Fun Reading

The iPhone turns 7, June 29
Yep, it’s been seven years since Steve Jobs introduced the first iPhone and changed the industry and our lives. There are now eight models and counting, and more are being purchased every day than there are babies being born.

Sky Lantern Festival, Feb. 14
Pingxi - Taiwan: Buy a one-meter (three-foot) lantern, write your wishes on it, light the candle and watch your hopes float to the heavens. As many as 200,000 lanterns are released over the remote mountain town an hour’s drive from Taipei. Centuries ago the lanterns signaled that it was safe to return to the village after a raid by bandits. Today they signal the end of the Chinese New Year.

Sky City scheduled for completion, June
Changsha, China: At 838 meters. or 2,749 feet, it will become the world’s tallest building, outstripping the incumbent, the Burj Khalifa in Dubai, by 10 meters. The Empire State Building reigned as the tallest from 1931 to 1973, and the Sears Tower in Chicago from 1973 to 1996. Since then, buildings across the Middle East and Asia have taken turns being tallest.

World Toilet Day, Nov. 19
It’s intended to raise awareness of the struggle faced by the 2.5 billion people who don’t have access to a proper, clean toilet. The organization Water Aid suggests showing solidarity by downloading a toilet seat template and sitting on it all day.

South-east Asian Property Market carries Growing Risks

What Next

South-east Asian banks will be tested as the eventual end of quantitative easing (QE) adversely affects local currencies, capital flows, financial asset prices, borrowing costs, and repayment capabilities of corporate and household borrowers. A rise in interest rates and cost of borrowing could prompt a surge in bad loans. This risk is particularly acute for property markets (rather than productive sectors) in such economies as Malaysia, Thailand and Singapore, where prices are at record levels, affordability is over-stretched, household debt stands at around 80% of GDP and debt service ratio is high.

Analysis

The financial and property markets in South-east Asia have been major beneficiaries of QE between November 2008 and 2013. Even though South-east Asia's growth has been stronger than in the United States and Europe, much of it is driven by a modest rebound in exports and strong growth in domestic consumption, which in turn has been fuelled by 'easy money' and cheap credit.QE has not only worsened income distribution, as the rich benefit most from financial asset inflation, but also led to misallocation of capital (rising inequality poses challenge).

Household Loans

Between 2008 and 2012, in the five largest South-east Asian economies household loans constitute the largest category of bank credit. This is especially true for Malaysia, Thailand and Singapore, where household debt-to-GDP ratio has reached 83%, 80% and 77% respectively. Meanwhile, household incomes have not grown by as much, stretching household debt-servicing capability. Malaysia has the highest ratio of household debt to disposable income at 140%, with Singapore at 105%. The largest component within household loans is housing, followed by car and credit card. Together with loans to the construction and real estate sector, the exposure of banks to the property sector far outweighs that to the productive sectors such as manufacturing and trade. Hence, household and property sectors are more vulnerable to a credit crisis than the productive sectors.

Mortgage Risk

Most household loans have gone to financing housing mortgages. Housing loans account for 48% of totals loans in Singapore and 27% in Malaysia (not including loans from shadow banks). In a period of low to negative interest rates, huge amounts of funds have flowed into the property markets, much of that amount borrowed:

• The housing market is no longer simply a market for end users, i.e. housing as a means of consumption. Housing has become primarily an asset class for investors and speculators. This has provided the momentum for double -- even triple -- digit escalation of house prices in certain markets.
• Housing affordability indices (the ratio of average house price to average annual household income) in many South-east Asian countries are highly stretched, some reaching double digits.

A rise in interest rates would hit borrowers badly as most housing mortgages are preconditioned on an adjustable rate. All these pose significant risks to the banking system and the economy.

Therefore buying property using bank loans might be risk now, if we have high housing mortgages. Though many people are renting out their apartments to finance the loans.

More information can be found in the OXFORD Analytical

Retire through buying or selling of property

This is one of the easiest money earning method which my husband likes. I believe many of the older generations have benefited from this boom in property prices over the years, including many of their future generations who will be taking over their properties. 

I have a friend's father who bought a landed property around Eunos area at $60,000 in the old days. Now the property is worth nearly $2 million after 50 years passed, which means my friend will get an inheritance worth $2 million or more in future.

For me, I bought a 4 room flat in 2007 at $180,000. Then I got a 5 room flat in 2013 at $510,000. Property prices have soared so much over a short 6 years, though we won't be expecting an increase for the moment with the many cooling measures put in place by the government. I even heard the trend is CUV (cash under valuation, negative COV) now.

My husband's friend, who is a property agent, told us that we should not keep a house longer than 5 years. He said it's not worth paying for the full interest for 30 years. So my husband and I painted a scenario where we will upgrade and sell our house every 5 years. And for every transaction, we will have a profit of $50,000 (never put too high to be realistic and applicable for both HDB flats and EC). Pretend we have another six 5 years before we downgrade our house to get a smaller flat for two of us, we would have a profit of $200,000. So it will be $100,000 each after sharing. 

So with my property profit of $100,000, if I retire at 65, and if I want to have $1500* every month, and if I live for another 20 years, I would need another $260,000 to retire. Imagine if I use normal savings with 1% interest per annum, I will need to save around $715 per month for 30 years. I won't count the CPF monthly output as the amount will be too small, so the CPF output will act like a mini bonus instead. 

One thing we have to be mindful when investing property is that we must be prepared for uncertain risks as there's always a possibility the property bubble will burst one day.

*Based on a projected minimum amount for future basic needs without any major health issues, anything less will be bread and butter everyday

Basics of Investing

Why invest? Can't we keep our money in a biscuit tin?

Many Singaporeans realise the importance of saving but have reservations about investing. Investing is often regarded as: “gambling”; “too risky”; “only for the rich”; “only for those about to retire”; “too complicated “; “not necessary”. While misleading, such reservations also deter us from investing. We then forgo the opportunity of growing our savings.

People often view investments as being very risky. In fact, investing is all about maximizing the returns on your savings using various kinds of financial instruments. Some of the more common types of investments are:
• Fixed Income Securities (Bonds)
These are debt instruments issued by either the Government or corporations to raise funds. Investors (lenders) are usually repaid the original investment amount at maturity. When you hold a fixed income security, you will also receive interest (or coupon payments) periodically.
• Equity Investments (Stocks or Shares)
Equity is a form of ownership in a corporation. An investor's stake in the corporation depends on the number of shares he owns as a percentage of the total number of shares issued by the corporation. Shareholders have the opportunity to benefit from capital appreciation of the shares and may receive dividends.

• Unit Trusts
A unit trust is an investment fund managed by a professional investment manager. It consists of investments in one or more of the three basic asset classes - cash, bonds and stocks.
• Investment-Linked Insurance Plans
An Investment-Linked Insurance Plan (ILP) is an investment fund managed by a professional fund manager, which has an added insurance component. Similar to unit trusts, ILP offers different investment objectives to suit the risk appetite of policyholders.

BASICS OF INVESTING
1. Identify your investment objectives and time horizon.
2. Consider the risks you can bear and your expected returns.
3. Decide on an appropriate asset allocation. This means how you allocate your savings among various asset classes including property, stocks, bonds and cash.
4. Consider how you can diversify your investments.
5. Conduct your own research to choose the right professionals who can help you with your investment.
6. Consider the transaction costs of your intended investments.
7. Monitor your investments closely and review your investment objectives periodically.

Not putting all your eggs in one basket is a sensible rule for investors. You diversify by spreading your investments over different securities in various asset classes. The asset allocation decision is one of your most important investment decisions. To do that skilfully, you will have to define your investment goals, time horizon and risk tolerance.

Time is a lever that increases your ability to grow your savings. The earlier you start investing to meet your financial goals, the more you can exploit the power of compounding. Time is also one of the most important factors in determining how much risk you should take. This is another reason to begin investing early.

More information on investments can be found in the MoneySENSE

Getting Ready to Retire_Race Starts

Wow, I've been too busy with my new job that I completely don't have the time to share information on my blog for a long time. Now, I finally got some time to do it after I settled down in my job. I would like to give a big thanks to all readers for your continuous support all this while. 

Recently, I am busy thinking which will be a better way to start my retirement savings, since I have most of my personal protection covered. 

Maintaining healthy finances as you approach 65 is just as important as getting regular medical checkups. Do you know how much you need to have saved to live comfortably after retirement?Most people are "saving blindly. Most of my friends think they'll need less than 70% of their pre-retirement income. But my financial advisor, Joseph, told me that I should plan on at least 80% to 90% of what you're making now to keep up with the standard of living I have now.

Jeff Currie, another online financial advisor, offers this quick assessment of financial readiness: "no debt, a good pension that includes health insurance benefits, good savings and low expenses. All of these factors can lead to a person retiring early. In most cases, the early 50s is about the most realistic and early I have seen. It usually involves an inheritance to boost a person's normal assets."

Therefore, I've started discussing my retirement options together with Joseph to have a better understanding of the many options available in the market. Examples of the more popular channels are through CPF, investment, higher-interest bank savings, fixed deposit, savings/retirements plans by insurance companies/banks, and buying & selling of properties etc. Slowly, I will need to decide which are the ones I will prefer to adopt for my retirement planning.

Choosing a good financial advisor is important. As tax laws, savings options, and benefits become more and more complicated, it's almost impossible to understand your options on your own. You'll navigate the confounding waters of retirement planning better with an experienced guide. "Hire a planner before you retire, someone who'll look at your whole financial picture, from wills and trusts to insurance and advance medical directives. Your best bet is a certified financial advisor, who must pass an examination and live up to a code of standards and ethics.

The sooner one starts, the more time we will have to explore our retirement options and take any necessary corrective actions.