Wednesday, 22 March 2017

Financial Review FY2016

FY2016 in Review 


In the previous financial year ended 31 May 2016, I set a saving target of S$43,000. As with last FY, I'm delighted that I met my target two paychecks early. This is largely attributed to an unexpected pay adjustment and higher bonus quantum.

While I really hoped to deploy most of my savings into the stock market to make them work harder for me, I didn't manage to find many investment opportunities. For FY2016, I merely added SingTel and ComfortDelGro. As a result, my cash is piling up in my bank account and I am forced to look for a second saving account as my cash holding has hit the bonus interest ceiling of OCBC360.

Expenditure wise, there were no significant change to my spending habit. Family contribution remain the largest outlay, followed by Dining and Entertainment. However, beginning April-17, another significant outlay in the form of income tax will start eating into my savings. I should probably start considering CPF top-up to lower my tax burden.

In FY2016, I also beefed up my insurance coverage. The newly introduced Mindef & MHA Group insurance, which replaced the SAF Group Insurance, offers term insurance at a very competitive rate. Specifically, I increased my death benefit by S$100k to S$250k and took additional critical and early-critical illness insurance with payout benefits of $100k each.

S$100k at Age 27


FY16 also marks the milestone of accumulating my first S$100k, 9 months earlier than my initial projection. My non-existential material wants contributed significantly to this accomplishment - I have no idea when was the last time I bought myself a shirt or a wallet. And despite the rise of ride-hailing services such as Uber or Grab that probably incentivized many to engage private hire cars due to its convenience, I remain loyal to bus and MRT which helped me keep my transport expenses low. Having said that, I don't live like a scrooge (though this is subjective), I do spend considerable amount on the occasional restaurant meals and overseas holiday.

I also try to take advantage of high interest accounts and credit card signup bonus/cash rebate to maximize my dollars. On top of my OCBC360 account which typically gave me 1.75-2.25% interest (note: interest has been revised down since Apr 2017), I recently opened a Citibank Maxigain Saving Account which peg its interest to 1-month Sibor. Various banks also offer credit card signup bonus which practically gives you money for free. For instance, Standard Chartered gives you $138 for simply signing their credit card. I have already collected my $138 from SC and have since terminated my card, hopefully I don't get blacklisted for it.

FY2017 Target


For the next FY, I will set a higher saving target of S$51,000. I also aim to expand my portfolio to generate an average of more than S$250 passive income per month. This should be more than sufficient to cover my transport expenses, insurance premiums, and phone bills. My next financial goal is to amass $250,000 by age 30.

Monday, 2 May 2016

Financial Review FY2015

Before I stepped into the workforce, I have already planned my personal finance in detail. From weekly budget, to saving targets, to when I am projected to accumulate my first S$100k. Over the course of the year, I have made some revision to my financial plan as I gain better grasp of my spending habit.

Fast forward to today, 10.5 months have past since my first day of work and I have managed to hit my first-year saving target of $33,000 earlier than I expected. During this period, the stock market have also presented various opportunities which helped me expanded my investment portfolio from $4.2k to $24.1k. Hopefully, more of such opportunity will arise over this volatile year.

Expenses wise, about $1,190 was set aside each month for fixed expenditure which include insurance premium, telco bills, utility bills, transport fares, and family contribution. My variable expenditure, which consists of dining and entertainment (D&E), was about $115 per week. Bulk of the D&E expenses went to dining as my gf and I don't really have any expensive hobbies nor do we shop frequently. A large dip in expenses is usually a pretty good indicator of when I had an argument with my gf. /sweat

In my quest to build up my passive income stream, I have picked up various tricks along the way to maximize my dollar.
  • Ditch your kids savings account and set-up a high interest current account (e.g. OCBC 360, UOB One, or BOC SmartSaver)
  • Use a credit card that best suit your spending habit. With the right card(s), the cash rebate can be significant
  • Use ShopBack to enjoy greater discounts from a wide selection of online stores
  • Participate in various government initiatives, such as Travel Smart or National Steps Challenge, for monetary rewards. These initiatives reward you for doing what you are already doing everyday such as taking MRT or walking
While these little tricks may seems to earn you insignificant amount each time, cumulatively, it can be quite substantial. To date, I have earned over $400 from doing the 4 things above.

For the next financial year, starting June, I have set a higher saving target of S$43k. Assuming no change in spending habit or any large unexpected expenses, this should be a relatively easy target. I also hope the new financial year will bring more investment opportunities so I can deploy my idling fund to work hard for me. 

Sunday, 27 March 2016


Chanced upon an extremely useful website called SGXcafe, which allows you to track your investment portfolio with great details and helps you compute various financial statistics.

Sunday, 13 March 2016

ETF investing via Dollar Cost Averaging vs. Standard Chartered

Dollar Cost Averaging (DCA), or sometimes referred to as Constant Dollar Plan, is an investment approach of buying a fixed dollar amount of a particular investment vehicle (typically an index fund or exchange-traded fund) on a regular schedule, regardless of the asset's price. As the amount of money invested in each interval remains constant while the market value varies, it systematically buys more shares when market is cheap and vice versa. This simple yet powerful strategy free investors from committing excessive amount of time and effort to monitor the market, and ease the burden of timing market entry. 

There are various options available that allow you begin your DCA portfolio. The more popular ones include POSB's Invest-Saver and OCBC's Blue Chip Investment Plan. Both enable you to invest in STI ETF for as little as $100. 

Increasingly, there are also people who try to mimic DCA using Standard Chartered (SC) Online Equities Trading. Enticed by the extremely low brokerage fees (0.2% compared to 1% for Invest-Saver), this group of investors buys a fixed number of shares at regular interval. At first glance, it appears that SC offers a cheaper alternative to POSB and OCBC's constant dollar plan. However, by buying a fixed number of shares using SC, it loses the powerful mechanism of buying more when the price is cheap.

In order to assess how the trade-off weight against each other, I constructed 2 portfolios based on POSB Invest-Saver and SC 'fixed share plan'. To ensure comparability, the set up of the 2 portfolios are as follow (you may ignore this part unless you want to scrutinize the methodology):

In the SC 'fixed share plan':
  • One lot, or 100 shares, of STI ETF (ES3.SI) were purchased on the first trading day of each month beginning Jan 2008.
  • Fees of 0.2325% (brokerage + market fee) were incurred for each transaction
  • All dividends were included
In the POSB Invest-Saver:
  • $301.30 were invested on the first trading day of each month. The investment amount was selected to match the investment cost price of the SC plan as of March 2016.
  • 1% sales charge was incurred on the $301.30 each month 
  • Residual shares were removed
  • All dividends were included
The chart below compares the performance of the 2 portfolios.

*Click to enlarge

The chart shows the value over investment cost (portfolio value  minus cost price of the shares) of the POSB Invest-Saver (blue) and SC fixed share plan (red). The good news is that both portfolios have grown substantially over the cost price. As of 11/03/2011, the Invest-Saver portfolio value is $37,202.92, while the cost price is $29,970.97. What's interesting is that, despite the much lower fees of SC, it failed to outperform Invest-Saver. This illustrates the power of the cost averaging mechanism. In addition, the convenience of investing via POSB Invest-Saver far outweighs having to manually trade using SC Online Equities Trading. I can also imagine investors who are using SC will be more likely to be swayed by market sentiment. After all, how many people dare to buy when they are surrounded by gloom and doom?

Sunday, 21 February 2016

Portfolio Performance

This blog was initially started to document my investment journey back in 2011 (unfortunately, many of my early entries were accidentally deleted). As time goes by, my focus gradually shifted to nus module review. Now that my undergraduate years are over and is actively building my portfolio, I think it is time to revert this blog to its original intent.

Let me start with my portfolio performance for the past 5 years.

The returns were computed using XIRR and benchmarked against dollar cost averaging (DCA) the STI index (subjected to 1% sale charge and inclusive of dividends). To read this plot, the % return is the per annum gain if the entire portfolio was liquidated at that point in time. For example, if I liquidated my portfolio in early 2013, my return would be ard 20% p.a. for the period of investment. Alternatively, If I were to liquidate my portfolio last Friday (22 Feb 2016), my return would be around 17% per year for the last 5 years. This is in contrast with the near 0% return of the DCA portfolio.

Over the past 5 years, my investment theme has changed. When I first started, my focus was on high yield counters (mainly REITs). However, ever since Ben Bernanke, then FED chairman, announced QE tapering, my target shifted to low-debt-high-cash companies that are less vulnerable to interest rate hikes. My current portfolio consist of the following stocks:

Sheng Siong
Raffles Medical
Parkway Life REIT
Total Value
S$ 22,270

Going forward, I will continue to be actively seeking investment opportunities to grow my portfolio. Hopefully it can grow to $100,000 by early 2018, barring any financial Armageddon.

Friday, 1 January 2016

Dropbox link to lecture notes and tutorials

Here's the link to the module materials that I have uploaded to dropbox. I apologise to those who emailed me to request for some of these materials but did not get a response from me. I seldom check my personal email nowadays.

NUS Modules

All the best for the upcoming semester.

Sunday, 20 September 2015

Why you should not buy an endowment plan.

To my fellow fresh graduates, congratulations on getting that degree scroll. 

By now, some of you would have secured your job and started bringing the dough home. As we accustom ourselves to the post-college life, many of us are entrusted with a newfound responsibility - managing our finances. How you control your spending and manage your savings will determine whether you can meet your financial goals in life. It is high time for us to maximize our dollars. 

Fortunately (or unfortunately), financial advice are aplenty both online and on the streets. We young tender looking fresh graduates in our office wear are probably one of the prime targets of the preying insurance agents. Buzzwords like 'returns', 'savings', 'beating inflation', and 'miserable banks' interest rate' resonate with your interest. Endowment plans, which are often marketed as a low-risk tool to help you meet financial goals while providing some insurance protections, may hit the sweet spot of many. The guaranteed cash value at maturity also entices the risk averse. 

Barring all the commissions and other fees and charges, endowment is inherently not a bad concept. This got me pondering whether I can build my own endowment using financial products that are highly accessible, while cutting out the unnecessary costs.

Structure of an Endowment

To do so, we need to understand the underlying structure of an endowment plan. An endowment can essentially be broken up into 3 parts, the guaranteed cash value, the non-guaranteed cash value, and insurance protection (usually death and total and permanent disability). In a very simplified sense, we can think of the premiums you paid as being channeled to each of the respective parts in an endowment. The premiums (after deducting all the commissions and fees) are allocated such that a significant portion of it will be used to buy low-risk-low-yield bonds to generate the guaranteed cash value. A small portion of the premiums will be used to pay for the cost of insurance. And finally, the remaining premiums will be invested in higher risk equities. 

The DIY-Endowment

In order to replicate an endowment, I will be combining 3 financial products that are highly accessible to the general public. They are: (1) the Singapore Saving Bonds (SSB); (2) the STI-ETF from POSB Invest-Saver; and (3) a direct term from NTUC income that covers death and TPD. Using this 3 products, I will try to replicate and compare it against the RevoSave (3-Pay-10). The RevoSave is a 10-year endowment plan with a $30k guaranteed cash value at maturity. Three $10k premiums are paid over the first 3 years of the policy.

To ensure the quality of comparison, I have included all the transaction fees for SSB and POSB Invest-Saver. STI-ETF are brought using the dollar cost averaging approach over 3 years at a monthly interval. The projected annualized return of STI-ETF is 9.2% (this takes guidance from the annualized return of STI between 2002 to 2013). The returns of SSB follows the interest schedule as shown on the SSB official page. The cost of insurance is $55 p.a. with a $50k coverage on death and TPD. 

Below is the benefit illustration of RevoSave for a 23 yo female non-smoker.

At 4.75% projected return, the RevoSave would generate a  projected return of $9689 at maturity with an average coverage of $39,158.40 over the 10-year period.

On the other hand, the DIY endowment yield superior performance compared to the RevoSave. The death and TPD is fixed at $50k throughout the 10 years. The non-guaranteed return is $11029.14, while the guaranteed return is $30000.03.

For those who are interested, the code for calculating the figures is pasted here.

Is the assumption of 9.2% annual return from STI-ETF a fair comparison against the projected return of 4.75% in the endowment? 
We must note that the 9.2% is the return from equities. On the other hand, the 4.75% from RevoSave is the return from an investment mix of both equities and other low yielding instruments. As of 31 Dec 2014, the participating fund of RevoSave is make up of 23% equities, 67% fixed income, and 10% of cash/loans/properties. Assuming the low yielding instruments yield an annualized returns of 3% to 3.5%, this means that RevoSave assumes their equities can generate a return of 8.9% to 10.6%. The higher equities exposure (18% in my diy-endowment vs 23% in RevoSave) also means higher risk exposure in RevoSave.

All in all, the diy-endowment is likely to yield better returns, offers higher protection for 9 out of 10 years, able to provide a guaranteed principle, lesser risk exposure, and greater flexibility to customize to your needs.

UPDATE (8 Nov 2015)
Sunday Times published an article titled Make (full) sense of insurance policies on 8 Nov 2015 that highlights important things to look out for before committing to  an endowment policy. The article provides a useful table which compares the investment returns on insurer's most representative participating funds for the past 7 years. Let's take a look at how they compare against my DIY endowment. (Note: I am assuming a risk-free product with similar return profile as SSB exists for the period of comparison)

A quick glance shows that the performance of all funds are comparable. But it is important to note that the returns of the insurer's participating funds are NOT the effective or net returns that policyholders will get. The returns have yet to consider the hefty distribution cost, management expenses, commissions, and cost of insurance. All these cost can easily shave off more than 1.5% of the returns.

Clearly, my DIY portfolio significantly outperformed many of the endowment plans based on past 7 years result.