Limit Supply of HDB Flats Please

It seems that people have been complaining over the lack of flats in Singapore. Many have called on the government to increase the supply of flats so as to reduce the waiting time for flats. Various blogs have also started to give their 2 cents on the matter. While it is easy to give in to populist sentiments, I think that we all should take 2 steps back and look at the issue.

The reason why HDB flats are so popular is this:

1. They are cheap (because of government grants and stuff)

2. They are expected to rise in value over the years and people can sell them at a profit.

These are the two main reasons I can think of on why HDB flats are so popular amongst Singaporeans and Singapore Permanent Residents.

If HDB flats are just affordable but are not expected to rise in value, I for one will not buy them as I will have trouble selling it later should I intend to upgrade to a bigger house.

It is thus very important current supply of HDB flats are not tweaked to cater to populist sentiments.

Instead of increasing the supply of HDB flats, I say that the current status quo should instead remain. 10 interested buyers to 1 flat is a very good ratio I must say.

That means that 9 buyers will have to be looking at the resale market or private property should they wish to purchase their own homes.

This will be good news for people who wish to sell their homes.

Can you imagine that if there is a supply of flats such that every buyer is able to get their flat of choice?

That would mean that there will be less people who will buy resale flats and that means we will all have problems selling our flats in the future! This will make HDB flats alot less attractive and will thus reduce the demand overtime.

Current policy guidelines should remain and the supply of flats should be tightly controlled for the greater good. This will help ensure that HDB resale prices remains high.

Even though it is possible to increase the supply of flats, this should not be done so to tilt the fine balance between supply and demand. Oversupply now will lead to problems further down the road.

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How to Calculate Your Networth

What is Networth?

In businesses, networth or book value of a company is obtained by adding up all the company's assets and subtracting it by the total liabilities. This is known as the networth of the company.

The same can be done for individuals to calculate their networth.

How to Calculate?

To calculate your networth, simply add up all your assets and subtract them by all your liabilites or debt as we commonly call it.

Why is this number important?

Tracking this number is a good way to see that you are building your wealth and increasing your assets. A person's networth should be increasing over time as their income increases.

My Personal Experience.

10 years ago when I was just 18 years old, my networth was only slightly over $1000. That was the total amount of money I had in my bank account. I had no other assets and no other liabilities.

During the 10 years, I have seen my bank account drop close to $0. After experiencing what it felt like to be "poor", I decided that I should never let that happen to me again.

Overtime, I begin to acquire assets like stocks. I also took on more liabilities as I had to purchase a house for my family. All in all, I roughly estimate my family's networth to be slightly above $500,000.

Observations about High Networth Individuals

There are certainly some common denominators when it comes to people of high networth. I think you will find that the most important thing about them is that they are FINANCIALLY SAVVY. In fact, Singapore has one of the highest concentrations of millionaires in the world and this is expected to rise.

They do know about their investments and they do know how to manage their money.

I would like to think that it is the financial education that this people get that helps them to grow their money.

But wait a minute! No school ever taught us financial education right?

You are correct!

Financial education is largely taught at home. Nowadays, I think financial education is obtained through reading of books and surfing of the internet. It is possible to become financially savvy simply by reading more from the internet and learning from the experiences of those who have walked the path.


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Unit Trust Fund Screener

There are thousands of unit trust funds out there, millions perhaps. How do you sift through the garbage to get to the gold?

We all know that it is simply impossible to go through every single fund factsheet to find out which are the best funds out there. Ask a financial adviser and he will probably tell you which funds he recommends and why.

But is there a better way to go about making such an investment decision?

How do you go about choosing which unit trust fund to invest into?

Today, I will let you all in to a little secret which few know about.

A Unit Trust Fund Screener

Lipper Leaders has a fund screener that allows one to screen a whole wide range of unit trust funds based on a few metrices. But before you go off to try it out, let me explain to you what this metrices are based upon.

Lipper Leaders screens funds based on 4 essential metrices. They are as follows:

1. Total Return. Total return denotes a fund that has superior returns when compared to a similar group of funds. This rating best suits investors who want the best historical returns without looking at risk. This measure however might not be sufficient for investors who want to avoid downside risk.

2. Consistent Return. This identifies a fund that has provided relatively consistent performance and risk adjusted returns when compared to a similar group of funds. This might be for investors who are concerned about consistent performance of the fund rather than total returns that the fund gives. Certain funds however will remain more volatile than other funds based on the market sector they are invested into.

3. Preservation. This identifies funds that have been able to preserve capital in a more superior manner in various types of market when compared with other funds in its asset class. This helps limit any downside risk that an investor does not wish to take.

4. Expense. This identifies funds that have managed to keep its expenses low relative to its peers. This is best for investors who want to minimise their total costs when choosing a fund.

But You Still Need to Consider This....

So I have shared with you a very superior unit trust fund screener that will actually help you make a more informed decision when it comes to choosing which funds to invest in. This works well even if you are choosing which funds to invest in for an investment linked plan that are sold by various insurance companies in Singapore.

A good way to test your insurance agent or financial adviser next time will be to ask them WHY they are recommending certain funds to you.

Many times, you will get the answer like"Oh..this fund reached a price of $5 over dollars in 2007. Now it is only at $3, the price is very cheap."

Such financial advice is lame and if anybody ever gives you such advice, RUN!

Past performance of a fund does not guarantee future performance of the fund.

This is what we also need to take into consideration when using the Lippers Leaders Fund Screener. Just because a fund is ranked 5 for all the ratings does not mean that it will give you stellar returns in the next few years. Rather, it just gives you a way to make a much more informed decision.

To Invest in Unit Trust Funds or Stocks?

Should one invest in a unit trust fund or should one invest in stocks? Yes, I know I have brought up another contentious issue and there will probably be no end to the debate.

Unit trust funds are known to charge fees and costs that many people say are not worthwhile. Lots of "experts" out there are thus advising the man on the street to invest in stocks directly so that they need not pay expensive charges that these unit trust funds charge.

Again, I at Sg Financial Freedom will like to take the stand and say that whether a person decides to invest in unit trust or stocks all depends on the person's situation.

A person who has no time to track his investments and has totally no clue about investment should perhaps invest his money in unit trusts rather than let his money sit in the bank and rot.

A person who is savvy in his investments will most probably not opt to invest in unit trusts if he is able to get decent returns from the stock market.

I will still like to think that since these fund managers are working at their investment jobs full time, we ought to give them some credit and it might not do us any harm to just invest a portion of our money for diversification purposes.

Afterall, if you invest your own money, you are your own fund manager. How certain are you that you can beat a person who does it as a 8 to 5 job full time while you might only have the time to monitor your stocks say 10% of your time?

Sometimes, it might also be necessary to invest into unit trusts so as to get exposure to certain markets like China or into the commodities sector. It might be difficult for an individual to buy into so many stocks which a China unit trust fund could probably do more efficiently and at a lower cost.

The author invests in both stocks and unit trusts. He believes in his fund management skills but has decided to diversify some of this risk by letting others manage his funds for him as well. Afterall, he can never be too sure that his stock picking skills are always excellent.

You can visit Lipper Leaders here.

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Are You Wealthy?

Are you wealthy?

The term wealthy means a host of things to different people. Some people define wealthy as having an abundance of material possessions.

In the book The Millionaire Next Door, the definition of wealthy is defined based on one's expected level of networth.

A person who is earning only 1K per month and a person who is earning 10K per month should not be expected to have the same amount of wealth. If they do happen to have the same amount of wealth, it simply means that the person who is earning less is doing a much better job at accumulating wealth that the person who earns more.

What should you expected networth be?

In the book, your expected wealth should be calculated as such:

(Annual pre-tax household income multiply by your age ) divided by 10

So if a person who is 20 years of age is earning $100,000 per year, his expected networth is $200,000. If his networth is more than $200,000, he is building his wealth.

PAWs versus UAWs

PAWs are prodiguous accumulators of wealth versus UAWs who are under accumulators of wealth.

PAWs are simply defined as those whose actual networth are twice their expected networth

7 Factors

Eighty percent of America's millionaires are first generation rich! That is comforting news for us who were not born with a silver spoon in our mouths. The authors also discovered seven common denominators amongh those who successfully build wealth. They are:

1. They live well below their means
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
3. They believe that financial independence is more important than displaying high social status
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

Conclusion

I would also like to think that this method of defining wealth might be flawed in some ways. If a person has a sudden change in income over the recent years, this way of calculating wealth might not be accurate. Nonetheless, it still provides a pretty good gauge at how well we are accumulating our wealth.


The author is happy that based on the expected networth calculations and his actual networth, he is actually in the category of a wealth builder. However, he has not reached the stage of being a PAW where his actual networth is twice his expected networth. The author also hopes that he is in the right occupation.


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195 Posts and Counting

It has been a long journey.

When I first started out in 2008 to blog about my journey to financial freedom, I had little clue on what I was going to blog about and whether it would be sustainable.

This post is my 195th post on this blog and I must say that I am glad I have made it thus far.

What started out as a random project to record and increase my passive income every year has become a diary for me as well as a platform where I can engage others who are also striving to financially independent or free.

There are many times when I wanted to simply give up this whole project on financial freedom.

However, I have slowly seen how blogging has helped me to grow clearer in my goals as well as my knowledge.

In the same way, knowing that other bloggers are out there reading and watching just makes me want to be more accountable to the goals that I have set for myself. The knowledge that I have gained from other bloggers are tremendous and I must say that I have grown as an individual because of their suggestions, advice and blogging.

If you have been following this blog for the past one year, I will just like to say a big THANK YOU for taking the effort to read. I know I can write with a sort of "dizzying" effect as there are times when my mind is totally cluttered especially after returning from work.

As my committment to continue blogging, I hope to roll out a new template for this site to make it a bit more reader friendly. I hope to do this at the 200th post but I am keeping my fingers crossed as I can still be pretty busy at times.

Okay, Flash Forward is starting at 10pm and I really hope to catch this episode.

Signing off,

Financial Freedom

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Bank Accounts

I realised that I might be having a bit too many bank accounts and credit cards.

Lately, I forgot to settle one of my credit card bills and ended up with a late payment charge of $40! And that was for a credit card bill of just $80!

Are all these bank accounts necessary? I certainly think so.

Here is how I use all my bank accounts.

POSB Savings Account

This is my primary account which is linked to all the Giro, electronic payment for shares and stuff. It is basically the account which is linked to my ATM card and which I use to pay the bills.

POSB Current Account

This is the checking account which lets me write cheques. I pay $2 each month to maintain this account.

Citibank Step Up Interest Account

This is where my salary is credited. Based on the step up interest, I can earn close to 0.75% interest on my deposits. I will then transfer whatever amount of my pay I need into the POSB Savings Account to spend.

MayBank iSaavy Account

This is my emergency fund account which pays interest of up to 0.5% per annum. I hardly touch the money in here at all. I like this account because of the higher deposit rates it gives compared to other banks.

To Trade or To Buy and Hold

After years in the stock market, I still can't really figure out whether it is better to trade stocks for the short term or to just buy and hold them for the long term.

I have heard both sides of the arguments, have read books like A Random Walk Down Wall Street, and I must say - I agree with both TAs and FAs.

But I guess I will just choose the method that works best in making money.

While a stock might rise from $1 to $1.20 in 1 month, the person who holds the stock for 1 month only stands to earn a maximum of $200 per lot of shares.

The person who trades on the down and up trends might however be able to earn more than $200. By going in and out of the same stock, his POTENTIAL to earn is much higher. The probability that he losses money is of course also much higher compared to just holding on to the stock.

So what I do is to have two portfolios: One for holding and one for trading.

I enjoy the best of both worlds. There are benefits of buying and holding and there are benefits of trading. By doing both at the same time, I enjoy both benefits.

In addition, trading provides a form of income. More income brings me to financial freedom much faster.

The tortoise might win at the end of the day but the hare leads most of the way.

I believe that people can combine both approaches to bring out the best of both FA and TA.