Finance Smiths

Personal finance apprentices-in-training

Oct 2016 Net Worth Update

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I have started work at my new job and it’s been keeping me busy. Won’t be writing long posts anytime soon but will try to provide financial/portfolio updates when I can.

This only serves to reinforce my belief in automated index investing. Even though my new job is essentially a parallel shift in roles, the learning curve is steep since I have never worked in the financial services industry before. I also have to adjust to interacting with new colleagues and bosses.

It takes a while and a lot of effort to settle in, perform, improve etc. This is on top of making sure I continue to spend time with my wife, our families and friends. All of which reduces my focus on monitoring and research & analysis of the equity markets. It starts becoming a lower priority item.

I imagine my life as a series of changes and phases. Each one more significant than the one before. You can see the draw of automated index investing to me, even at higher costs. Build a big enough base of index ETF investments by being consistent every month and even less than market average dividend yields & rate of returns can be sufficient.

Net Worth – $163,846 (+ $18,038 and + 12.37%)
  • Made ETF and Share investments
  • Standard monthly cash savings
  • Monthly reduction in housing loan principal
  • Normal CPF contributions

ETF Portfolio – $51,126 (+$3,185 and + 6.64%)

  • Bought Philip SGX APAC Dividend Leaders REIT ETF S$ (BYJ)
  • Auto-purchase SPDR Straits Times Index ETF (ES3) [Maybank Kim Eng MIP]
  • Auto-purchase Nikko AM Singapore STI ETF (G3B) and ABF Singapore Bond Index Fund (A35) [POSB Invest-Saver]
Share Portfolio – $120,335 (+ $3,423 and + 2.93%)
  • Averaged down on M1 (B2F)
Other Portfolio – $155,800 (+ $2,000 and + 1.30%)
  • Was able to allocate monthly savings as investment cash (standard increase)
Cash On Hand – $78,000 (+ $2,000 and + 2.63%)
  • Was able to allocate the rest of monthly savings as cash on hand (standard increase)

Average monthly passive income ($1,039) still above $1,000. Most of the dividend income was received from Vanguard ETFs. Higher than normal interest income due to a corporate bond coupon.

Spending multiple increases to 4.95x but savings rate drops below 40%. Decent growth in assets and travel spending resulted in this.

Sep 2016 Net Worth Update

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I didn’t post an Aug 2016 Financial Update last month. Besides, you can refer to the figures that I update regularly on the Net Worth, Asset Portfolio, Passive Income and Spending Multiple & Savings Rate blog pages as a reference. I have also included the numerical and percentage changes from month to month for easier tracking of our progress. Nevertheless, I have decided to do a Sep 2016 Net Worth Update. Before I go into the details on our financial progress from Aug 2016, I’m going to write about other related topics first. Just to make it interesting to have some of my current thoughts and views in this post.

Would we ever pursue self-employment?

I have been debating this issue with my wife and we are coming to the conclusion that we probably won’t do it unless we are forced into it. We are relatively young and still have decent job prospects and earning capabilities. We might as well make the most of our careers for now by expanding our professional & social network and gaining more work experience & skill sets. Besides, we have limited self-employment options at this stage.

Given the way things are going, technological advancements, outsourcing and structural changes to the economy & industries might put us out of work in the next decade or less. Even if we are willing to move countries to pursue jobs, it would only delay the inevitable by another decade at most. Or we will just decide to stop work early from getting burnt out, tired and disillusioned.

Which is why our approach is to keep going in our full-time jobs while we still can and keep a look out for self-employment options at the same time. And we will have to develop the required skills, experience and contacts on the side to prepare for them. This works out financially for us since our salary income can continue to drive our savings and investments forward the longer we remain in the workforce. Our self-employment options increase the less we rely on them to fund our living expenses.

What about the value of time?

I honestly don’t know what we will do even if we become financially independent, pursue early retirement and stop work now. I know it’s a stupid thing to say because I’m sure there are many ways to occupy my time each day other than going to work. Maybe we can travel more frequently, spend more time with family and friends, exercise more etc. But we can do that now even with full-time work since our jobs are not as demanding with reasonable hours. It’s just a matter of motivating ourselves to be more effective and efficient at managing our time.

It’s not that we like working. We just enjoy the daily interaction and engagement we get from going into work and dealing with colleagues and bosses. The positive and negative experiences help to improve us professionally and personally. That’s how my wife & I have grown up and matured over the years since graduating. Self-development is one of the main reasons for our relationship to keep evolving so we will always be adapting and changing to stay together.

Our time is already well-spent by having all these influences in our lives. Unless we can find something else that offers an equivalent level of interaction and engagement, our time doesn’t become better spent from not working. Essentially, time doesn’t become more or less valuable from whether we have full-time jobs but from the choices we make each day. Maybe this might change when we have kids and we no longer consider the utility of time from our perspectives but from theirs as well.

Anyway, that’s enough of a non-financial update and I should get back to the net worth figures. I should also mention that this is probably my last post for a while as I will be leaving for a 2 week holiday to Europe soon. And I will be busy settling in to my new job when I get back. Which translates to less time for blogging.

Net Worth – S$145,808 (+ S$14,946 and + 11.42%)

There are small increases in our ETF and Share Portfolios even though equity markets stayed relatively flat. These are due to POSB Invest-Saver contributions to Nikko AM Singapore STI ETF (G3B) and ABF Singapore Bond Index Fund (A35) as well as averaging down on some oil & gas stocks.

The Maybank Monthly Investment Plan for SPDR Straits Times Index ETF (ES3) and SPDR Gold Shares (O87) have been set up for this month onwards. This should accelerate the rate of increase in our ETF Portfolio going forward. The increases in our Other Portfolio and Cash on hand came from cash injections and savings. Same for the increase in our Central Provident Fund (CPF) balances and decrease in our mortgage liability. These should be regular as long as we stay employed with no major expenses or investments made during the month.

There was a big drop in dividend income as the reporting season is over and should remain low until the end of the year. Interest income is increasing slightly from cash build up and corporate bond coupons. Good to know the annual spending multiple has risen too.

A few of the blog figures are proxies of actual numbers

I have been getting questions and comments that the math on my blog doesn’t seem right. I’m going to address this issue now and say that you are correct. This blog is meant to be a public and personal space to chart our financial freedom journey. Take away whatever you reckon is applicable and relevant but understand that I have already revealed quite a bit of personal and financial information.

The only way I could have done that is by cloaking myself in anonymity. I have tried not to abuse it but admit that I have sometimes been too straightforward and inconsiderate in my opinions, views and comments. Besides, some of our family and good friends are already aware of the existence of this blog. As much as I trust them, I will never reveal all of our personal and financial information on this blog.

But I will try to summarise the explanations for some of the inconsistencies in the math:

  • We don’t include all of our savings, investments and retirement monies in Australia in our calculations. These are our lifeline funds for starting a new life in Australia if things don’t work out in Singapore. Far more important than expense and emergency funds and too critical to be disclosed publicly.
  • Our actual salary income is higher than the average figure we are showing now and that’s how we have enough cash for both savings and investments every month.
  • We have only included 50% of the value of our apartment (real property) and excluded some of our CPF balances in our net worth calculation.

Although most of the figures on the blog are accurate, a few of them are proxies of the actual numbers. This helps to protect our personal and financial information by maintaining a certain level of secrecy and anonymity. I’m signing off on this note for now but will be back eventually. Looking forward to writing my next post then!

Increasing our net worth by S$10,000

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On 15 Sep 2016, the Ministry of Manpower (MOM) released the quarterly Labour Market report. I’m not going to reiterate the statistics but will highlight these important points:

  • Unemployment rose further among residents aged 30 and above
  • For those aged 50 and above, unemployment rose for the fifth consecutive quarter
  • Unemployment rates among degree holders rose to their highest level since 2009
  • Highest second quarter redundancy since 2009

Professionals, Managers, Executives and Technicians (PMETs) like us should monitor the local labour market to pick up on trends like that. If the above does not light a fire under your ass to get your finances in order, then I guess only becoming one of those unemployment and redundancy statistics will.

It’s easy to become complacent in our jobs. The Singapore Government keeps going on about transforming the country’s industries, creating higher quality jobs and helping displaced workers through programmes such as SkillsFuture. These initiatives require a long time to take effect and might not be enough to reverse the labour market trends.

The way forward appears to be developing a technology-driven knowledge-based economy. Have you noticed the drive by the Government for Singapore to become Asia’s Fintech hub? Just look at the new courses in Infocomm Technology (ICT) offered by education institution General Assembly (GA) in collaboration with the Infocomm Development Authority of Singapore (IDA).

My colleague from another division actually just resigned to do a career change by completing the 12 week Web Development Immersive course starting from Sep 2016 to become an entry level web developer. The tuition fee for a Singapore citizen like him is S$3,450 but the tuition fee for a non-Singapore citizen is S$11,350. That’s a big difference and obvious incentive.

It’s definitely an exciting new path for him but more possible in his scenario. Because he is young, only worked a few years in his first job at the accounting firm and has minimal financial & family obligations. Trying to make the same move when you are older, not as quick at picking up new knowledge in a different fast-paced industry with significant financial & family obligations will be much tougher.

Technology and automation will transform Singapore’s industries but the high quality jobs created will be fewer in numbers and probably more suitable for the younger generation. Displaced workers from the older generation will struggle to be relevant in the new world.

We were raised with the notion that our peak earning years would be in the 40s to 50s. I reckon that’s no longer true. It’s probably in our 30s to 40s now and is becoming evident from the labour market statistics.

This means we have about 10 to 15 years until our earnings start to decline or even disappear. Let’s assume the pace of technological advancement increases at an accelerating rate. We are now down to 10 years before we get impacted. Still think retirement is that far away?

It might come earlier than expected and not in a good way. The only question is how ready you are financially for forced early retirement. We worked the math for ourselves and figured we need to increase our net worth by at least S$10,000 every month for the 10 years.

Good news is we have already been achieving that target amount for the past 8 months. At a minimum, the S$10,000 increase of net worth in each month consists of:

  • S$2,000 of investment cash regardless of how much funds are invested
  • S$2,000 of cash on hand after spending on discretionary and non-discretionary expenses
  • S$4,000 of CPF employer and employee contributions
  • S$2,000 reduction in the mortgage liability

Bad news is it leaves us with little room to manoeuvre. And we ponder over questions such as whether we should explore interesting job opportunities at lower pay or potential business opportunities at the risk of delaying financial independence. Even the conflicting desire to leave Singapore and build a new life in another country (not Australia) but yet wanting to settle down and start a family in Singapore.

It’s a win every month to get the S$10,000, which is a nice and round target number to hit. It represents a balance of meeting our personal & professional development goals vs the pursuit of happiness and job satisfaction. But I wonder whether the ever elusive life goal of finding fulfilment, meaning and purpose will tilt the scales towards the latter.