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theokcoral 26-07-2018 10:40 PM

Quote:

Originally Posted by w1rbelw1nd (Post 115694177)
Bond valuation is basically doing a DCF of the fixed coupons and the eventual return of principal using the interest rate, to keep things simple (lets not talk about spot/forward rates).

When a bond is more long dated (ie far from maturity) and hence longer duration, the principal will be discounted more (think $1000 divide by (1+ ir)^n, where n is greater), and hence bond value will drop further.

Thats the best summary I can do.

Thanks for the detailed reply - I am still considering if I should get the Nikko am "corporate bond" etf....

crimsontactics 26-07-2018 10:49 PM

Quote:

Originally Posted by w1rbelw1nd (Post 115694735)
Then all the more you may want the money in a more flexible account (ie CPF OA) for your future purposes, if you project that your income will not be high in the future man. Your child's education can be paid by CPF OA, not CPF SA :(

Have to plan more carefully if your finances are tight. Well off people may be choosing between "good" and "better" plans, but chao sinkies like us choices are sometimes just "bad" and "ok"...

But I got around 100k in savings and STI ETF, so not really an issue for emergency fund or buying house.

Just that right now income not high enough to attract tax. :(

So my situation a little bit unique. :(

BBCWatcher 26-07-2018 10:59 PM

Quote:

Originally Posted by w1rbelw1nd (Post 115694735)
Your child's education can be paid by CPF OA, not CPF SA :(

You’re just not getting it, and that’s OK I guess. To each his/her own.

For the record, yes, your child’s education can be paid from SA. Here’s how that works:

(a) Have a child at age 35+;
(b) Wait 18 years (plus 2 years of National Service if applicable);
(c) Withdraw CPF SA funds at age 55+ (after Retirement Account set aside) to pay for 2+ years of university tuition.

You’ll have many more dollars for education that way. And you’ll likely also have OA, and lots of it, before age 55 because — and here’s the magical part — your MA and SA have reached their respective limits, and you’re still making compulsory contributions.

Now, if you’re having your child at age 25, different story perhaps. But that’s not what most Singaporeans are doing these days. They’re not having many children, and when they are it’s age 35+, often ++.

I think you might be struggling with the concept that individuals who are doing moderately well or better can use CPF in some more interesting ways than you might expect. They can use it as the strangely high yielding bond portion of their portfolio, fundamentally. They fully expect to hit the FRS and BHS rather easily, and they’ll simply, rationally accelerate that process. They still end up with plenty of OA and age 55+ withdrawable SA — much more of it, because they’ve crushed it.

OK, could somebody shunt OA dollars into the CPF Investment Scheme and maybe do better than 4+%? Maybe. But that’s not the smart play. A 4+% AAA-rated bond with tax relief maturing at age 55 is just too damn attractive to pass up in 2018, and the CPF Investment Scheme...well, it sucks, let’s just say it. There aren’t great investment choices, and your cash savings can be much more cost-effectively invested. If you don’t immediately need OA, and if you’ve got cash that can go chase stocks (e.g. IWDA), then you do that. And you crush your CPF SA/MA. You do both. All very logical and sensible, and very powerful.

w1rbelw1nd 26-07-2018 11:21 PM

Quote:

Originally Posted by BBCWatcher (Post 115695174)

OK, could somebody shunt OA dollars into the CPF Investment Scheme and maybe do better than 4+%? Maybe. But thatís not the smart play. A 4+% AAA-rated bond with tax relief maturing at age 55 is just too damn attractive to pass up in 2018, and the CPF Investment Scheme...well, it sucks, letís just say it. There arenít great investment choices, and your cash savings can be much more cost-effectively invested. If you donít immediately need OA, and if youíve got cash that can go chase stocks (e.g. IWDA), then you do that. And you crush your CPF SA/MA. You do both. All very logical and sensible, and very powerful.

1. I dont know how something which returns is clearly subject to change, which withdrawal details are also subjected to change can be considered a "bond". Perhaps you can find me a "bond" where the issuer does not need to get the bondholder approval when there are change in coupons, or bond covenants? I guess you have less concern about substance than the label you choose to give CPF SA? To each its own.

2. CPF OA can be used to invest in STI ETF, CPF OA can be used for bank loan, freeing up cash for other investments.

3. About the point of "you do both", yes there are situations where "doing both" would make sense, even for someone more cautious about CPF SA like myself. This is a nuanced decision that has to look into the individual's cashflow projections. Its not right to assume that it is a default consideration because not everyone is that well-off to pay tax, not everyone has that much certainty in their expenses and their lives.

BBCWatcher 26-07-2018 11:28 PM

Quote:

Originally Posted by crimsontactics (Post 115694998)
But I got around 100k in savings and STI ETF, so not really an issue for emergency fund or buying house.

Exactly! Youíre 26 years old, and youíve already got more than enough for a 20% down payment on a HDB BTO and a big cushion besides. I love it! Awesome stuff. Youíve even already nailed down a basic retirement income stream, so even if everything goes pear shaped (letís hope not), age 65+ is locked and loaded. And youíve still got 38+ years to run. Wow, whatís not to like?

....OK, I do have two minor suggestions. :-)

1. When you get to the stage where tax relief is possible, give MA another look. (Already mentioned this.)

2. Currently youíre 100% invested in Singapore. Iím uncomfortable with that now that youíve accumulated about $200K of wealth (and growing), so I think you ought to consider allocating a portion of your savings flow to a low cost global stock index fund, such as IWDA or VWRD. That doesnít necessarily mean you raise the total percentage of savings going into stocks, although you might. But Iím not a huge fan of a long-term stock bet thatís only riding 30 stocks listed in one small country. Heck, Iím not even a fan of only betting on 500 stocks in the worldís biggest economy. I prefer to bet on planetary commerce.

crimsontactics 26-07-2018 11:35 PM

Quote:

Originally Posted by BBCWatcher (Post 115695545)
Exactly! Youíre 26 years old, and youíve already got more than enough for a 20% down payment on a HDB BTO and a big cushion besides. I love it! Awesome stuff. Youíve even already nailed down a basic retirement income stream, so even if everything goes pear shaped (letís hope not), age 65+ is locked and loaded. And youíve still got 38+ years to run. Wow, whatís not to like?

....OK, I do have two minor suggestions. :-)

1. When you get to the stage where tax relief is possible, give MA another look. (Already mentioned this.)

2. Currently youíre 100% invested in Singapore. Iím uncomfortable with that now that youíve accumulated about $200K of wealth (and growing), so I think you ought to consider allocating a portion of your savings flow to a low cost global stock index fund, such as IWDA or VWRD. That doesnít necessarily mean you raise the total percentage of savings going into stocks, although you might. But Iím not a huge fan of a long-term stock bet thatís only riding 30 stocks listed in one small country. Heck, Iím not even a fan of only betting on 500 stocks in the worldís biggest economy. I prefer to bet on planetary commerce.

IWDA/VWRD need to pay tax? :s11:

BBCWatcher 26-07-2018 11:44 PM

Quote:

Originally Posted by w1rbelw1nd (Post 115695444)
1. I dont know how something which returns is clearly subject to change, which withdrawal details are also subjected to change can be considered a "bond".

You donít?

Everything has some degree of uncertainty attached. Yes, even the 30 year Singapore Government Security. Why? One reason: the government could levy tax on it, literally overnight. Another reason: monetary policy and inflation. The bond pays fixed coupons. It is entirely reasonable and rational to forecast that CPF floor interest rates will increase if/when market interest rates ever do. Canít say that about a bond.

Yes, itís a bet, but everything is a bet in investing. And itís a damn good bet right now.

Of course nobody is suggesting only CPF, but if you donít need OA funds, then of course you should shove those dollars into SA. Easiest decision ever.

Yes, you could hypothetically put OA dollars into the CPF Investment Scheme in a STI fund. But have you taken a look at the STI on a total return basis, net of fund costs? Letís take a look.... ES3 has the following 1, 3, 5, and 10 year total annualized returns (not counting broker commissions): 4.30%, 2.69%, 3.80%, and 4.08%. Yes, thatís right, add in broker commissions and over that entire 10 year period youíre either matching or trailing behind CPF SA/MA yields. (Crimsontactics was 16 years old a decade ago.)

Do you understand why so many people, including Crimsontactics, donít want to bet on the STI with CPF dollars that could be bet on SA instead? Yes, I know, past performance is not indicative of future results, but Crimsontactics isnít ignoring the STI. Heís got that, and he used cash to do it.

BBCWatcher 26-07-2018 11:52 PM

Quote:

Originally Posted by crimsontactics (Post 115695648)
IWDA/VWRD need to pay tax? :s11:

No, thereís no personal tax on those funds in Singapore (for non-U.S. persons). The fund managers pay whatever tax is owed, such as 15% dividend tax on the stock dividends paid by the U.S. listed companies in those funds. But thatís nothing special and all handled within the fund, before they pay (or accumulate) dividends. ES3ís fund managers and/or the 30 companies in that STI fund pay whatever taxes they owe, too, before distributing dividends to you.

w1rbelw1nd 26-07-2018 11:57 PM

Haha. I totally anticipated the same old tax/monetary policy argument again. If that's the strongest point you can pull out, then let's leave it as that. Talking about how CPF SA is not a bond here because of unilateral change in terms of CPF, you talk about monetary policy, inflation, things that has nothing to do with the obligations between a borrower (us) or the lender (CPF).

Quote:

Originally Posted by BBCWatcher (Post 115695746)
You don’t?

Everything has some degree of uncertainty attached. Yes, even the 30 year Singapore Government Security. Why? One reason: the government could levy tax on it, literally overnight. Another reason: monetary policy and inflation. The bond pays fixed coupons. It is entirely reasonable and rational to forecast that CPF floor interest rates will increase if/when market interest rates ever do. Can’t say that about a bond.

Yes, it’s a bet, but everything is a bet in investing. And it’s a damn good bet right now.

Of course nobody is suggesting only CPF, but if you don’t need OA funds, then of course you should shove those dollars into SA. Easiest decision ever.

Yes, you could hypothetically put OA dollars into the CPF Investment Scheme in a STI fund. But have you taken a look at the STI on a total return basis, net of fund costs? Let’s take a look.... ES3 has the following 1, 3, 5, and 10 year total annualized returns (not counting broker commissions): 4.30%, 2.69%, 3.80%, and 4.08%. Yes, that’s right, add in broker commissions and over that entire 10 year period you’re either matching or trailing behind CPF SA/MA yields. (Crimsontactics was 16 years old a decade ago.)

Do you understand why so many people, including Crimsontactics, don’t want to bet on the STI with CPF dollars that could be bet on SA instead? Yes, I know, past performance is not indicative of future results, but Crimsontactics isn’t ignoring the STI. He’s got that, and he used cash to do it.


crimsontactics 27-07-2018 12:03 AM

Quote:

Originally Posted by BBCWatcher (Post 115695864)
No, thereís no personal tax on those funds in Singapore (for non-U.S. persons). The fund managers pay whatever tax is owed, such as 15% dividend tax on the stock dividends paid by the U.S. listed companies in those funds. But thatís nothing special and all handled within the fund, before they pay (or accumulate) dividends. ES3ís fund managers and/or the 30 companies in that STI fund pay whatever taxes they owe, too, before distributing dividends to you.

Thank you very much for your advice! =:p

jyoz90 27-07-2018 09:34 AM

Hi BBCW,

Would like to seek your view on my current situation:

I am in my late 20s and my bto is due for completion in early 2022.
From now till then, I have roughly 3-4 years.

1. Should I focus on saving up my monthly spare cash (in bank account) into a lump sum and reduce my housing loan amount when bto is ready? This projected saving over the period works up to around 70-80k.

Or

2. Invest my current monthly spare cash (around ~2k) into IWDA, ES3 and SSB? In the suggested ratio.

I am incline to do the first as in general I don't like to be on high debt and home loan interest rate seems to be going up.

Just want to check if you have any other thoughts on this.

Thank you very much in advance.

Sent from Xiaomi MI 5 using GAGT

fun4life 27-07-2018 10:19 AM

Hi, sorry to hijack the thread to ask a newbie question:

- if to use CPF to invest stock/ETF etc, the amount will be deducted from CA or SA account first?

- if to use CA money to invest, what products (in SGX?) could you recommend most likey :s13:, to beat its 2.5% interset rate ?

tangent314 27-07-2018 10:41 AM

Quote:

Originally Posted by fun4life (Post 115699186)
Hi, sorry to hijack the thread to ask a newbie question:

- if to use CPF to invest stock/ETF etc, the amount will be deducted from CA or SA account first?

- if to use CA money to invest, what products (in SGX?) could you recommend most likey :s13:, to beat its 2.5% interset rate ?

I believe you mean OA, not CA.
Under the CFPIS, you can invest anything about $20k of your OA balance, and anything above $40k of your SA balance. Naturally, you would prefer to use your OA first.

You should read up the details, including the list of products you can invest in here: https://www.cpf.gov.sg/Members/Schem...stment-schemes

Most of the equities products can beat 2.5%, but it all depends on the market, and there is no guarantee that they will do so within the period that you intend to invest the money for.

The best way to get better than 2.5% on your OA balance is simply to move it into SA to get 4%. Of course, you have to bear in mind this is a one way transfer and that you don't intend to use that amount of money for housing/education.

If you still need to retain the money in OA, have some liquidity and can accept some volatility, then STI ETF (ES3) would be the recommended product to buy.

If you cannot accept volatility, then you should stick with 2.5% from OA because nothing available can beat that significantly. The upcoming Nikko AM IG Bond Fund (MBH) has potential though, I'm guesstimating about 2.9-3.0%. Unfortunately you may have to wait a long time (3 years minimum) before it gets included under CPFIS.

We don't normally recommend unit trusts, but for CPFIS it may make sense if you can find a good one, because there's a lot more UT products available than ETFs (only 4) under CPFIS.

tangent314 27-07-2018 11:06 AM

Quote:

Originally Posted by jyoz90 (Post 115698564)
1. Should I focus on saving up my monthly spare cash (in bank account) into a lump sum and reduce my housing loan amount when bto is ready? This projected saving over the period works up to around 70-80k.

Or

2. Invest my current monthly spare cash (around ~2k) into IWDA, ES3 and SSB? In the suggested ratio.

I am incline to do the first as in general I don't like to be on high debt and home loan interest rate seems to be going up.


You do need to get a grip on your emotions. Having debt is fine if the interest rate is low and if your current assets are earning higher interest than your loan interest.

If you are on a private bank loan, your rates are around 2.0% or below, it makes more sense to keep money in CPF OA and earn 2.5%.

If you are on HDB loan, the 2.6% loan costs more than the 2.5% CPF OA interest, so it may make sense to pay off this loan, if you don't think you can get higher than 2.6% returns on your investments... but generally, you can if you invest for the long term.

I wouldn't worry about rising interest rates. If it does get too high, you can simply pay off the loan later if you wish, after the lock in period, which generally isn't more than 2 years these days.

So ya, generally we would just recommend that you continue servicing the loan, then invest using the usual boring strategies that gets repeated in this and the ST's thread.

BBCWatcher 27-07-2018 11:14 AM

Quote:

Originally Posted by jyoz90 (Post 115698564)
I am in my late 20s and my bto is due for completion in early 2022. From now till then, I have roughly 3-4 years.

OK. So you and your significant other will need a chunk of money for the down payment. Ideally you'll want to have some cash so that you could choose a bank loan if you wish, but CPF Ordinary Account funds can also be used. SSBs work great for the cash portion of your down payment.

Quote:

1. Should I focus on saving up my monthly spare cash (in bank account) into a lump sum and reduce my housing loan amount when bto is ready? This projected saving over the period works up to around 70-80k.
At current and even somewhat higher interest rates, no. If you expect to be able to qualify for the HDB loan rate of 2.6%, that's really the "worst case." Last I checked, market interest rates would still have to rise more than 2 percentage points before the HDB concessionary loan rate would rise. And, even if that happened, Ordinary Account interest rates would rise, too. Mortgages are still inexpensive in Singapore, and so I think it's still perfectly reasonable to take, say, a 75% mortgage (25% down payment).

The interesting question 3 to 4 years from now is whether you should take the HDB concessionary loan rate (2.6%), if you qualify. That rate is looking somewhat more attractive these days. But I think I'd still put 20% down on a HDB loan, if you can reasonably afford it. And you can decide that question 3+ years from now.

This all may seem counterintuitive, but it is correct. Cheap debt is great, while it's cheap. If you can borrow money at 1.8% fixed for 3 years and take that money over to ICBC Singapore, deposit it in a fixed account, and get 1.85% -- and some people really can do this -- then of course it makes sense to accept the cheap money and not to accelerate loan repayment. Effectively the banks are paying you (in this example) to take their loan, and that's ridiculous and crazy, but if that's the offer, take it! That's just an extreme example, but certainly if you can put your money to work and reliably earn 3% or more (let's suppose), even a 2.6% mortgage is cheap. So I'm not opposed to cheap debt, but I like to be well defended if that debt turns into something that's no longer cheap. Your savings and investments, per normal long-term practices, should defend you well against that risk.

Quote:

2. Invest my current monthly spare cash (around ~2k) into IWDA, ES3 and SSB? In the suggested ratio.
I'm not sure which suggested ratio, but, regardless, it should be a ratio that you like for your goals. Yes, while mortgages are cheap, that's a very reasonable bet to make.

Quote:

I am incline to do the first as in general I don't like to be on high debt and home loan interest rate seems to be going up.
Yes, I know we don't like "high debt," but we should like cheap debt while it's cheap. So for now just focus on making sure you have a decent down payment -- maybe you do already -- check the mortgage rates every once in a while, and see where we are 3+ years from now, especially with respect to the HDB concessionary loan rate if you qualify. If the banks 3+ years from now are lending at 2.5% fixed for 2 or 3 years and HDB is lending at 2.6%, let's suppose, I'd probably take HDB's offer. (This is an example.)

If you've got enough for a 20% or 25% down payment now, or you will based on your normal savings pattern, that's enough I'd say. Then, 3+ years from now, if banks are loaning at 3.5% and you don't qualify for HDB's 2.6% rate, you might decide to sell some ES3 (for example) to increase your down payment from 25% to, say, 40%. (Why focus on ES3 in that event? Because your new home is also in Singapore, exposed to similar valuation risks. So to maintain a similar global diversification level, you'd probably sell some ES3 if you wanted/needed to raise more funds to increase your equity stake in your new home, if and only if mortgages are genuinely expensive.) That could be a reasonable thing to do. But I don't think it's worth changing your portfolio allocations now for that possibility, not yet anyway.


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