How Tesla and Bitcoin is forming the new economy Dogecoin

How Tesla and Bitcoin are forming the new economy

It is official. Tesla just invested/bought (it is hard to tell the difference today) USD$1.5B in Bitcoin and plans to accept it as payment. Just a few days ago, CEO Elon Musk tweeted positive messages around digital currency especially for Bitcoin and Dogecoin. While the intention of his Dogecoin tweet is still unclear, his tweet has send Dogecoin’s prices through the roof/moon/mars (it is hard to keep up with the terms anymore).

How Tesla and Bitcoin is forming the new economy Dogecoin
How Tesla and Bitcoin are forming the new economy Dogecoin

Disclaimer: No vested interest in Bitcoin/Dogecoin/Tesla.

In this article, I will attempt to explain what good and what not good will happen from this move and potential series of events that might unfold. If you are new to Tesla and Bitcoin, I would encourage you to read about my previous Bitcoin article: Is it too late to invest in Bitcoin?

 

Tesla’s Current Brilliant Capital Moves

One thing for sure. Elon Musk sure knows how to raise capital or get his hands on money. Previously, Tesla raised USD$5 billion from stock offering. The question had that time was do they really need the cash? It turns out that his timing was excellent. By selling shares at an expensive price, Tesla’s existing shareholder was not affected much by dilution. Effectively, he is raising capital from the equity market and still “protecting” his existing shareholder. I feel that it was a wonderful move.

Secondly, Tesla’s income comes from selling regulatory zero emission credits to other carmakers. Tesla would have noted a net loss for 2020 if it had not relied on this USD$1.6billion sale. To help build a sustainable economy, carmakers have to manage their pollution levels and have to buy green credits or face hefty fines or have their business licenses revoked. Selling of the zero emission credits is probably a 100% profit margin (there is no COGS). I feel this is pretty smart too as Tesla is selling something that is technically “free”. This will impact them once the other carmakers are more serious about their carbon emission.

 

Tesla Next Capital Move: Bitcoin

As of 27 Jan 2021 Motley Fool’s article, Tesla ended the year with a cash war chest of USD$19.4B. This already includes the $10B raised through stocks offering in 2020. With the purchase of USD$1.5B worth of Bitcoin, around 7% of the Balance Sheet (cash and equivalent) has been converted into Bitcoin. When you are investing in Tesla, you are now “investing” in Bitcoin.

How Tesla and Bitcoin is forming the new economy
How Tesla and Bitcoin are forming the new economy

Of course, Bitcoin surge > 20% to reach a new highs of USD$44,000.

In a official filing with the Securities and Exchange Commission, the company said it bought the bitcoin for “more flexibility to further diversify and maximize returns on our cash.” With the limited use of Bitcoin at the moment, I believe Bitcoin is another investment vehicle for Tesla. In this, I feel that Tesla would be able to “sell” Bitcoin when the time is right to edge up their quarterly results. However, this could impact them if Bitcoin prices fluctuate much.

 

Tesla and Bitcoin: The New Economy

You might be wondering why I named the article “The New Economy” by now. I would like to present a thesis of what potentially can happen and the likely impacts of it.

  • An Alternative Investment / Store of Value

This is the one that I like the most. Although it is known that Warren Buffett does not invest directly into Gold, he is invested into Barrick Gold, an Gold Mining company. Gold by itself doesn’t not have any utility. Barrick Gold offers a balance sheet, income sheet etc. Most people believe that it is hedge against the USD.

Similarly, what Elon Musk might be trying to do is to hedge against the USD. Think about it, 20% of all USD are printed in 2020 during the COVID-19 crisis. The value of USD might be compromised and this is where it gets exciting.

If the crisis isn’t managed well and the value of USD continues to crumble, Bitcoin might then be a good store of value. Bitcoin will then become the new worldwide accepted currency. Hence, the new economy.

  • Increase adoption of Bitcoin

In my previous article about Bitcoin, I questioned about the “lack of adoption” of bitcoin. There seemed to be a HODL attitude on diamond hands. As Tesla cars gets traction in the world, they could really start to accept Bitcoin for their goods or service all over the world. As the velocity of Bitcoin transaction circulates more and more around the world, people will eventually have to use Bitcoin in their everyday transaction. It will give birth to a new worldwide accepted currency.

The question remains if people would actually want to use Bitcoin for transactions with the increasing Bitcoin prices.

 

Final Thoughts By Wealthdojo

Elon Musk decisions usually leave people feeling awe or just confused. Certainty, he already has raving fan base to help him push prices to wherever he wants it to be via a tweet. I can only say he is a good marketer, a great business man and definitely an excellent story teller.

Till next time!

 

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

3 Things I Learnt About Gamestop Wall Street Bets VS Hedge Fund Short Sellers

3 Things I learnt from the Gamestop Saga

It is 29 Jan 2021. Gamestop (GME) share price is $325. It has gone up a long way since early January when price is around $17. The battle is still on. Several brokerage companies like Robinhood has started to restrict trading on GME. So much for a company that believes that everyone should have access to the financial markets. With this, I believe there might be more interest going towards Bitcoin.
If you unsure what happen, do check out the first article How Gamestop is better “investment” than Tesla, where we explain the hype on GME.
Disclaimer: I do not have any position in GME/Bitcoin. Indeed, I have “missed” out on the huge runs of those companies but time will tell. Here at Wealthdojo, we seek to understand what has happened fundamentally. Even in the insane movement in the stock market, we aim manage our wealth in a logical and systematic way.
3 Things I Learnt About Gamestop Share Price
3 Things I Learnt About Gamestop Share Price

 

The Update

Things were not pretty over the last few days.

  1. Hedge Funds had to closed their short positions taking in huge losses. Melvin Capital (the guys that have shorted GME) have not announced how much losses they suffered but Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up its finances. They have also deny going into bankruptcy but supposing have been bailed out.
  2. Several brokerage companies started to restrict trading. On 28 Jan, they only allowed people to sell their shares of selected companies. On 29 Jan, they allowed people to buy only one share of selected companies. This came as an outrage as if you restrict people to only sell. There is only one direction the company can go.
  3. Robinhood started to draw up to $600 million from their line of credit. They have also raised more than $1 billion from existing  investors. It is to pay customers who are owed money from trades and also fulfil regulations. They probably did not manage risk properly by allowing those shorter to short too much.

From this episode that is still ongoing, I hope to share 3 important lessons that we can learn as retail investors.

 

Leverage

Time and again, this word comes out to haunt the financial market. If you can remember the 2008 financial crisis, lines of credit is so easily available that even a prostitute can take a dozens of mortgage loan (Unverified information from Netflix: The Big Short).

When you leverage, you are using money that you don’t have to purchase a stock.

Leverage example:

You have $100,000. You want to invest in ABC shares (assume it is $1) because you believe the share price will double for whatever reason in the next few days. You leverage by borrowing another $100,000 to invest paying an interest (we are going to ignore interest in the calculations). You buy 200,000 shares using your $200,000.

When ABC shares doubles (now $2), you would have $400,000. You pay back $100,000 and your portfolio is now $300,000.

If you didn’t leverage and borrow, your portfolio only grows to $200,000.

Your money grows “faster” when you leverage.

However, if ABC shares drops to 0. Your original $100,000 is now 0. However, you now owe $100,000.

If you didn’t leverage and borrow, your portfolio just suffers the maximum lost of $100,000 but you do not owe people’s money.

The above is a 1:1 leverage. It is possible for you to have a 50:1 leverage in the financial market. Imagine how scary it is if the trade don’t go according to plan. That’s 50x of $100,000.

 

Investing with margin or leverage is the fastest way to lose all your money. We won’t deny the fact that it is also the fastest way to make more money. Ideally, you should only invest with the money you already have. I believe we will see how this spans out in the days ahead especially if there are big hedge funds using leverage in their GME positions.

Prisoners Dilemma

I never thought I would see this happening after my university days. Readers of Wealthdojo will probably know I’m a behavioral economics fan. Seeing prisoners dilemma play out in real life is somewhat very fulfilling.

Let’s set the context first. When the brokerage stopped people from buying. All you could do was to sell the stocks. Hence, it became a situation of sell or don’t sell among the retail investors.
3 Things I Learnt About Gamestop Prisoners Dilemma
3 Things I Learnt About Gamestop Prisoners Dilemma
I have created a payout table to facilitate the discussion on the prisoners dilemma.
3 Things I Learnt About Gamestop Prisoners Dilemma Part 1
3 Things I Learnt About Gamestop Prisoners Dilemma Part 1

Shareholder #2 best response is to sell. This is because if Shareholder #1 were to sell, Shareholder #2 is better off selling than not selling (2 > 1). If you sell but other investors don’t sell, you win but other investors lose. If Shareholder #1 were to not sell, Shareholder #2 is better off selling than not selling (5 > 4).

3 Things I Learnt About Gamestop Prisoners Dilemma Part 2
3 Things I Learnt About Gamestop Prisoners Dilemma Part 2

Similarly, Shareholder #1 best response is to sell. This is because if Shareholder #2 were to sell, Shareholder #1 is better off selling than not selling (2 > 1). If Shareholder #2 were to not sell, Shareholder #1 is better off selling than not selling (5 > 4).

3 Things I Learnt About Gamestop Prisoners Dilemma Nash Equilibrium
3 Things I Learnt About Gamestop Prisoners Dilemma Nash Equilibrium
The Nash Equilibrium for this game is for both of them to sell getting a payoff of (2,2). Logically, both shareholders will sell.
Although (4,4) is the most ideal for them, it requires all the GME investors to coordinate and don’t back out on the deal. It will certainly play on the motivation on the GME investors to stick on with don’t sell.

Motivation

3 Things I Learnt About Gamestop Wall Street Bets VS Hedge Fund Short Sellers
3 Things I Learnt About Gamestop Wall Street Bets VS Hedge Fund Short Sellers

I have learnt that in investing, different people will have different motivation. I find it bizarre for people to randomly ask someone on their opinion and whether to invest in the stock market at this moment of time.

If you ask a trader, he will say yes because the S&P is upward trending.

If you ask a value investor, he will say no because valuations are crazily rich.

If you ask a growth investor, he will say yes because there is still growth.

If you ask Warren Buffett, he will just buy back his own shares.

If you ask Elon Musk, he will tweet Gamestonks!

If you ask me, I will sit at the sidelines and continue to collect excellent companies and a sensible price.

For the people at Wall Street Bets, they are there to send a message.

 

If you decide to follow any of them, make sure they have the same motivation as you. Otherwise, you might find yourself in an awkward position.

 

Final Thoughts By Wealthdojo

When you thought 2020 was an epic year, 2021 came as another surprise. This episode definitely hasn’t closed yet. Who knows this might be a trigger for another financial crisis. If it comes, the question is “are you ready?”.

 

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

 

Short Squeeze

How Gamestop is better “investment” than Tesla

It is official. Gamestop (GME) is now giving a “better returns” than Tesla (TSLA). GME returns stand at 3300% vs TSLA 691% over the past one year. It is even better than bitcoin which is giving a 257% returns over the past one year. Just how did it happen? Is it too late to invest in bitcoin, Tesla or even Gamestop?

Here at Wealthdojo, we seek to understand what has happened fundamentally. For example, the impact of raising $5 billion from Tesla offering. We then see if it makes sense to invest in it or just speculate. Even in the insane movement in the stock market, we aim manage our wealth in a logical and systematic way.

Disclaimer: I do not have any position in Bitcoin, TSLA or GME. Indeed, I have “missed” out on the huge runs of those companies but time will tell.

Tesla VS Gamestop
Tesla VS Gamestop

 

How did this happen?

It happened for TSLA. It is happening for GME. This movement in the stock market can be summarised into 2 words.

Short Squeeze

What is a Short Squeeze?

A short squeeze happens when there is a (1) sharp rise in the price of an asset. For traders who previously short the asset, they are (2) forced to close out their positions. As they are forced to now (3) buy the asset at that current price, this tends to send the prices even higher.

In simpler words, a strong buying pressure “squeezes” the short sellers out of the market.

 

Example of a Short Squeeze

For example, stock ABC price has been falling over the last 2 years. Let’s assume that it is now $10. Short sellers (people who sell the stock without having them) sell the stock ABC at $10 hoping to profit from the decrease in prices. (In a hypothetical example, if price becomes $1, they just buy it back at $1 and profit the $9 difference).

However, something happened. This could be a favorable earnings or simply a tweet. The price (1) rapidly increase. Let’s assume prices is now at $20. They are now under pressure if they are on margin (2) to buy back the stock at $20 or risk having the price going up further. At this moment of time they would already be losing $10. They scramble to close/buy the stock (3) at $20 sending the price even further. This keeps escalating until all the short sellers are pretty much out.

 

Case Study of Short Squeeze

In July 2020, the dollar value of all shorted Tesla shares is close to hitting $20 billion. No US stock in history has ever been that shorted. On 23 Oct 2020, TSLA reported a profitable quarter. When the (1) share price increase, the short sellers were forced (2) to buy Tesla shares. This in turn send the price even further (3).

Another example is Volkswagen in 2008.

 

How to identify a potential Short Squeeze?

There are many indicators to identify a potential short squeeze and I will try to explain it in a quantitative and qualitative way.

Quantitative: Short Interest

Short Interest is number of shares that have been sold short but have not yet been covered or closed out. Short interest, which can be expressed as a number or percentage, is an indicator of market sentiment. The larger the percentage, the more shares that are being shorted.

Quantitative: Hated Company / Movement Driven

The 3 above are just an example of strong emotions in retail investors. The more someone “hate” the company, the more he is committed to short them. This can be seen from Tesla cult-like investors who either love them or hate them.

After that, it is just waiting for the right moment for it to pop.

 

Can you profit from a Short Squeeze?

You definitely can. This screenshot has been making it’s way on the internet and this isn’t the final profit that he has. The current price of GME is $209 (27 Jan 2021) and the last price in this screenshot is $65. He has amplify his returns using options so god knows his returns now.

However, I would advice otherwise from chasing this return. This is purely speculative and nothing short of a gamble.

GME Short Squeeze Profits
GME Short Squeeze Profits

 

Final Thoughts By Wealthdojo

Short Squeeze
Short Squeeze

The market is an representation of the collective human behaviour. I personally think that it is an amazing run for GME. However, I rather sit on the sidelines along with Warren Buffett to watch this play out. Congratulations for those who profited.

 

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

 

 

Is it too late to invest in Bitcoin?

Is it too late to invest in Bitcoin?

Happy Birthday!! On 12 Jan 2009, Nakamoto sent 10 bitcoin to Hal Finney. This became the first “transaction” in bitcoin history. 12 years later, prices of Bitcoin exploded to reach USD$40K (on 9 Jan 2021). What a journey! Such exponential increase in prices tend to spike interest among the retail investors on their wealth management journey. If you reading this, welcome to the club.

In this article, I will write about my understanding of bitcoin, where we are at the moment and also answer an important question in your mind.

Is it too late to invest in bitcoin?

Is it too late to invest in Bitcoin?
Is it too late to invest in Bitcoin? Source: Logo vector created by starline

Disclaimer: I don’t claim to be an expert in Bitcoin. All views represent my own. I would love to engage in a healthy discussion of bitcoin in the comments section below.

 

Context Of Bitcoin: Currency Of Trust

Bitcoin was born slightly after the full swing of the banking crisis. What started as a subprime mortgage crisis eventually created a domino effect that crippled the ENTIRE world financial system. You can imagine the distrust in the financial industry at that time.

The original Satoshi Nakamoto white paper states: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

Financial institutions now have new and stricter regulations to comply. At the same, another school of thought arose. Skip the financial institution altogether. It is what it meant by disruption. Imagine a world where you can make financial transactions without going to a bank. This loosely translates to a more efficient and cheaper financial services.

 

This is where Bitcoin was born.

Bitcoin is positioned to be the “currency of the future”. This boils down to back to the fundamental of money which is trust. The US Dollar has been positioned to be the global currency because it is widely accepted and “trusted” (consider why you won’t want to hold Zimbabwe’s currency). 61% of all foreign bank reserves are denominated in U.S. dollars, and nearly 40% of the world’s debt is in dollars. On the dollar bill, you will see this world called legal tender which means that it is acknowledged by the laws as a mechanism to settle a private or public debt or in order to meet a fiscal responsibility which includes paying taxes, abiding by contracts, and finally damages or fines.

Bitcoin is making waves as it becoming more “widely accepted” (I will discuss more about this later). It is also “trustable” as it is backed by blockchain technology. To put loosely, blockchain technology is used to share valuable data in a secure, tamperproof way. That’s because blockchains store data using sophisticated math and innovative software rules that are extremely difficult for attackers to manipulate. At this moment of writing, Bitcoin is not legal tender yet but is deal with as property or goods.

For a deeper understanding of cryptocurrency, blockchain technology and bitcoin, here is a good article by PwC.

 

Can it ever be used as money?

In the economic literature, something can only be used as money when it has these 3 functions. A medium of exchange, a measure of value and a store in value. Perhaps the heavily debated issue is if Bitcoin if it has a store in value.

Is there a store in value?

Bitcoin Price Volatility
Bitcoin Price Volatility

Consider this graph on the volatility of bitcoin over the past year and also past 10 years. The prices of bitcoin was never in any sense stable (which is what makes it exciting). Prices volatility have been north of 20%. A store in value is defined as something that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. Whether you are a bull or bear for bitcoin, I think we can agree that there is no predictability for the value of the coin in the near future.

Is it being used as a medium of exchange?

While Bitcoin transactions has been increasing over the years as it slowly become more “widely accepted”, we are unsure how much of it is being translated into real goods and services. According to newbtc, only 33% of bitcoin transactions are being used to purchases goods.

Bitcoin Transaction Trend
Bitcoin Transaction Trend

That being said, I believe that there will be more transactions in future. My question is IF my Bitcoin is appreciating at such an insane level, why would you ever use it to buy something? Taking a note back into May 22, 2010, now known as Bitcoin Pizza Day, Laszlo Hanyecz agreed to pay 10,000 Bitcoins (USD$400,000,000 or USD$400million today) for two Papa John’s pizzas for USD$25. Who in the right mind would want to use Bitcoin to buy anything? Imagine something that you bought at $25 then would now be USD$400million. There would be an extreme incentive to keep money or HODL (someone that keeps cryptocurrency rather than selling them).

Will more people start to use Bitcoin?

It is written that there is an “increasing adoption” of Bitcoin. I have my doubts as shown by this Bloomberg article. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset. Due to the finite nature of Bitcoin, an increasing adoption have to mean that the number 2% should start to go up. I believe there are some whales that are currently holding the bulk of Bitcoin for it to be used meaningfully as money.

Personally, I believe the original intent of it being used as money is now being shaken.

 

Bitcoin As An Investment Speculation

While I believe the original intent of Bitcoin have not been carried out, you cannot not deny that the people have been making money on it. Whether Bitcoin should be invested depends on who you are asking or who you are.

Futuristic Individual – Yes. We will be using cryptocurrency in future.

Value Investor – No. Because there is no value creation in Bitcoin (No revenue/cashflow/earnings).

Technical Analysis Trader – Buy at signal. Sell at signal.

Bullish Retail Investor – Hell Yeh. Huat ah!

Bearish Retail investor – Run for the hills! Let me tell you a story of the Tulip bubble.

Personally, I believe that there is room to speculate on this. With no foreseeable future usage (in my own humble/limited capacity), I feel that it is a strange asset class but an attractive tradable instrument.

 

Final Thoughts By Wealthdojo

There are still many things shroud in mystery. Who is Satoshi Nakamoto? Who are the 2% who is holding Bitcoin’s wealth? Are they the Russians, Chinese or terrorist? We will never know (at least for now).

With Bitcoin entering into the financial system, they have became part of the system they have set out to replace. The disruptor seemed to have become absorbed into the legacy system. The banks will live another day.

All views represent my own. I would love to engage in a healthy discussion of bitcoin in the comments section below.

 

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

 

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.

 

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

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