10 SRS Investments to Consider Especially if you are 40 and older Retirement

10 SRS Investments to Consider Especially if you are 40 and older

If you are reading this, you probably have an amount of money in your SRS account. As the interest in the SRS account is 0.05%, you are also probably thinking of investing that amount. In the 6 Levels Wealth Karate, one of the key pillars of your financial journey is building up your investment portfolio and that includes your SRS account.

If you are unsure what SRS is, please refer to comprehensive SRS guide that was written previously.

Start Here: The $1 SRS Strategy

Basic Knowledge: 5 things you need to know about SRS when you are 40 and older

Your SRS Overseas Retirement Guide: 3 things you need to know about SRS if you plan to leave Singapore

Today, we focus on the 10 Investments you can consider using your SRS.

(Disclaimer: We will be explaining each concept with a real life examples. Please note that, those are not buy/sell recommendations. The suitability of the investment vehicle depends on each individual. Please talk to a competent financial advisor for more details.)

 

Investment #1: Fixed Deposits

A fixed deposit is an investment vehicle that pays account holders a fixed interest in exchange for depositing a certain sum of money for a certain period of time. It is very popular among the older generation as it is virtually risk free as long as the bank doesn’t collapse. Even if it does, your deposits are still protected, up to $50,000, thanks to the Singapore Deposit Insurance Corporation.

I have pulled up an example to showcase fixed deposits. It is worth noticing that after the 13th month, the interest will become more significant. Also if you are putting your money for 6 months or less, the interest is 0.05% which is indifferent for you to not put into a fixed deposit anyway.

10 SRS Investments to Consider Especially if you are 40 and older fixed deposit

10 SRS Investments to Consider Especially if you are 40 and older fixed deposit

 

Investment #2/3/4: Singapore Government Securities

Singapore Government Securities are debt instruments that are fully backed by the Singapore Government. Singapore Government Securities includes Singapore Saving Bonds (SSB), SGS Bonds and also Treasury Bills.

For SSB and SGS Bonds, you will receive interest every 6 months. If we put the definition loosely, it means you are lending money to the Singapore Government to receive a interest.

For Treasury Bills, it does not issue interest/coupons. You will receive the face value at maturity. If we put the definition with an example loosely, you are paying $0.95 now to get $1.00 in a xxx time frame.

I have taken a screenshot of the detailed comparison of the 3 securities here. Do check out more information on the MAS Website.

DBS has also created an extremely useful step by step guide to help you in your purchase of the securities.

10 SRS Investments to Consider Especially if you are 40 and older Singapore Government Securities

10 SRS Investments to Consider Especially if you are 40 and older Singapore Government Securities

 

Investment #5: Bonds

Bonds are basically debt instruments as mentioned above. However, I have separated bonds with the above SSB/SGS bonds because bonds can issued by companies etc. In a simple nutshell, the better the credit rating of the bond issuer, the lower the returns (or the coupon rate).

There are 3 main ones that you can purchase. Firstly, individual bonds, Bond ETF Funds, and Bond Unit Trusts (more on ETF/Unit trust in a while).

A popular example of a bond is the Astra V PE Bonds Class A-1. It was popular because the bond was issued by Temasek Holding’s subsidiary, Azalea. It was offering 3.85% annual interest for it’s bonds and was 7.2x oversubscribed in 2019. In this bond, you can see their investment diversification on their website. (Again, this is not a recommendation)

10 SRS Investments to Consider Especially if you are 40 and older Astrea V Bonds

10 SRS Investments to Consider Especially if you are 40 and older Astrea V Bonds

 

Investment #6: Stocks

A stock (or equity) is a security that represents the ownership of a fraction of a corporation. Loosely define, you are a partial owner of the company when you purchase the company’s stock.

There are several methodologies that you can use to invest in stocks. Recently, the hottest topic around is whether Value Investing Is Dead Or Maybe Not. I have also written about a hidden gem in the Singapore Stock Exchange that might have short term capital appreciation in the next 6 months. If you are interested in banks, I have written about DBS business and opportunity.

The example I will be using is an evergreen stock in the Singapore Stock Exchange called Singtel. It is important to know what you are investing in. Most people only recognized Singtel for its’ mobile and data internet service, but do you know that >50% of their revenue comes from something else? Stock investing require greater skills and mental fortitude. I strongly encourage you to learn more about stock investing before dipping your toes into it.

PS: You can only invest in stocks listed in the Singapore Stock Exchange using your SRS.

10 SRS Investments to Consider Especially if you are 40 and older Singtel Business Revenue

10 SRS Investments to Consider Especially if you are 40 and older Singtel Business Revenue

 

Investment #7: Reits

Reits (real estate investment trusts) are the same as stocks except they invest only in real estate. They tend to have higher distribution yield as compared to stocks because of their consistent cashflow from rental. Similarly, you can only invest in a Reits that is listed in Singapore. At the end of 2019, Singapore has 35 REITs, six stapled trusts and two property trusts.

An example is the Mapletree Industrial Reits. Its principal investment strategy is to invest in a diversified portfolio of income-producing real estate used primarily for industrial purposes in Singapore and income-producing real estate used primarily as data centres worldwide beyond Singapore, as well as real estate-related assets.

As at 30 September 2020, MIT’s total assets under management was S$6.6 billion, which comprised 84 properties in Singapore and 27 properties in North America (including 13 data centres held through the joint venture with Mapletree Investments Pte Ltd). MIT’s property portfolio includes Data Centres, Hi-Tech Buildings, Business Park Buildings, Flatted Factories, Stack-up/Ramp-up Buildings and Light Industrial Buildings.

10 SRS Investments to Consider Especially if you are 40 and older Mapletree Industrial REITS

10 SRS Investments to Consider Especially if you are 40 and older Mapletree Industrial REITS

 

Investment #8: ETFs

ETFs are called exchanged traded funds. An ETF typically replicates a specific index (for example, the Straits Times Index or the Singapore Market). The main feature of an ETF is that it is passively managed and do not try to outperform the underlying index. They usually have lower fees and charges as compared to actively managed investment funds such as unit trust.

Currently, there are 39 ETFs listed in the Singapore Exchange.

One example is the SPDR® S&P 500® ETF Trust (S27). They are investing in the 500 companies in the S&P500. You can take a look at the top 10 holdings of this ETF.

10 SRS Investments to Consider Especially if you are 40 and older SPDR ETF

10 SRS Investments to Consider Especially if you are 40 and older SPDR ETF

 

Investment #9: Unit Trust

Unit Trust is a fund that invested in a portfolio of assets according to the fund’s stated investment objective and investment approach. It is usually more active than ETFs. Unit trust could be diverse because there could be infinite investment approaches in the world.

You could invest in a dividend fund, a growth strategy fund, a commodity fund, a growth strategy in emerging countries, a dividend strategy fund in a developed market (I think you get the point now), etc. Because unit trust is so broad, we will not be giving an example. I feel it is best to work with a financial advisor to discuss and find the most appropriate unit trust for you.

 

Investment #10: Single Premium Insurance Product

A single premium insurance are usually retirement/annuity/accumulation products. Not all insurance products can be bought using the SRS.

There are 2 strategies in general. One being a lump sum payout at maturity or a stream of income in the future, starting from a date of your choice. A portion of your investment returns are guaranteed as compared to investment #5/6/7/8/9. This appeals to those that are seeking a more conservative and steady income stream during retirement. There is also a possibility of bonuses that are non-guaranteed.

Please feel free to contact me to have more information on these.

PS: An article isn’t complete unless there is a photo of retirement with 2 loving elderly =)

10 SRS Investments to Consider Especially if you are 40 and older Retirement

10 SRS Investments to Consider Especially if you are 40 and older Retirement

 

Final thoughts by Wealthdojo

Whichever the financial vehicle that you are deciding, it is important to understand and know your risk profile, knowledge level, budget, income etc to make a good investment decision.

I wish you all the best in your investment. Do contribute to your SRS before 31 Dec if you wish to have tax benefits for your financial year.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Value Investing Is Dead Or Maybe Not

Value Investing Is Dead Or Maybe Not

Is Value Investing Dead?

Value Investing Is Dead Or Maybe Not

Value Investing Is Dead Or Maybe Not: Warren Buffett (Photo From Market Watch)

In the 6 Levels Wealth Karate, I talked about the importance of creating a superfund income. We do this via investment. Right now, there is a fierce debate on whether value investing is dead. To all value investors, we know that price is an important component of value. That’s why we’re called value investors. I challenged The Moss Piglet on his investment thought process and we want to share with you if value investing is dead or not.

In one of his recent blog post, he opined that it is time to update our approach to value investing for a changing world. In this article, he would elaborate more on his view of this new paradigm of value investing.

 

Brief History of Value Investing

The father of value investing was Benjamin ­Graham. He gave birth to this term roughly 100 years ago. During that time, the Dow Jones industrial average comprises of only industrial companies like Anaconda Copper and National Lead. Consumer marketing was still in its infancy. The closest thing to a consumer products company was probably General Motors.

Attracted to the upside of equities, Graham set about trying to figure out a predictable, systematic way to make money in stocks. He turned to corporate financial statements to look for answers. Graham saw that while stock prices fluctuate in the short run, a company’s tangible assets had a solid, precise value. By calculating value and then comparing it with price, Graham found he could make sense of markets. Thus was born the book “Security Analysis” and, with it, value investing. With his focus on liquidation value, Graham tended to buy boring, beaten-down businesses (Sidenote: I’m looking at this hidden gem at this moment in time). This was also known as cigar butt investing.

Value Investing Is Dead Or Maybe Not Benjamin Graham

Value Investing Is Dead Or Maybe Not Benjamin Graham (Photo from Quotiepie)

Then came a young man from Omaha who studied under Graham at Columbia. This man was none other than Warren Buffet. Surveying the economy of the mid-1950s, Warren Buffet saw that it was very different from the one Graham had encountered when he was young.

The Dow Jones Industrial Average now contained companies like Procter & Gamble, Sears, and General Foods. These companies were fundamentally different from an industrial company: The primary driver of their business had little to do with hard assets. Rather, the value had to do with the company’s brands and the loyalty and familiarity that comes along with it. The emotional ties to products like Budweiser and Jell-O allowed businesses to charge a premium for their goods.

At the same time, the rise of national television enabled strong brands with deep pockets to flood the television networks to reinforce a culture of homogeneity. This setup a vicious cycle for dominant brands like Coca Cola and Nike as they went from strength to strength while lesser brands slowly withered away. With that, Buffet was more willing to apply a more qualitative assessment of companies than Graham.

 

Defining Value Investing

At its roots, value investing is simply a framework for investing that involves buying stocks for less than their underlying value (Side read: Is Ant Group Overvalued?). As Warren Buffet says,

“Price is what you pay, value is what you get.”

The definition of value investing varies widely even among value investors. Damodaran has an interesting take on defining value investing where he classifies value investors into four groups. This depends largely on their approach of finding value stocks.

 

Passive Value Investing

Also known as the buy and hold strategy, investors screen for companies using criteria that they believe will lead to value stocks. Once they bought the stocks, their patience will pay off as “the market is a voting machine in the short run and a weighing machine in the long run”. We see screens ranging from “low P/B” and “low P/E” and “Quick Ratio” to more qualitative screens like good management and the use of Piotroski F-score and Benenish M-score. (One application is picking up quality companies during COVID19)

Contrarian Value Investing

In contrarian value investing, you focus on companies that have seen steep drops in stock prices. Investors believe that markets tend to overreact to news and that corrections will occur eg. Uranium trade and tanker trade.

Activist Value Investing

This style is a lot like contrarian investing, except the target companies are cheap companies where the investor believe that value can be unlocked through management action. Some examples of potential management actions that can create value include spinning off subsidiaries, share buyback, dividends etc. After acquiring a large portion of the company, the activist investor will often publicly lobby the Board of Directors to adopt their proposed changes to unlock value. The whole process can take a long time and activist investors need to be patient and persistent.

 

Valuation Challenge of an “Asset-Light” Economy

Warren Buffet’s ideal businesses were generally capital-intensive industries such as insurance and railroads, or they produced a widely advertised consumer products. However, it is becoming increasingly clear that we are now looking at a new breed of asset-light compounding machines with huge network effects.

Unlike the 1980s where most corporate investments were in tangible (physical) assets, we now have companies which value originates in intellectual property such as invention, knowledge and software. Yet all these asset light companies are harder to value because intangible assets are difficult to estimate. Technological change is very rapid and the risk of disruption is higher than the more traditional industries with predictable revenue, cash flow and earnings.

Value Investing Is Dead Or Maybe Not Digital Transformation

Value Investing Is Dead Or Maybe Not Digital Transformation (Photo From Brain Solis)

Modern accounting also failed to reflect the real values of intangible assets on the balance sheet, hence rendering the book value valuation (P/B Ratio) useless. A research paper from NYU Busines School titled “Explaining the Recent Failure of Value Investing”  goes into much further details on this topic.

Today’s valuation problem is in fact more challenging because the proportion of assets that are intangible and immeasurable is even larger.

 

We present to you: Value Investing 3.0

The high level concept of value investing is always useful, to buy with a margin of safety, at a discount of intrinsic value. However, the application method is going to change, especially in this easy money environment. In the past companies would have to wait for profits before expanding business by reinvesting the profits. Now, the company doesn’t need to do that anymore. Eg. Tesla can issue new shares to raise capital for building new factories in Germany and China. Never in the history of capitalism has no much wealth been created using so little capital.

The good news is, even in an economy transformed by technology, many principles of value investing still apply. 

1) Always look for businesses with a clear-cut competitive advantage. These companies should also look to build and maintain market share. Eg. Amazon has a stranglehold on e-commerce, Google owns search. Value investors have to think about how a company will be able to earn outsize profits over the next generation.

2) Traditional value investors view margin of safety as a “discount” to their intrinsic value, where you price in the risk of investment mistakes. For me, the margin of safety now lies not in the tangible assets but rather in the sustainability of the business itself. I still prefer to find cash producing businesses in strong financial condition selling at undemanding valuations. Of course, with these margin of safety criteria, I will most probably be looking at large, diversified and mature tech companies.

3) If Value Investing 2.0 is about consumer brands like Coca Cola operating with economies of scale, Value Investing 3.0 stocks relies on the network effect. A company will become more valuable as more people uses its products and services. Examples are Match Group (MTCH) and Google (GOOGL), where their users tend to come back for more. Match Group owns a portfolio of dating website and apps, which grew large due through significant network effects. Google gained an early edge due to its superior search algorithm and now “google it” became a verb meaning to do an online search.

Value Investing Is Dead Or Maybe Not Network Effect

Value Investing Is Dead Or Maybe Not Network Effect

 

Takeaway

Value investing is affected by the complexities of evaluating companies in the new asset-light and knowledge economy. Relying too much on historical data would lead investors to focus too much on companies whose peak growth has come and gone. What worked in the past often does not necessarily work in the future. Investors should not only consider Value Investing 3.0 prospectively but also to give some thought to the vulnerability of Value Investing 2.0 companies (RIP Robinsons).

However, the essence of value investing philosophy has not changed – merely the environment. From the 1930s to the 1960s, value investing was centered around cigar butt stocks. Over the next 50 years, it shifted toward consumer brands, economies of scale and capital-intensive commodity businesses. Now the best value investing opportunities can be found in asset-light compounders with huge network effects.

I would like to end this post with a quote from a book, The Intelligent Investor:

“The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.”  – Benjamin Graham

Cheers

Author Bio

The Moss Piglet is a financial blogger who enjoys expressing his findings and opinions about the financial markets. He is always on the hunt for irrationally beaten-down stocks as well as lesser known companies that are of value. Follow his investing journey at https://themosspiglets.com/.

 

Final thoughts by Wealthdojo

Times may change. But the investing principles will remain the same. Whether if is value investing 2.0, 3.0 or even investing using an investment linked policy, please treat your investment seriously. My wish is for everyone to invest wisely. If you have not started investing, there are basically 2 ways to do so.

  • Do it Yourself (DIY) – Learn about investing successfully and invest on your own.
  • Do For You (DFY) – Get someone who can invest successfully to invest on your behalf

We wish you good fortune for the rest of 2020. It is not too late to start.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Is Ant Group An Overhyped

Is Ant Group An Overhyped?

Ant Group IPO has been halted! Does it have problem with the Chinese government or does it present us more time to understand the company?

Is Ant Group an overhyped? Ant group announced that it would want a market valuation of USD $200B and later raise it to USD $313B. In the latest valuation I can find, Ant is going to be listed at HKD$80 on 5 Nov 2020. It will be listed on Hong Kong and Shanghai and will be the largest IPO of all time. We aim to find out if Ant Group is an valuable company to invest in.

Disclaimer. Please read. To set the context right, in the 6 Levels Wealth Karate, investing in an excellent business at an overvalued price is a lousy investment idea.

Is Ant Group An Overhyped

Is Ant Group An Overhyped

 

Introduction

Ant Group is started as Alipay created by Alibaba in 2004 as a payment tool of online market place. Besides logistical issues, there was a lack of something important in the internet space: Trust. It is not hard to imagine people losing their money via scams. Hence, people were generally more skeptical towards online payment at that time (probably even today). To create trust, Alipay did something different. Alipay held the buyers payment first. They then released it to the sellers after the buyers confirmed that they have received and are happy with the purchases. This deterred fraud and scams.

To further build trust, Alipay launched a campaign in 2015. If a user were to suffer a lost due to an online fraud/scam while using Alipay services, Alipay will compensate them.

Today, Alipay has 1.3B active users with a 55% Chinese Market Share for mobile payments. The only significant rival: Wepay and QQ Wallet with 40% combined.

Is Ant Group An Overhyped Overview

Is Ant Group An Overhyped Overview

It has also gone from being a digital payment (wallet) to having digital solutions (place to spend money). Ant Group is a middle man who is working with service providers (bank/insurance companies/investment funds). Consider this an expansion of the current application at Alibaba where people buy products from companies. With 1.3B active users, I cannot imagine the amount of transactions going on with this application.

Today, I present the following reasons why I think Ant Group is an excellent company to be invested in.

 

#1 – Ballie Gilford is invested in them

Call me bias. Ballie Gilford has been investing in growth opportunities since 1908. They are an early investor into some of the world’s most valuable private and public tech companies, boasting a roster of portfolio companies that includes unicorns from nearly all generations in modern tech, including everything from Amazon, Google and Salesforce to Tesla, Airbnb, Spotify, newly public Lyft, Palantir and even SpaceX.

I got to know about this company when it first made its’ appearance when it partner with AIA. After looking at Ballie’s growth investing strategies and its’ track record, I am more confident of Ant Group.

 

#2 – They are profitable

This speaks volumes. In the current trend where people don’t mind investing in non-profitable companies, Ant demonstrated that there is real demand and there is REAL money being made. There is so much to interpret from this table and I hope you can look closer at it.

Is Ant Group An Overhyped Profits

Is Ant Group An Overhyped Profits

Ant Group has been in profits since 2017. Though it has not been a consistent trend, it is unlike the other unicorns who are not in profits yet.

Secondly, digital payment and merchant service has seen increasing revenue. However, the percentage of revenue has been reducing. This means not only digital payments (their original bread and butter) has been growing, their new technology platform has been picking up even faster! People are starting to get credit, investment and insurance using Alipay.

Thirdly, who knows what other businesses they can complement with which leads us to point 3.

 

#3 – They do not compete. They complement.

Ant Group is a middle man and the ultimate place to do business. Instead of starting a bank or insurance company, Ant Group partners them to provide their services. Ant Group takes less risk and yet is able to command a profit whenever someone needs a service with a bank or an insurance company.

They are the ultimate middle man that is impossible to remove because you would need to do your trusted payment using Alipay. In many investment courses, we call this an efficient scale moat.

Their only direct competitor is Wechat. The good news is that there is a tread that Alipay has been chipping away Wechat’s market share slowly.

Is Ant Group An Overhyped Overview Wechat Pay VS Alipay

Is Ant Group An Overhyped Overview Wechat Pay VS Alipay

 

#4 – Valuations are reasonable

I wanted to get into an Pre-IPO deal. However, my broker from CGS-CIMB wasn’t able to get a retail placement for us. Being >800X oversubscribed, that is understandable.

Currently, Ant Group profits are USD$3B for the first 6 months. If we assume that their profits will be the same in the second half of the year, it will mean that their profits are USD$6B in 2020.

In a simple analysis, the PE ratio for Paypal (02 Nov 2020) is 86. This gives a valuation of $516B. The current valuation is $313B.

For some of the advanced folks who have been following my blog and webinars, you know that I use the discounted cashflow frequently to valuate companies. Using a discount rate of 10.5% and the growth rates assumptions, my 20 years DCF shown a figure of $88HKD.

All these points to that fact that the valuations are reasonable.

Is Ant Group An Overhyped Discounted Cashflow

Is Ant Group An Overhyped Discounted Cashflow

 

Final thoughts by Wealthdojo

It is always fun and exciting when a company IPOs. Please treat your investment seriously. My wish is for everyone to invest wisely. If you have not started investing, there are basically 2 ways to do so.

  • Do it Yourself (DIY) – Learn about investing successfully and invest on your own.
  • Do For You (DFY) – Get someone who can invest successfully to invest on your behalf

We wish you good fortune for the rest of 2020. It is not too late to start.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Fees

3 Brutal Truths about Investment Linked Policy You Wish You Knew

Investment Linked Policies or ILPs have been an ideal target to be bashed by many personal finance groups and investment gurus. In your wealth management journey, perhaps an agent might have ethically (common assumption used by those groups/gurus) told you or sold you an ILP before. Hence, you might start to think whether the ILP does make sense for you.

These Groups/Gurus’ bottom line: Cancel Your ILPs. The fees are expensive. Buy term, invest the rest. You can get better investment returns.

Wealthdojo’s bottom line: ILP is suitable if you are looking for a booster in coverage for a short period of time and plan to accumulate shares/units in a systematic way. You have a more passive approach to investment. An ILP works ideally when you are younger.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Confused

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Confused

So what now? Disclaimer aside, I hope to share with you 3 brutal truths on ILP and the current narration on ILP in the market.

 

Short Recap

Investment Linked Plans are policies that have life insurance coverage and investment components. Your premiums are used to pay for units in one or more sub-funds of your choice. Some of the units purchased are then sold to pay for insurance and other charges, while the rest remain invested. (Moneysense Definition)

In a layman structure, it looks like this.

Pay Premium > Buy units of the funds at today’s price > Some units are sold to pay for insurance > Wait for next month premium

The units accumulates every month via dollar cost averaging and will build up substantially in a long run. Let’s go on to the brutal truths for ILP.

 

Truth #1: You will pay fees.

This reminds me of a story of a man buying cake for his son’s birthday. After looking at various cakes, his eyes soon fell on a 7-inch strawberry fresh cream cake that stood at the center of the display. This shop is famous for their fresh cream and his son loves fresh cream.

Man: “This cake looks beautiful. How much is this cake?”

Baker: “It costs $97 sir”

Man started to be agitated: “That’s ridiculous. It is just a bunch of strawberries, flour, eggs and sugar. This is a rip-off!”

Baker said calmly: “Sir. You are right. Therefore, we have something just for you”

The baker brought him to the corner and showed him a bunch of strawberries, flour, eggs and sugar and said: “Those will be $13”

Man: “I don’t understand. What do I do with a bunch of strawberries, flour, eggs and sugar?”

Baker: “Well, that’s what we are paid to do.”

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Fees

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Fees: Source

The simple truth is that there will be fees. When you enroll into an ILP, you are paying for insurance, you are paying for wealth management and miscellaneous administrative fees which includes commission for the consultant. You are paying to enroll to a service which consist of insurance protection and investment accumulation.

The narration in the market is that an ILP’s charges are expensive and expensive is a subjective word. Perhaps, it is better to put things side by side with insurance and investment.

Let’s take a look at insurance. I will be comparing our National Insurance Dependent Protection Scheme (DPS), as compared to XXX company’s ILP charges per age band (I personally believe the charges are very similar across companies). We will compare using a basis of $46,000 sum assured for Death and Total Permanent Disability (TPD).

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Insurance Charges

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Insurance Charges

As you can see, the charges for XXX’s company is lower than DPS for all ages except for 55 to 59. This shows that rates are quite competitive. As you become older, you pay more for insurance as the chances of you suffering from Death and TPD increases.

You can also see an element of the popular advice buy term invest the rest here. On an ILP, we contribute a premium monthly. Part of it is used to pay insurance. In the table, we pay for the required insurance charges at that age and the rest goes into investment. If you add on other unit deducting riders like critical illness and early critical illness, you should pay more premium so that you won’t have too little going into investment.

Note: DPS is due for a change and there could be a chance the insurance companies might follow as well.

 

Let’s talk about investment now. As the strategy for an ILP is mostly passive, it might not be a fair comparison to other investment methods that might be more active. I will give an attempt to compare the fees across various personalities.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Investment Charges

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Investment Charges

The current narrative from investment gurus are that the ILP has high upfront charges of up to 50% of the premium. It is the same for investment courses as well. They do charge a high upfront course fee of around $3000 to $5000. Furthermore, I assume there are no other upsell programs after that.

Another common narrative is that the 1.25% p.a. fund management fee will reduce the investment returns in the long run. This is a true statement as any expenses will reduce your investment returns. Recently, investment courses are also changing to provide continuous support at a fee of $49 to $197 per month. This is akin to having a “fund management fee”.

For those that are self taught investors, he/she might have save on the cost. However, I can only imagine how huge the time commitment he/she dedicated into learning how to invest. One can say to invest in a passive S&P500 index fund with low expense ratio. Then again, how long will you take to reach this decision? How many mistakes might this person make before doing that?

Fees will have to be paid. It is just a matter of to who and how.

Side note: It may not be fair to compare anyway. An investment course does not have insurance coverage. Similarly, an ILP is not an active strategy as compared to some investment courses. The lessons you learn from investment courses are also priceless.

 

Truth #2: If you pay peanuts, you will get peanuts.

Whether it is an ILP, endowment or ETF, if you pay peanuts, you will get peanuts.

This is rather straightforward. I know some people who may have unrealistic expectations on the money they are saving or investing. A $100/month policy or a $100/month ETF is not going to buy you your financial freedom. If you invest $100/month for 30 years with an 10%, you will get $197,392 which is decent but definitely not enough for retirement.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Invest Small

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Invest Small

This year, I presented a few maturity cheques varying from $15,000 to $60,000 to some of my clients. I excitedly told one of my clients that his maturity cheque is coming in August 2020 and told him to look out for it. He took me out for coffee and asked me how much he was getting. After checking my portal, I told him the amount was $22,000.

He took a sip and exclaimed “Why only $22,000? I has been paying for 25 years.”

“Uncle, you were saving $50/month. In total, you saved $15,000. Personally, I think this is a decent return.”

A short while later. He confessed that he should have saved much more when he was younger.

Imagine there is an investment that can give you 100% returns. If you invest $100 in it, the maximum you will get back is $100. $100 in absolute is not a lot. Therefore, it is very important for us to save up our first pot of gold or simply increase the amount of regular contributions every month.

 

Truth #3: Not everyone you meet will be interested in investing

Sometimes, we forget that we look at others with our tinted lens. We tend to judge a decision and call foul when it is a decision that is not consistent to our own belief. In a recent viral article, a young couple in their 30s paid off their $470K HDB loans in 2 years.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Opinions

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Opinions

This is a feat that is not easy to many. However, this sparked off a huge debate on many personal finance groups saying how financial “Illiterate” they are. They could have made use of the low interest environment to pay off their loans and use the money to invest in other things.

First, I would like to congratulate them. They are debt-free and it is something money *ahem* can buy. If their objective in life is to live a life that is debt free, they are already successful.

Not everyone you meet will be interested in investing or willing to spend loads of time to look into investment. Therefore, the ILP gives a simple disciplined dollar-cost-averaging strategy to accumulate the units of the recommended portfolio funds.

If you are a disciplined investor, feel free to buy term and invest the rest. Please do not expect everyone else to think like you.

 

Final thoughts by Wealthdojo

I’m not advocating ILPs. At the end of the day, the ILP is a wealth accumulation and insurance tool that can fit into a certain profile of individuals. It may be suitable for certain groups of individuals. Personally, I feel that the narration of the ILP has been viewed with tinted lens. Those people are right in their own aspects and life stages.

If you are unsure if the ILP is still suitable for you, please feel free to write in to me. I would love to help you understand it together.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Potential 50% Gain Boring Company SBS S61 Old Bus

Potential 50% Gain Boring Company: SBS S61

SBS (S61) first caught my eye in December 2018. At that time, the public transport counsel announced that fares will be going up soon. It soon lead to a 50% increase in share price at that time. An opportunity came again during COVID-19, share prices has came back to Pre-Dec 2018 levels. I will be sharing why I think there will be a potential 50% gain in this boring company.

If you are new here, please look at my disclaimer section and also my 6 Levels Wealth Karate Methodology before continuing.

Potential 50% Gain Boring Company SBS S61 Old Bus

Potential 50% Gain Boring Company SBS S61 Old Bus: Source

 

What do SBS do?

SBS is a boring business. Basically, they run the following routes in Singapore. They run basic bus services, Chinatown direct bus, services, Express bus services, Nite Owl bus services, City direct bus services, North East Line, Downtown Line, Sengkang LRT, Punggol LRT, advertisement on bus, trains, bus hubs, train station and management shop and road show space.

It is pretty much an essential services and they have a market share of 61.1% market share as a public bus operator in Singapore.

Bus services comes under the BCM (Bus Contracting Model). SBS have to obtain the license to run the bus fleet. You can see from the link that SBS has the license to run the fleet in different areas with the immediate upcoming renewal in 2021 all the way to 2026.

*As the provision of bus services now comes under the BCM, the fare revision (in Dec 2018) affects only on their rail revenue.

 

Why is it an opportunity now?

The effects were felt during circuit breaker as we were forced to be at home. We probably go to our nearest supermarkets and shopping centers. This affected bus ridership heavily and can be seen in the H1 financial report. The circuit breaker started on 7 April 2020 and ended on 1 June 2020. The circuit breaker lasted for 1 month and 3 weeks. However, this does not include any prelude and also the after effects of the circuit breaker where people were still asked to work from home if possible. After the circuit breaker, rail ridership was at about 50 per cent of what it was during the pre-pandemic period.

Potential 50% Gain Boring Company SBS S61 H1 Results

Potential 50% Gain Boring Company SBS S61 H1 Results

On the top line, revenue dropped by 14.9% as compared to the previous year. This is to be expected as most of us spent around 2 months at home during the circuit breaker. (Just think about it, are you taking more bus rides as compared to the circuit breaker period?) Therefore, I expect the Next Half Year report will show a strong growth.

Depending on how they report it 2nd Half Year, they probably will report ~75% growth of operating profits as compared to 1st Half 2020.

 

What other reasons?

SBS is in a strong cash position. As of 30 June 2020, it had short-term deposits and bank balances of $94.5 million. After accounting for borrowings of $75 million, it was in a net cash position of $19.5 million.

It pays a good and sustainable dividend yield of ~4.5%.

It is currently undervalued based on a simple discounted cashflow model.

It is a stock that is position nicely to be normalized and the public transport section remains to be disrupted.

 

Any downside?

Very simply, there is little/no growth story to this company.

Secondly, new contracts might be awarded to new competitors to create competition. Recently, Tower Transit edges out SMRT to win $1.03b Bulim and Sembawang-Yishun bus packages. Tower Transit bidded $1.03B as compared to SMRT $1.19B. Personally, I find this will become worrying if this becomes a price war. SBS and SMRT may no longer be good cash cows in future.

 

Final thoughts by Wealthdojo

Most people will not entertain any investment ideas if it doesn’t have SaaS or Data in their business model now. However, I find that there are many opportunities in good old boring businesses that are positioning themselves to recovery and SBS is one of them. If things normalised, I expect prices to return to $4 region early 2021 with an upside of 50%.

Potential 50% Gain Boring Company SBS S61 Share Price

Potential 50% Gain Boring Company SBS S61 Share Price

I think it is understood that this should not be taken as a buy/sell recommendation. Please do your own due diligence in your investment.

PS: Here is a video on an explanation of BCM.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.