Growing your tree of prosperity
Growing your Tree of Prosperity is an introductory investment guide written specifically for Singaporeans who wish to take their first step towards financial independence.
Sunday, March 17, 2024
Three improvements I hope to see for the CPF system
Tuesday, March 12, 2024
Update on my crypto positions
Here are some of the thoughts I have about cryptocurrency investing:
- I still think I left ETH early, but I am uncomfortable about some Dua Kang Cryptobros returning on the forums. They can have all the fun getting rich.
- The gas fees in the ETH ecosystem are brutal in a bull market. This will force many investors to trade ETFs as trading fees are lower, and there is no need to manage wallets.
- The regulatory regime is also tighter, and I can't withdraw my funds from Coinbase as DBS keeps flagging an error when I try depositing $1 to link it to the exchange. I off-ramped my funds in Geminii and lost a lot to transaction fees.
- There's plenty of money to be made from regulatory arbitrage. As crypto ETFs slowly get approved, you can take positions to exploit the upswing. There's no real need to buy crypto and store it in your wallet anymore. A brokerage will do, but you must be an AI and enable complex leveraged products.
Finally, I currently have about $8,000+ in LUNC and USTC, but I am already sitting on fairly substantial gains. If the price remains high in 21 days, I might liquidate and farm the funds into the next LUNA-like investment.
The closest trading idea I have is Keppel Pacific Oak REIT. It stopped paying dividends but still has a high tenancy rate. This could be a multi-bagger, but you must be patient and hold it until 2026. The odds of dividends returning from KORE are higher than USTC pegging.
Saturday, March 09, 2024
From Languishing to Flourishing
- The external path is where we keep score and become good at something, like our jobs. We take the external approach when we do something to improve our social status. The external pathway is objectively rewarding, but you get diminishing returns as you age.
- The internal path is all about meaningful personal change and ethics. As you get older, there are more opportunities to follow it, at least because the nosy relatives who judge you during the New Year family gatherings begin to disappear one by one.
- Learn something new - This is too easy thanks to Skills Futures, but my emphasis is to teach something new because the Feynman Techniques shows us that we can reach much higher levels of mastery when we teach something.
- Building Relationships - While the book says that quality matters more than quantity, I wish different personality types could use different strategies. As folks get older, they become better at ending relationships. If only there was more direction on how to do this.
- Spiritual Practices - Another valuable opportunity, but this world is full of cults and scams. The question for non-religious folks like me is whether we can come up with ideas that go beyond meditation or yoga.
- Finding Purpose in Life - Philosophy has relatively good answers to address the problem of finding meaning in life.
- Play—The funniest thing I realised about this section is that play is supposed to allow a person to practice their imagination and break away from an obsession with achievement. But I've been gaming for so many years that I see long-time gamers flouting this rule continuously because competitive games give them that feeling of success that has eluded them in real life.
Of course, the whole point of this self-audit is to open my mind again to previous failed attempts and try to do better, but with a different approach.
Finally, you can observe how every single point about flourishing does not involve much money at all, but FIRE can be an enabler as it gives folks time to figure out how to flourish.
Thursday, March 07, 2024
On the issue of languishing
- Emotional well-being measures how happy and satisfied you are with life.
- Social well-being measures how well-integrated you are into society,
- Psychological well-being measures how much you like about your own personality.
Wednesday, February 28, 2024
Some clarifications on some of my CPF videos and articles
I need to write an article to clarify my numbers as they are part of a thought experiment to project the amount of money needed today in our CPF-RA to lead a comfortable lifestyle based on 2021 figures from the Lee Kuan Yew School of Public Policy. In 2021, that number is $1,421; that amount today, assuming 3% inflation, is close to $1,560 in today's dollars.
Now I've got a severe problem because most of the tables from the press will start with a multiple of BRS today, then allow the amounts to compound for ten years, then use the CPF Life Estimator to project monthly payouts many years later when the member reaches 65 years old. The narrative is that you will have a nice payout when you hit 65 if you let your money compound in the CPF-RA until you can start paying annuity premiums to get a monthly payout.
There are too many degrees of unpredictability when we do this because we need to know how much annuity premiums cost in the far future, how much annuity costs depend on interest rates in the far end, and the average life span of a Singaporean. If humanity finds a cure for cancer, everyone's lifespan will extend by 3 years, and annuities will become more expensive per dollar of payout. On top of that, we will have problems projecting the basic expenses of a 65-year-old ten years in the future. A more significant proportion of 65-year-olds is spent on medication, and medication has an inflation rate higher than our reported amounts. I have evidence of this - my evidence comes from the Medisave BHS, which grows faster than 4% yearly.
So when I use the CPF Life Estimator to figure out how much I need in CPF-RA today, I can't work the 10-year 4+% compounding into my figures from age 55-65. I have to input the amounts a 65-year-old member has today. Then, I used the CPF Life estimator to calculate my payout immediately in 2024. This extremely theoretical exercise will result in a monthly payout much lower than the Louis Koay article or mainstream media.
We need to know how much is adequate to cover today's expenses. i.e. In 2024 dollars.
My conclusion remains that we need at least 3 x BRS in our CPF-RA when we hit 65 for payouts, which may be $3k+ as written in other articles, to barely meet the basic expenses of a 65-year-old. Another conclusion is that it may be unproductive to put the full 4xBRS into CPF Life as there is a risk of over-insurance as payouts, even with the Escalating Plan, don't seem to mitigate inflation completely, which means that members still need to pick up investing skills and take on market risk to succeed in retiring conventionally.
The private sector carries a heavy burden when we write articles about CPF. I can lose credibility if I am wrong.
We have been combing through some of the comments raised in our videos and using the CPF website to fact-check our materials against the statements made. The CPF website needs to make this a more straightforward process for us.
Please be patient and understanding if you find factual inaccuracies in my material.
I intend to come clean if these can be found,
Saturday, February 24, 2024
Make Polytechnics Great Again !
If we go beyond CPF reforms, the biggest game-changers are the ones for mid-career changers over 40 who can go back to a Polytechnic to study for a diploma and draw a monthly allowance of up to $3,000 a month.
I do not have any policy details right now, but I want to share some thoughts on this important game-changer that will create a massive seismic shift in the way we look at educational institutions today, which will upend any of my previous posts on polytechnic education.
At first glance, this looks like a welfare scheme that will give unemployed mature workers a two-year reprieve while they retrain for a new career with no guarantee of an actual job at the end of the course, but if you look carefully at the policy, it would be hard to abuse. Folks who have been unemployed longer than a year do not have a salary track record to get payouts from the scheme. The scheme is also keyed to half your original salary, so it barely covers all living expenses for most mature workers. At first glance, this may not be a successful policy as it benefits the few and may not result in re-employment.
Now, if you are willing to go beyond looking at the scheme as a welfare program for folks who are on the verge of unemployability, I think the genius of the program stands out.
The first effect is that folks are not forced to become gig workers, so they have better options for at least the next few years, which can reduce chronic underemployment.
The second is the amount of entrepreneurial fervour it can generate.
Many MNC executives need a risk-controlled option to transform themselves into SME owners. This can become a pipeline for the transformation to take place.
Imagine I am a successful, mature executive who has a few colleagues who are concerned about restructuring and predict that our careers will be over soon. I can hatch a plot to start a business, but before I can create a minimally viable product and get funding, I need time to pick up the latest skills for running a new business. A few partners can enrol in a Polytechnic to pick up some missing skills and spend the next two years preparing the ship for launch while drawing a small allowance. If the business plan does not work out, I can still get re-employed as a plan B, which is all about optionality - the government is using tax dollars to give you a call option on your human capital. As Polytechnics provides me with access to young classmates and many ITEs grads fresh from NS, I can even build a labour pool from my classmates and provide jobs for them.
There are a couple of things I hope to see from details in 2025:
a) First of all, bureaucrats will try to plug all loopholes. The path should not be closed to successful executives who are NOT involuntarily unemployed and can generate plenty of income while being a student. I'm selfishly putting this on the table because I foresee a lot of temptation to do this.
b) There should be a decent drop-out provision where someone can drop out of Poly when they find a job or launch a business. This person should be able to suspend welfare payments and still be entitled to a future remaining stream at a later date. Dropping out should be viewed as a success and normalised in a Polytechnic.
c) As it stands, the core curriculum in most Polys just meets the needs of O-level graduates. Mature students need core subjects that are more relevant to them, like basic business operations and planning, online marketing, prompt engineering, and, of course, personal finance. Significant reforms need to happen here because I'm not inspired by the current Poly core syllabus. I'm taking into account this work as Polys now needs to cope with an O level, ITE, and mature professionals' intake.
d) In addition to internships, students can work with VCs and Incubators as a subject. They can try their hand at business
e) Some mature students should be allowed to teach a specialised to get credits.
Anyway, after speaking to a few friends with no problems generating income from their own businesses, everybody seems interested in attending a Polytechnic in 2025 to pick up some AI skills.
I have even started combing the Poly websites.
This is because I'm confident of earning a decent income from my businesses even as a Poly student, but I am worried that some clause will stop me from enrolling in an institution. I can farm the $3,000 into my CPF or SRS, which I will need to do to hit the new ERS.
Finally, we now have a credible plan to end the comparison of Polytechnics against JCs. In 2025, Polytechnics will become a new beast, a very strange institution that brings different Singaporeans together to carve out some kind of new entrepreneurial ecosystem in the country.
Or I'm just a dreamer.
Friday, February 16, 2024
CPF investing is "dangerous"
[ Kyith of Investments Moats has pointed out an interesting point I was unaware of. While I know that RSTU up to FRS into CPF-SA exists, I was unaware that after age 55, you can RSTU up to ERS!
He also sought clarification on what I mean by the uncertainty of annuity payouts at age 65 when annuities are designed to provide fixed lifetime payouts. What I meant was that the uncertainty comes from not being able to predict annuity pricing before payouts begin. The CPF Life estimator is just a rough guide.]
The first thought I have in mind is the political cost of this move. I think the CPFB really wanted to replace the 4% with a variable rate tied to the 10-year bond many years ago but probably refused to make this move because they were concerned about angry voters.
I think this policy is much milder because it largely impacts richer folks who have over $426,000 in the CPF system who are milking the 4% risk free. If the CPFB no longer owes 4% to many millionaires, they might be able to enact more generous policies for lower-income voters.
b) CPF-Life is now a cognitive strain on financial decision-making
CPF Life is now very central to retirement planning.
As the 4% is now gone, folks have to decide whether to commit funds into the OA account that gives a measly 2.5% or park monies in the RA which converts to an annuity. I suspect this will engender a lot of anger in the future because CPF-Life payouts can change over time depending on when you use the Life estimator or reach age 65, and folks don't really know when they will die. I think this cognitive burden levied on the populace, while good intentioned, will cause a lot of unhappiness in the future.
In a future Dr Wealth article, I will provide a framework about how much to put into the CPF-RA after age 55. I will also talk about investing to minimise the market risk whilst retaining at least a 4% dividend yield for a locally focused portfolio. The days of getting 4% risk-free are over.
c) If you raise ERS to four times BRS, maybe you add a few new policies to make it easier to reach it.
The raising of ERS to 4x BRS is what baffles me. Many features that can speed up the accumulation of retirement funds switch off after you hit FRS. These features include the OA->SA transfer, and the Retirement Sum Top-Up scheme ceases to function once you hit FRS. The central problem of conventional retirement is that if I accumulated just the FRS, CPF-Life payouts would not be able to match the $1,421 in 2021 dollars required for a 65-year-old to live a dignified existence. There will be a $400 shortfall.
Extending the OA->SA transfer and RSTU to 3x BRS would help greatly for folks who want to attain retirement adequacy earlier in life, given that CPF is no longer burdened by the millionaire's CPF-SA accounts.
The collective effect of this seismic change in CPF policy is that CPF investing is now highly "dangerous". You no longer have a risk-free 4% CPF-SA account after age 55.
- You still have a risk-free 2.5% account in the form of CPF-OA.
- You can move the funds into CPF-RA but you take on the risk of uncertainty of CPF-Life payouts at age 65 which can be based on annuity pricing. You also don't know when you will die so you struggle with deciding which plan to choose.
- Finally you can invest in the equity markets and take on some market risk.
I'm actually pleased with these policy changes because it is going to be much harder to ignore our local stock markets if you want a source of returns denominated in SGD. This may actually provide a longer boost to SGX equity markets.