Passing CFA Level I

Right from the moment I stepped out of the exam hall, I was already having doubts whether I would pass the exam. Those around me seemed to have more confident in me than myself, but I knew that I have felt much better coming out of other exams before and this wasn’t it. Nonetheless, I tried not to think too hard about the results in the past two months, making use of my ‘newfound’ freedom because I am no longer tied down to preparing for the exam, which was what I mainly occupied with for the past 6 months. So that’s where I devoured more books, caught up on sleep, took a well-deserved break and spent more time with family.

Then last night was results day and I learnt from a very simple email that I had passed. The first thoughts that came to mind were that I was not wasting that 1,000USD or so that I had paid upfront to sit for the exam.

In truth, this is just a small step along the journey because to be awarded the charter, one must pass Level I to Level III exams as well as spend some time working in a relevant industry.

The more detailed result showed that I was well within the confidence intervals of passing. The resolution and scale is not very clear, but if it’s somewhere between the 90th percentile and the passing mark at the 56th percentile (since there was a pass rate of 44%), that puts me at about the 73th percentile. Upon reflection, I realised that this was somewhat similar to the results I was getting from the mock exams I had been doing, although I must caveat that this does not in any way reflect my actual performance in the exam but more of how I stack up against fellow candidates. That said, maybe there was some truth in not having to be overly worried after all.

Never seen an exam result represented in such a manner before!

Then there was my performance by topic area and it turned out that for almost all the topics, I obtained 70% of more of the points, except for Economics, which was closer to 50%. From what I recall of the exam, it must have meant that I had quite a number of lucky guesses because I was not expecting to do too well on quite a number of the topics. But it is what it is and I pulled through.

The next big second thought that came to mind was whether I would be taking Level II now that I have passed. I definitely would not be crazy enough to go for the August 2021 exam, but I think there is more than enough time for me to get serious about considering the November 2021 one. If I were to pass that, I would then be able to attempt Level III by 2022 and see where that takes me.

I’m still quite undecided on how far I should take this and what I wish to achieve at the end of it. Will it be a proof of some background to help me with a potential career switch? Or will it be something I just keep on doing on the side even as I remain in my current job? I’m fairly certain at the moment it is merely something that provides me an option to consider but not necessarily one that I will immediately jump into, considering all the opportunity costs of giving up my current job. But there is some deep-seated desire within me that wonders how I will stand up when I put myself out there in the market rather than stick within the confines of familiarity and an almost well-laid path ahead for me if I stay where I am in the years to come.

It’s a good problem to have though, and I will most certainly spend the next few days mulling over it…

Life Energy Computations

This is a follow-up from my previous book review on Your Money Or Your Life where I thought it was interesting to perform the life energy (or real hourly wage) computations to find out what I am exactly trading my time and effort for, in terms of money. Before I show my own computations, I learnt that the website has a life energy calculator, which is self-explanatory and you can try for yourself. The following steps illustrate the concept:

  1. Work out your annual/monthly/weekly salary and how many hours you have to work to earn it.
  2. Deduct for all expenses associated to that work, from commuting and ‘getting ready’ to recovery, both in terms of hours and costs.
  3. Also deduct for taxes due on the income earned.
  4. Finally, compute the real hourly wage.

While the calculator only gave the final answer, I thought the ‘intermediate workings’ were equally informative, such as the first step. My exercise mostly revolved around the first step, and I realised that it wasn’t even so straightforward, especially in the Singapore context. There were a few questions I had to ask myself in thinking about what should or shouldn’t count:

  • Number of hours worked on a daily or weekly basis?
  • Gross salary or take-home salary (i.e. after CPF deduction) or Gross salary + employer’s CPF contribution?
  • Monthly salary only or annual salary including bonuses and allowances?
  • Last year’s salary or projected salary for the year?

I guess it comes down to what we intend to use the final answer that we land on for. For me, I was interested in having a number that informs me how much I am trading my time for to make my purchases. As I wouldn’t be able to do so using CPF money, it made most sense for me to go with the strictest definition, i.e. take-home pay only, but it should also include my annual bonuses and allowances too since these are technically expendable.

Then there are also all the other things I do on the side. If there is actual time spent working towards earning extra money, these should be counted in as well. On the other hand, true passive income cannot be meaningfully included because no actual time is being traded for the additional money. Income streams like dividends and interest earned or rental payments will fall into this category.

After setting out the definitions, I excitedly went ahead and did my computations, and this was what I ended with:

Average Monthly Take-Home IncomeAverage Monthly Working HoursCash per Hour
Myself$7,XXX— hrs$39.15/hr
My wife’s$4,XXX— hrs$24.90/hr
Combined$12,709.97396 hrs$32.10/hr
Honestly had no idea what numbers to expect…

What came out definitely took me by some surprise as I was under the impression that the figures should have been a lot higher. It might well be because I am only counting based on take-home salary and CPF is indeed a significant chunk of one’s salary. But even after accounting for that, the rates all went up by about $6-$8 only.

It really made me think hard about my recent purchases and whether they were justified for the amount of work I have to put in. And I haven’t even included the other steps that deduct for associated costs or taxes yet! But I think those are quite minimal and also vary quite a bit. Apart from commute, there seems to be nothing else that either of us have to spend on specifically just for our work and we are probably likely to incur those costs anyway. Hence, the magic numbers in my head are now $40/hr for myself (just to make it easy to remember) and $32/hr as a couple.

It also provides me an alternative lens to re-evaluating decisions that directly trade time for money and vice-versa. I have written about my thoughts on purchasing a car, which at the moment is to stick to BlueSG and public transport. But with the table above, it also suggests that a car is well-within the affordable range for us and may be a cost-saving option for us after all. I will mull on this further as I continue to find possible options for a second-hand car that makes the calculus worth it…

Have you calculated your own cash per hour? Is it higher or lower than expected?

Your Money Or Your Life

It’s been a while since I last picked up a personal finance book and thought it worthwhile to do so as I wait for my CFA results and ponder over the next steps.

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated for 2018
Personal Finance 101

As the cover says, this book gives 9 concrete steps to really think about how we should deal with money. Personally for me, I was very interested to see which of steps I had already incorporated into my life and if there were anything new I should consider. And I definitely learnt a thing or two that’s worth sharing. There are many other reviews and summaries already done on the book here, here and here. So I thought it is more meaningful if I can share my own take on the steps and a bit more of it in the Singapore context. I’ll also include whether I have done them or intend to carry them out.

Step 1: Making peace with the past

A. Find out your total lifetime earnings, i.e. sum total of gross income, from the first penny earned to the latest paycheck.

Sounds interesting and not impossible for me to do, since the only side hustles I have been doing have mostly been giving tuition since my NS days. But it’s not going to be of too much value to me since my day job has been paying me significantly more since my first year of work. This exercise is probably more relevant to provide some reassurance who are just starting out or in between jobs and may be experiencing some self-doubt.

B. Find out your net worth by creating a personal balance sheet of asset and liabilities.

I think this step is a lot more familiar to most people within the personal finance circles and usually one of the first recommendations to get a sense of one’s own standing and how far one is to their own financial goals. I’ve started doing this only very recently actually, since May 2020. The main thing to decide for yourself is what to include as assets – property? CPF savings? Insurance surrender value? It’s one of those things that becomes a bit more personal. I’ve shared more details on this in a previous post and will share my own system of tracking net worth another time.

Step 2: Being in the present – tracking your life energy

A. Establish the actual costs in time and money that you are trading your life energy (i.e. maintain your day job) by computing your real hourly wage.

I can’t wait to actually try this out and see what the number comes up to for myself and my wife and when we combine our forces together. The book does ask us to include everything work-related, including expenses ranging from buying work clothes to taking vacations so as to de-stress from work (as if I wouldn’t take vacations even if I were doing something else!). My own view is that’s not necessary. I will definitely write a post on this when get down to working out the numbers.

B. Keep track of every single cent coming in or going out of your life.

Another typical personal finance step. I’ve being doing this since university days but have now moved on to an app that allows syncing. In fact, it’s one of the first few posts that I’ve written on where I shared my system previously.

Step 3: Where is it all going? (The Monthly Tabulation)

A. Work out the total expenses and total income every month

Very much related to step 2B. But it got me thinking that I should use some Excel skills to put it all together since I can export the data from the app.

B. Convert dollars spent in each category to “hours of life energy” using your real hourly wage.

This is related to step 2A. So will take them together and discuss another time.

Step 4: Three questions that will transform your life

A. Did I receive fulfilment, satisfaction, and value in proportion to life energy spent?

B. Is this expenditure of life energy in alignment with my values and life purpose?

C. How might this expenditure change if I didn’t have to work for money?

More than just figuring out what the numbers are when I come to it, it is really at the heart of the program and the questions to probe deep into finding the purpose of our existence. How will our decisions and choices change if we could do work that we want to just because we think it is most meaningful to do so? I think this is fundamental to giving me a goal to work towards, even if I think I am enjoying my current job. Because I think I would be doing something else that would likely earn me less, or even be at a loss, at least in the short-term. Like what? I have considered many things, like doing academic research in obscure topics, opening my own Maths cafe (with punny Math jokes) or perhaps giving personalised financial advice to clients. I will most certainly have to revisit this in greater detail!

Step 5: Making life energy visible

Create a large Wall Chart that plots the total monthly income and total monthly expenses from the Monthly Tabulation

I could hear the cogs in my head whirring as I was reading this chapter. It made me wonder about the analysis I could do with the data that I currently have, on Excel or Tableau. I was also thinking whether there may be some value in doing some projections too!

Step 6: Valuing your life energy – maximising spending

Learn and practice intelligent use of your life energy and money

I guess I already practice lowering my expenses and increasing savings to quite a big extent. But of course we should always be on the lookout for possible cost-saving measures. My favourite ones hacks include buying breakfast from Swee Heng or Dough Culture in the evenings when they are trying to clear their stock and offer cheaper deals. There was once where I managed to snag 3 packets for just $5 from Dough Culture!

Step 7: Valuing your life energy – maximising income

Respect the life energy you put into working by trading life energy and money with purpose and integrity for increased earnings.

This is by far the toughest one for me. We are always on the constant lookout on ways to increase our time, without having to spend too much time to do so. Giving tuition is only scalable for large group sizes while business ideas that can scale are generally quite risky. One of the ways that we have been successful thus far is getting intermittent promotions and pay increments, so perhaps we will continue working at that but also bear in mind that it should not be our only source of income.

Step 8: Capital and the Crossover point

Add the monthly independence income (based on total accumulated capital and long-term interest rate) as a separate line on your Wall Chart

Again, related to previous step 5 and will get to this in one fell swoop. Essentially, this gives a good gauge as to when FIRE can genuinely be achieved, on the assumption that expenses do not rise. In Singapore, that is a very difficult assumption if we want to constantly increase our standard of living by owning a car or upgrading our property. I will have to think about it and adjust accordingly so that the projections are relevant and realistic.

Step 9: Investing for FI.

Set up your financial plan using these three pillars:

A. Capital: The income-producing core of your Financial Independence
B. Cushion: Enough ready cash, earning bank interest, to cover six months of expenses.
C. Cache: The surplus of funds resulting from your continued practice of the nine steps.

I’m glad to say that I am currently already working on all 3 parts of this last step. What has worked me so far is to set up a number of automatic transfers or GIRO transactions to distribute my monthly income into various pots that are used for monthly expenditures, long-term savings and investments.

Overall, it seems like I’m already somewhere in between in terms of all the things that I can do to help myself financially. But I’m equally glad that there were a new thing or two that I picked up from the book and will look forward to trying them out!

Salary Milestones

For full-time salaried workers in Singapore, we know that we get paid every month for working for our employers. It cannot be denied that we sometimes think about hitting certain salary milestones and wonder what we will do with all that additional money. I have tried some numbers in my mind and will try to articulate it in this post.

Sometimes we see many different components that contribute to our salary, but we don’t quite know what they all mean. Instead, the layman terms we use are ‘base pay’ and ‘bonus’. CPF uses the terms ‘ordinary wages (OW)’ and ‘additional wages’, and I won’t go into the technicalities but you can find the details on their FAQ page. For now, we will take these two pairs of terms as synonymous but also because we will focus on base pay and OW only.

For those with salary above $1,500, at different age groups, there is a slightly different CPF employee contribution. For most of us who are below 55 years old, that’s 20% going of our gross salary going towards the long-term plans that CPF is intended for. Our employers will top up another 17% directly into CPF, which we never get to see. This total of 37% gets split into three pots, the Ordinary Account (OA), Special Account (SA) and Medisave Account (MA). Suffice to say, as you age, the the contributions drop, so that older workers can continue to remain competitive while maintaining almost the same amount of take-home pay, if they maintain the same employment contract with their employers. But let’s not dwell too much on that today.

I want to touch on a less well-known aspect of the OW, known as the OW ceiling at $6,000. This brings to me the first salary milestone: $6,000. For anybody who is not earning that amount yet, it will seem like CPF contributions are a constant proportion of one’s base pay. That’s not the case once you earn more, because your CPF contributions are capped at 20% of $6,000 = $1,200. You can try the CPF Contribution calculator to see what your own contributions are.

Employer’s and Employee’s Share of CPF Contributions remain fixed at $1,020 and $1,200 even for an OW of $6,500.

That’s great because everything you earn above your first $6,000 is for you to take home. It’s for this reason that there is an ongoing argument out there that CPF only takes from the less well-off (I really wouldn’t say somebody earning $5,000 is poor), especially for those who subscribe to the belief that CPF isn’t their money.

On the flip side, it does mean that you can only contribute this much automatically into your CPF each month. And my own personal take is that it is probably not sufficient for my own long-term retirement goals. As I have written before, my wife and I have started on our CPF SA top-ups of $585 each month, so as to take advantage of the $7k tax relief annually. With this in mind, the salary milestone to target for will be $6,585. The key assumption here is that I have sufficient to live on based on $4,800 ($6k – $1,200) and any additional monies can be channelled towards long-term retirement planning. I’d like to think that $9,600 between a couple is quite enough to live decently in Singapore.

Then comes SRS. As Singapore Citizens, the annual top-up limit on our SRS account is $15,300, which translates to a monthly sum of $1,275. Doing so will provide some tax relief benefits too. If our investment plans are already intended for the long-term, then using the funds from our SRS account might make more sense. So the next milestone will be $7,860.

The next one is more of stretch goal, where I’ll consider the same amount of $585 to top up our parents’ or grandparents’ CPF too in order to enjoy the tax benefits. I know of some people who make arrangements to collect back or to write wills so that the monies eventually returns to them at some point. But we are not planning to go there… Anyway, this (stretch goal) milestone is a monthly base salary of $8445.

Anybody who has a salary close to these figures should strongly consider the benefits of all these available options. It doesn’t mean that you have to wait until you hit the milestones, because you can always consider making smaller contributions or top-ups and enjoying the partial benefits that come along with it. Conversely, these are just safer options and you have to weigh it against the opportunity cost of investments or business opportunities that can potentially bring better returns.

My only parting shot is to be mindful of lifestyle creep once you start to see your monthly salary increase. No need to shy away from spending if there are very good reasons to do so, but there is always that constant balance between meeting short-term needs and achieving longer-term goals.

It will be interesting to hear from people who have busted these milestones whether they have employed all these tools to their advantage. Perhaps the rich may have a different way of thinking about them.

Tax Return Season

It’s that time of the year again, where we have to pay our income taxes so that the Government has enough money in its coffers to spend. Ever since I started working, I haven’t had to file any taxes because of the Auto-Inclusion Scheme (AIS) for Employment Income. But it’s a little different this year since I started subletting one room to Malaysia workers who would have otherwise travelled across the Causeway daily. It was interesting because I learnt quite a few things throughout the process.

All in, we had about $4,400 of rental income for 2020, since we started in August. Learning Point 1: I learnt that there were some rental expenses that were non-taxable, which was quite simple to follow for a first-timer like me on the IRAS website. I did some back-of-envelope calculations but it turned out that the simplified claim method was so much simpler and cost-effective for me. What this method does is apply a 15% cut automatically to my rental income and that’s it. I don’t really need to pour through all my past utility bills and the receipts of other claimable expenses and retain them for verification if IRAS wants to have a second look.

Of course, I couldn’t resist just doing my own checks to determine how much rental expenses I could claim. It came up to $545.80, which was quite a bit less than $660 (15% of $4,400), so it was quite clear what would work for me. Presumably, somebody who has multiple properties may not want this method if it does not help them with tax savings across the board. Learning Point 2: This is an important point because we cannot pick and choose our preferred method for individual properties but must apply the chosen method consistently.

Learning Point 3: The other point that I learnt was that mortgage interest expense was also tax-deductible. This would have been costs that I was going to incur anyway without even subletting, so this is a small bonus for paying slightly less tax.

It finally came up to about $1.6k of taxable rental income. Learning Point 4: One final point to note is that this must be split between any property owners, according to the ownership share of the property and not the split in rental income. Between me and my wife, we both have 50% share, so that’s straightforward. But it is something to note for groups of individual who have different ownership shares and have their own agreement on how the rental income should be split. Just thinking further, in my situation, because both of us lump all our monies and assets together, it made a lot more sense if I could attribute all the rental income to my wife instead of myself since she is in a lower tax bracket than me.

It is something to be mindful about when we eventually move onto our “Sell 1 Buy 2” strategy and the additional private property is intended to be rented out for rental income. These hidden costs are often not in their minds when most property investors make their investment decisions. It may be a small sum that slowly chips away at the profits, but if there are ways to pay less, then why not?

How Are You Spending Your Bonus?

I just received my performance review and will be getting my bonus sometime next week. It’s the first time I’ll be getting a proper promotion. ‘Proper’ because the previous one was known as a ‘cohort promotion’, which sort of implies that everybody would get it regardless of their performance. But I’ll admit that I’m not privy to HR practices and this may just be hearsay. So with a good bonus coming and increment to my monthly salary, it only gets my mind thinking about what I should do with the new inflows.

Most people will start fantasizing about that new phone model or play-thing they have been eyeing for a while. I’ve been joking with my wife… “Others are looking for new Apple phone while I’m looking Apple shares.”

But it’s not actually a joke. The market has been moving sideways this past month, and also dropping for some of the tech stocks that I own. Some of their valuations are looking more attractive that it’s worth considering again, compared to their February highs. Facebook, Nio, even Tesla (cause I last sold at US$700 and it’s now below that). I’ve also been eyeing some of the shares which I own but are much cheaper now, and it may be worth averaging on so that I can get higher dividend yields. For this, I’m thinking to add more to VICOM or Netlink. I will be monitoring these in my watchlist in the coming days.

I was initially considering if I should just buy in advance, before even knowing my performance or the bonus quantum. But I guess I am conservatively like that and would only prefer to spend money that I have / will have with some certainty, rather than money I wish I have. Some say it limits possibilities because I should be able to manage the short-term risk in the event things don’t work out according to plan. But I’m at a stage where I have systems in place to manage my cash outflows for savings, expenditures on fixed costs and leisure, medium-term big ticket items and even long-term retirement. This system has been working for me so far and money set aside for stock-picking is usually what’s left over, which I’m quite reluctant to change for the time being.

Perhaps I may reconsider when I’ve built up a bigger buffer and have set aside enough for my medium-term big ticket items. Read: additional funds set aside for upcoming property plans after hitting my MOP in about 2 years time.

How about you? How are you spending your bonus?

Thinking about a Car Purchse

It’s been almost 2 weeks since my CFA Level Exam 1, so I should get round to doing a bit more writing more regularly. I had a good break after the exam as work has not been too stressful yet, but I can sense that it will ramp up soon enough.

More importantly, there have been some significant changes in my daily routine, which has made me and my wife think about buying a car more seriously. But while she has been trying to not-so-subtly imply that we need one, I am still quite adamant that we can find other intermediate means. Let me explain the situation first.

We recently changed the preschool that my daughter is attending. To keep the story short, we found the standard of the previous preschool subpar and in Singapore, education is one of the things that parents find worth forking out for. We found one that was better but it was more expensive and much further away. So what was previously a three bus-stops journey (about 20 minutes after including some variation for waiting) now became minimally a 45 minute journey one-way.

For a couple of weeks, we experimented with alternative modes, like hitching rides with my brother-in-law (which soon became unfeasible because of a change in schedule) and borrowing my dad’s car (which was only possible whenever he was on leave/not working). Those were clearly not sustainable but it did give us a sense of how much shorter the journey was because we could just take the highway. My fastest record was a 20 minute drive, when there was very little traffic if I left home at the right time. Then there was of course the option of Grab (with the accompanying possibility of surge pricing during peak hours) and BlueSG.

I’ll start with a summary before dwelling into the details: We are sticking with using public transport for the most parts, and then BlueSG whenever we are short for time. After doing all the calculation, the monthly maintenance of a car continues to be too expensive for us to be able to save and invest effectively, even though we can afford it (check out Seedly’s analysis on car affordability in Singapore). So here’s the calculus in terms of time and money…

Option 1: Buy a car. Seedly’s analysis came up with ~$1,500 as the rough cost of monthly outflow, with about ~$17k in downpayment for a car worth ~$57k, with a COE of 10 years. On the back of increased preschool fees already being factored in, this is not ideal even if I can pay the downpayment in full. Not forgetting, 80 minutes travel time per day (pick up and drop off).

Option 1A: Buy a second-hand car. My wife understands me and tries to look for a more cost effective option – ~$25k with 5 years COE, which if paid in full upfront and adjusting the above, will still be ~$1k in monthly outflow. And as above, 80 minutes travel time per day.

Option 2: Rely entirely on Grab. Worst-case scenario, I run into surge pricing each time. This comes up to about $25 per ride, just to send her. So multiply that over 2 trips a day, 20 days a month, that works out to ~$1k too. But not to forget, I still have to travel there to pick her up / drop her of before coming back, so with public transport, that’s 90 minutes each day on top of the 40 minutes Grab rides, assuming that I don’t really have to wait for the driver. So on a monthly basis, this does seem like a worse option compared to buying a second-hand car, but only if I consider the upfront downpayment cost negligible!

Option 3: Rely entirely on BlueSG. My plan currently is an $18/month subscription with 45 minutes free and rentals are at $0.36/min. For 80 minutes travel time, that’s only $28.80 per day, and comes up to ~$600 a month. A lot more reasonable in terms of costs! But it’s not all rosy because I have to deal with unavailable cars or parking lots if I don’t put down a reservation fee. That said, just another reminder that the Seedly analysis probably hasn’t accounted for the increase in petrol prices because of the petrol duty tax that was recently announced.

Option 4: Rely entirely on public transport. That’s $8 a day or $160 a month, but I have to spend about 3 hours of travelling time a day instead.

Let’s put all that information side-by-side and take a stab at analysing it.

OptionsUpfront costs / DownpaymentMonthly outflowDaily outflow
(divided over 30 days)
Daily travel time
1: Buy a car$17k$1.5k$5080 mins
1A: Buy a second-hand car$25k$1k$3380 mins
2: Grab onlyNIL$1k$33130 mins
3: BlueSG onlyNIL$600$2080 mins
4: Public transport onlyNIL$160$5180 mins
An over-simplification but I think the table captures the essence of each option sufficiently

Putting it altogether, I can start making some approximate comparisons between options. For instance, between Options 1A and 2, since the monthly outflow is the same, I am literally forking out $25k to save 50 minutes per day over 5 years (60k minutes over 20 days/month), which is actually $25/hour just for the price of owning a car, since I have stripped out usage by comparing with Grab. In reality, this figure is probably much higher as I have assumed a worst-case scenario for Option 2 because of surge pricing.

Comparing between Options 3 and 4 is interesting too. I basically sacrifice 100 minutes to save $15 each day or $9/hour. What it does tell me is that Option 3 is worth it if I earn at a rate higher than $9/hour. The huge caveat here is that the time saved must translate directly into earnings for this opportunity cost to be realised, which is not exactly true for my case.

Which is why I eventually landed on a blend between Options 3 and 4 and I try to make the intrinsic value of Option 4 a lot more meaningful and worth my time by doing the following:

  • Spend quality time with my daughter on the bus, by reading books with her or telling her stories
  • Get some exercise time in by jogging from bus stop to the preschool or bus stop to home
  • Do my newspaper reading / stock market updates on the bus journeys that are without my daughter

I’m fortunate that my work place is very flexible on hours and even more so now that work-from-home is a permanent feature. I acknowledge that having the time to spend on commute is a luxury not many can afford. But I thought this is a useful exercise to remind myself of how I should value both time and money and indeed the calculus for all this may change as and when my circumstances change.

Does all of this hold up? Happy to hear views after writing such a long post in a long, long time!

Beating the S&P 500

I know, I know… I have left this blog to gather some dust, because much of my ‘spare’ time has been focused on preparing for my CFA Level I exam, which is coming up at the end of the month. But today, a milestone finally happened which is worth putting here for the record.

For the first time since I started investing in 2016, my portfolio time-weighted returns (TWR) finally managed to outperform S&P 500. I had briefly discussed why I used that as a measure previously. This performance is largely attributable to the recent bull runs on both the local and US fronts but I must admit that I have been rather fortunate.

Seeing the red line jump above the orange one for the first time!

I haven’t made many transactions in recent months either. The only notable buy I had was iFast, which was one of the businesses that the monthly gatherings held by I-Min were discussing. Essentially, as I had earlier quipped to my fellow participant, I have made back the course fees and quite a bit more. After studying its fundamentals, I figured that it was a good buy and went in some time in October. And then the MAS’ announcement on new digital banks came, and iFast was unexpectedly not in the list, and so its share price plunged. I immediately bought at the dip because we knew that the announcement did not change the company fundamentally. At the same time, my long-held investment in Singtel finally saw some improvements too.

I don’t know when my luck will run out. But this is one signal that I am doing certain things right. That said, I should end by reminding myself not to be overly cocky, because if there is anything the CFA content has taught me, it is impossible to algorithmically beat the market.

Collecting My Annual Health Dividends

This sound like a post about the medical industry and collecting my dividend payouts. If that’s what you’re looking for, then I’m sorry to disappoint.

It’s actually about something that all Singaporean males should be familiar with – the annual Individual Physical Proficiency Test (IPPT) that we must take every window from the current birthday to the next.

MINDEF is so effective that each NSmen is given an SMS birthday greeting, which accompanies with it a reminder for us to fulfil our IPPT requirement, or else we will either be considered an IPPT defaulter or take up to 20 sessions of Remedial Training (RT), which really imposes a time burden on any full-time worker.

But rather than seeing this as an NS obligation and a mere chore, I choose to reframe my approach – I see it as a dividend payout on my ability to keep myself fit, which gets increasingly more difficult as the years pass, owing to more work and family responsibilities. In return for exercising regularly, MINDEF gives a tiered structure of rewards – Gold, Silver, Bronze and Pass with Incentive.

Some people say it’s money from the government in exchange for about half an hour of IPPT, but there’s definitely a lot of training that needs to go into maintaining that level of fitness!

The standards are pretty high and it is not given that one goes away with any awards. But I guess MINDEF is generous enough to allow for multiple attempts, more to encourage those failing to pass as well I suppose.

With COVID-19, MINDEF actually announced that IPPT requirements would be waived this year. But I felt that my fitness was still decent enough to be worth collecting some money, so I booked for an IPPT session anyway. Given my age, and recent 2.4km performances that I have been running on my own, I was honestly not expecting to get too much out of it. I was even mentally prepared to accept a Pass with Incentive. But I surprised myself by clocking a sub-11 mins for 2.4km and overall just barely scrapped a Silver.

Anyway, the point of this post is this: If I were to valuate this amount like a 3% dividend payout, which is benchmarked to the STI ETF, this comes up to about $17k, $10k or $7k in capital, depending on the award received. That’s one way of thinking about the human capital cost that MINDEF is placing on every physically-abled male who is ready to activate in a moments’ notice.

Just as a firm that does well enough for the year pays out dividends, we could potentially apply the same thinking here: From my own perspective, I generally exercise about 3 times each week, and it is about half hour each session. So based on a 42-weeks window, that’s about 63 hours of exercising. Put another way, I can quantify my exercise at about $159/hr so that I ‘earn’ enough capital in my health portfolio and consider myself fit enough of the $300 Silver award.

Of course, the cynic may say that 63 hours for just $300 is $4.76/hr and working as a part-timer in a fast food restaurant probably gives a higher rate. But honestly, I don’t think many of us actually think of exercising solely for the money, and there are a platitude of health benefits from exercising just because. So that would not be the correct way to frame the effort-rewards ratio.

What do you think about framing the numbers in this way?

1M65 as a Benchmark

I’ll be honest – It was only recently that I learnt about 1M65 and understood how to work CPF towards my own retirement goals. I will try to summarise it in two sentences and then move on, but you can find out more about it from the founder himself, or from Seedly and Dollars And Sense.

First, it uses the concept of compound interest and the stability of risk-free CPF SA rate of 4.0% per annum. (Last time this was changed was in 1999, and you probably can’t find anything as stable as this for the last 30 years)

Second, which is a bit mathematical: \$130,000 \times (1.04)^{35} \times 2 = \$1,000,000. Now in words – it means that starting with $130,000 in your CPF SA account each for both you and yours spouse, you will see a combined total of $1 million 35 years later. (The usual starting date is age 30 so that it is just in time for age 65, when we can start making lump-sum withdrawals)

And there you have it, a quick summary. I admittedly don’t have $130,000 in my CPF SA yet, and neither does my wife, which is why we are looking to top up our CPF SA from next month onwards. Now on to the actual point that I want to make, about using this concept of 1M65 as a benchmark. I’m 30-turning-31 this year, so this is entirely relevant for me too.

The 1M65 Benchmark

The thing about 1M65 is that once the monies is in, there is no need for any more active management of the funds within. It is basically a high-yield savings account (although not liquid for a pretty long time) on steroids. It does mean that comparatively, if I were to start off with $260,000 today to manage (for saving and investing for the future), then very simplistically speaking, I should do no worse than having a million-dollar portfolio in 35 years’ time.

Of course, there will be risks involved in investing and my capital is not guaranteed. But that also means that if I am willing to take those risks, then I should not be settling for anything less!

It will be quite impossible to strictly track with returns for this $260,000, but if you already have this ballpark figure in your total portfolio today, then you should know what to use as a benchmark. Hopefully this provides a different perspective to this 1M65 benchmark – let me know if you agree!