Refresh SRS

As we reach the mid-point of the year, let's refresh on something that might have been forgotten:

The SRS (Supplementary Retirement Scheme) account.

Why SRS?
The most important 3 reasons:
1) Setting aside a retirement account that supplements the CPF retirement account (as the name suggests). Or call it "2nd CPF".
2) Setting aside a sum of money for hospitalization/ medical insurance cost in the post-retirement years.
3) Pay less taxes (while investing for above 2 reasons).

I have set up 4 charts for ease of use, organized primarily by income ranges:

a) S$20k to S$60k

click on image to enlarge

b) S$60k to S$90kclick on image to enlarge

c) S$90k to S$150k

click on image to enlarge

d) S$150k to S$200kclick on image to enlarge

Example:

click on image to enlarge

In the example, for a chargeable income of S$68k, the income tax payable is about $3.2k before SRS. After the contribution of S$11,475 (stipulated contribution cap), the payable income tax is reduced to about S$2.25k, a savings of $950.

Now, what can $950 do? Well,
- it's about 3 months' of petrol bills (assuming $316 per month)
- it's about 2 months' of life insurance premiums (assuming $475 per month)
- it's about up to 4 years' worth of a Shield Plan (Medical insurance) costing, depending on age.
- it's about 10 months' of HDB season parking cost.
- it's about the cost of a weekend trip to Hong Kong, from Singapore (maybe?)
and many more.....

If you have just gotten your income tax notice of assessment, which not consider start paying less taxes from here onwards?

What to invest SRS monies in:-
- Stocks (D.I.Y or managed)
- Unit trusts a.k.a mutual funds (D.I.Y or managed)
- Single premium life insurance products

For all previous articles on SRS: http://www.waynekoh.com/search/label/Supplementary%20Retirement%20Scheme%28SRS%29

Contact Wayne Koh for more queries:
waynekohwg@gmail.com | +65 8288.9005 | skype: waynekohweeguan

Try out new ways.....upd 30Jun2008

Date Start: 1Jan2008
NAV = $4,216.47 as of date 28Jun2008
Returns to-date (since 1Jan2008) = -15.67%

Benchmark: iShares MSCI EAFE Index Fund (ETF)
Date Start: 1Jan2008
NAV = $4,263.33 as of date 28Jun2008
Returns to-date (since 1Jan2008) = -12.73%

Quotes (023-2008)

"The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return."

===== Warren Buffett =====

Is Gold a Go, Goal or Goner?

Yes, gold price has more than doubled since 2005 when it hit USD1,030.80 in Mar2008.
Yes, gold price is "believed" to hit USD2,000 in the coming years.
Yes, gold is a good hedge against inflation and weakening US dollars.
But, whatever the case and whatever the reason anyone invests in gold, one should exercise caution and never to over-expose too much money to one sector.

From my recent "10-year" series' charts, I went on to plot gold prices and this is what I got:-
My interpretation of the chart would tell me that :-
(1) gold prices would have limited potential upside from this point;
(2) the next direction for gold prices would be more of downwards than upwards.

As I am a novice as far as gold is concerned, and the only piece of gold I have is my wedding band, I can only conclude from the figures and the charts I have.

Nonetheless, here are the gold-related trading instruments:-
(a) SPDR Gold Shares
(b) UOBAM United Gold and General Fund

As always, my usual advise: "Drip in money" + Core-Satellite allocation

Contact Wayne Koh for account opening & trading inquiries:
waynekohwg@gmail.com | +65 8288.9005 | skype: waynekohweeguan

Singapore HDB Resale Price Index

As a follow up to "Singapore Private Residential Property Price Index", I downloaded the data of the Singapore HDB (Housing Development Board) Resale Price Index and plotted them on a chart.

By the way, HDB is a government statutory board of Singapore that plans and executes the public housing policy. For more details, please visit www.hdb.gov.sg

As the available data is limited, we can only see the most recent "Tiger Year: 1998" that also witnessed a sharp drop in the index. Although the drop during 4Q-1996 & 1Q-1999 was 28%, it did not register as drastic a fall as the Private Residential Property Index. The obvious reason is of course, public housing has much lesser speculative elements. Furthermore, Singaporeans by and large, regard public housing as primary housing and thus transact during circumstance of upgrading to a bigger unit, for example, from a 3-room to 4-room or 5-room.

Annualized growth of the above index for the period 1990 to 3Q 2006 is 6.89% p.a, compared to 5.39% p.a for the same period that of the Private Residential Property Index.

Conclusion: It does make sense for a "typical" Singaporean to first own a HDB flat, and then invest in private residential at a later stage. The above is nothing more than my personal findings and opinions, which cannot be construed as formal investment advise. Please seek professional real estate advise.

Quotes (022-2008)

"The only true wisdom is in knowing you know nothing."

===== Socrates =====

Singapore Private Residential Property Price Index

Recently, a friend of mine asked my opinion whether it is a good time to buy into private property in Singapore as an investment.

As I always remembered, the Year of the Tiger in Chinese Lunar calendar has been bad years for the property market in Singapore, and the next one is just around the corner (year 2010). So I replied, I'd rather wait another 2 years before taking any action if I were him. I am not trying to be superstitious and I have supporting evidence.

This is what I found:-

1) Chart of Private Residential Property Price Index : 1960 - 3Q2006
Source: REDAS
The blue circles (except year 2000-04) are the falls that occured during the past 3 Tiger Years. Subsequently, all 3 recovered gradually and eventually went to higher levels. If the historical trends are anything to go by, the next "fall" presumably now til 2010, could be at least 30% from the recent high.
The year 2000-04 has been the period following the internet bubble burst and then SARS epidemic. However, it did not register as drastic a fall as the Tiger Years.

2) Annualized growth of the above index for the period 1960 to 3Q 2006: est. 6.07% p.a
Annualized growth of the above index for the period 1986 to 2006: est. 6.8% p.a
Better than inflation and slightly better than STI returns which is about 6.48% p.a.

3) Words from a well-known geomancer: "Property prices usually drop drastically during the Year of the Tiger and recover slowly but steadily in the subsequent years," Tan said. "The last two years of the Tiger, 1986 and 1998,were very bad years."
Click here for the article.

Conclusion: The above is nothing more than my personal findings and opinions, which cannot be construed as formal investment advise. Please seek professional real estate advise.

Investing in the hybrid theme

It may be time to look at Japan Equities, which has been in the slump for more than a decade. I piece together these articles and my chart to present the Japanese hybrid theme.

(1) Business Times - 18 Jun 2008
Race for hybrid heavy machines heats up as oil rises
(TOKYO) It's not just cars anymore. Bulldozers, front- end loaders and excavators used in building and mining projects are going hybrid amid surging fuel costs, and Japan again seems to be in the lead. Komatsu Ltd, the world's second-biggest maker of earth-moving machines, launched this month what it called the world's first hybrid hydraulic excavator, twinning a traditional diesel engine with a capacitor, a battery- like electronic device.......... Toyota Motor Corp's premium-priced Prius hybrid car business took seven to eight years before the new car started generating any profit, analysts said, but now dealers are having a hard time keeping up with the orders.
Read full version here: http://www.businesstimes.com.sg/sub/news/story/0,4574,284076,00.html?
(free access after 6pm daily Singapore Time.)

(2) Japan Economic Perspectives: Is End in Sight for Japan’s Longest Post-War Economic Expansion? By: Alliance Bernstein

(3) My 10-year series chart:
The blue-line in the chart above shows several attempts for the Nikkei 225 to break out the zero % mark.

(4) Mutual fund to consider: UOB United Japan Growth Fund 's two top-10 holdings consists of Komatsu Ltd and Toyota Motor Corp. It is also the best performing and longest running fund outperforming the benchmark Nikkei 225 index.
Morningstar Rating™ ***

As always, my usual advise: "Drip in money" + Core-Satellite allocation

Contact Wayne Koh for account opening & trading inquiries:
waynekohwg@gmail.com | +65 8288.9005 | skype: waynekohweeguan

Other hybrid investing themes

Infrastructure – The “New Gold”

This is a small project I did in August2007, and I thought it still makes sense today, and thought why not publish it here with little modifications.

1) Jim Jubak mentioned in his article “Infrastructure: The new gold” dated 20Mar2007, that “……Increasing growth by building roads and other infrastructure projects has been a standard tool of governments at least since the days of the Qin emperor who started the Great Wall of China in the third century B.C. Spending on infrastructure creates jobs that lead to more economic demand that creates yet more jobs…..” So it is essentially not a modern political or governmental function.

His idea is to use infrastructure investment tools as a hedge against inflation, apart from the usual gold which is more commonly known. Gold prices, however, due to speculative trades, has been going very much in line with the market cycle/ swings recently.

Jim Jubak is the Senior Markets Editor for MSN Money. Previously, he served as senior financial editor at Worth magazine and as editor of Venture magazine. Jubak was a Bagehot Business Journalism Fellow at Columbia University and has written two books: "The Worth Guide to Electronic Investing" and "In the Image of the Brain: Breaking the Barrier Between the Human Mind and Intelligent Machines."

2) Then I came across an idea from Marco Consulting Group on breaking down the infrastructure theme into 4 major groups, explained here in this table:-
Infrastructure == > C.U.T.S (I re-phrased from their version "T.C.U.S" or something like that)

C = Communications	U = Utilities
Broadcast Towers	Water Treatment
Cell Towers	Water Distribution
Copper Wiring	Waste Management
Fiber Optic Cable	Dams
Satellites	Power Generation
	Electricity Transmission and Distribution Parks
	Oil and Gas Storage, Transmission and Distribution
T = Transportation	S = Social Services
Airports	Hospitals
Bridges	Schools
Railways	Prisons
Roads	Courthouses
Tunnels	Correctional Facilities
Water ports	Parks
Waterways

Source: The Marco Consulting Group

Now, we can zoom down to some SGX-listed stocks that may qualify under “C.U.T.S”: -
C : Singtel (Owns or part-owns Thai’s AIS, Aussie’s Optus, India’s Bharti Group)
U : Hyflux, SPC, Oculus, SembCorp
T : Comfort Delgro, SBS, SMRT, Midas Holdings, China Toll Bridges, Yangzijiang, Cosco
S : Raffles Education, Econ Healthcare, ParkwayLife Reit

Infrastructure stocks: Macquarie International Infrastructure Fund, Cityspring Infrastructure, Babcock and Brown Structured Finance Fund

Mutual Funds
1) UOB United Asia Pacific Infrastructure Fund
2) First State Global Infrastructure
3) LionGlobal Asia Infrastructure Fund
4) PRU Asian Infrastructure Equity Fund SGD
5) SGAM India Infrastructure Fund S$
6) SGAM India Infrastructure Fund US$

============
SWOT Analysis
Strengths
Why invest in Infrastructure?
- Jim Jubak’s idea of hedge against inflation. Example: UOB United Asia Pacific Infrastructure Fund’s benchmark is 6% absolute return.
- Smart money movement: Warren Buffett’s Berkshire Hathaway 2007 purchases in railway companies, such as Burlington Northern Santa Fe Corp and Fort Worth.
- Tax incentive (Singapore): introduced September2006 by the Monetary Authority of Singapore (MAS), which should help Singapore replicate its success with real estate investment trusts (Reits) in the field of business trusts. These include tax exemptions for investors on the interest income they earn from lending to qualifying infrastructure projects, or on interest earned overseas by infrastructure funds or other entities listed on the Singapore Exchange (SGX).
- Monopolistic - Many infrastructure projects have no competition. For example, there is typically only one toll bridge or electrical grid in a given region. When there is competition, it is usually limited by high barriers to entry.
- Long-lived assets/ projects: typically decades (examples: toll management, water treatment, bus/ train services-remember how bus/train fares increase?)
- Strengths of the Asian economies; See "Singapore: Your key to Asia profits"

Weakness
- Infrastructure Subject to general economic downturn and/or equity market consolidation.
- Interest rate = Cost of capital; Infrastructure equity usually under performs in a rising interest rate environment, due to the fact that facilities operators are only able to adjust their cost of capital only after a certain lock-in time-frame.

Opportunities
- In a Deutsche Bank publication,….The European and US markets each represent some 4 to 5 trillion euro, which is around 25 to 35 per cent of the equity and bond markets…….
- In Asia alone, the World Bank has estimated that infrastructure investments are set to exceed US$1 trillion over the next five years.
- In Asia, the largest four countries - Japan, China, South Korea and India - account for 85 per cent of the total regional economy and over 70 per cent of the total project value of all announced infrastructure projects.
- Countries to look at: Australia, China, India, Thailand, Malaysia, UK etc.
- Other themes to look at: Follow the major events- It is almost certain that it will benefit the infrastructure building or re-building sectors on the way leading to the events.
Examples: Olympics-organizer countries/cities, London (2012); Worldcup: 2010 Africa, 2014 South America (Latin Amercia/ Brazil/ BRIC funds)

Threats
- US sub-prime problems triggering a recession on a broad base.
- Inflation worries.
- High oil prices directly increasing cost of infrastructure projects.
- Governmental intervention, Environmentalists’ objection, market risk (interest rates).
- Lousy company management (if invest in equities directly)
- Lousy fund managers (if invest in funds or managed accounts).

Investing IDEAS:
- Use infrastructure as a thematic play, allocate not more than 10% of entire portfolio
- Drip in money
- D.I.Y portfolio:
i) 30% SGX-listed “infrastructure- C.U.T.S” stocks + 70% “infrastructure” funds.
ii) Stocks - sell/ reduce if equity prices >= **XX times target return within a year
iii) Funds - sell/ reduce if fund prices >= **XX times target return within a year

Benchmark indices
- S&P Global Infrastructure Index
- Macquarie Global Infrastructure Index

Enquiries:
waynekohwg@gmail.com | +65 8288 9005 | skype: waynekohweeguan

Try out new ways.....upd 16Jun2008

Date Start: 1Jan2008
NAV = $4,323.57 as of date 13Jun2008
Returns to-date (since 1Jan2008) = -13.53%

Benchmark: iShares MSCI EAFE Index Fund (ETF)
Date Start: 1Jan2008
NAV = $4,533.09 as of date 13Jun2008
Returns to-date (since 1Jan2008) = -7.34%

More on indices

I went on to do a few more indices, namely KOSPI, HSI, Nikkei 225, BSE, FTSE, JKSE, TSEC and plotted them on the following chart together with STI and S&P 500.

JKSE and KOSPI are the two best performing market indices on a 10-yr annualized basis and Nikkei 225 and FTSE are the two worst performers. For simplicity sake, if $1,000 is invested in every of the above indices, the portfolio would be something like this:-The $9,000 portfolio would have grown to $25,907 today (since 1998), an annualized returns of 11.15%.

Invest in	Invest capital ten yrs ago	Portfolio worth now	Annualised Returns (%)
Kospi	$ 1,000	$ 5,754	19.12%
JKSE	$ 1,000	$ 5,721	19.05%
BSE	$ 1,000	$ 4,468	16.15%
STI	$ 1,000	$ 2,829	10.96%
H S I	$ 1,000	$ 2,823	10.94%
S&P500	$ 1,000	$ 1,229	2.08%
TSEC	$ 1,000	$ 1,138	1.31%
FTSE	$ 1,000	$ 995	-0.05%
Nikkei 225	$ 1,000	$ 950	-0.52%
=======	======	======	=======
Total	$ 9,000	$ 25,907	11.15%

But that does not mean jumping into these markets right away either using "chasing strong" or "contrarian" methods. Instead, going forward, using allocation methods (such as core-satellite with systematic rebalancing approach) coupled with "drip in money" will be a better way for most investors as it eliminates market-timing risk. While you do not get the best profits, you also do not make the most losses.

The key objective of this approach is to preserve/ grow the purchasing power of the value of money (NOW) to be on par (or better) than inflation.

NOTE:
Please also note the above indices do not necessarily represent an appropriate portfolio by any standard. Please seek professional advise before you make any investment.

STI

After doing the S&P 500 chart, I went on to download STI historical data (since Dec1998) and plotted this chart.

click on image to enlarge

In my opinion, STI looks "expensive" for now and may be worth a look when the "blue line" falls to between 2% to 4% range. Nonetheless, even if one has Singapore stocks, one should never expose any single country's (such as Singapore) portfolio to more than 10% of total portfolio as a rule of thumb.

And deploying "dripping-in-money" strategy seems the obvious "safe & steady" way to participate in the market than "surrendering" outright to the robber called "inflation".

Consider this instrument : streetTRACKS STI ETF (Exchange Traded Fund)

Lastly, annualised returns of the STI for the past 20.5 years is 6.48% per annum

Quotes (021-2008)

"A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain."

===== Mark Twain =====

US S&P 500

Recently I downloaded the 58-yr data of US S&P 500 from Yahoo Finance and did some numbers crunching out of curiosity.

I wanted to find out if there is a relation between holding for a certain specific of time, say 10 years, 20 years, 30 years.
This is what I get:-

click on image to enlarge

How to read this chart: for example, see right hand side of graph, you see Jan-08, read off the chart for the 3 colored lines on the vertical axis to get the respective specific periodical annualized returns in %.
Say, see the blue line (10-yr): this means investing in the US S&P 500 portfolio for period Jan 1998- Jan 2008 gets about 2.2% per annum. The yellow line would read about 9.2% per annum for the period Jan1978-Jan2008.

It seems to suggest that holding long term (30 years) beats the shorter 10 & 20 years. The 20-yr period just lost by a small percentage though. But there are certain periods where returns are above 15% per annum, and that was during the dotcom period 1998-1999, but this means investors would have begun investing during 1988-1989.

If "what goes up must come down and what goes down must come up" is true, then it may be a good time now to invest in US S&P 500 and wait for 10 years. However, I do suggest dripping in small money consistently and rebalancing along the way, see "Drip in new money"

Lastly, the annualized returns for the last 58-yr period is 7.8%

Guaranteed to lose money

One of the surest ways to lose money is to surrender it to this "imaginary robber" called inflation, at least for now and in the coming near and mid-term.

If we were to roll back to 1986-7, putting money in fixed deposit accounts would be a good way of hedging against inflation, as the F.D rates were very good, ranging between 4.5% to 5.3% p.a; coupled with low inflation, ranging -1.4% to 0.5%, the nett result is a considerably high real interest return. See graph below (yellow line shows real interest returns)
**By the way, Real Interest Rate = Nominal Interest Rate minus Inflation (Expected or Actual)**Looking at the graph, we probably have first occurrence of this situation of negative real interest returns since 2004. And looking at recent high quarterly inflation reports from SGP MTI, it seems this year's real interest returns would be in the range of -3.0% to -5.0%.

MMF update

This is a follow-up to MMF rtn vs Bank deposit rates which I post on a monthly basis.
Remarks: $1,000 parked in MMF would have yielded $5.22 more than savings rates YTD since 1st Jan2008. I am comparing MMF to savings because of their withdrawal flexibility.
Other figures as shown above. Fixed Deposit, on the other hand, is not as flexible when it comes to withdrawal.

MMF annualized returns as of 30May2008 since 1Jan2008: 1.525% p.a

Try out new ways.....upd 02Jun2008

Date Start: 1Jan2008
NAV = $4,461.93 as of date 02Jun2008
Returns to-date (since 1Jan2008) = -10.76%

Benchmark: iShares MSCI EAFE Index Fund (ETF)
Date Start: 1Jan2008
NAV = $4,803.48 as of date 30May2008
Returns to-date (since 1Jan2008) = -1.93%