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Extech 25-03-2019 12:11 PM

Quote:

Originally Posted by Extech (Post 119868725)
Dad have excess savings in *his* CPF account and have met FRS. Can he transfer part of his OA to that of his spouse as to offset the housing amount withdrawn(Voluntary Refund) from my mum's account?

Quote:

Originally Posted by BBCWatcher (Post 119872687)


I assume you mean your father has “excess” dollars in his CPF account.

No. Housing-related refunds are strictly on a cash basis. That cash could be from an age 55+ CPF withdrawal, but such withdrawals pull from the Special Account first, by design.

Thanks for the information BBCWatcher. We have some spare cash(60-70k) Would it be advisable to clear housing amount withdrawn via Voluntary Refund by cash then? Currently accured interest+principal is 47k, on an original sum of 30k-ish which was used to buy the home we are staying in now.

BBCWatcher 25-03-2019 01:02 PM

Quote:

Originally Posted by Extech (Post 119881305)
We have some spare cash(60-70k) Would it be advisable to clear housing amount withdrawn via Voluntary Refund by cash then? Currently accured interest+principal is 47k, on an original sum of 30k-ish which was used to buy the home we are staying in now.

There are at least three scenarios when repaying Ordinary Account dollars (plus accrued interest) used for housing can make good financial sense:

1. If you and/or your spouse are approaching age 55 and don't have enough OA+SA dollars to get your Retirement Account funded to the Full Retirement Sum. It's better to make a voluntary Special Account top up with tax relief first, since the tax relief is obviously nice, but that could be followed by OA repayment.

2. If you and/or your spouse are approaching age 55 and plan to "shield" Special Account dollars, to try to fund your Retirement Account(s) primarily using OA dollars, and need some more OA dollars to do the shielding well.

3. If you and/or your spouse are getting near age 55, or are past age 55, and would like a nice place to park low yielding dollars to earn 2.5% interest (better than any bank fixed deposit and better than SSBs). You may still be able to make an "all three" voluntary top up, and that's generally a better deal since some of those dollars will flow into your Special Account.

4. If you highly value the asset protection aspects of CPF and want to protect some more dollars against most creditors and/or court judgments.

mauveant 25-03-2019 01:06 PM

I stumbled upon this super informative thread a couple of weeks ago and have been trying to read as much as I can. In the past I have been dabbling in stocks and now have a portfolio of some 40-45 counters - mainly in US and Singapore with a total value about 300K.

As I am now in early 50s I am thinking of selling it all and replacing it with the ETFs recommended here - MBH, ES3, IWDA and EIMI. I am thinking of selling my stock holdings over a period of 6 to 9 months and replacing them with the ETFs above (over the same time period) in the ratio 15-20-55-10 respectively. The objective is to make the portfolio 'safer' and hopefully generate predictable returns.

So the question for the experts here is:
  1. if this a reasonable strategy? If not what would you suggest?
  2. what is the best way to liquidate a stock portfolio (all at once or over 6/9/12 months)?

BBCWatcher 25-03-2019 01:40 PM

Quote:

Originally Posted by mauveant (Post 119882326)
In the past I have been dabbling in stocks and now have a portfolio of some 40-45 counters - mainly in US and Singapore with a total value about 300K.

That's complicated!

Quote:

As I am now in early 50s I am thinking of selling it all and replacing it with the ETFs recommended here - MBH, ES3, IWDA and EIMI. I am thinking of selling my stock holdings over a period of 6 to 9 months and replacing them with the ETFs above (over the same time period) in the ratio 15-20-55-10 respectively. The objective is to make the portfolio 'safer' and hopefully generate predictable returns.

So the question for the experts here is:
  • if this a reasonable strategy? If not what would you suggest?

The strategy looks reasonable to me, assuming you expect to retire in Singapore and assuming you've got some CPF savings since an 85-15 stocks-bonds allocation is a bit aggressive otherwise. Also, if you're aiming for a traditional/classic age 65 retirement, then you'll likely want to start adjusting your stocks-bonds mix no later than age 58 (T minus 7 years before retirement). We'll now turn to mechanics.

Quote:

  • what is the best way to liquidate a stock portfolio (all at once or over 6/9/12 months)?

For the U.S. listed/traded stocks, I would focus on their ex-dividend dates as possible sales opportunities. That's because you're currently paying a 30% dividend withholding tax on those stocks, and you can drive down the ongoing tax cost with a shift to the Irish domiciled ETFs. Let's suppose for example you're holding shares in Microsoft (MSFT). Microsoft went ex-dividend on February 20, 2019. That is, everybody who purchased Microsoft shares before February 20, 2019 -- who were shareholders of record as of market close on February 19, 2019 -- qualified to receive the quarterly dividend. Presumably the next ex-dividend date will be on May 20, 2019. If you sell your Microsoft shares on or before May 17, 2019 (the last trading day before the next expected ex-dividend date), then you should avoid the next quarterly dividend (and its dividend withholding tax). Other things being equal, the selling price your shares fetch should reflect the fact that the buyer will get the dividend instead of you, but the buyer will typically pay a lower dividend tax than you will (not usually as high as 30%). So, if you're trying to exit, and assuming you're otherwise unable to predict the future (a safe assumption), that seems like a good time to exit.

Another minor factor is that you'll have to pay minimum monthly commissions at Interactive Brokers starting from the 4th month after account opening if your total account value hasn't reached US$100K yet.

These are minor factors, though. Since you're going from stocks to stocks, and since your holdings before and after this shift are going to be broadly similar (just much more diversified and with a lower cost structure), I think it's fine to make this shift pretty quickly.

dudepunk 25-03-2019 09:23 PM

Hi BBC, read your thoughts on insurance on the 2nd page of this thread and very much agrees with you. I just got married and am having trouble thinking about how much coverage I need together with my wife, while we are both financially literate, the nuances of insurance is giving us headaches and I would very much like to keep my Aviva SAF group policies since I think they do offer much bang for buck.

Just want to seek your thoughts on weather I should look for advise with regards to insurance planning from services such as moneyowl or should I turn to IFA such as Wilfred Ling?

Or even better if you have a FA to recommend? Been trying to get a recommended FA from those around us, but unfortunately have not found one.

BBCWatcher 25-03-2019 09:31 PM

Quote:

Originally Posted by dudepunk (Post 119891233)
I just got married and am having trouble thinking about how much coverage I need together with my wife, while we are both financially literate, the nuances of insurance is giving us headaches and I would very much like to keep my Aviva SAF group policies since I think they do offer much bang for buck.

Congratulations!

I don’t have any advisor recommendations, but feel free to bounce some questions about those nuances here if you’d like. Then I might have some “for further reading” suggestions.

lingalong 25-03-2019 10:00 PM

Quote:

Originally Posted by dudepunk (Post 119891233)
Hi BBC, read your thoughts on insurance on the 2nd page of this thread and very much agrees with you. I just got married and am having trouble thinking about how much coverage I need together with my wife, while we are both financially literate, the nuances of insurance is giving us headaches and I would very much like to keep my Aviva SAF group policies since I think they do offer much bang for buck.

Just want to seek your thoughts on weather I should look for advise with regards to insurance planning from services such as moneyowl or should I turn to IFA such as Wilfred Ling?

Or even better if you have a FA to recommend? Been trying to get a recommended FA from those around us, but unfortunately have not found one.

You should try find one of those Independent FA to review your portfolio

By independent FAs I mean the ones that hold a whole array of products from different company.

Not those that are with a parent company but claim to be 'independent' just cus they hold 2-3 other products but still push their own

lingalong 25-03-2019 10:03 PM

Another question BBC,

Once I open an account with IBKR, am I able to fund it with more than 1 bank account?

For example I fund it with $2000 from my POSB account, and $1000 from a separate OCBC account that belongs to a family member/partner

mauveant 25-03-2019 10:30 PM

Quote:

Originally Posted by BBCWatcher (Post 119882983)
The strategy looks reasonable to me, assuming you expect to retire in Singapore

Yes, that's correct - plan to retire in Singapore

Quote:

and assuming you've got some CPF savings since an 85-15 stocks-bonds allocation is a bit aggressive otherwise.
Yes, should have mentioned that I have sufficient in CPF (OA + SA) to cover ERS and another 100k over and above that amount...

Quote:

For the U.S. listed/traded stocks, I would focus on their ex-dividend dates as possible sales opportunities. That's because you're currently paying a 30% dividend withholding tax on those stocks, and you can drive down the ongoing tax cost with a shift to the Irish domiciled ETFs.
Incidentally, MSFT is one of my few holdings that I am conflicted about disposing off :) But this is great insight - thank you! Left to myself I would probably have waited to get the dividends and then sold it...

BBCWatcher 26-03-2019 07:54 AM

Quote:

Originally Posted by lingalong (Post 119891886)
You should try find one of those Independent FA to review your portfolio By independent FAs I mean the ones that hold a whole array of products from different company. Not those that are with a parent company but claim to be 'independent' just cus they hold 2-3 other products but still push their own

The problem with this approach is that such individuals are only independent in the sense of affiliation to one insurance carrier. They’re still powerfully motivated to encourage you to buy the biggest package of insurance products possible, leading to obvious problems. More powerfully motivated quite often, because they have a bigger and broader set of products to peddle. (Yes, I know these particular advisors aren’t supposed to do what I’m describing, but we live in the real world.)

If you’re going to hire anybody, the best approach (in terms of compensation) is to pay a real financial expert a flat fee for advice, and for that advisor not to have any stake in any of the products she might recommend. Occasionally an employer will offer this arrangement as a perk, but due diligence is required to make sure the employer paid advisor doesn’t have any conflicts of interest.

Quote:

Originally Posted by lingalong (Post 119891919)
Once I open an account with IBKR, am I able to fund it with more than 1 bank account?

Yes, but...

Quote:

For example I fund it with $2000 from my POSB account, and $1000 from a separate OCBC account that belongs to a family member/partner
...not that. Almost without exception, Interactive Brokers (and other brokers) demand “first party” fund transfers. That is, when transferring funds to or from the broker, the transfer must be to/from a bank account in your name.

You’ve got choices here. One choice is for your family member/partner to transfer the funds from their OCBC account to your POSB account (that happens within seconds if it’s via FAST), then you can transfer $3,000 to your IB account. Another choice is for your family member/partner to have his/her own IB account. A possible third choice is for the IB account to be joint, but check with IB about whether they’d consider each of your individual bank accounts to be “first party” to/from a joint account at IB.

The basic reason brokers don’t allow anything fancy here is to combat money laundering. The banking system is better equipped to fight that fight, and brokers really don’t want to be in that business except to the extent they need to be. In many countries they’re also not licensed to act like banks, and facilitating payments between different parties is a core banking function.

lingalong 26-03-2019 09:58 AM

Ah okay. Yes I had a feeling the concern of money laundering would be a problem. But yes its a simple solution of just transferring funds into 1 main account and then to the brokerage.



Regarding housing loan,

I've read that up to 60k in CPF OA you get an additional 1% ontop of 2.5% = 3.5%, hence it is better to use CPF if only in excess of 60k to pay off housing loan correct?

And regarding choosing between bank loan and HDB loan, its better to go with bank loan since there is low probability of it surpassing the HDB loan of 2.6%

Am i.. somewhat correct

BBCWatcher 26-03-2019 10:44 AM

Quote:

Originally Posted by lingalong (Post 119897516)
I've read that up to 60k in CPF OA you get an additional 1% ontop of 2.5% = 3.5%, hence it is better to use CPF if only in excess of 60k to pay off housing loan correct?

No, that's not correct. Bonus interest is awarded on the first $60,000 of combined CPF balances (OA+SA+MA+RA), but you must have at least $40,000 in SA+MA+RA to earn all the bonus interest. (Starting from age 55 there's another percentage point of bonus interest that applies to the first $30,000 of combined balances.) Bonus interest is paid into your SA (and then into your RA from age 55).

In short, your Ordinary Account really doesn't earn any bonus interest as such. You can have a zero OA balance and still earn maximum bonus interest. That's very common, actually. At most only the first $20K of OA could help you qualify for maximum bonus interest, and that's only if your MA+SA+RA is less than $60,000.

Quote:

And regarding choosing between bank loan and HDB loan, its better to go with bank loan since there is low probability of it surpassing the HDB loan of 2.6%
I actually like the HDB loan offer at present (for those who qualify). Yes, I know the U.S. Federal Reserve has allegedly paused its interest rate hikes for 2019, but this is a 25+ year mortgage we're talking about. That 2.6% rate is technically adjustable but is very well anchored since we're still well within floor rate buffers; bank rates would have to sail way past and well above 2.6% before the HDB loan rate would even flirt with an increase. And it's possible to flip from an HDB loan to a bank loan at some point in the future via refinancing, but not the reverse. You're also allowed to accept a higher LTV ratio with a HDB loan, although I don't recommend you do that in order to buy a bigger, more expensive unit than you should.

lingalong 26-03-2019 12:18 PM

Quote:

Originally Posted by BBCWatcher (Post 119898290)
No, that's not correct. Bonus interest is awarded on the first $60,000 of combined CPF balances (OA+SA+MA+RA), but you must have at least $40,000 in SA+MA+RA to earn all the bonus interest. (Starting from age 55 there's another percentage point of bonus interest that applies to the first $30,000 of combined balances.) Bonus interest is paid into your SA (and then into your RA from age 55).

In short, your Ordinary Account really doesn't earn any bonus interest as such. You can have a zero OA balance and still earn maximum bonus interest. That's very common, actually. At most only the first $20K of OA could help you qualify for maximum bonus interest, and that's only if your MA+SA+RA is less than $60,000.


I actually like the HDB loan offer at present (for those who qualify). Yes, I know the U.S. Federal Reserve has allegedly paused its interest rate hikes for 2019, but this is a 25+ year mortgage we're talking about. That 2.6% rate is technically adjustable but is very well anchored since we're still well within floor rate buffers; bank rates would have to sail way past and well above 2.6% before the HDB loan rate would even flirt with an increase. And it's possible to flip from an HDB loan to a bank loan at some point in the future via refinancing, but not the reverse. You're also allowed to accept a higher LTV ratio with a HDB loan, although I don't recommend you do that in order to buy a bigger, more expensive unit than you should.

I see!

In that case, is it advisable to use any balance from OA (assuming less the 20k to make up for 60k from MA + SA + RA), to pay for housing loans?


I remembered you mentioned that one should still continue funding their investment portfolio with cash instead of using it all to pay off housing loans since the end goal of the annualised return is supposed to surpass the 2.6% that CPF offers.

And yes one reason that HDB loan is also a tad more attractive as they are more 'forgiving' on delayed repayments

BBCWatcher 26-03-2019 04:52 PM

Quote:

Originally Posted by lingalong (Post 119900234)
In that case, is it advisable to use any balance from OA (assuming less the 20k to make up for 60k from MA + SA + RA), to pay for housing loans?

Are you asking whether it makes financial sense to use Ordinary Account dollars to make mortgage payments at standard pace or at accelerated pace? Those are two very different questions.

Let me answer the second question right now since it's easier. Obviously you shouldn't take dollars that are earning 2.5% interest to pay off a mortgage with an interest rate that's less than 2.5% any faster -- even one dollar per month faster -- than necessary. That's just burning free money (the difference between what your OA dollars are earning and the loan interest rate), and that's not smart. Enjoy that free money as long as it's given to you. (Why do so many people actually do this?)

This particular decision is more interesting if/when the mortgage interest rate crosses 2.5%. Ordinary Account dollars could be doing better than 2.5% through either OA to SA transfers or prudent, long-term CPF Investment Scheme choices.

lingalong 26-03-2019 05:11 PM

Quote:

Originally Posted by BBCWatcher (Post 119904783)
Are you asking whether it makes financial sense to use Ordinary Account dollars to make mortgage payments at standard pace or at accelerated pace? Those are two very different questions.

Let me answer the second question right now since it's easier. Obviously you shouldn't take dollars that are earning 2.5% interest to pay off a mortgage with an interest rate that's less than 2.5% any faster -- even one dollar per month faster -- than necessary. That's just burning free money (the difference between what your OA dollars are earning and the loan interest rate), and that's not smart. Enjoy that free money as long as it's given to you. (Why do so many people actually do this?)

This particular decision is more interesting if/when the mortgage interest rate crosses 2.5%. Ordinary Account dollars could be doing better than 2.5% through either OA to SA transfers or prudent, long-term CPF Investment Scheme choices.

Hmm ok maybe I didn't phrase it properly, sorry.

Assuming that I am going to take on a HDB loan at 2.6%, for a tenure of say 20 years.

Would it make sense to:

1) Use my OA balance to pay off as much as possible first (Essentially wiping out my OA)

2) Subsequently use monthly CPF contribution into OA + Cash to repay the fixed monthly installment

Since the mortgage rate is 0.1% more than what I could earn in my CPF OA, I am technically not facing any opportunity cost correct?


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