Hello, my name is Ivan. I am a financial consultant, blogger and author. I help individuals achieve financial freedom through a non-linear wealth accumulation process. Get Weekly financial tips for your financial freedom.
Just google “Astrea V Bond”, you can see that it has already been discussed by many financial bloggers. Many expressed their enthusiasm for the new launch. You can take a look at the short video clip to have a grasp of it.
Astrea V Private Equity Bonds - YouTube
There was a similar issue last year, Astrea IV Bond, which was 7.4 times oversubscribed. Wow…
I guess the excitement is due to the reason that many people tried to apply the bond last year but couldn’t get allocated, and our eyes tend to light up when we see the things we cannot get.
It is often said that “be greedy when others are fearful, be fearful when others are greedy.” Well, it is common sense, but not common practice. We all think that we make rational decisions, but most of the time, people are just making herding behaviours.
In Daniel Kahneman’s famous book “Thinking Fast and Slow”, he described that we have two thinking systems:
An instinctive and emotional System 1 and
A deliberative and logical System 2.
With more than a decade of low-interest rate environment, investors are hungry for yield. In the context of Singapore, the property cooling measure forced many investors sitting on the sideline with cash. What do they do with their money? Chasing yield.
The sport of “chasing-yield” often brings up an adrenaline rush. With so much information overload on the internet, your System 2 will shut down and your System 1 probably starts to pay attention to these words: “Temasek”, “3.85% interest” and “Oversubscribed”. And that is enough to get a yield-seeker excited.
The purpose of this article is to re-activate your System 2 so you can make some rational decisions.
There are three classes of Astrea V bond. In this article, I will mainly talk about the A-1 class which is offered to the retail investors. I reckon the professional investors have done their homework.
#1. Is this bond guaranteed by Temasek Holdings?
The short answer is NO.
The issuer of Astrea V is a subsidiary of Temasek Holdings (Astrea V Pte Ltd) and not Temasek Holdings. That makes a lot of difference. Granted that Temasek has its own reputation to protect, but it is a product with no guarantee in the first place, which is clearly stated in the first page of the prospectus.
Source: Astrea V Bond Prospectus
To draw a comparison, you can take a look at Temasek T2023 Bond, which was really guaranteed by Temasek.
I recall when people bought Hyflux bond last time, many also mistakenly believed that Temasek had skin in the game.
If you think about it, a bond is similar to a single premium endowment plan in nature. But endowment plans are guaranteed by the insurance company and protected by the Policy Owner Protection Scheme. Examples of such products are
I will not be surprised that the underlying instruments for the endowment plans are such bond instruments.
#2. Isn’t it good to diversify into Private Equities (PE)?
The Astrea V PE Bonds are asset-backed securities backed by cash flows from a US$1.3 billion portfolio of investments in 38 PE Funds, as described in the Prospectus.
But cash flow is projected future income, not an asset which I already have. Would you like to own the projected rental income from a real estate investment or a real estate itself?
Yes, Astrea V claims to be “the world’s first private equity bond with a tranche aimed at retail investors”. But if you were to invest in bonds, aren’t you a conservative investor and you want to invest in conservative instruments. Is there a need for you to venture into private equity in the first place?
You need to understand PE funds are not available for retail investors are for a reason. Institutions or accredited investors are sophisticated investors, PE is a good way for them to diversify their stocks and bonds portfolio and obtain non-correlated returns, but it is seldom their core holdings.
Private equity investments are unpredictable in nature and the amount and timing of cash flow are uncertain. That is why big players are probably only willing to invest 5% to 10% into PE in their portfolio.
But if you are going to invest your retirement fund, you probably need to think twice.
#3. Isn’t 3.8% attractive yield with an A+ rated bond?
Astrea V is expected to be rated A+ (sf) by S&P, calling it a “very strong” credit rating, and 3.8% headline yield looks very satisfactory to some people.
But if you go back to our previous 2 points, there is no guarantor and your underlying are merely cash flow from PE funds. you need to ask yourself if your risks are well compensated.
People somehow treat this kind of offer as Godsent, and they forget all these are just business and not a charity act. You are essentially lending money to PE companies to run their business. Therefore, the PE fund will try to pay you as low interest as possible. If there is a crowd of people queueing to buy their bonds, why should they offer you a higher interest?
I talked about this in my discussion about Singapore Savings Bond in December 2018. I predicted that the interest will be lower in 2019 due to high demand. True enough, the 10-year average interest dropped from 2.45% to 2.16% now.
The retail offer of Astrea IV A1 issued last year was 4.35% the latest Astrea V A1 only offers you a 3.85% interest. That is unacceptable to me, given the much higher Sibor rate today.
Why do I say so? Because most Singaporeans have borrowed a lot for their properties, and the Sibor rate determines your funding cost.
On one hand, you pay interest for your mortgage loan; on the other hand, you get the interest from your Income Generate Assets such as Astrea V PE Bond. Shouldn’t you find the financial instruments that pay you higher return when your funding cost is higher?
When you invest in bonds, you need to understand a basis of finance which is the time value of money. Further money is generally worth less than the money today.
Don’t forget Astrea V is a 10 years bond, even if there is a high chance that it may be redeemed in 5 years (Mandatory Call). Anything can happen in 10 years’ time. I am not saying that the bond will default, but what is the chance for the interest rate to hike another 2% to 3%? Can your investment return cover your funding cost?
I want to share with you two charts. The first chart is Astrea IV A1 Bond price (Retail class), the second chart is Astrea IV A2 class (mostly professional investors). Do you see any difference?
When a retail investor looks at the bond, he only looks at the headline yield, which was 4.35%. But when you pay $106.2 (the latest price) for a $100 bond, your real yield is only 3.465%.
You may notice someone event paid $108 for this bond.
Astrea IV A1 Retail Class Price Performance (Source: Bondsupermart)
Astrea IV A2 Class Price Performance (Source: Bondsupermart)
#5. Isn’t it a good sign that these bonds oversubscribed?
I think what really got people excited was that Astrea IV was 7.4 times oversubscribed. That may have even surprised the issuer. That is why the new tranche offers a lower yield (because the latest Astrea IV price in the chart above shows that people are already very happy with 3.465% yield)
I am not saying Astrea bond will become another Hyflux bond. My point is that the level of oversubscription today has little relation to the future of the financial product. People choose what they are familiar with or what their friends are talking about. Bitcoins, technology stocks are perfect examples.
They made money for many people and burned a lot of investors too.
Parting thoughts: diversification is the ultimate solution
The single premium endowment plan has gained popularity over the recent years. With the successful launch of NTUC Income’s Capital Plus and China Taiping’s i-Save, Aviva decides to jump on the bandwagon by offering a similar three-year endowment plan called MySecureSaver. The plan offers a 2.25% Guaranteed Interest per year for 3 years, which is higher than banks’ fixed deposit rates and Singapore Savings Bond (SSB)‘s interest.
What is MySecureSaver?
Aviva’s MySecureSaver is a single premium, non-participating savings plan. It means all returns are guaranteed. The plan offers:
Guaranteed maturity yield – 2.25% over 3 years.
Capital guarantee – from the start of the 3rd policy year.
Guaranteed issuance without the need for medical check-ups – hassle-free application
Death Benefit – pays out 101% of your single premium upon your death
How does MySecureSaver work?
Suppose you want to save for the down payment of a new home in three years’ time and you don’t want to invest in the stock markets amidst US-China Trade War.
You will receive $213,920 for a $200,000 savings.
How can you buy this plan?
Unlike other single premium plans which you can only use cash. You can use either of the following to fund the plan.
To most people, the US-China Trade War is a disaster. If you believe in the mainstream media, the trade war is a lose-lose situation. Stock market crashes, economic downturns and next financial crises are going to erode your wealth. But for a smart investor, it is a golden opportunity. Volatility shakes off weak hands and leaves money on the table for you to take.
Believing the US and China trade war will end soon in an amicable manner is merely naive. I have highlighted during the so-called Trade War truce that it is not the end of the war, but a window for us to prepare for a more brutal battle.
To sail in this rough water, you need to keep these three principles in mind when you invest during this period of time.
Focus on your financial goals, not the market
Winning by not losing
Beware of expectation mismatch
#1. Focus on your financial goals, not the market
Beating yourself up with the performance of the stock market can be a painful thing.
When the market was down in December 2018, you may have thought, “Gosh, I’d better stop investing, the world is collapsing!”
When the market had a 10% rally over the past few months, you may have thought, “Hmm, why didn’t my portfolio go up as quickly as the market?” or “If I had bought this and that stock, I could have made so much.”
When Donald Trump snapped his finger last week with additional tariffs and the Huawei ban, the market declined rapidly. You may have cried, “Again? I thought it was over!”
The thing is that the roller coaster ride of the stock market had little to do with you. You are not an investment professional or someone who depends on trading to make a living. Let them figure about what to do next. You should just enjoy your life.
Look at the chart below. If Warren Buffett compared his stock holdings (represented by the share price of Berkshire Hathaway BRK/B in white) with the S&P 500 (in orange), he would have a heart attack. Do you know Warren Buffett has underperformed the S&P 500 by 12% in the past 6 months?
My point is, as I titled it in my previous investor’s updates, “investing is a marathon, not a sprint”. When you invest in a long-term financial goal, the biggest risk is not the volatility of stock markets, but your inability to reach your financial goals.
When you invest for the long term, you take responsibility for your own investment decisions. Whether you are right or wrong, it is a learning process and your investment outcome will improve over the years.
When you just hold investments without knowing why, you are relying on other people’s decisions. Whether you make money or lose money, it is due to luck and your result is temporary. There is no certainty that your investments can help you achieve your long term financial goals.
#2. Winning by not losing
In a period like now, you need to worry if you choose a buy and hold strategy. When you decide that you are going to sit there and let the market and time do the work, you need to be prepared for big losses over a very long period of time.
The trade war is not something new. The last “trade war” was between the G5 nations (US, UK, Germany, France and Japan) and ended with the Plaza Accord in 1985. Japan was the biggest loser and the stock market of this 2nd largest world economy (at that time) had a “lost decade”.
Top up on the second crash (double down, the market always comes back).
Hold for the third crash (run out of ammo).
Sell all when the market is at the bottom (“this doesn’t work, I will try something else”).
To make money in the stock market, you need to do two things, buy and sell. Most people only focus on buy and never pay attention to sell.
Win small and lose big, that is why most people fail in investing.
The key to investing is not to be right all the time, but to lose less money when you are wrong. – Ivan Guan
#3. Beware of expectation mismatch
Most people think they make rational investment decisions, but in this article, I explained that the information you rely on is often biased. You may have an ideology of certain investment outcomes, but you seldom get what you wish for.
In Singapore, you read the Wall Street Journal and Bloomberg news and you quote investment research from the US based on US investors. That is fine since the US has the most developed financial markets, but when someone told you that, based on some US research, nobody can beat the market and you can make 10% return by just doing passive investing through ETFs, you’ve got to dive in deeper.
It may be hard for you to understand, but the fundamental reason for the multi-decade bull run of the US stock market was due to the US deficit. Yes, the reason that they claimed to start the trade war.
It is too big a topic to explain in this article, but to put it in an overly simplified way, after the collapse of the Bretton Woods gold standard in the early 1970s, the United States struck a deal with Saudi Arabia to standardize oil prices in dollar terms. The petrodollar system elevated the US dollar to the world’s reserve currency. Through this status, the US enjoyed persistent trade deficits and became the global economic hegemony.
The Plaza Accord which I just mentioned earlier was enforcement for this status. The trade war is a partially a currency war.
In layman’s terms, a dominated position of the US dollar led to a strong stock market.
Does the Singapore dollar have the same status as the US dollar? Is a sluggish Singapore stock market over the past decade due to the individual companies or the macro environment? Is there any chance for the Straits Times Index to performance the same as the S&P 500 in the long run?
If you understand this, you can shift your focus to asset allocation instead of stock picking. Invest globally and watch the money flow is the key for Asian investors. One of the key indicators of money flow is currency.
As you can see from the charts below, the Chinese renminbi was appreciating against the US dollar from Jan to mid-April. At the same time. The China stock market has outperformed US stock markets by nearly 20%.
Chinese Yuan vs US Dollar (Source: Bloomberg)
China Stock Market vs the US Stock Market (Source: Bloomberg)
The situation quickly turned since mid-April, with the US dollar rapidly strengthening against not only the Renminbi but to most currencies. As a result, the China stock market took a plunge and the money is flowing back to US stock markets.
Many people blamed the recent stock market crash on the US President Trump’s tweet that the US was slamming a 25% tariff to Chinese goods. But from the chart, you can tell that the market already moved before the tweet.
It is the company who determines the value of its stock, but it is the fund flow that determines the price of a stock. – Ivan Guan
Universal life insurance is one of the best solutions for legacy planning and retirement planning, It provides guaranteed returns and liquidity in a volatile time like now.
But universal life insurance is a complexed and highly customizable product too. That is why it is often poorly advised, if not mis-sold.
As a licensed independent adviser, I helped clients compare and analyse universal life insurance solutions. In this article, I will share with you:
How does universal life insurance work?
How does it help ensure your assets well preserved and well managed?
What are the common pitfalls of buying universal life insurance?
How does premium financing work and why it is not suitable most of the time?
If you are considering to buy universal life insurance or you already have one, you should continue to read…
What is universal life insurance
If you have some significant sum of savings and want to leave a legacy for your family and children, you are facing a dilemma.
The more you spend your savings, the less you leave behind. There are some traditional options though:
Buy a term life insurance and invest the rest (BTIR): but you have to handle the stock market volatility and high term insurance costs in the long run
Buy a whole life insurance: your money is locked in for decades and you cannot change your sum assured and have no flexibility to utilize your money. At the same time, the return from a whole life policy is often mediocre.
That is why the universal life insurance was born (originated from the United State) to kill two birds with one stone.
Universal Life Insurance made its name with high net-worth individuals as it encompasses the flexibility of both whole life and term life insurance. It
Build up cash value like whole life insurance
Enjoy the adjustable premiums of term life insurance
Provides greater flexibility in premium payments
Earn a higher growth rate of cash values.
In a very simplified form, traditional universal life insurance be can explained using the diagram below.
Inflow: You can contribute premium and earn a “crediting interest” from the insurer.
Outflow: sales commission, cost of insurance, administrative expenses
Withdrawal: You can make partial withdraw to fund your retirement needs or you can take a policy loan for emergency usage
Legacy: your family will receive a lump sum in the event of death or terminal illness.
As you can see, a universal life policy can grow your wealth and preserve your legacy at the same time, for several reasons
Gifting more than what you have: you can spend the policy value and not worry that you do not leave enough for your children. As they will get the insurance payout eventually
Yield enhancement: as the crediting rate offered by most insurers are generally higher than the bank (currently about 4% per year), your money works harder for you
Flexibility to withdraw: Subject to the policy’s terms and conditions, you can spend (partial withdrawal) and save more (top up) during the entire policy term
Worry-free investments: most traditional universal life insurance products invest 100% in bonds. That means you are not subjected to the stock market volatilities. There is no bonus declaration, only interest credits.
Pass down the legacy: because most universal life insurance products allow you to change the life assured, it means you can pass down the universal life policy to your next generation. In other words, your policy can outlive you.
3 Types of Universal Life Insurance products
Due to the popularity of the product, there are some variations of universal life insurance. I will discuss them in details next time. Simply leave your email below to receive the next update.
I will just summarize them as below. The main differences are how the returns are determined.
Traditional Universal Life Insurance: the underlying investment is 100% in bonds. The insurer decides the asset allocations. Return is based on crediting interest.
Indexed Universal Life Insurance: returns are pegged to financial indexes such as stock, bond or interest rate index. An index example can be the S&P 500 index or Heng Seng Index
Variable Universal Life Insurance: you have full control over the investment allocation. The insurer provides the insurance structure and coverage.
Buying universal life insurance with a premium financing
People who have accumulated substantial wealth understand the power of leverage. You can borrow money to buy universal life insurance. It is called “premium financing”.
It is a similar arrangement with the mortgage loan on a property. You collateralize your insurance policy to your bank, pay a 30% premium as the down payment and continue to service the remaining 70% premium loan and interest.
Premium financing can be an option if you need a substantial amount of insurance without much cash on hand, or if you can invest your money with a higher return in other instruments.
However, you need to understand that there is no “free insurance”, and most time it is a bad decision.
Underestimate the interest rate risks
With more than a decade of declining interest rate environment, many people have no idea how high the interest rate can be.
Most premium financings are arranged as a variable interest basis, the bank charges you Libor Rate + 1% interest rate or a “board rate”. In a low-interest rate environment, it may work, but when the interest rate started to hike, this will work against you. Just take a look at how fast the Libor rate has climbed in the past 2 years.
With Libor hovering around 2.73% now, you are paying nearly 4% loan interest to the bank. Since typical universal life insurance in the market only gives you about 4% return (based on crediting rate), it is hardly enough to cover the interest you pay to the bank, after deducting the insurance costs.
The other less known fact is that if the interest rate on the loan increases rapidly or the policy’s earnings fail to meet expectations, the bank may require you to pay off the entire loan.
Premium financing is counter-productive for legacy planning
Although premium financing has similarity with a mortgage loan, it doesn’t always work the same. Unlike property investment where you can pass down the property to your heir with a new loan, your universal life insurance proceeds have to be used to settle the outstanding loan with the bank first before the rest can be passed down to your family.
As a result, what your family will receive can be substantially less than what you have planned for them.
Most premium financings are arranged on a “recourse” basis. It means the bank will go after your other assets should you not be able to pay off the loan. As the insurance will normally break even after 15 years due to surrender charge, this could potentially put all your financial planning at risk.
Premium financing is especially detrimental to small business owners who are typically already heavily leveraged. Since the policy is assigned to the bank, there is no credit protection. Your insurance proceeds have to be used to settle your business debts first and there may be nothing left for your heirs.
People like to consider universal life insurance with premium financing because they associate it with property investment. But I have discussed before that property investors use optimal leverage, not just leverage.
If you borrow money to buy a property for investment, your interest expense can be used as tax deductible. However, the interest you pay for premium financing loans typically not a tax deductible. And tax has great implication if you are a high net worth individual.
What are the universal life insurance products in Singapore.
When it comes to universal life, you should choose it from the most reputable insurers. Because you need to entrust your legacy to this company for decades. I won’t recommend universal life insurance from a smaller insurer:
Earning stability – you are relying on the insurer’s ability to pay you the crediting interest that they promised you. Multi-national insurers with a long history of producing universal life insurance have a higher chance to weather the economic storms.
Cost of insurance – unknown to many people, the cost of insurance are not guaranteed in universal life insurance products. In bad times, some insurer may adopt dodgy practice to raise the cost of insurance unnecessarily. A reputable insurer is unlikely to do so.
Below are the universal life insurance products that are worth a look in Singapore
Traditional Universal life insurance
AIA Platinum Legacy
HSBC Legacy / Legacy Ultra
Transamerica Universal Life Alpha
Indexed Universal Life Insurance
Manulife Signature Index Universal Life
Variable Universal Life Insurance
Swiss Life Alpha
Swiss Life Alpha Plus
How can you buy a universal life insurance
Due to the complex nature of the product, you can’t buy universal life insurance directly from an insurer. The insurer wants to make sure you understanding what you are getting into.
There are three main channels for universal life insurance
An insurance agent
An independent financial adviser
It is not difficult to see that since an insurance agent only represents one insurer, his or her recommendation could potentially be biased.
A bank typically has a special agreement with one or two insurers only and they tend to push the products from the insurers who offer a higher incentive.
At the same time, they will always “advise” you to buy the insurance with a premium financing so they can earn both the commission and loan interest. That is why universal life is always mis-sold as an investment product and not a legacy product.
Therefore, it is a no-brainer to go to a licensed independent financial adviser for universal life insurance product advice.
As a licensed financial adviser, I help my clients with holistic financial planning and propose suitable solutions. If you want to seek independent advice on universal life insurance products, you can request a non-obligatory discovery meeting with me using the form below.
If you want to invest for retirement, you are facing an uphill task. Most investment strategies will never help you reach your retirement goals. The reason is simple, they are investment strategies, not retirement strategies. You need to understand that investing for wealth and investing for retirement are not the same thing.
I wish I could tell you that you can just leave your money in pension funds like CPF Life, or put your money in some low-cost Exchange Traded Funds (ETFs) and live happily ever after, but it is often not the case.
To achieve a comfortable through investment, you need an investment framework that can generate sustainable retirement income.
Before I start, I will share with you a story.
Many years ago, in a far-away country, a farmer offended the King. The King sentenced the farmer to death.
The farmer pleaded for the King, “give me five years and I can teach your horse to talk”.
The King liked to own unusual things and a talking horse would certainly be interesting, so he said “yes”.
On his way out, the farmer’s friend said to him “Why did you make such a rash promise? You know no one has ever taught a horse to talk.”
The farmer replied: “Sometime before the end of five years:
The King might change his mind and pardon me.
The King might forget that he sentenced me to death.
The King might die.
I might die.
And who knows, the horse may be able to talk by then…
Given enough time, any investment strategy will work
Murphy’s law says when given enough time, “whatever can happen will happen.”
Now, if I were to tell you that there is no financial intelligence required to invest and you can generate a lifetime passive income for your retirement without doing anything, you might call me a liar outright.
But very often, people choose to subscribe to such claims because they hope it is true. Think about some of the popular investment theses:
Buying an ETF or index fund and hold for 30 years
Rely on a Real Estate Investment Trusts portfolio for your retirement
Buy blue chip stocks every time the prices go down and hold them for life
Buy a private property to beat inflation
I am not saying these investment strategies won’t work, but if your investment objective is for your retirement, these strategies have to be subject to the test of time.
Some of them will work out, some will not.
Since your retirement will only happen in the next 10 to 20 years and last another 30 over years, you are really betting your retirement on luck.
The problem is if you put your faith into one retirement investment strategy and it doesn’t work out, you can’t turn the clock back, your retirement is ruined.
Anything that can go wrong will go wrong
After spending more than a decade talking to people about retirement planning, I know that people tend to be over-optimistic about their retirement options.
One of the greatest risks of retirement planning is overconfidence. Believing you can accurately predict the future based on what you see today. – Ivan Guan
A typical example is a popular belief that CPF will always pay a “guaranteed interest rate” and you should lock all your retirement savings to CPF. That fact is that just because CPF pays a stable interest rate in the past decade, it didn’t always pay the same interest (you can check historical CPF interest rate here), and just like any investment scheme, it shouldn’t.
Another example is the recent worship of Singapore’s Real Estate Investment Trusts. Just because it was the best-performed sector in Singapore stock markets, you can’t over-rely on REITs for retirement. You need to understand the strong performance of REITs was just a reflection of the decade long low-interest-rate environment.
Sometimes people are carried away by what is hot in the market. Just last year, a few my pre-retiree clients talked about quitting their job and become a Uber driver to live a “financial freedom life”, and just with a blink of eyes, Uber said goodbye to the region.
We can talk about these on and on, Bitcoins, sell HDB and buy two condos, the next tech giant, etc.
After all, who can guarantee a horse can’t talk in 5 years’ time?
Money is a social science, not a physical science
If you are honest to yourself, you know that you cannot predict the future, but when people talk about an investment strategy, they often talk about the future with great certainty.
How often did you hear people using Warren Buffett’s name to talk about “value investing” for your retirement? His holding company, Berkshire Hathaway, has seen its share price grow from $19 in 1964 to $314,100 today.
That may be impressive, but there is only one Warren Buffett in the world and it is highly unlikely for you to be the next one. Warren Buffett may be a smart person but his investment success was in the backdrop of the Post–World War II economic expansion.
You can model value investing mathematically but the actual outcomes are highly dependent upon what will happen in the next 30 years and the behaviour of the humans involved. That makes the models far less predictive.
Your retirement outcome is not only determined by your investment strategy
ETF providers always use long-dated “back-tested” data to show that you always make money in the long run. It was claimed that the US stock markets have returned about an average of 9% a year over the past 150 years.
The problem is that you won’t be retired for 150 years.
Even if you were using buy-and-hold ETF strategies in the past (which was not possible), the average rate of market return you would have historically experienced over any single 30-year retirement could have been less than 3% per year or more than 10%.
And that means with the same investment strategy, your 30 years’ investment return can range from 242% to 1,745%.
In another word, your investment return is not determined by the investment strategy, but largely depends on the year you retire!
A Kueh Lapis approach is the solution
Financial freedom and early retirement (FIRE) is a popular topic in recent years and a lot of authors and bloggers are there telling you that investing for retirement is an effortless and no-brainer process. You can choose to believe that.
But if you share the same idea that there is no free lunch in the financial world, there is something we can do.
In my latest book “FIRE Your Retirement”, I shared my model of investing for retirement, which I call “Kueh Lapis Income Machine”.
For those who don’t know, Kue lapis is a traditional multi-layer cake in Indonesia. In Indonesian language lapis means “layers”.
I was inspired when I had a kueh lapis once and one layer of the cake was burnt. But it didn’t affect the whole cake and it still tasted good.
The concept of “Kueh Lapis Income Machine” is that instead of focusing on the goal of a “million-dollars-retirement”, you should focus on retirement income instead. And your retirement income should be breakdown to many tiers just like a Kueh Lapis cake.
This will change the way you look at investment.
You stop comparing your investment portfolio with the index
You stop chasing the next big trading idea
You stop leaving your retirement outcome to luck
Instead, your investment is designed for your retirement and worked for your retirement.
To do so, you need to build a portfolio of Income Generating Assets (IGAs). When I say portfolio, it means each asset delivers investment return independently.
Investing for retirement is a marathon, not a sprint. Don’t give up if you feel that you are behind others. Don’t brag if you have a jump start. There is a long way in front of all of us.
You need a multi-asset multi-strategy investment framework to generate a sustainable retirement income in the long run. As a licensed independent adviser, I helped many clients build IGA portfolios like below.
If you like my approach of investing for retirement, contact me using the form below for a non-obligatory retirement discovery meeting.
If you are a global investor, you can’t ignore China stock markets today, especially China A Shares.
The irony is that when the US stock market made a 1% movement, it will be the headline news the next day in the Straits Times. But when China’s stock market made a 5.6% return in a single day on Feb 25, 2019, the report is largely muted.
Unlike the glorious day in earlier 2000, China stock is an unloved market. Most Singaporeans don’t invest in China stocks. To a certain extent, some Singapore investors carry a hatred to China stocks. Ask those people who stay in Singapore markets for long, they can describe the boom and doom of S-Chips vividly (S chips refer to the Chinese companies listed on the Singapore Exchange). And they will tell you to stay away from China stocks.
This is how retail investors to fail. They fall in love with the stocks that made money (e.g. US tech stocks) and hold grudge against what failed them. Stocks are neutral, humans are emotional. This explains why China Life and China Taiping insurance face uphill tasks to promote their much superior products in Singapore.
In fact, when I advised my clients to buy into China A shares since Nov 2018, many gave it a shrug and some resisted. In my recent investor’s letter to my clients, I quoted Jesse Livermore, Legendary American Trader,
There is only one side of the market and it is not the bull side or the bear side, but the right side.
To explain the rally is a big topic, I will dedicate another post for this. But in a nutshell, all stars aligned basing on my Global Momentum Compass (GMC).
Fundamental: Comparing to US stocks which are at all-time high, China stocks are considered “value bargain” by global institutional investors
Technical: the 5.6% rally on February 25 broke the one-year moving average line of China’s stock market. This will attract the interest of momentum traders, both human and robots.
But to join the global trade, China has to open the capital markets. So China had a back door which was Hong Kong. Most investors seeking exposure to China used to get access to China in Hong Kong stock exchange via H-Shares.
In Chinese, there is a saying “肥水不留外人田” (keep the goodies within the family). So if the S-chips listed in Singapore have questionable corporate governance or profitability, it should be well expected.
Even the H-Shares are dominated by financial institutions and property developers.
Onshore markets like the Shanghai and Shenzhen stock exchanges offer a much larger universe of Chinese companies. China A shares represent the domestic market and are retail focused. You may be already familiar with some of the names such as Kweichow Moutai, Mongolia Yili, Midea and Shanghai International Airport.
#1. Buying China A shares through ETF
The easiest way to get access to the China market is through a fund. There are two popular indices to track the China stock markets
FTSE China A50 Index
China A50 index was foreign institutional investor’s darling under the old Qualified Foreign Institutional Investor (QFII) scheme. It comprises the largest 50 A Share companies listed on the Shanghai and Shenzhen stock exchanges.
Unknown to many people, Singapore does have a China A50 ETF namely XT China50 US$ ETF, which was issued by Deutsche Bank and Listed since on SGX Mainboard since 19 February 2009. Unfortunately, due to lack of interest from the retail market, it was unpopular and there are days with zero transaction.
On contrary, the interest from professional investors in China market is extremely hot and you may be surprised to know the only offshore Futures (for now) on China A-Share Market in the world is listed in Singapore. Every day, Billions of dollars exchanged hands in Singapore exchange for SGX FTSE China A50 Futures contract. It is also one of the rare instruments which you can use to “short” the China stock markets.
CSI 300 China-A Shares Index
CIS 300 is compiled by the China Securities Index Company. It is an index to track the 300 largest and most liquid Chinese shares traded on the Shanghai and Shenzhen exchanges. There are quite a lot of options for this.
In the course of my work, I realize many people have these common misconceptions:
I don’t want to take the risk of investing in stocks, I will just buy REITs
REITs are safe
It is ok even if the REIT price drops, I can still collect dividends
The lower a REIT’s price is, the better, so my dividend yield is higher
Like most investment thesis online, these claims are half-true. Can you really rely on REITs for your retirement income?
REIT investing was not always a common topic. But people are buying REITs today as if it is a risk-free asset. It is understandable because Singaporeans value property investment and always consider owning a property a safety net.
However, most people have no idea what they are getting into. If you think because REITs are backed by physical properties and you have little downside risks, you can’t be more wrong.
REIT volatility affects your holding power in a down market
If you refer to the chart below, you can see that during the 2008 Global Financial Crisis, Singapore’s REITs market (represented by FTSE ST Real Estate Investment Trusts Index), dropped 70%. Yes, you hear that correctly, it dropped that much. And till today, it has not fully recovered.
Even a moderate correction is probably hard to stomach. Singapore REITs dropped 19% in 2015 and 12% in 2017.
It is not that REITs, like any other stock investment, will not recover from a market downturn. The issue is that if you are not mentally or strategically prepared for such risk, you will likely suffer a great loss by selling at the right bottom.
REITs are essentially a collective investment scheme. You can think about it as a group of investors pooling money together and invest in a portfolio of income-generating real estate assets such as:
Shopping Center – Retail REITs
Hotel – Hospitality REITs
Factories – Industrial REITs
Hospital – Healthcare REITs
Office – Office REITs
The benefit of REIT investing is that with a small capital, you can enjoy the rental income as if you were the landlord of multi-million dollar commercial properties.
Unlikely investing in private properties, you don’t even have to collect rental or fix the light bulb for your tenants. REITs are managed by professionals, all you need to do is to buy the shares and wait to collect dividends.
The good news is that REITs in Singapore are well-regulated. The REIT manager cannot bully you just because you are a small time investor. They also have to distribute at least 90% of the rental income to you as dividends.
Sometimes people talk about REITs as if it is a new discovery. REITs investing has a long history and what we are familiar with is just the tip of an iceberg.
The US had legislated REITs since the 1960s to give small investors access to income-producing real estate. The chart blow shows that there are all sorts of REITs other than the one we see here in Singapore.
The first REIT listed on the Singapore stock exchange was CapitaMall Trust in July 2002. But the industry was only flourished in the past decade. Singapore now has the most vibrant REITs market in Asia after Japan REITs (J REITs).
If you google, you will see more praise of Singapore REITs over Singapore stocks. You are told that
Singapore REITs outperformed Straits Times Index
Whenever the REIT’s share price drops, you should buy more
You should dollar-cost-averaging the purchase of REITs to build a retirement portfolio
I reviewed many clients’ own stock holdings, many people have 80% of their holdings in REITs.
I am not saying REITs is no good, but the overwhelming worship of this asset class made me worried. You should not over reply REITs for income, especially retirement income. I will explain to you why.
The popularity of REITs is a product of Financial Repression
REITs investing is popular simply because it made money in the recent past. But we need to understand the reason before jumping in. It was in the backdrop of a decade of declining interest rate environment globally.
In the financial world, there is a term called “Financial Repression”. To put it simply, Financial Repression means the government’s policy forced the investor to take unnecessary risks by buying riskier investment to achieve the same return.
Finding low risked income was more challenging than ever. The chart below shows that before 2009, you can easily find 4% income from high-grade government or corporate bonds. But in the past 10 years, if you want any bonds with more than 4% interest, you have to buy high yield bond (a.k.a. junk bonds with higher risks).
If you are someone who needs to invest for retirement income but is not comfortable to buy traditional stocks, you had no choice but to find alternative solutions.
At the same time, a lower interest rate reduces the cost of borrowing, which is in favour of fixed assets such as property investments. Real Estate Investment Trusts were the perfect instruments at the right time.
This is also the exact reason why Bitcoin had an eye-popping run last year, because the world was flooded with money but the financial market ran out of assets to buy.
But when you look forward to the future, the global macro environment has radically changed. The interest rate hike is inevitable (even though it may be delayed) and property valuations are at a historically high level. You need to start pondering how much of the runway for REITs is left.
I am not saying that REITs and property markets are at the verge of a crash. But the past stellar performance may not be repeated in the coming few years.
REITs face a double whammy in a downturn economy
If you own a private property and paying mortgage loans, you can use other sources of income (such as your salary) to continue servicing the loan even if your property is vacant. But it is not so simple for REITs.
Since a REIT’s only source of income is rental and they have to pay at least 90% of their income to unitholders (some even pay 100%), it has a very little buffer in bad times (no emergency cash).
When the market is good, everything looks ok. But when the economy is bad, the rental income of REITs can be severely affected (will reduction of tourists cause loss of income for hospitality REITs? Of course). At the same time, a higher interest rate means higher expenses. It is a double whammy to a REIT.
When the rental income is not sufficient to cover the expenses and loan payment, REITs managers may have to do a few things which may be detrimental to you as a unitholder.
Issue rights: dilute share price
Issue new bond or perpetual securities: increase the debt
Sell assets: potential at a distressed price
These phenomena are either already happening or will happen in the near future.
I was always puzzled by the fact that Singapore’s REITs were consistently paying an average 5% yield while the yield is only 3% in other developed REITs markets. I have asked many REITs gurus but none of them can give me a satisfying answer.
So my guess (for now) is that the market views Singapore REITs with a greater systematic risk and S-REITs have to compensate the investors with a higher return.
In a nutshell, REITs can perform very well in an environment with a super low-interest rate and flood of liquidities. But it will face great challenges when the situation is reversed.
REIT is an important component of your retirement portfolio but you should not over-relying on it just because it has performed well. You have many years to come in your retirement, but the return of REITs is cyclical and depends on the global macro environment.
Half of the richest men in Singapore are in real estate business
However, investing in property does not equal to making money. Ask our previous generations, many lost their life savings during the Asian Financial Crisis in the 1990s. It took 14 years before they get back on their feet.
It took 14 years for Singapore’s property market to recover from the Asian Financial Crisis. Source: data.gov.sg
The truth is, if you want to invest in property, you need to take it as a serious business. If you are new to property investment, you need a good investment course to fast-track your learning.
Patrick is no stranger in the investment world, be it in the real estate or securities business. I’ve heard of Patrick Liew since he founded Success Resources. Besides his own property investment, he built and listed two companies, Global Brand Success Resources on the Australia Stock Exchange and HSR Global Ltd on SGX.
As reported in the Straits Times, He has won numerous awards including the Global Leader Award, Asia Pacific Entrepreneurship Award, and the Entrepreneur of the Year Award for Social Contributions.
Patrick Liew teaching in MAPIC class
MAPIC course is his flagship property investment educational program. Patrick named it because he believes property investment needs Mencius’s concept of opportune, i.e. ”天时地利人和”.
When it comes to investment, we must spend 90% of the time waiting and learning to take a punch at 10% of the time when the opportunities are right in front of us. – Ivan Guan
Frankly speaking, I attended the course with my arms folded at the beginning. After all, there is no shortage of advice or courses on property investment online with bogus claims.
But since Li Ka-Ching or Donald Trump has no interest in teaching me, I decided to give it a try.
MAPIC Property Investment Course
What I have got out of the MAPIC course is mind-blowing and I got my “ah-ha” moment. It gave me a new perspective of the concepts that I thought I know: leverage, OPM (Other People’s Money), negotiation, etc. I love Patrick’s fun and engaging way of teaching too.
Here are what I find useful from the MAPIC property investment course:
The bull’s eye model of evaluating an investment (applicable to both property and stocks)
Why “location, location, location” is not a meaningful factor for property investment
Why you need to be an “Investrepreneur”
How masterplan affects your property investment decisions and returns
How to make a ridiculous offer during negotiation
How to increase your property investment through re-design
What property can we get at $150K today
Which region should you pay attention if you want to invest in overseas property now
Unlike other property investment courses which say bye-bye after the course is over. MAPIC is a lifelong learning program. Since the first class in 2015, MAPIC has built a network of like-minded property investors and professionals such as lawyers, accountant, real estate agents that you can leverage on.
These professionals are not just some third-party vendors but former students from the previous MAPIC program. They provide FREE crash courses and consultation to help you dive into each topic (of course to help with their own business too). For example:
Fundamental of commercial properties investments in Singapore
How to work with architects to value add your property investment
How to own multiple properties using a company as an investment vehicle.
I have attended the commercial property investing course and it was an eye-opener.
Who shouldn’t attend the course
Having said these, I can see that not all the students benefit the same from this course. If you are the one who is the “just-tell-me-which-property-to-buy” type, or you hope that you don’t need to put in any hard work to be a successful investor, or you simply don’t have the desire to be rich and wealthy, this course is not suitable for you.
There are also students who find it hard to comprehend the examples because they doubt if they can do the same deal. I had the same feeling when I first read Donald Trump’s “The Art of The Deal”, it is just a necessary stage.
I’ve got this question a lot from my clients. Years of looking at the financial markets give me the confidence to say that there are always opportunities if you look globally.
Many Singaporeans like to invest property in Thailand, Philippines or even Vietnam and Myanmar because it is cheap. After attending MAPIC course, I realize that when it comes to property investment, we need to put our focus on countries with reputable regulators but in distress.
In my latest article about 2019’s financial market, I told you that there will be a credit crunch in the property market. It is not only happening in Singapore, but in Europe and probably in the US as well. When you equip yourself with the necessary knowledge about property investment, you will know what to look for.
It says “no action is required if you wish to start your payouts at age 70”, and netizens “misinterpreted” it as the CPF raised the CPF Life payout age from age 65 to 70 and caused a public outcry.
The truth is you can choose to start your monthly payouts at 65 or defer payouts anytime between 65 and 70. Age 70 is the latest that you can defer payout.
Although the straits times quoted “there may be some who are illiterate or who may not understand how the current scheme works”, I beg to defer. Most clients I met, including many affluent individuals, still have vague or misunderstanding of CPF Life and Retirement Sum scheme.
Firstly, it is an oversold concept (in my opinion) that CPF is the best place to earn a higher interest (many claims it is 4% which is not entirely true). A lot of people choose to top up CPF without budgeting and financial planning, and subsequently, claim that CPF locks their money.
Risk Budget – Essential for your investment success in 2019
2018 is a year of loss for nearly all investment asset classes. The chart below from JP Morgan shows that the best investment for 2018 is to put your money in your bank’s fixed deposit account.
There are a lot of talks that 2019 is going to be another bad year. And I am holding a lot of cash for the investment portfolio of my client’s and my own.
But this doesn’t mean that I am afraid or think 2019 is a year of disaster. While most people focus on “which investment can make money in 2019”, I share a similar view of the manager of Blackrock’s Dynamic High Income Fund, Michael Fredericks.
Only when you take care of your downside risk when the market is bad, you can stay on course when the market is good.
Trust your own approach: There is no shortage of risks today that could make any investor, even a portfolio manager, toss and turn at night. It is important to develop a systematic approach and balance the competing trade-offs between income and risk.
In my latest post of 5 outrageous market outlook for 2019. I talked about my bullish view on Gold price. And true enough, the gold rallied in the recent weeks despite stock market rebound.
When I shared that with my clients, many gave it a yawn. That is not surprising given no media hype of gold (yet) and the recent report of gold scam from The Gold Label (TGL). It was reported that “2,000 investors of about S$150 million were cheated”.
I just want to briefly touch on this as many readers asked. If you never heard of Hyflux Perpetual bond, it is good news for you (read this report from ChannelNewsAsia if you want to “Kaybo”).
There are many people in Singapore wanting to invest for yield. Because their eagerness, the financial institutions often took advantage of them. Most investors only look at the headline “yield”, without understanding what they are getting into.