception that I will be emotionally sad because I am 100K poorer.


In the midst of the uncertainty and volatility in the stock market, it is wise to set aside at least 30-40% or 30-40k cash out of the 100K. This cash is called opportunity cash. Some call it “warchest”. This fund will be deployed into the purchasing of shares progressively, in each event when market tanked drastically over the period of next one year or so.

The downside of sitting with huge cash is of course low return. Nonetheless, ask yourself?  In times of uncertainty and crisis like now, do you prefer to be in a position where you have a good cash position or bad cash position? Cash is undoubtedly king during crisis.  


For investors, it is a dilemma to decide if we should invest now or to wait for market to dip further down?

Wall street has been rallying for the last two months with Dow surging from its bottom of 18k+ from end March to 25k+ today. An increase of more than 30%.

My sentiment is that we should continue to buy shares, but in a progressively manner.

The reason is because no one knows what will happen to the stock market tomorrow. Hence, we should not time the stock market exactly when it will hit bottom before deploying all in? Also, if you do not own any shares now, what if “Mr. Market” decide to go against logic and NOT retesting bottom, but continue to rally?  Then your zero ownerships of shares will have no capital gains.

For instance, the central banks pump in more liquidity, follows by the uncovering of a vaccine. In situation like this, the market will be invigorated to find new high.

While buying shares is important, what is more important is to learn how to find good shares at reasonable pricing fortified with sound long term future. The topic of stock selection is a big topic and we shall keep it separate from this article.

Limit 20-30K of the portfolio to shares investment. I emphasize that you should not impulsively invest all at once this 20-30%. Instead, invest prudently and progressively, or monthly (i.e. similar to Dollar Cost Averaging). And perhaps it is also a good idea to keep replenish this basket of fund each month when you have excess monies.

If you invest in this manner, you are protected on both sides. For instance, if market rises and never look back, you will benefit with your equity portfolio, which will have risen. If the market plunges, you still have funds to deploy to buy low each month. And lest us forget that you still have your opportunity cash mentioned earlier to take advantage of the stock market low.


Bonds are basically debts of companies or countries. S’pore government bonds are SGS or SSB, but I do not recommend you to buy now! This is because the yield is very low now. The average 10-year SSB yield is lower than 1.5% now and normally the front years are generally even lower than.

Therefore, you must well keep money in the bank for which several banks offer higher yield in various combinations. I owned SSB myself but it was bought during initial years of inception and carries >2.5% yield.

My suggestion is to peek into low risk, high credit rating corporate bonds. You can decide to immediately plough in 10-20% into these bonds. There is very low risk of you losing your capital with guaranteed yield p.a. if you decide to only redeem upon maturity. That is assuming that the company remain sound financially.

Sound corporate bonds
Capitaland and Frasers offers these bonds. For instance, CapitaMall Trust’s CapMallTrb3.08%210220 and Frasers Property’s FPTreab3.65%220522, with yield of 3.08% and 3.65% respectively.  Note that the security name describes the bond itself. CapMall Trb is with 3.08% yield p.a., expires year 2021, 20th of Feb.

High return, high risk (vice versa)
There are also higher yield corporate bonds such as Aspial, Oxley or Perennial with all have more than 4.5% yield. If you have higher risk appetite, you can consider these higher yield bonds, but bearing in mind that higher returns equal higher risks.

There are also ABF Singapore Bond Index which is an ETF with annualized return of 2%. It comprises of a basket of debts issued by Singapore companies such as HDB, LTA, Temasek etc. It is low risk with AAA credit ratings.

Junk bond risks
Do bear in mind that corporate bonds or bond ETFs are traded in stock exchanges and there are possibilities of not able to redeem at par value before maturity. For example, in situation of stock market crash where companies are affected financially, then their security will trade below par value. Some ill-fated companies can be completely overwhelmed by the financial crisis and enter into bankruptcy or judicial management. This can mean total loss of capital. For e.g. the recent Hyflux case and several oil and gas companies such as Ezra and Swiber during the oil crisis 4-5 years ago. Therefore do exercise caution.


To me, it is imperative to own Gold or Silver or both. This is in view of the high global currency debts of today. 20-25% of precious metals should be included in your portfolio. Gold and silver “normally” go in opposite direction with the equity stock market and this provides hedging to your portfolio.

For e.g. stock market enters extreme bear and your gold or silver enters into extreme bull. Then you can consider to take profit from your precious metals by selling them at high prices. And using the profits then to buy into the cheaper shares. PS: allow me to emphasize “normally” because in exceptional events, price of stock market and precious metals may NOT have inverse relationships.  

For gold, you may want to enter into a smaller position now, because price is at all-time high (>USD 1.7K /oz). However silver price is still affordable (USD 18-19 /oz) and the high Gold-Silver-ratio favours the buying of silver.

Paper Gold and Silver
You can either buy paper gold such as SPDR Gold trust GLD traded in SGX or open a Gold and Silver accounts in UOB.

Physical Gold and Silver
Alternatively, you can buy physical precious metals from companies in Singapore such as Silver Bullion, Bullion Star or UOB. Refer to my previous article, “Buying Gold from UOB Bank.”

Note that now physical metals are more expensive.  My advice is to keep 50-50 paper and physical. To know more about precious metals, refer to below articles:  


Lastly, you can also channel 0-5% of your portfolio into cryptocurrency to take a chance that this technology can potentially replace centralised-controlled currency one day? Two of the most popular are Bitcoin (BTC) and Ethereum (ETH). BTC is currently at USD 9K and ETH 230 per coin.


Recommendation only 
  • Cash 30-40%
  • Shares 20-30%
  • Bonds 10-20%
  • Metals 20-25%
  • Crypto 0-5%

Strictly Example only:
Cash 35K; Bonds 15K; Progressive monitoring: Shares 25K; Metals 20; Cryto 5K
  • Frasers corporate bond – buy 15K
  • BTC – buy 3K. balance 2K
  • Gold – buy 3K gold. Buy 6K silver. balance 11K
  • Shares – buy 3K each month… June, July etc. 

Total buy in June – 30K….Cumulative in July – 36K….. Aug 39K…. assuming no sudden correction of pricing in stocks, metals, etc.

Friday, 29 May 2020

Rolf’s ANALYSIS to help you decide to INVEST or pay down MORTGAGE first?

Should we quickly pay down our house mortgage with all our excess monies less expenses, or keep should we use our extra income to invest?

Before we start, let us do a simple mortgage analysis.

Assuming 2% interest p.a. on average, below is a table depicting different loan amounts with varying loan periods of 30, 25, 20, 15 years to show what is the total interest payable and the monthly instalments.


Mortgage Service Ratio
In the above table, you can see the Mortgage Service Ratio (MSR) which is defined as the ratio of monthly instalment to household income, kept at 30%.

Currently, the Singapore government set the Total Debt Service Ratio (TDSR) limit at 60% which means all your debt obligations (student loans, credit card debts, car loans, personal loans, and so on), cannot exceed 60% of your income. This applies to property loans granted by all financial institutions (not just banks).

However, I feel that hitting the 60% TDSR limit can be too risky especially in times of crisis where income sustainability is at stake. I recommend to keep MSR comfortably at 30%, so that you still have 70% of the savings to pay off car loan (if any), and potentially savings also for investments.

My very own MSR is even more conservative at 15% average for the past many years. This is due to my high expenses in a big household and also my preference to have more liquidity to invest, to potentially set-up business when opportunities arise, to use as emergency etc.

Absolute interest payable
Another criterion is to consider absolute value of total interest payable. It is wise to keep it within SGD 150K, otherwise you will be paying just too much interest over the period of your tenure.  I think SGD 200K is the maximum you should go for even with a higher property loan.

Unless, it is very clear that you are going to sell your property for a significant profit within a certain period of time. But nobody knows! I have known many friends and relatives who took on big property loan with more than 20 years loan. Often times when I quipped if they are then paying too much interest, most will say “its ok” because I am going to sell it for a good profit after 5 years. Then you will realise that most of them only have one property or they have not been able to sell after 5 years.

In fact, I met with most who lost a lot of money after some unforeseen circumstances take place. E.g. divorce, retrenchment or big pay cut making their re-financing more difficult, such that they have to endure a higher interest rate on the 3rd year interest rate onwards.

Per annum interest payable
It is important to pay more than 50% of your monthly payment on principle and not more than 50% on interest. Hence, I am suggesting to have interest below SGD 10K per annum on average. The reasoning is because at SGD 10K yearly interest, is equal to SGD 900 per month of interest, and assuming monthly instalment is SGD 2,000 plus, then at the very least you are still paying more than 50% of the principal.

Recommended mortgage  
Using these criteria and referring to the above table, the highlighted green figures are the recommended mortgage variables.

Of course, if you have higher household income, or excess savings or bonuses in those years, then upon refinancing your loan (every two years), you can either shortened the loan period, or you can pay down a fix lumpsum to reduce the loan amount significantly. Both ways, can help you to reduce the overall interest payments, as long as you are comfortable.


Fulfilling the above criteria, then I suggest that you should definitely invest with the rest of your savings. 

However, before you invest, you need to learn more about investments. This is of utmost importance. It will take time and patience. Above all, you may have to pay school fees and remember DO NOT BE TOO PROUD if you find quick success during the start of your investment journey. Most of the time, you are just fool by randomness during the beginning. It is not because you are skilful. It is likely market is just too bullish or you are pure lucky, or you probably have not experience or anticipate any crisis yet in your life! That said, once you have your experiences of hardwork, "pain-learn-improve",  you should be able to beat the market over time. 

If you do not have humility, time or patience to learn investments or to learn how to manage a portfolio, I suggest you should not invest by just hearsay and pick stocks sentimentally. It is much better to just pick a low risk fund or a bond and to put in money monthly and not to be bother about the market movements. Alternatively, your CPF may give you better compounded returns.

I know friends in their late 50s who are not overly engross in learning investment as they focus on their career to increase their income and sitting at management position. They then invested in funds with their insurance agents for more than 20-30 years and today, and the return on those funds today is able to help them with retirement and to fund all his children for universities.


Low interest rate in Singapore
As you probably know, interest rate of housing loan in Singapore has been very low below 2% for the last ten years. In comparison to the rest of the world, home loan here is one of the lowest. In USA, fixed interest rate for 30 year-old loan can be as high as more than 3.5%. China and the rest of the South East Asia have more than 4-5% mortgage rate on average in the last ten years.

Taking advantage of economic health’s direct proportional relationship to interest rate
In fact, if you try to refinance every two years in the last 10 years like I did, all my rates are below 2%, and in fact even below 1% at one time.

Also, if interest rate rise in times of good economy with job security and your investments is doing well, you can cash out investments or use your increased bonuses to pay down mortgage lumpsum or shortened the loan period during refinancing.

If economy is not good, generally interest rate will be low, then you can use your excess monies (because you did not pay down your mortgage aggressively), to buy stocks during times when stock prices are depressed.

However, take note that interest rate may not be always be directly proportional to economic health.

HDB Loan and Singapore government is “sympathetic”
If you are taking HDB loan, although rates are generally higher say c. 2.5%, but our government is more forgiving and will not chase you out of the house even if you default. When I was young, I had seen my neighbor default for many months rental, instead of HDB chasing them out of the house, they will send social worker to their house to talk to them and help them to find jobs.

Singapore is also generally quite sympathetic in times of crisis when you lose your job and unable to pay your mortgage. This covid pandemic is the best example when government dictate banks to allow for deferment of mortgage payments.

Emergency savings
If you use all your excess monies to pay down mortgage, then you will not have emergency savings during times of crisis. Equally bad is when you use all your excess savings to buy stocks instead of mortgage. Then in times of crisis when market is depressed, your stocks portfolio will drop significantly. And let’s say you need emergency money and need to cash out your stocks, you will make huge losses.

Hence it is better to keep emergency savings in cash or in bonds which is considered very safe which can be easily liquidated and yet with percentage returns.

Otherwise you can have gold and silver to hedge against times of crisis, like what I do. So that if stock market crash, and gold price rise, you can then sell your gold at high price and use the profits to either buy stock cheaply or to help you for emergency needs during economic crisis like now.


Of course, there are other factors to consider in relation to your own income and expenses to decide how much you should pay down your mortgage and how much you should invest.

It differs from household to household. Some household have family to take care of, some don’t. Some has more security in their jobs. Some are willing to work until they are old, therefore they can have lower monthly instalments for mortgage repayments, and have more money for investment portfolio.


If you are in Singapore owning a Singapore property, my advice is don’t cripple your cash reserves on the quest to be mortgage-free. It is not that smart in a low interest rate environment.

However, if you really seriously have zero interest in investment knowledge, and you are very risk adverse, then you can quickly pay down your mortgage, but remember to have at least one year of emergency savings on expenses. I am more “kiasu” and advise to have 1.5 years of liquidable emergency savings.

Finally, it is not wise to pour all your money and savings in stocks alone. It is better to have an investment portfolio comprising of stocks, bonds, precious metals, cash etc. This can help you to hedge against economic crisis when stock market crash. And if it just happen that you need emergency cash because you are being retrenched or there is a double whammy economic and personal health crisis, then, at least the downside or the black swan event is avoided.

Monday, 25 May 2020

Impact to Singapore and Rest of World? US new passed bill to delist some Chinese companies in US stock exchanges!

Last week US senate passed a bill to potentially delist Chinese companies from American stock exchange if these companies do not comply with the “Holding Foreign Companies Accountable Act” for three consecutive years.  

The Public Company Accounting Oversight Board’s (PCAOB) will enact the act to ensure audits of foreign US listed firms to be accurate and transparent. These firms are also require to declare if they are owned or controlled by a foreign government, including China’s communist government.

As it stand now, Chinese government refuses to allow PCAOB in inspect audits of companies that are registered in China and Hong Kong. The recent delisting of Chinese company Luckin coffee whose fraudulent accounting came to light is one of the triggering factors. But more evidently, it is US targeting China in their ongoing trade wars.

According to SEC, more than 224 foreign US-listed companies, mostly Chinese with a market cap of > USD1.8 trillion will have trouble adhering to PCAOB’s audits.


Shares volatility persists
Short term impact will see shares of Chinese-US listed companies taking a hit.
Hang Seng will not do well too, as already seen with last Friday’s more than 5% decline in the index.
The pandemic and US-China tensions are double whammy. Volatility in stocks will continue.

Listings elsewhere
It is likely that companies listed in US such as Alibaba, Baidu, choose to leave U.S to seek listing in Hong Kong. Alibaba already had secondary listing in HK while Baidu also expressed willingness to do the same earlier.  If not HK, then perhaps London Stock Exchange?

Otherwise, in Shanghai or Shenzhen stock exchanges but with smaller pool of investors.

Alternatively, Singapore should really lure some of the bigger cap Chinese companies to list here. However there are still much work to be done as S-Chips listings in SGX is not really a success with poor track records in the past.


It is without doubt that China will potentially over-take US to be the largest economy in the world one day. That said, it will take STILL some time for that to take place. Maybe at least 20 years?

While US may have poor governance in its leadership of the country, the corporate America is still far too powerful with so many gigantic companies, and many having technology that will shape our future lives.

At this moment in time, US just have too many “weapons” against China. Add taxes, since China is net exporter to US! Delist Chinese firms in US! Print more USD! Getting Europe allies and other allies such as South Korea, Japan, Taiwan, Australia to have sanction against China.  

In the midst of the Hong Kong protest, US will also step in to impose security and democratic laws against Chinese sovereignty over Hong Kong.


Stocks can rally, but people will lose their jobs or have income decline
This crisis will not be like the previous ones where it tank and recover fast. It is going to be a long winter. While the stock market is rallying, it is nothing to do with the real economy. Stock market is driven by liquidity of fund managers and their sentiments to make money. It does not reflect the economy.

The economic problems of the world will result in a small and painful decline of global economies. Jobs and income will be impacted, even without the corona pandemic, as the false optimisms in the last decade cause by money printing will soon come to an halt, as STEROIDS begin to show its side effects.

Widening of Income Gap
The global rich and middle income gap will widen. More middle-income will fall into the zone of low income. The rich and the politicians will continue to be richer and more powerful. The people authorizing and those who sell the steroids will continue to earn more money in the near term (Rich and powerful). The people at the receiving end of the steroids (middle and low income) are going to be the one who suffer.

Protest to redistribute wealth
Very soon, there will be more protests in the world held by the disgruntled. The “have not” will protest against the “haves” to redistribute wealth.

Whether there will be a successful redistribution, I am not sure. The last time in 1930s, it produces Hitler.

Singapore hope in ASEAN!
Our over-reliant on good US-China relationships to grow our economy is not going to work anymore, at least for the short term. ASEAN is our only hope now! ASEAN need to be united as one, and Singapore can help those economies to grow with our knowledge and strong banking systems.

And the country which will grow the fastest next is VIETNAM! Due to the tension in US-China that will persist for awhile, more firms will think and explore relocation of their investments into Vietnam.

In the long run, say 10 years or more, China will continue to grow and grow. But for now, they have been growing too fast in the last few decades and every fast growth will soon meet with decline.

Nonetheless, the future of China is bright. They will learn from this crisis, and continue to grow resilience to deal with global problems, by strengthening and keep on strengthening their own economy.

Stock investing
Personally I prefer to be at the side-lines for now, although I am still confident that China and her Chinese tech firms have huge growth potential. Waiting for their share price to tank further now, before taking any actions.