Happy CNY to everyone! It has been 2 months since my last post and time has certainly gone by quick. I guess this is how it is as parents to a toddler and baby. When work slowed down in Dec as people went on leave, I took a break as well to enjoy the Christmas and New Year celebrations. Work was picking up in Jan before slowing down again due to the CNY long weekend. We were busy visiting relatives, dealing with our boy’s meltdowns (he had a fever, was not feeling well and threw daily tantrums) and taking care of the baby. We were wiped out by the end of the CNY long weekend but managed to survive until he could go back to school yesterday. On top of that, my wife is returning to work this week from her maternity leave. She checked her emails yesterday and is in the office today catching up with her manager and colleagues.
What an intense start to the new year 2023 and this is a good time for me to pen down some thoughts on how it may turn out. Not going to lie, I started off in the beginning of last year 2022 feeling optimistic and positive. Got absolutely hammered by financial and life events by the end of last year. Was feeling low and negative at some bad points that contributed to me digging a hole for myself that I’m just starting to climb out of. Right off the bat for the new year, I will be hit with spiking expenses due to the crazy rental market, increased mortgage costs from higher interest rates and elevated change of car & home renovation costs. Not to mention a big personal expense that was unexpected but deserving for my wife.
My wife received her remuneration outcome for last year and got a pay rise and bonus that was better than the previous year. I changed jobs last year so had a bigger pay jump but probably no bonus for the year because I missed the cut-off. This means that our combined salary income has gone up going into the new year, which puts us in a better position to deal with the much higher expenses. While our cash position has been recovering every month, the higher expense drain has been making it more difficult to save. I expect this to be the case all the way until the end of the new year. Like I mentioned above, it’s all about us climbing out of the financial hole we are in for now.
That being said, the rebound in the equity markets couldn’t have come at a better time. When the equity markets were down last year, I had been averaging down on some of my positions and continued to dollar cost average into ETFs via monthly investment plans and robo-advisors. It was not an easy decision to make because I was running low on cash and there was no respite in sight. Especially when I knew my expenses were about to spike going into the new year and I will no longer have much cash for investment. With interest rates going up, higher global recession risk, things were looking bleak. Out of nowhere, a slowing inflation rate in the US and a major Covid policy reversal happened in China became the triggers for a surge in the equity markets.
Never mind the increasing layoffs in the US technology sector (has one of the highest paid employee base that will negatively impact consumer spending in several industries). Not forgetting what this would mean consequently for the financial services industry (another one of the highest paid employee base that may see some layoffs but probably not as bad as the technology sector). Never mind the fallout from such a sudden major Covid policy shift in China with so little preparation. What does this mean for us in Singapore? Technology and financial services industries are big hirers of employees here as well. While I don’t think the layoffs situation will be as bad here, there should still be some level of impact. And this is my biggest fear for the new year. I’m leveraged up on property, car and renovation expenses (my excuse is I like nice things for my family) so the higher interest rates is affecting me massively.
Our combined salary income can manage these expenses but any layoff hit to either my wife or I will derail this balance. Because a single salary income will not be enough to cover these expenses. This is our biggest financial weakness for the new year and I will need time to address it. To buy myself more time, I have started gradually selling my profitable stock positions (especially the local and foreign banking stocks) in the surging equity markets to raise my cash buffers. Not all at one time because the prices can continue to go up. But not too little in case there is a trend reversal and the equity markets start falling again due to higher recession risk. I’m basically cashing out my profits this time around. The last time I was in this position was early last year and I was even more profitable then (sigh, thinking about cryptos again). But not cashing out anything then meant I had to watch my unrealised profits fall along with the markets or even disappear altogether. And it was too late to do anything about it subsequently. The feeling of being stupid stayed with me for the entire year.
I did say I will improve at investing. And one of the things I need to learn is how to take profits. Sure, I will always miss out on more profits but that’s ok as long as I have extracted sufficient gains from my positions. It’s a good time to practise this in the new year. Because my cash holdings are yielding close to 4% or more in instruments such as 6-month T-Bill and 6-month & longer duration fixed deposits with various banks. My salary crediting bank account cash balance can yield close to 3% as long as I meet other credit card spending and bill payment conditions. While my other bank accounts cash balances can yield close to 2% with minimal conditions. Higher interest rates can cut both ways. Hurts me because I over-leveraged but rewards me for taking profits out in cash.
So I’m just waiting it out for now as part of my recovery plan. I still do my dollar-cost average into ETFs using monthly investment plans and robo-advisors in case this bull market really has legs and carry through to end of the new year. Anyway, my reward for waiting is higher interest income every month and that will do. Because every month I wait and stay employed, my salary income reduces my over-leveraging problem and increases my cash buffers. Even if there are layoffs in the technology and financial services sectors in Singapore, re-absorption into the other industries (as long as it happens eventually and to some degree) should help to mitigate the overall negative impact to our economy. Which means I’m monitoring Singapore’s economic growth and unemployment rate indicators. Stable to positive trend is ideal and no significant negative trend is acceptable. Any sustained downward trend will require a change in my recovery plan.
Peace of mind is priceless compared to a yo yo ride in wealth.