Alternative to Holding Cash

the past 4 years was really a very comfortable market for investors as compared to the mega bear during the financial crisis

I still remember when I bought my first stock, STI crashed from a high of 3800
I saw a 30% correction and bought the STI ETF at $2.70, thinking it was super cheap
few months later I started to have problems sleeping well, the STI ETF came down to $1.60 and I was sitting on over 40% paper loss!!!
what looks cheap can get cheaper! lol

so for investors who has never experienced a mega bear before, its easy to say how you will hold your stocks and ride the bear, or how much cash you will use to load cheap bargains.

during a bear market, it really takes a lot of courage to ignore the noise and hold on to your stocks.

what most of us are talking about are actually still about the same investment tool, be it etf, bonds or stocks, plus that safety margin of cash.

if market crashes suddenly, one still will likely suffer a significant loss of his wealth, be it paper or real cash.

dun forget owning the good old physical assets like ppties or land in various cities help diversify one's risk. thats of course if he can afford to.

(01-06-2013, 12:12 PM)Musicwhiz Wrote:

(01-06-2013, 11:14 AM)Dividend Warrior Wrote: For me, I keep around 6 months salary as emergency funds.

My style is to:
- Buy dividend stocks, collect dividends
- Use the dividends to buy more dividends stocks and collect more dividends
- Rinse and repeat and compound over the next 30 years

I have been doing this for the past 4 years and it is already showing good progress.....

Wouldn't valuations play an important role in your plan above? Buying "dividend stocks" means also taking into account their valuations during economic cycles, and ensuring one has the requisite margin of safety. Rinsing and repeating is not as simple as it sounds, for it should involve a detailed study of the underlying business characteristics of each dividend-paying company to ensure that one avoids the risk of permanent loss of capital.

I would also like to remind that if you started 4 years ago (i.e. May 2009), you would have only seen a rising market where valuations have ben heading upwards. Investing in such an environment is extremely comfortable - but the real test generally comes when crisis and trouble hits the fan. Always test your investment philosophy against a bear market cum economic downturn - if you are still able to avoid permanent capital loss and still earn a consistent return, then I would say you have a very sound philosophy in place. No offense I hope.

Yes. Valuation is important. Must do due diligence.
These are the things I look at:
- Profit after tax
- Recurring Revenue stream
- Free cash flow
- Payout ratio
- Dividend history
- Type of business/Sector/ Competition
- Management track record
- Dividend Yield

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(01-06-2013, 01:16 PM)felixleong Wrote: the past 4 years was really a very comfortable market for investors as compared to the mega bear during the financial crisis

I still remember when I bought my first stock, STI crashed from a high of 3800
I saw a 30% correction and bought the STI ETF at $2.70, thinking it was super cheap
few months later I started to have problems sleeping well, the STI ETF came down to $1.60 and I was sitting on over 40% paper loss!!!
what looks cheap can get cheaper! lol

so for investors who has never experienced a mega bear before, its easy to say how you will hold your stocks and ride the bear, or how much cash you will use to load cheap bargains.

during a bear market, it really takes a lot of courage to ignore the noise and hold on to your stocks.

2011 was not really comfortable.....

For me personally, i have looked at other avenues of utilizing my cash horde.

Recently taken up an insurance plan whereby the premium payable is S$9K per annum for 10 years. At the age of 60, i will be guaranteed a payout of S$12K per annum until death, surrender value in the policy will keep growing (not guaranteed of course, the guaranteed surrender value is S$98K). I still have about 28 more years to go before i can see the S$12K payout.

For my CPF OA, i transferred about S$18K to my CPF SA to top it up to S$40K so that i can maximize the current additional 1% which we can earn on top of the 4% interest rates provided by CPF SA.

While waiting for the downturn in the stock market or a crisis to happen to any of the stocks on my watchlist, i was thinking of topping up my CPF by S$7K (Believe this S$7K will be split automatically by CPF into OA, SA and MS) to enjoy the tax deduction and the interest rate of 2.5% and 4%.

I am of course still holding about 20% cash and this is still building up month on month while waiting for the downturn / crisis to occur.

(01-06-2013, 01:59 PM)paullow Wrote: what most of us are talking about are actually still about the same investment tool, be it etf, bonds or stocks, plus that safety margin of cash.

if market crashes suddenly, one still will likely suffer a significant loss of his wealth, be it paper or real cash.

dun forget owning the good old physical assets like ppties or land in various cities help diversify one's risk. thats of course if he can afford to.

So a portfolio by asset allocation is always recommended by the professionals. Here below:-

“The Essence of Investment Management is the Management of Risks, not the Management of returns”, Benjamin Graham.

“Therefore Proper Allocation of Assets and Entry Level are the 2 most crucial actions.
Nothing you can do is better to Control Risks and Generate profit,” Dick Davis.

(01-06-2013, 02:08 PM)dtane Wrote: While waiting for the downturn in the stock market or a crisis to happen to any of the stocks on my watchlist, i was thinking of topping up my CPF by S$7K (Believe this S$7K will be split automatically by CPF into OA, SA and MS) to enjoy the tax deduction and the interest rate of 2.5% and 4%.

In order to enjoy the tax deductions, the CPF topups will be made into the SA only (or the retirement account for the retired parents). I do it every year myself as well.

http://mycpf.cpf.gov.sg/Members/Top-Up_LO.htm

Wah!
You still have 18 to 21 years to wait after paying up for 10 years. So the surrender value + non guarantee is very important consideration. You may want to take it out earlier. imo.

(01-06-2013, 02:08 PM)dtane Wrote: For me personally, i have looked at other avenues of utilizing my cash horde.

Recently taken up an insurance plan whereby the premium payable is S$9K per annum for 10 years. At the age of 60, i will be guaranteed a payout of S$12K per annum until death, surrender value in the policy will keep growing (not guaranteed of course, the guaranteed surrender value is S$98K). I still have about 28 more years to go before i can see the S$12K payout.

For my CPF OA, i transferred about S$18K to my CPF SA to top it up to S$40K so that i can maximize the current additional 1% which we can earn on top of the 4% interest rates provided by CPF SA.

While waiting for the downturn in the stock market or a crisis to happen to any of the stocks on my watchlist, i was thinking of topping up my CPF by S$7K (Believe this S$7K will be split automatically by CPF into OA, SA and MS) to enjoy the tax deduction and the interest rate of 2.5% and 4%.

I am of course still holding about 20% cash and this is still building up month on month while waiting for the downturn / crisis to occur.

Ah i see. Thank you for the clarification

(01-06-2013, 02:24 PM)AlphaQuant Wrote:

(01-06-2013, 02:08 PM)dtane Wrote: While waiting for the downturn in the stock market or a crisis to happen to any of the stocks on my watchlist, i was thinking of topping up my CPF by S$7K (Believe this S$7K will be split automatically by CPF into OA, SA and MS) to enjoy the tax deduction and the interest rate of 2.5% and 4%.

In order to enjoy the tax deductions, the CPF topups will be made into the SA only (or the retirement account for the retired parents). I do it every year myself as well.

http://mycpf.cpf.gov.sg/Members/Top-Up_LO.htm

(01-06-2013, 02:00 PM)Dividend Warrior Wrote: Yes. Valuation is important. Must do due diligence.
These are the things I look at:
- Profit after tax
- Recurring Revenue stream
- Free cash flow
- Payout ratio
- Dividend history
- Type of business/Sector/ Competition
- Management track record
- Dividend Yield

2011 was not really comfortable.....

I think the following are equally, if not more, important:-

1) Margins (Gross, EBIT and Net)
2) ROE
3) ROIC
4) Gearing
5) Price to Book (for certain types of companies)
6) Capex requirements and levels (Maintenance, replacement, expansionary and M&A-related)
7) FCF generation sustainability and consistency
8) Business prospects assessment and qualitative review
9) SWOT Analysis, Porter's Five Forces and PEST analysis

If 2011 was considered "not really comfortable", wait till you encounter a repeat of 2008-2009.

Nah i don't think i will want to take it out earlier, because the main purpose of me buying this plan is because I am actually more interested in the cash flow of S$12K that is guaranteed per annum and for life.

It is a diversification tool for my future cash flow to meet my retirement needs. Less stressful when you know that a portion of your cash flow is guaranteed (Provided the insurance company doesn't collapse heh).

So this insurance plan (an annuity of a sort) coupled with CPF Life + stock investment portfolio + endownment plans (matures around age 53 to 55 - Plan to use the money in future to purchase more stocks or other alternative investments) + Aussie Fix Deposit will hopefully be able to fund my retirement.

(01-06-2013, 02:33 PM)Temperament Wrote: Wah!
You still have 18 to 21 years to wait after paying up for 10 years. So the surrender value + non guarantee is very important consideration. You may want to take it out earlier. imo.

(01-06-2013, 02:08 PM)dtane Wrote: For me personally, i have looked at other avenues of utilizing my cash horde.

Recently taken up an insurance plan whereby the premium payable is S$9K per annum for 10 years. At the age of 60, i will be guaranteed a payout of S$12K per annum until death, surrender value in the policy will keep growing (not guaranteed of course, the guaranteed surrender value is S$98K). I still have about 28 more years to go before i can see the S$12K payout.

For my CPF OA, i transferred about S$18K to my CPF SA to top it up to S$40K so that i can maximize the current additional 1% which we can earn on top of the 4% interest rates provided by CPF SA.

While waiting for the downturn in the stock market or a crisis to happen to any of the stocks on my watchlist, i was thinking of topping up my CPF by S$7K (Believe this S$7K will be split automatically by CPF into OA, SA and MS) to enjoy the tax deduction and the interest rate of 2.5% and 4%.

I am of course still holding about 20% cash and this is still building up month on month while waiting for the downturn / crisis to occur.