Finance Smiths

Personal finance apprentices-in-training

Net worth and passive income for June 2017

by //

I was unwell this weekend. Started developing a cold and cough on Fri before it got worse on Sat. Feeling better now on Sun after sleeping in for the past 2 days. Going for a more straightforward post about our net worth and passive income for June 2017 since I am still recovering.

Cash and Net Worth

If you looked at my expense blogpage, our cash savings for June 2017 is S$5,467 and the savings rate is 29.99%. It’s our worst performing month for the year. But what isn’t going to make sense is that our net worth went up by S$19,127 (i.e. +8.60%), which is our best performing month of the year. Much of this increase is attributed to our cash holdings rising.

I should explain this anomaly in more detail. Every month, I only add S$5,000 to our cash holdings in the Google Sheet regardless of what our savings rate is. This works because we usually save more than S$5,000 in cash each month and I’m too lazy to add the exact amount to our cash holdings. What happens is that every few months, I will restate the cash holdings figure in the Google Sheet to improve its accuracy.

I did this for June 2017 and our cash holdings in the Google Sheet went up by a lot more than the actual cash savings for the month. There should be a better way to do this but it will require more regular checking and updating of our cash holdings in the Google Sheet. And my preference is to keep it simple with less monitoring required.

Investments, Mortgage and Retirement

Watching our ETF and Stock portfolio go up slowly and mortgage balance go down even more slowly can be frustrating. I know progress takes time and I have to resist the temptation to speed things up by being reckless and taking unnecessary risks. Sometimes, I catch myself wondering whether we should have bought a less expensive apartment so we don’t have such a large mortgage balance. But then I think about all the benefits and advantages we have by living relatively close to my parents-in-law and that feeling of regret goes away. You can’t have everything your way in this world. Win some, lose some.

From my previous post about the drop in our monthly housing loan instalment, you should know we pay S$1,000 of this instalment from our CPF Ordinary Accounts. Given that our combined monthly employer and employee CPF Ordinary Accounts contributions come up to about S$2,600 every month, what happens to the remaining S$1,600? We don’t do anything with it and just leave it as our housing loan Emergency Fund.

We like the flexibility of the CPF and being able to use the Ordinary Account funds for housing is a big plus point. Having a safe, secure and evergrowing housing loan Emergency Fund in the form of the CPF Ordinary Account works well for salaried employees like us. Our CPF Retirement Accounts are also coming along nicely. As long as interest rates on the CPF Ordinary Account and Retirement Account balances can be maintained or even increased, our retirement funds should be sufficient provided we don’t get retrenched.

Dividend and Interest Income

We didn’t receive much dividends for the month of June 2017. Just from the 3 companies below.

  1. Kingsmen Creative (SGX:5MZ) – S$32
  2. Silverlake Axis (SGX:5CP) – S$21
  3. Raffles Medical (SGX:BSL) – S$36

Total dividend income for June 2017 – S$89

Interest income has gone up since we sold a significant portion of our investments and increased our cash holdings. I should highlight that a part of this interest income is spending driven i.e. meeting the minimum spending threshold on our credit cards tied to the high interest bank accounts. Once we start to reduce our spending, it might cause a drop in our interest income. Convoluted stuff I know.

  1. NAB and ANZ AUS bank accounts – S$160
  2. UOB One SG bank accounts – S$200
  3. OCBC 360 SG bank account – S$120
  4. Stan Chart Esaver Promotion SG bank account – S$130
  5. Other bank accounts – S$11

Total interest income for June 2017 – S$621

Average Monthly Passive Income for 2017

This figure is starting to cross S$1,000 earlier in the year and staying above it more consistently. But I expect the progress towards S$1,500 to be slow with my investment portfolio restructuring efforts hindering it. When we eventually start our robe-advisor portfolios with Smartly and StashAway, we might re-invest the dividends/distributions instead of receiving them as cash.

As we continue to focus on ETF investing, whereby the dividend yields are lower, it means that we might not be able to rely purely on the dividend income derived from such an investment portfolio. We would have to draw down on the capital base of our portfolio for this early retirement model to be sustainable. Should have known this was the case as we moved away from dividend stock investing and lowered the dividend yield on our portfolio. Just got to keep learning!

Net worth update and no manual DCA

by //

Foreign ETF portfolio restructuring

Just updated the portfolio, net worth, passive income and expense figures on my blog. You will notice a big drop in the value of our foreign ETF portfolio. This is due to a small sale event in May 2017 where my wife sold her Vanguard All-World ETF (VWRD on LSE). We decided it was overlapping too much with my Vanguard All-World High Dividend Yield ETF (VHYD on LSE).

To make up for this going forward, my wife will be buying the Vanguard Emerging Markets ETF (VDEM on LSE) and Vanguard Developed Asia Pacific ex Japan ETF (VDPX on LSE) instead. The dividend yields of these ETFs are generally above 2% and allows us to slice & dice our investing approach a little.

I know it looks like we are reversing our position after having sold the same 2 ETFs in Mar 2017. It’s true. We are still trying to work out a simple and effective way to build up the foreign ETF portfolio without having too many ETFs or making too many transactions.

Then again, having just one All-World ETF is too general for our liking. Hence, the inclusion of the Emerging Markets and Developed Asia Pacific (excluding Japan) ETFs to allow us to focus on specific regions when we want to. This is taking into account our All-World High Dividend Yield ETF weighing more heavily on US, UK and Europe markets.

No plans to manually DCA for foreign ETF portfolio

There is something else. We are currently Dollar Cost Averaging (DCA) into Singapore ETFs via automatic monthly investment plans. However, we have no plans to start manually DCA into the 3 Vanguard foreign ETFs. Not yet anyway with overseas stock markets hitting new highs. Just waiting for a better entry point and hoping this approach doesn’t backfire.

Holding more cash with increases in other assets

Which brings me back to the net worth update. We have been raising our cash holdings to the point where it’s almost 50% of our total assets. This is mainly from selling our individual stocks (with some profits) and not aggressively investing our salary income. The buildup of cash reserves is intentional and these are just some of the reasons behind it:

  • Increased level of uncertainty in both of our job environments with higher possibility of retrenchment
  • Portfolio reallocation of investments from individual stocks to ETFs
  • Not sure why stocks markets have gone up so much despite so few signs of the global economy improving
  • Might as well take some profits off the table

Besides, we always keep ourselves vested in the equity markets via the monthly purchases of Singapore ETFs. So it’s not like we are not deploying our cash at all. But there is a time to invest less and a time to invest more. Hence, the Singapore ETF portfolio has continued to grow albeit at a slow pace. CPF and wholelife insurance values have also gone up but at an even slower rate. Takes a long time and a whole lot of patience to see results.

Why no change to tax and credit card liabilities?

As long as we remain employed and own our current apartment, we will incur the same personal and property tax liabilities next year. No point reducing them even though we are paying the current tax liabilities off. Same goes for the credit card liabilities until we are certain our spending levels have gone down sufficiently in a more permanent manner.

Mar 2017 Net Worth Update

by //

We just filed our Year of Assessment (YA) 2017 income tax returns for the year 1 Jan 2016 to 31 Dec 2016. Total tax payable for the both of us came up to about S$11,000. Again, we have chosen to pay our income taxes over the next year by 12 interest-free monthly instalments. We prefer not to have a big cashflow drain of a one-time deduction and prefer the more manageable and smaller monthly cashflow impact using the instalments.

If you haven’t noticed by now, I have updated the Portfolio, Net Worth, Passive Income and Expense pages of the blog. They are less cluttered and the layouts are cleaner. Although less data is being shown, you will see that a more accurate picture of our personal finances has been presented if you look closely enough. These changes stem from the recent significant amendments I have made to our Google Sheet financial spreadsheets. Essentially, I removed the excessive data analytics and information I was capturing so it becomes simpler to read, understand and update going forward.

Anyway, I will take this opportunity to go through the changes I have made to the relevant pages of the blog as part of the Mar 2017 Net Worth Update. I don’t remember doing a Net Worth Update post for Feb 2017 so it’s good timing. Hope you find it useful!

SGXCafe Portfolio: Mar 2017 – S$131,150

I have shared our SG portfolio from SGXCafe consisting of Singapore equities (ETFs & stocks) and bonds listed on the SGX. It shows our SG portfolio in such detail that there’s no point in me adding on to it. And you can always click into the links provided to find out more about our SG portfolio on SGXCafe. I also considered tracking the month to month movements but doubt it will be useful if the information is already captured in the Net Worth figure.

Foreign ETF Portfolio: Mar 2017 – S$26,044

The Foreign ETF Portfolio snippet is from Google Sheet. It doesn’t show the exact Vanguard ETF holdings but breaks them down by type:

  • Global Equity
  • Europe Equity
  • Emerging Markets Equity
  • Developed Asia Pacific Equity
  • US Equity
  • Global Bond

The value hasn’t changed much this year since I have been refraining from buying the Vanguard ETFs due to the run-up in global equity markets. It would be useful if I can implement a Dollar Cost Averaging (DCA) strategy to the Foreign ETF Portfolio as well. But the transaction costs and foreign currency consideration make it difficult to implement. This is something the robo-advisory portfolio can address when the service is available in the future.

Net Worth: Mar 2017 – S$200,840

Actual numbers are being shown for the first time. I was getting tired of maintaining 2 sets of accounts on Google Sheet to avoid revealing too much financial information on the blog. And I figured I might as well reduce the line items, keep it high level and keep 1 set of actual accounts only. I’m guessing this revised breakdown explains a lot of the inconsistencies that were showing up previously.

Anyway, I decided to remove any portion of the market value of our apartment in Singapore from the net worth calculation. The longer I track our financial progress, the more I became convinced that home equity is doing nothing but inflating our asset values. As long as the apartment is for home ownership and not rental (i.e. does not produce rental income), its market value will be excluded from our net worth. However, I will probably include the market value of an apartment that produces rental income in our net worth since it is an asset I can actually sell to realise the value. Just haven’t bought such an apartment yet.

Passive income and expense

Dividend income is expected to decrease and interest income is expected to increase in the short term. While we gradually restructure our investment portfolios to hold more ETFs by slowly re-investing the proceeds of individual stocks we sold recently. Our savings rate is rising and the cash savings are being used for monthly investments and retained as cash positions in our asset portfolio.

Why hold 45% of our asset portfolio as cash?

The most important thing about having more cash than necessary when investing is that it pays the bills and keeps you from having to sell your investment portfolio during times of retrenchment, personal or family medical emergency etc. Especially when bad times like these coincide with a market downturn and bear market.

The next most important thing about having a high level of cash is what it can offer you. And I’m not referring to the opportunity to buy even more financial assets such as equities and bonds or real assets such as property. It actually allows you to be more patient and take less investing risks over time. It also gives you more breathing space to make mistakes and improve on your cash deployment & investing strategy with less adverse consequences. In short, you are less likely to crash and burn everything you have i.e. you get to insert coin and try again.