Humbly seeking your advice

[davidsim]

Would really appreciate any advice and new insights offered.

you have a net worth of 5 millions and ask us for advice ?
I would prefer to ask you how to reach such a net worth

I have just been lucky really. To have bought 2 properties a long long time ago which prevented me from having any excess cash to lose in other investments or spend unwisely. The other part that's not so appealing is I have worked for a good 40 years now haha.

[d.o.g.]

WARNING: LONG POST

My investment objectives are (in order of preference):
1. to generate an average of $13,000 per month from my investments annually (including property)
2. to achieve a nominal CAGR of 4% over the next 5 years

First of all is probably the question of insurance - are all family members (including yourself) adequately insured? If not, a serious illness may drain away all the wealth you have worked so hard to obtain. Make sure everyone has enough health and surgical insurance - for starters buy everyone the most expensive Shield plan with lifetime coverage.

After your family is adequately insured comes the question of investment returns.

Your goal is for $13,000 per month or $156k per year, against investable assets of $5.6m, a yield of 2.8%. This is certainly achievable in nominal terms.

My eldest child should be working in slightly over 4 years and the total cash deficit I would incur over this period is about $65,000.

IMHO the simplest solution here is to simply put aside the $65k as it is only 1.5% of your investable assets. After 4 years your eldest child will not need your support, which means you don't have a deficit any more and should run a small surplus. If your child starts to contribute financially to the household then you will have a larger surplus. Plan the rest of your life using the remaining 98.5% of the assets.

The next question is probably whether your assets are appropriately allocated to begin with. Your investable assets exceed $5m, of which almost 50% is in the stock market. Yet you claim to be "quite clueless" about stocks. This is extremely dangerous because poor stock picks can cause massive losses. The mitigating factor is that you have stuck to household names like DBS, UOB and Singtel. However some people would also consider SIA a household name, whereas I would not consider SIA suitable as a long-term holding for a conservative investor. Without a full disclosure of the portfolio it would be unwise to assume the portfolio consists only of companies with strong businesses and conservative balance sheets.

The following should be considered as an opinion only as I am not licensed to give financial advice.

1. Stocks

Consider selling the stock portfolio entirely and replacing it with an STI-tracking ETF e.g. the Nikko AM Singapore STI ETF. This guarantees you the index return less expenses, and the ETF pays dividends. If you want to do better by investing on your own, you can take your own sweet time to learn, with small amounts of money until you get comfortable. When it's clear that you can beat the index on a sustained basis, by all means take the plunge and do it all yourself. Don't feel bad if you can't beat the index - many professionals can't either. There is no shame in investing in an ETF.

2. Property

Why is your property only yielding 2%? You should be able to earn at least 3.5% or even 4% on a gross basis, after expenses and taxes you should net about 3%. It is mostly GCBs that get 2%, but $2m suggests a large condo in an outlying area, a small condo in town or a small landed property. Either your rental is too low (raise it) or your property's valuation is too expensive (consider selling). Better still, if you can find a property that is clearly superior (better location for the same price etc), consider swapping properties so that you can get a better rental yield.

Also consider selling the property and using the cash to buy some REITs that own retail or healthcare assets. Industrial REITs usually have rapid depreciation (3% annual loss due to short lease) while hotel REITs have volatile payouts (room rates fluctuate a lot) so it may be better to avoid these 2 groups as long-term investments. Retail assets are usually long-lived (99 years or even freehold) and lend themselves well to asset enhancement (which can boost rents ahead of the market cycle). Healthcare assets are usually very stable as the hospitals can't easily leave, and medical bills are not correlated to the economy. However REITs have occasional cash calls to buy assets, so make sure you have a standby reserve i.e. don't spend all the cash payouts, keep some to fund the inevitable rights issues.

3. External Managers

If, after the above reorganisation of your assets, you can already reach your income goal, you're done. If you are open to using fund managers, talk to several to get an understanding of how they work. Make sure they can explain their strategy in terms YOU can understand. If you don't understand, walk away.

Most funds reinvest their dividends, so you won't get any cash payouts. Those that do pay will usually pay a very small dividend because the underlying investments don't pay that much themselves. Funds that promise a high payout e.g. 5% or more are usually making such payments out of capital instead of dividends/interest actually received from the underlying investments. Stay away from such funds as the payouts are not sustainable, eventually either the fund collapses or the payouts will be suspended.

Be aware that legitimate fund managers cannot time the market. That means that they cannot buy at the bottom, nor sell at the top. Neither can you. Well, maybe once in your life, but that's about it. I always tell my clients that after I buy something, it will go down (because I didn't buy at the bottom) and after I sell something, it will go up (because I didn't sell at the top). But over the long term we do well enough, so far at least.

Follow the managers for a while before you invest, and start small if you do invest. You need to see whether they live up to their claims. If you are considering a boutique fund manager (who serves only accredited investors) make sure he has the bulk of his net worth invested in his own fund. If he doesn't eat his own cooking, why should you? Don't take his word for it - get a statement of his holdings from the fund administrator. Look at his background. Where did he get his money from? If he earned it from investing, that's a good sign. If he married into a rich family or inherited the money, maybe not. This all sounds like a lot of due diligence - and it is. The good managers will have no problems complying and will be happy to share their story. But there are other kinds of people around and this type of investigation will help weed them out.

4. Alternative Investments

Be especially careful of any offshore investments, because typically if things go sour it is extremely difficult to recover anything. MAS will not help for anything that is offshore. You will have to pay your own expenses to fly there, engage a lawyer etc.

A simple test is: if there is a problem, is there somebody local you can sue, and how much in assets can you seize if you win? If the answer is "nobody" or "$2 company" then stay away. And if somebody claims they have a $1m company in Singapore don't take their word for it - get the statements from their auditor.

====
If all this sounds too complicated, the simplest route is to put aside the $65k shortfall and do nothing else. Once the eldest child starts work, there will be no shortfall. Problem solved.

As usual, YMMV.

[greypiggi]

Hi everyone, I have been here for sometime just reading everyone’s postings and I hope that you guys could offer me some advice on what to do with my portfolio. I am retired (victim of the recent car loan curbs) and hence earning no income but I have my wife, 3 children (aged 19, 18 and 16) and my mother to support.

My investment objectives are (in order of preference):
1. to generate an average of $13,000 per month from my investments annually (including property)
2. to achieve a nominal CAGR of 4% over the next 5 years

Right now my current investment portfolio excluding my main residence includes
a) SGX stocks: 2.3 million – Net yield 3.34%
b) SGD Bonds maturing in 2017: 0.5 million – Net yield 4%
c) SGD Cash (excluding emergency fund): 0.8 million – Net yield 1.1%
d) SGD Property: 2 million – Net yield 2%

This gives me a net income of about $11,700 per month which results in a shortfall of about $1,300 which I am trying to find ways to make up.

I know the obvious answer would be to use the cash I am holding to purchase short to medium term bonds (<7 years) yielding about 3-4% or stocks yielding about 4% (e.g. Singtel) but I am wary that the prices of these 2 assets in particular bonds have risen so much that their risk return trade off is no longer attractive. In addition, I was thinking maybe it would be good to maintain the flexibility to take advantage of corrections in the market (<20%)

I’m actually quite clueless about the stock market and my main source of wealth is actually 2 properties I bought a long long time ago…. 1 of which went en bloc last year. My stock portfolio actually resembles the STI. With high weights in DBS, UOB and Singtel… I have made money but I am very aware that I am just lucky.

I also have a $500,000 loan against my main residence which I took out last year fixed at 1.5% interest for 5 years. Currently hedging this off with the bonds maturing in 2017. Would not cost effective to pay off this loan as I am locked in for the 5 years. Also the cost of holding this loan is only 0.4% pa given that I cash at 1.1% with ANZ.

A humble thanks in advance for any advice offered. Would really appreciate any advice and new insights offered.

Bonds should comprise about 60% of your portfolio. For the bond side, build a 5 year bond ladder with a goal to have them mature and not care about price fluctuation. Buy usd bonds and borrow in usd against sgd cash deposit. If you do bb and bbb type bonds, you can get about 4-5%. The short duration will ensure some safety in event of int rate rise. And since you borrow in usd, the currency risk is minimized.

[CityFarmer]

Again, a creditable posting from d.o.g. I read thru it and i believe it should be the best suggestion possible IMO

[HitandRun]

It took me a year. I used to have 2 investment properties but one of them was
En blocked so I used the cash proceeds to invest in stocks periodically over the past year. I do not have much stock investment experience and have kept to household names like DBS, UOB and Singtel.

Wow, that makes you almost a novice! If you haven't got any experience riding the emotional roller coaster when the stock market goes through the regular upheavals, I fear for you (and your portfolio).

In general, I agree with greypiggi. You should put the bulk, say 90% (2.3+0.5+0.8) of your funds into a bond ladder. In essence, a bond ladder consists of bonds with varying maturities in order to achieve a shorter duration (less sensitive to interest rate rises) and a higher yield. However, you might not be savvy about hedging, so you might have to be careful about USD bonds.

In case you choose to liquidate your other investment property, I would suggest that you put 90% of it into bonds too. When you have done that, you may allocate the remaining 10% to equities. When you start to acquire more experience in share investing, you may allocate up to 30% to 40% of your portfolio into equities over a 3-5 year time frame.

P.S. Personally, my allocation to equities is 120% of my investible assets (zero % in property investments, unlike many Singaporeans). 100% is my money, 20% is the bank's money (borrowed). But I've been playing this share investment game for 20 years already.

[paullow]

i couldnt agree more after reading dog's post. from the way it sounds, i think he is likely to be a highly skilled fund manager.

[wsreader]

.....The following should be considered as an opinion only as I am not licensed to give financial advice.

Considering the quality reasoning demonstrated in your posts, I believe nothing can stand in your way to the relevant license.

[Temperament]

P.S. Personally, my allocation to equities is 120% of my investible assets (zero % in property investments, unlike many Singaporeans). 100% is my money, 20% is the bank's money (borrowed). But I've been playing this share investment game for 20 years already.
[/quote]

Hi! HITANDRUN,
Wow! Very impressive!
Do you mind to share some of your experience on how and why only 20% of OPM?
Now i really understand why you are , who you are.
i always kena hit one b4 i can run, when i try.
Thanks.

[davidsim]

WARNING: LONG POST

My investment objectives are (in order of preference):
1. to generate an average of $13,000 per month from my investments annually (including property)
2. to achieve a nominal CAGR of 4% over the next 5 years

First of all is probably the question of insurance - are all family members (including yourself) adequately insured? If not, a serious illness may drain away all the wealth you have worked so hard to obtain. Make sure everyone has enough health and surgical insurance - for starters buy everyone the most expensive Shield plan with lifetime coverage.

After your family is adequately insured comes the question of investment returns.

Your goal is for $13,000 per month or $156k per year, against investable assets of $5.6m, a yield of 2.8%. This is certainly achievable in nominal terms.

My eldest child should be working in slightly over 4 years and the total cash deficit I would incur over this period is about $65,000.

IMHO the simplest solution here is to simply put aside the $65k as it is only 1.5% of your investable assets. After 4 years your eldest child will not need your support, which means you don't have a deficit any more and should run a small surplus. If your child starts to contribute financially to the household then you will have a larger surplus. Plan the rest of your life using the remaining 98.5% of the assets.

The next question is probably whether your assets are appropriately allocated to begin with. Your investable assets exceed $5m, of which almost 50% is in the stock market. Yet you claim to be "quite clueless" about stocks. This is extremely dangerous because poor stock picks can cause massive losses. The mitigating factor is that you have stuck to household names like DBS, UOB and Singtel. However some people would also consider SIA a household name, whereas I would not consider SIA suitable as a long-term holding for a conservative investor. Without a full disclosure of the portfolio it would be unwise to assume the portfolio consists only of companies with strong businesses and conservative balance sheets.

The following should be considered as an opinion only as I am not licensed to give financial advice.

1. Stocks

Consider selling the stock portfolio entirely and replacing it with an STI-tracking ETF e.g. the Nikko AM Singapore STI ETF. This guarantees you the index return less expenses, and the ETF pays dividends. If you want to do better by investing on your own, you can take your own sweet time to learn, with small amounts of money until you get comfortable. When it's clear that you can beat the index on a sustained basis, by all means take the plunge and do it all yourself. Don't feel bad if you can't beat the index - many professionals can't either. There is no shame in investing in an ETF.

2. Property

Why is your property only yielding 2%? You should be able to earn at least 3.5% or even 4% on a gross basis, after expenses and taxes you should net about 3%. It is mostly GCBs that get 2%, but $2m suggests a large condo in an outlying area, a small condo in town or a small landed property. Either your rental is too low (raise it) or your property's valuation is too expensive (consider selling). Better still, if you can find a property that is clearly superior (better location for the same price etc), consider swapping properties so that you can get a better rental yield.

Also consider selling the property and using the cash to buy some REITs that own retail or healthcare assets. Industrial REITs usually have rapid depreciation (3% annual loss due to short lease) while hotel REITs have volatile payouts (room rates fluctuate a lot) so it may be better to avoid these 2 groups as long-term investments. Retail assets are usually long-lived (99 years or even freehold) and lend themselves well to asset enhancement (which can boost rents ahead of the market cycle). Healthcare assets are usually very stable as the hospitals can't easily leave, and medical bills are not correlated to the economy. However REITs have occasional cash calls to buy assets, so make sure you have a standby reserve i.e. don't spend all the cash payouts, keep some to fund the inevitable rights issues.

3. External Managers

If, after the above reorganisation of your assets, you can already reach your income goal, you're done. If you are open to using fund managers, talk to several to get an understanding of how they work. Make sure they can explain their strategy in terms YOU can understand. If you don't understand, walk away.

Most funds reinvest their dividends, so you won't get any cash payouts. Those that do pay will usually pay a very small dividend because the underlying investments don't pay that much themselves. Funds that promise a high payout e.g. 5% or more are usually making such payments out of capital instead of dividends/interest actually received from the underlying investments. Stay away from such funds as the payouts are not sustainable, eventually either the fund collapses or the payouts will be suspended.

Be aware that legitimate fund managers cannot time the market. That means that they cannot buy at the bottom, nor sell at the top. Neither can you. Well, maybe once in your life, but that's about it. I always tell my clients that after I buy something, it will go down (because I didn't buy at the bottom) and after I sell something, it will go up (because I didn't sell at the top). But over the long term we do well enough, so far at least.

Follow the managers for a while before you invest, and start small if you do invest. You need to see whether they live up to their claims. If you are considering a boutique fund manager (who serves only accredited investors) make sure he has the bulk of his net worth invested in his own fund. If he doesn't eat his own cooking, why should you? Don't take his word for it - get a statement of his holdings from the fund administrator. Look at his background. Where did he get his money from? If he earned it from investing, that's a good sign. If he married into a rich family or inherited the money, maybe not. This all sounds like a lot of due diligence - and it is. The good managers will have no problems complying and will be happy to share their story. But there are other kinds of people around and this type of investigation will help weed them out.

4. Alternative Investments

Be especially careful of any offshore investments, because typically if things go sour it is extremely difficult to recover anything. MAS will not help for anything that is offshore. You will have to pay your own expenses to fly there, engage a lawyer etc.

A simple test is: if there is a problem, is there somebody local you can sue, and how much in assets can you seize if you win? If the answer is "nobody" or "$2 company" then stay away. And if somebody claims they have a $1m company in Singapore don't take their word for it - get the statements from their auditor.

====
If all this sounds too complicated, the simplest route is to put aside the $65k shortfall and do nothing else. Once the eldest child starts work, there will be no shortfall. Problem solved.

As usual, YMMV.

Hi d.o.g,

A big thank you for taking your time to write that detailed post. I really appreciate all the advice you and everyone else here has provided and will take the time to read through all the postings again.

I think my family is well insured. Both me and my wife have life insurance and I have bought hospitalization cover for all of us for up to $400,000 each. This is actually a big contributor to my monthly expenses as my family lives rather simply otherwise. I don't have insurance for my mum but there isn't much I can do about that now.

You are definitely right about my ability in the stock market. Fortunately I do not have SIA but perhaps the only reason I managed to avoid it was because it did not pay a good enough dividend and therefore did not meet my criteria.

1. Stocks

I fully understand your advice for me to buy an ETF. Seeing how much I have to learn I think it is a great opportunity for a below average investor like me to perform averagely and in a way 'outperform' my expected performance.

2. Property

The property is rather old and that is why net yield is low. Older properties tend to command lower rentals and have much higher maintenance. I also admit I have not been achieving market rentals as the tenant has been with me for the past 12 years and I have been rather lenient rent wise as he has been very cooperative and understanding.

I have considered selling but with the new Thomson line there has been a chance for en-bloc again that is now stuck at the high court and I will probably wait till the dust settles on that and consider my options throughly.

3. Fund Managers

So far I have avoided this option as I think my ability to evaluate fund managers is even worse than my ability with stocks. The bank RM's seems to tell me that all funds outperform the market and praise them till the skies but after working for so long my common sense tells me a good product will sell itself.

Still I appreciate the effort you took to explain this option to me and allowing me to understand it slightly better.

4. Alternative investments

I guess I was lucky to avoid these all my life as I have always had my cash tied up with family expenses and mortgage payments. With all the newspaper reports now I think these are probably things I would not try ever in my life.

Overall I can sense that the general tone of your post is to ensure that I do not do anything silly in the pursuit of higher returns and I think that is the course of action I will take. I am well aware that there are no more property booms or years for me to work to recover any lost capital. I think should accept that my wealth accumulation days are behind me and I am very fortunate to get where I am today and spend more time hanging around with family after a good 40 years in the workforce.

======================================================

I would also like to thank everyone else for the information they have contributed and apologise for not being able to do so individually. I have certainly learnt a lot from and I find the free sharing of information by everyone very admirable and wish you all the best in your investment journeys.

[mrEngineer]

Also consider selling the property and using the cash to buy some REITs that own retail or healthcare assets. Industrial REITs usually have rapid depreciation (3% annual loss due to short lease) while hotel REITs have volatile payouts (room rates fluctuate a lot) so it may be better to avoid these 2 groups as long-term investments. Retail assets are usually long-lived (99 years or even freehold) and lend themselves well to asset enhancement (which can boost rents ahead of the market cycle). Healthcare assets are usually very stable as the hospitals can't easily leave, and medical bills are not correlated to the economy. However REITs have occasional cash calls to buy assets, so make sure you have a standby reserve i.e. don't spend all the cash payouts, keep some to fund the inevitable rights issues.

3. External Managers

If, after the above reorganisation of your assets, you can already reach your income goal, you're done. If you are open to using fund managers, talk to several to get an understanding of how they work. Make sure they can explain their strategy in terms YOU can understand. If you don't understand, walk away.

Most funds reinvest their dividends, so you won't get any cash payouts. Those that do pay will usually pay a very small dividend because the underlying investments don't pay that much themselves. Funds that promise a high payout e.g. 5% or more are usually making such payments out of capital instead of dividends/interest actually received from the underlying investments. Stay away from such funds as the payouts are not sustainable, eventually either the fund collapses or the payouts will be suspended.

Be aware that legitimate fund managers cannot time the market. That means that they cannot buy at the bottom, nor sell at the top. Neither can you. Well, maybe once in your life, but that's about it. I always tell my clients that after I buy something, it will go down (because I didn't buy at the bottom) and after I sell something, it will go up (because I didn't sell at the top). But over the long term we do well enough, so far at least.

Follow the managers for a while before you invest, and start small if you do invest. You need to see whether they live up to their claims. If you are considering a boutique fund manager (who serves only accredited investors) make sure he has the bulk of his net worth invested in his own fund. If he doesn't eat his own cooking, why should you? Don't take his word for it - get a statement of his holdings from the fund administrator. Look at his background. Where did he get his money from? If he earned it from investing, that's a good sign. If he married into a rich family or inherited the money, maybe not. This all sounds like a lot of due diligence - and it is. The good managers will have no problems complying and will be happy to share their story. But there are other kinds of people around and this type of investigation will help weed them out.

Learnt something once again from d.o.g. Thanks! Great way to summarize REITs investing.

TS is very humble. Even though with an O level Cert, I noticed that the grammatical mistakes made in your posts are very minor. It shows alot about your character and success. Only other forumer whom writes similarly is RBM who is also very successful in life. Respects to your humbleness.