Thursday, 18 December 2014

What is the best way to grow your wealth?

What is the best way to grow your wealth, relatively risk free?

On one extreme end of the spectrum would be gambling. I'm not familiar with that and the other extreme end of the spectrum, saving. I hate that. 

Being financially savvy, one would need to understand cost of borrowing, leverage and the power of compounding. So given the following scenario, a relatively fresh graduate, earning $4000, trying to gain a foothold in the property ladder with no savings yet, what can he do?

If he save for a $500,000 property, he would need for a 20% downpayment of $100,000. This could mean a 5 - 8 years of diligent savings. At the end of 8th year, when he wants to buy the property, the property would have grown at least 50% and the down payment would have grown higher still. A case of forever not able to catch the ladder. 

What can he do?

Wednesday, 17 December 2014

Oil Price Free Fall, the black swan event?

Were you afraid of the recent oil price free-fall? Is this the black swan event that will crash the world economy?

"On December 23, 2008, WTI crude oil spot price fell to US$30.28 a barrel, the lowest since the financial crisis of 2007–2010 began, and traded at between US$35 a barrel and US$82 a barrel in 2009."

Today the spot price is slightly over US$50. How does the low price and over supply affect the economy? Naturally the oil production for oil producing country may suffer which Russia is the main economy, lets see what effect this economy have on the world economy. 

Russia is no. 8 on the IMF world GDP ranking which is roughly 2% of the world's GDP?
According to

Seriously, Russia has been in sanction at some time or another, the current collapse of the Ruble will not affect World GDP much looking at the percentage of the GDP it contributes. 

Do not be worried about the short term free-fall. It just says there is an opportunity to take advantage of the blood in the streets. Wait a few months and jump in to the fallen asset class, namely energy stocks. Also, in terms of leverage, interest rate hike will be slower with each wave of crisis. Interest have to be low to entice businesses to take on risks to grow the economy. 

Is Oil price fall the 4th QE, it looks likely that the free fall will stimulate the emerging economy and for oil producing countries, a short term problem. Sooner or later, the weaker nations will give up and seek out a buyer for their future produce and that would cushion the cashflow, much like taking loan from IMF. 

I'm bullish. Cheers!

Sunday, 14 December 2014

Working til 67??

The Government of Singapore is going to announce new laws for working til 67?

Wah! I could not even imagine working past 67. 

As a nation, do we need the layout force to work for 40 years to achieve growth? 

As a organisation, did it not improve on productivity to not depend on 67 YOs?

As an individual, did one not work enough to require working past 67 to survive? 

That comes down to the basic fundamentals, what exactly is wrong with the system?

Did we move too fast that some are still 20 years behind?

Did we not have a system to enable retirement?

Did the retirees not have any hobbies to sustain them when they are not working? 

This post is more questions and more questions... for the answers? wait for 20 years later when i reach 67. I will tell you if I'm not working... or not. Touch wood! 


Monday, 8 December 2014

Systematic Accumulation of Debts

I was once afraid of calls offering loans to me. "Dear Sir, you are our privilege customer and we are offering you a special rate for balance transfer of 1% processing fees and 0% interest rate for 6 months..." I would immediately hang up... what? what do I need to take loan for? 

Debts is good if you know how to use it. Lets rationalise it this way. There is the OCBC 360 account giving up to 3.05% per annum. Compared to the cost of 1% processing fees for loans up to 6 months? Hmm.... 2.2% effective and 1.05% free money? Why not?

In this low interest rate environment, it is an anomaly of normal situation and we must not let slip this opportunity. 

Run your life like a company. In every company there is cashflow and in most companies, debt is necessary to expand the business. Same for your own financial life. Without leverage or accumulation of debts you cannot go far, yet discipline is important to prevent misuse of the debts. All debts deployed into a business goes into capital accumulation or cashflow and they are never ever used for frivolous expenses like company D&Ds and rewards for staff. Those comes from business profits. It is the same as for your own life... debts taken are not used for holidays or merry making, it is used to enhanced your position in life. 

Accumulate debts systematically for capital accumulation and for cashflow purposes. Use only business profits for merry making.

Macro Economy and Real Estate

More often than not, we are seriously affected by the "consumer" behaviour. Does the property look nice, does it have great view, it is rare, limited in supply? Let me tell you, it really does not matter as we are not the ones staying in the unit. 

Pay attention to Macro economic indictors. If the economy is in depression, how does the government turn things around using fiscal policy such as interest, tax, labour reforms, etc to change the situation around.

US has chosen to let loose on the monetary supply to allow economy to work itself back to health. 

Europe has chosen austerity measures.

Lets look at australia the lucky country. What has the Government done to improve falling commodity price, high priced of exports, labour / knowledge shift? 

It has not in any sense of the word done anything to restructure the economy to withstand future shocks. Would it need to? Rich countries like Singapore often have a backload of infrastructure projects to spend on to create jobs when economy is down, thus enabling its economy to continue functioning and in good times, deploy fiscal policy to improve its coffers. I think without going into deep research, I hazard a guess Australia will spend its way out of economic downturn. Question is how long is this downturn, I hazard a guess again that Australia might need a little help in the labour reforms to help to achieve a more structural balanced economy.

The economy is balanced isn't it? Lets use the example of the economic policy it have. When times of economic downturn, it can adjust its interest rate to devalue its currency to boost tourism and education sector. In times of growth, it can call the shots and increase the currency value to boost exports. A perfect system! 

I would love to learn more how macro economy can be used to predict housing demand.

New Investment on the Horizon

There has been a few products on the market recently that gives wonderful yields of 17%,18% and 36%. Thats a very very big wow! right? There was a wonderful product giving 75% yield a few years back growing peppers and its doing very well now. The investors must be grinning from ear to ear.

Lets see. :

17% - Pilbara - developers financing for pilbara housing. This company has been operating this financing scheme for the last 2-3 years, offering 17% return for a 2 year period. A few companies which includes IPINglobal and wealth revolution group are marketing this product.

18% - Par Vue - developers financing plus property in Bundoora. This is to finance a property in Melbourne Bundoora region. The company offering this is future estate, check them out.

36% - Kalimantan mine - now this is interesting. Investors fund the buying of coal at bulk price and agents sell the coal. The returns can be 3% per month. 

Interestingly, I spoke to some investors sometimes, I asked them why they put money in Pilbara. They said 17% is very good yield. I told them I have 36% yield and they were scared and backed off.

As a principal, as a levaraged investor, I do not find Full Cash Investment enticing anymore. I want leverage and through leveraging, achieve higher cashflow and capital gains. It will be hard to beat 36% a year or even 17% a year but as a leveraged investor, I would like my favouritest bank to share the risk with me and for them to do their due diligence. I may not earn 18% a year but I'll be comfortable in my sleep.

I blogged about 12% yields in an earlier post explaining that 12% might be the magic figure to make people part with their money. It seems that game has been raised to 18% and this figure will continue to appear in future investment products. We are watching...

Nett Asset 1 million

Discipline is one of the most important virtue required of an investor. Like many tai kors says, it is the process not the method. Savings can also help you to reach your end goal.

I kept a meticulously done spreadsheet that had all my fixed and variable expenses, income and investment in there. It is like a financial life written for me in til the ripe old age of 45. It is tough as you planned for every single penny to be deployed into financial workings at a future time. In fact, I'm deploying future assets today at a given cost. 

I'm proud that my current Nett Asset has just passed over a Million SGD! This Nett Asset value has been fluctuating due to the movement in exchange rate and valuation for the past few months and it will continue to be so in the next few months but I'm certain I'm past the value of it. This is a BIG Milestone! A Million Dollars in asset. What this means is at a 4% withdrawal rate, I could draw $40k per annum to meet my expenses. Hmmm, then again, my assets are in properties and not in dividend yielding stocks so this 4% withdrawal rate may not apply to me. 

A quick run down of the financial health shows the following :

Total Income (Salary Earned over 11 years) ~ $1 mil
Total Nett Assets ~ $ 1 mil
Total Nett Liabilities ~ $1.4 mil

Total gross passive income ~ $ 2500 / mth

and 4 more properties on various stages on completion. 

It always feel good that your nett asset has surpassed your total earned income and it means all your spendings were paid for by others. I always tell E that once my tenants can pay for my shopping and travelling, we can travel and have fun. Right now, just be discipline and work towards financial freedom.