Betting on a recovery?

Will the economy recover? This is something that analyst and retail investors alike have been specualting. There has been much discussions on the ending of QE in the US and this means that the low interest rate environment will end soon. It also means that the US federal reserve is predicting that the global economy will recover and QE is no longer needed. To know more about QE, read my previous post: Quantitative Easing - how it affects the economy and the stock market?

Whether the stock market continues to rise or fall will depend on the economy. If the economy recovers, companies will have higher profits and higher profits most of the time lead to higher stock prices. Investors who bought in early expecting a recovery are still waiting for that day to come. The Stock market has been rather flat this year after the correction in June which wiped out most of the gains in the first few months of 2013. REITS which had generated rather high yields for investors over the past 2 years had either declined or remained stagnant at the top with limited upside. Some investors have sold off reits to profit on the returns. Read: why reits are on a downward fall again?

I'm also betting on an economic recovery. I'm slowly buying into cyclical stocks like shipping and looking at construction companies. Food industries are on my list of investments too which I favour more on companies owning restaurants. What if I'm wrong and the economy doesn't recover? I think it will be even better if stocks fall lower so I can buy them at an even lower value. I do not have all my money in the stock market now. Still have another tranche ready to deploy if circumstances changes.

This post is written while I'm travelling back home on the mrt. Its good that we've living in an age where we can access to the internet everywhere. Information is always on our finger tips. This is made possible by mobile network technologies like the 3G and 4G LTE.This was not possible many years ago. Till then, invest safely and profitably. :)

P.S: My blog has achieved slightly more than 10000 page views since i started actively blogging 1.5 months ago in June. Thank you to all my readers for your support and comments. It has been a great journey thus far. Do let me know if there's anything I can improve on my blog.

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The history of 9.5% Post Office Savings Bank (POSB) interest rates and the effects of inflation

The current interest rate is so low in Singapore. Currently, most banks pay 0.05% on bank deposit accounts. You've heard it! Its a tiny 0.05%. That means if you save $100000 in the bank, the interest you receive at the end of the year is only $50!! What can $50 buy you in Singapore? The most a decent family meal and that's it.

Why is the interest rate so low now? I've found out a very interesting history of the savings deposit rates offered by POSB which was known as Post Office Savings Bank in the past. The highest interest ever recorded was 9.5% on 1 August, 1981. I am not old enough to have experienced the history of interest rates in Singapore so i asked my parents and also searched on it in the internet.

My parents told me in those days, they had an average of 5-6% interest from the savings they put in the bank. Every year, they had hundreds or thousands of dollars in interest from the banks. My mum even said my grandpa always used the interest earned from savings in the bank to give red packets to us. We had very generous red packets from my grandpa on every Chinese new year at that time. That was in the late 1980s and early 1990s.

What happened to those days where we see high savings account interest in Singapore?

Below shows the Deposit interest rates in Singapore:

We can see that interest rates has fallen over the years. Let's look at the history of interest rates in Singapore learning from POSB.

History of POSB interest rates

Here are the interesting facts i found out:

In 1965, interest rates was at 3%
In 1968, interest rates was revised upwards from 3% to 4%

In 1974, POSB was transferred to become part of the Ministry of Finance and Credit POSB Pte Ltd was established in the same year to provide custom-tailored loans relating to HDB housing ownership. POSB also raise the interest rate to 4.5% p.a. for deposit on 1st Jan, 5% in July and 8% in August.

On 1 September 1978, POSB introduced a 2-tier interest rate with a 5.25% p.a. for the first $100,000 deposit and 3.5% for the subsequent amount.

In 1980, it introduced the Passcard, and set-up the Principal Branch. On 1 May 1980, POSB revised the 2-tier interest rate upwards with a 7% p.a. for the first $100,000 deposit and 5% for the subsequent amount.

In 1981, its first Cash-On-Line ATM opened at the Newton Branch. On 1 July 1981, POSB revised the 2-tier interest rate upwards with a 9% p.a. for the first $100,000 deposit and 6.5% for the subsequent amount.
I remembered my dad had a very old POSB cash-on-line atm card but i just couldn't find any pictures on it. It was grey in colour and had a card holder also. Maybe some of you would remember that.

On 1 Auguest 1981, the interest rates on the first $100,000 was revised upwards to 9.5%. This was a historical moment as it was the highest interest rate every recorded. 

The Post Office Savings Bank (POSB) was officially renamed as POSBank in March 1990. The word “Savings Bank” was dropped. On 1 June 1990, POSB adjusted the 2-tier interest rate upwards with a 4% p.a. for the first $100,000 deposit and 3% for the subsequent amount.

You would have realised that POSB has been paying higher interest rates on smaller amounts up to $100,000 and lower interest rates on subsequent amounts. This changed on 1 March 1998 due to the asian financial crisis. Commercial banks interest rates rose and this caused POSB to lose some of its bigger depositors. This prompted POSB to give higher interest rates of 4.125% to amounts above $100,000 and lower of 3.75% to amounts below $100,000

POSBank was fully acquired by DBS Bank on 16 November 1998. Witnessing the event were Finance Minister Dr. Richard Hu and DBS Bank Chairman Mr. S. Dhanabalan. This event marks the end of Savings Bank concept and welcome the new era of low interest loans in Singapore.

Mr. S. Dhanabalan, the Chairman of DBS Bank, declared that “POSBank cannot remain the way it is”. To start the ball rolling down hill, DBS announced on 18 November 1998 that POSBank Savings Account Balances, which is still tax-exempted, for the first $50,000 is at 2.25% p.a. down 0.5% and in excess of $50,000 at 2.25%. And swiftly on 10 December 1998 that POSBank Savings Account Balances for the first $50,000 adjusted downward to 1.5% p.a. and deposit in excess of $50,000 at 1.75%.

By year 2000, saving deposit interest rates dropped below 1% and has been even lower currently.

One good thing about the low interest rates on deposits was that loans interest rates also decreased significantly. Those who buy properties could borrow at a much lower rate which is also a cause of our sky-rocket housing prices currently as loans were very affordable.

Why we should invest?

At current low interest rates, our money becomes more and more worthless in the bank as inflation "eats" up a portion of our cash. Can we really feel the effects of inflation in our daily lives? If you ask the older generation, they would grumble about the higher prices today and compare the cheaper things they could buy back in the past. This is not their fault that they are complaining. They have live through the past and experienced things that we as younger people do not understand.

Let's look through at how much things cost in the past as compared to today. I found some interesting pictures on the internet. Pictures taken from remembersingapore.wordpress.com. Quite an interesting blog.

Bus tickets in Singapore. This one i remembered as i used to insert a transitlink card into the bus machine when i was in primary school and press a button for the correct fare and out comes a ticket like this. I guess this was much earlier than my time as its only 10cents per ticket. I remembered my student fare was 35cents at its cheapest for a non aircon bus. You should know how much prices are for public transport now.



Old movie tickets at $2.50 and $3 in 1985. Now? A weekday ticket at $7.50 and weekend ticket at $10.50. That's 3 times more expensive now.



HDB prices are the major increases. The current 4 room flat that i live in now cost $70,000 in the 1990s when my parents first bought it. Now it cost more than $300,000.



A bowl of fish ball noodle cost $2 in the 1990s. Now average cost around $3.


Will prices continue to rise? I'm sure it will unless our economy suffers a long recession and go into a deflationary mode. If this does happen, then we may lose our jobs too. We wouldn't want that to happen.

The purpose of me showing you the above price increase of different items is not to complain about the high cost of living but to bring to your attention that the same amount of money we have now will not buy us the same amount of things. In the 1960s and 1970s, people who have $1000 were considered those who are more well off. $1000 could buy you a lot of things and last you for months on food. Now, $1000 is nothing in our current economy. If we think that $100,000 is a lot for us now, it may be worth not much 10 years from now. With savings interest so low now, the need to invest become increasingly importantly. Or else, we will realise that our hard earned money saved is not enough for us to retire. Learn to invest and invest wisely.

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Read my below posts to find out more and get started in investing.

Related posts:
1. Investing basics - How do I start investing?
2. Investing Basics - Low Cost Index Fund investing (Passive Investing)
3. My views on the new POSB Invest-Saver
4. How to pick stocks (Part 1) - Economic Moats

Rising household debts in Singapore worrying

The monetary authority of Singapore(MAS) has released statistics which shows a worrying trend of household debts in Singapore. There is also a separate report released by the ASEAN property pulse which showed that up to 9000 Singapore property owners could be forced to sell their homes if interest rates rise.

Here are some of the statistics from the reports:

1) 5%-10% of borrowers in Singapore has loans more than 60% of their income

2) A majority of mortgage loans are on floating rate packages which means households will face higher monthly repayments when interest rates goes up

3) Only 70% of the existing loans are for owner occupied homes meaning investor demand for private homes is running quite high.

Once interest rates rise, some owners will have problems paying their mortgages and will have to sell their house. Coupled with the bump up of new housing units in the market expected to be completed within the next 3 years, this will cause imbalances in the economy where supply is more than demand. We should expect a correction in property prices within the next 2 years.

The government has sounded warning signals over the past 1 year. MAS has stepped in to impose stricter rules on loans. All these are signs that we should take note and not ignore.

Related Posts:
1. How rising interest rate affects the housing loan you pay? [Guest Contribution]
2. Quantitative Easing - how it affects the economy and the stock market?

NTU graduates in demand - Finding job so easy?

Read the news today and saw this news about NTU graduates in demand. 7 in 10 secured a job before graduation. It was stated some were SPOILT for choice as they had multiple jobs offer. 

Now the job market so good? Finding job so easy?

Another thing is the top 10% of these students drew an average monthly salary of $8000. Really amazing!!!

Some work so hard to climb the corporate ladder and never reach $8000/mth. Fresh graduates so good life now. Haha

Read it here: http://www.channelnewsasia.com/news/singapore/ntu-graduates-in-demand/756470.html

Managing my personal finances

Over the years, as i learn more on how to manage my personal finances, it became more fun to me. Regular savings have become a habit and i have opened several bank accounts to allocate my money respectively. I have a spending account, an investment account, an emergency fund account and a monthly savings account.

This is how i allocate my money:

1) Allocate around 6-9 months of my expenses into an emergency fund account.
An emergency fund is important in case i need the money urgently. This is strictly for use during emergency time when i have not enough cash.

2) 60% of my monthly salary to my investment account
This account is used to buy stocks of companies or invest in funds

3) 15% of my monthly salary to a savings account for higher interest.
This account is to earn higher interest rates than a normal savings account. There is no lock in period and i can take out my money anytime. This also serves as an opportunity fund where if a stock market crashes, i have extra money to buy undervalued stocks. I use this fund to donate to charity also.

4) The rest of 25% for spending account
If there are leftovers in my spending account, i can accumulate to a certain amount and spend on luxuries. I pay the premiums for my insurance policies from this account also.

As i have more money over the years while working, it gets more and more exciting to see my account balances grow. Saving money is part of my life now and i do not find it hard anymore. When i first started out, saving money was hard as we're more prone to spend more money. I learnt that in order to have a financially free life, one thing we must learn is to have delayed gratification. This means paying myself first by saving and then spend the rest. Living a simple life helps a lot too. I prefer life to be simple although i do spend on luxuries like eating out at restaurants or travelling. But still those luxuries can be done at low cost if planned properly.

Many people spend money first and then save. This is why most people find it hard to save money as most of the time they do not have much left over after spending. It takes discipline to put aside a fixed percentage of your income for savings before you even start spending. I use a free service provided by DBS bank to auto transfer money out to my various investment and savings account once my income goes in. This saves me the hassle of transferring manually every month. I do not even have to monitor where my money goes. Everything is automatic.

As my investment account grows, i can invest more easily. Investments make my account grow and there are dividends from stocks also. Money is constantly flowing into this account. I will let money in this account to compound over time and this will help me achieve financial freedom in the near future. You may be wondering why not spend some of the investment gains and dividends from stocks? I do not think i should do that as the purpose of investment is to grow the money. If i do want to spend more, then i should try and increase my income so that i have more money to spend in my spending account. If i am able to increase my income, then i don't even have to save that much anymore.

Managing our personal finances is important. I set financial targets for myself to make sure i'm on track. You can read it in my goals tab. The journey towards financial freedom is a journey in itself. You have to plan the road or else you'll get lost or get off track. This road is an exciting one and i hope to update you of my progress in years to come. I have been inspired by many people who have walked this road and accomplished what they set out for. They have shown that it is possible. If more people know how to manage their personal finances, more people can benefit from a lifestyle of financial freedom. We can get out of the rat race and truly enjoy life, not just working for money for the rest of our lives.

Related Posts:

1. How the rich manage their money that the poor and middle class do not - Part 1

2. My Goals

3. Investing basics - How do I start investing?

Various investment products for different investment styles

All of us have different personalities. Some like things to be fast, others like it to be slow. Some are patient while some are not. The good news is there are different investments that we can make to suit our personality. It is important to find out your investment style and practice it so that you can be successful in it.

1) If you're a super risk adverse type of person who doesn't like risk, you can invest in:

Fixed Deposits
The returns in fixed deposits are generally low now due to the low interest rates environment. They are capital guaranteed and you will get your capital back with interest at the end of the fixed period.


2) If you're a risk adverse person but wants higher returns, you can invest in:

Bonds
Bonds are generally safe assets where you can get your capital guaranteed back unless the issuer of the bond defaults on its debt. However, make sure you know how to value bonds and don't buy when the bond is overvalued. Know the difference between corporate and government bonds.


3) If you are less risk adverse and want higher returns but do not have time to monitor the market, you can invest in:

Index ETFs
I've wrote about investing in ETFs in my previous blog posts. You can read it here:

Investing Basics - Low Cost Index Fund investing (Passive Investing)

Managed Funds or Unit Trusts
These are funds that you can invest in which are actively managed by a professional fund manager. This comes at a fee as most fund houses charge relatively high sales charges and even platform fees.


4) If you want to take control of your own investments and are somewhat patient, you can invest in:

Stocks
When you buy a stock, you're a shareholder of the company which means you're actually one of the owners in that company now. Buying stocks requires knowledge and monitoring of the market. Most people with a full time job will still be able to invest in stocks. Investors do not have to monitor the market all the time as compared to traders. Most investors buy stocks when they are undervalued or they buy for its dividends which provides a stream of passive income. Investing in stocks requires you to know how to interpret financial statements and also know the value of the company relative to the stock price. Investing in stocks sometimes requires patience to wait for the stock price to rise relative to its value.


5) If you love risk and want things to be fast, you can be a trader.

A trader can trade in the foreign exchange market, the stock market and the commodities market. They can also use derivative products like options, futures or CFDs. Trading requires you to monitor the market all the time and in essence, it is a full time job. Most people who already have a full time job cannot be a trader. Do note that trading is a very hard profession and very few people succeed in it. It requires you to control your emotions. It is more of a psychological game.


I started out learning how to trade and traded a few times. With a full time job, it is almost impossible to trade. Now i only trade once in awhile when there is a clear opportunity. Otherwise, my investment approach is more of finding undervalued stocks to invest in. This suits my style and my personality. I would rather take control of my own investment as i like and have an interest for investing. It has become part of my life now.

As we can see, there are many investment products suited for different styles. It is up to you on which ones you want to choose. As a rule of thumb, always invest for returns higher than or equal to the inflation rate. The purpose of investing is to grow your wealth. You do not want inflation to devalue the cash you have over time. If your investment return is lower than the inflation rate, your investment is actually worthless.

Related Posts:

Investing basics - How do I start investing?

Investing Basics - Low Cost Index Fund investing (Passive Investing)

My views on the new POSB Invest-Saver

Read the news in the morning and this new product jointly launched by SGX and POSB caught my attention.  I have just blogged about investing in ETFs and now there is a new product in the market. Have just checked from POSB website and I will summarise on the characteristics of this new product.

This POSB invest saver lets you invest in an index ETF from as low as $100/month. The index ETF used is the NIkko AM Singapore STI Exchange Traded Fund. This ETF tracks the Singapore Straits Times index similiar to SPDR STI ETF. In my previous post on "investing basics - Low cost index fund investing (passive investing)", I wrote about investing in SPDR STI ETF using philip securities share builder plan. You can read about it and compare against this POSB product.

Benefits of POSB Invest-Saver

1) Invest from as low as $100
This is beneficial for those who do not have a huge capital to start with

2) Low transaction cost
Sales charge is fixed at 1% per transaction. If you invest $100, sales charge is $1.

3) Dollar cost averaging
By buying every month, you can ride out the gyrations of the market. No market timing is needed. As an index fund goes up in the long run, the longer you invest in it, the smoother the returns

4) Easy to apply through ATM machine or online at POSB website.

No brokers involved and no complicated forms to fill.

In channel news asia, it was written that we can expect a return of 2-3% annually. I've checked on the fund factsheet of Nikko STI ETF. The 3 year annualised return for this fund was 5-6%. This fund also gives dividends of about 1-2% annually. The dividends payout by the fund will be credited into your designated debiting account.  If the returns is just 2-3% annually, it would not be that attractive to me as it barely covers the inflation rate in Singapore. I would think that the returns should be more than 3% judging from the funds performance

This product is beneficial to those who want to invest but do not have the capital or knowledge to do so. A return of 2-3% is better than putting it in the bank and the best thing is you can withdraw your money anytime. It is stated that no fees will be incurred when you sell your unit. This is subjected to change as indicated on POSB website. However in any investment, there are still risks involved. The returns are not guaranteed and you may still lose money in the short run. In the long run, investments generally return profits.

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Related posts:
1. Investing Basics - Low cost index fund investing (Passive Investing)
2. Investing Basics - How do I start investing?
3. How to pick stocks (Part 1) - Economic Moats