As background, I am a 34 year old Singaporean earning approximately S$16k/month. Single with no current plans to get married or have kids in the foreseeable future. I somehow cobbled together the following assets and liabilities:
- Cash - approximately S$350k sitting in a bank account
- SRS - S$15.3k that is still sitting as cash
- ES3 - approximately S$100k with SCB
- IWDA - approximately US$25k with IB (just started this year)
- CPF - approximately S$30k in OA; S$35k in SA and S$45k in MA
I think there's a good argument here in favor of transferring that S$30K in your OA into SA, and for continuing monthly transfers. You've got gobs and gobs of liquidity plus a high income, so you don't actually need OA as OA.
- Rental - approximately S$1.5k/month
- Mortgage - approximately S$800k at 1.98% (about S$3k/month)
- Insurance - AXA Shield (Plan A)
[....]
1. I know you are a strong proponent of DII and believe that it is foundational. Given that CareShield Life is starting in a bit (albeit without too much details yet), is it still a necessity to get a private DII?
Yes. CareShield Life is a welcome improvement, but its definition of disability is extremely narrow, and even if it does pay something it's only a tiny fraction of that S$16K/month income you're currently earning.
If so, what would you recommend as probably the best one we currently have in Singapore? (I think I read somewhere a while ago that you favoured GE Pay Assure, but cannot seem to find the entry anymore and could be mistaken).
Yes, Great Eastern seems to offer the best T&Cs, but all of the DII policies are better than none.
2. I recognise that I am holding a bit too much cash right now. I was intending to use some when purchasing my property but realised that taking up a 1.98% loan probably makes more sense at this point in time (if interest rates go up, I can refinance or prepay?).
I think that makes sense, assuming you've got a long-term perspective and reasonable discipline. At present it looks like we could even see some lower mortgage interest rates.
What should my next steps on investments generally be (working on the assumption that I have S$8k/month for investment after deducting rent, mortgage and general expenses)?
Really just shift into an age-appropriate "2 fund" or "3 fund" portfolio allocation, I'd say. The typical portfolio allocation guidance is that you're currently too light on stocks and, within stocks, too light on the global stocks allocation. Fortunately for you, by sheer coincidence, this appears to be an excellent time to fix that.
I am guessing that I will need 6 months of emergency monies (S$16k x 6 = S$96k) to be held in relatively liquid asset – SSB?
Actually, it's best to base your emergency reserve on your monthly household spending. So if you're figuring you need S$8K/month to keep your household of one afloat, then S$96K would be equivalent to 12 months. That's usually a very good buffer, and most people aren't that well buffered. Also, conceivably you could reduce monthly household expenses below S$8K in an emergency, but let's use S$96K as a target.
Some of that S$96K would be held in an ordinary bank account, and if you can eke out a bit of extra interest for behaviors you would have anyway (such as a salary deposit), great, no problem. So maybe S$50K in SSBs?
I am probably over-weighted on ES3 (too much local exposure, but that was all I knew when I first started investing in things a few years ago), so should stop accumulating more and simply DCA monthly into IWDA. Given the recent market volatility, I am a bit hesitant to throw in a lump sum of S$250k at one go – would doing S$10-20k/month be wise? Or would you recommend investing more a month even if I am phasing in gradually?
Sure, that's fine. For example, if you're planning to reposition S$250K into stocks, on top of your monthly savings flow, then you might split that up into 16 installments of S$15,625 each.
I wouldn't blame you if you feel like crawling into a cave (so to speak) since the world seems so crazy at this instant, so I would also nail down some DII and drop $7,000 into your CPF Special Account for tax relief, and you should get quite a bit of tax relief at your income level. Also, if your variable pay (commissions, bonus, 13th month, etc.) is less than $30,000 then you should have some room below the CPF Annual Limit. If so, you could take a look at making a MediSave deposit for some more tax relief. Once your MediSave Account hits the Basic Healthcare Sum and your Special Account hits the Full Retirement Sum -- which shouldn't happen too terribly long from now with contributions from work, OA to SA transfers, and top ups with tax relief -- your OA will start swelling. And at that point you could start servicing your mortgage (at regular pace: 1.98% or similar is really nice) using OA dollars, then have that much more available for plowing into long-term savings outside CPF.
I should also probably get MBH for the bond leg – maybe 14% if calculating based on 120 – 34 years old?
Maybe, probably, a bit, eventually, but CPF SA and MA are bond-like, and they're better in terms of yield and tax relief.
But this also ties in with my next question regarding SRS.
3. Should I be using my SRS to buy ES3/MBH?
Yes, I think so.
I understand that the bond leg is meant to also serve as a war chest. But how does that work if the SRS is siloed by itself? If I should be treating the SRS as a separate pile of monies that cannot be intermingled, should my SRS investments then mirror somewhat my general investments? Grateful for your thoughts on this.
It's much the same with CPF monies. And the fundamental answer is that you should still have enough flexibility to rebalance your portfolio periodically (annually, let's suppose). But if you don't, OK, so be it, the tax relief is still valuable.
4. Should I be using cash or OA to finance my mortgage? With OA's yield currently being higher than my mortgage, is it accurate to say that if I use my OA, that leaves my cash free to earn yields higher than OA's 2.5% (of course assuming with hope that I get my life straightened out)? Should it always be OA in all instances then (since if mortgage is higher than OA's yield, then all the more reason I should be investing my cash to earn yields higher than OA's 2.5%)?
As I mentioned above, I think you slam your MA and SA hard (regular contributions, OA to SA transfers, and top ups with tax relief), then start servicing your mortgage once your OA starts to fill up again from paychecks. When you have gobs of liquidity and a high income, you're entitled to play that particular game and play it well.
Is there something else that I need to consider with keeping my OA intact (maybe this ties in with my next question regarding CPF generally)?
Liquidity for purposes of servicing your mortgage, but you've got that.
5. If I am currently hitting the CPF annual limit, it seems that I cannot avail myself to the various CPF voluntary contributions (MA or all 3 accounts).
Are you? If your variable pay is under $30,000, you should have some room below the CPF Annual Limit.
Is it accurate to say that if I do any voluntary contributions myself before the end of the year, then, when the CPF annual limit is hit before the end of the year, my employer no longer needs to contribute what it would have to otherwise? If so, will not make sense for me to make any voluntary contributions at all.
No, your compulsory contributions are always made. You're not going to lose anything that way. However, if, for example, you exceed the CPF Annual Limit by making a too large voluntary contribution into your MediSave Account, the overage will be returned to you without interest.
If the above is the case, it seems like the only CPF play I can make is to transfer my OA to my SA to earn the higher guaranteed 4%. Given that it is irreversible, I am just not too sure when I should be comfortable to make such transfer – I guess I have to consider the response to question 4 first.
That's not the only play. You can also deposit $7,000 directly into your Special Account for tax relief. Yes, these are irreversible, but you're very well compensated with 4% interest and, if you keep this up for just a few years, with a Full Retirement Sum-funded Retirement Account at age 55
plus lots of dollars available for withdrawal at age 55+ plus lots of tax relief along the way, which you can also save and invest. As long as you're maintaining adequate or better liquidity throughout -- and goodness knows you've got that already since you're in absolutely no danger of missing a $3K/month mortgage payment -- it's all good.
CPF SA is essentially like a 20 year bond for you (a weirdly high yielding one with a purchase rebate), and CPF MA is weirdly high yielding prepaid medical spending card, also with a purchase rebate.
watching this video makes me worry about investing in usd...
What do you mean when you say "investing in USD"? Do you mean buying U.S. Treasuries, or buying a fund that invests in U.S. dollar denominated corporate bonds? Is that what you plan to do (or are doing) and, if so, why?