Tuesday, July 15, 2014

Some change in my thoughts regarding the $100,000 challenge.

There has been some calls to poll my opinion on what should someone do with $100,000. There has also been queries as to whether some of the things I wrote on Growing Your Tree of Prosperity is still valid with the market today.

Growing Your Tree of Prosperity is a lot more than just about investing in unit trusts, it puts readers in their first attempt to pony up $100,000 - something which is attainable by almost anyone. It's special to me as it also captured some issues which bothered me 9 years ago. These days, I find that cynical tone in my first book quite amusing even though it shaped my behavior as an investor.

I will first address some of the changes in my mindset here :

a) These days, ETFs may indeed be superior to unit trusts.

Close to a decade ago, ETFs were not as ubiquitous as they are today.

In my first book, I placed a lot of emphasis in selecting unit trusts which are global in scope with a low expense ratio for higher long term returns. These days SGX is full of ETFs which have a much lower expense ratio, negligible sales charges and gives you access to a range of global investments at your fingertips, so if you have a brokerage account, you may want to go through the ETFs page in the SGX website to build your portfolio. I think $15,000 - $30,000 is enough to get you started as you will need several ETFs to build a diversified global portfolio of different asset classes.

If you have barely have less than $15,000, it may still be prudent to find a unit trust dollar cost averaging scheme to build your capital up to $30,000, but in this case, you might as well use this as a cash reserve before jumping into ETFs directly.

b) If I had the knowledge I had today, I'd jump straight into investing for dividends.

Most of us who were investing since our 20s had to pay our tuition fees the hard way. When I graduated, there were not REITs in the stockmarket. A fresh graduate is very well read these days, many already know value investing and understand how to filter stocks based on dividend yields. If I had all this information, I would jump into building a portfolio of dividend stocks immediately using manufacturing and telco blue chips at about 5% yield a year before starting to push my yields upwards with REITs and business trusts.

This approach will allow me to start supplementing my transport expenses and meals perhaps upon my 3rd or 4th year of work.

The second part of this post is a section which I would not really like to provide easy answers. A lot folks ask me what to do if they have such-and-such amount of money. The answer to such a question is closer to a legal problem than an engineering problem. The best answer depends very much on your personal context.

Instead, I will try to give you some points for your consideration :

a) Have you covered all your emergency situations ?

Before the discussion takes place, you should have 3-6 months in emergency expenses. This should preferably be in cash. You should also have a maxed out term life insurance to protect your loved ones in case anything should happen to you.

b) Have you enhanced your human capital yet ?

Contrary to what a lot of people say, you get rich from working. Working provides the earnings you save which is then farmed into your investments.

Unlike financial assets, human capital can be enhanced at a significantly low investment. My Masters in Applied Finance which was offered in NUS 11 years ago only cost me $11,000, that was where I learnt about investing my money. These days you can enroll in SMU by paying 5-6x the amount, I think it's worth every cent. Some engineers can jump into the business development line with a good MBA from INSEAD.

This is an important consideration as the enhancement to your income was exceeds the cost. ROI can well exceed that of equity counters. The downside is that it's better to do this before you are 35 as you still have your best career days ahead of you.

Of course, there are more tactical ways to grow your human capital. A short course on computer software ( If you can get certified on Internet of Things ) can make a significant difference in your career.

c) Invest only after earlier points have been considered.

Investing should only be considered after (a) and (b) have been taken into consideration. Once you arrive at this point, many other financial bloggers can give you better advice than I do, here are your possible options available for someone with $100,000 to invest :

i) Permanent Portfolio 

An ETF which covers all asset classes with regular re-balancing can achieve decent results with minimal draw down. This is probable the best option for a beginner.

ii) Yields Portfolio 

This is what I do personally, hunt for yield stocks to offset my living expenses. I generally ignore capital gains or losses and avoid portfolio turnover.

iii) Value Investing 

Look for low Price to Book value stock bargains and focus on total returns and minimizing your downside. Benjamin Graham focuses on this approach and some folks make a lot of money with this method.


  1. Thanks for your blog post!

    Currently I am vested in STI ETF but I am thinking about exposure to global/emerging markets through other ETFs.

    Some concerns I have would be low liquidity, foreign currency denomination and automatic reinvestment of dividends (i.e. You can't choose to invest the dividends elsewhere) and also that there may not be a dollar cost average plan (think POSB InvestSaver).

    I am still not savvy with platforms like fundsupermart or dollardex and are concerned if they have hidden costs (e.g. platform costs) etc for their RSPs.

    Any thoughts on this?


  2. Why not just look at SGX and go for the Global ETF with the lowest bid-ask rate ?

  3. hahaa I am young mah..

    not so much capital... difficult to dollar cost average each month like this...

    only way is wait for the storm?
    then again it may be a 10 year bull?

  4. Best is accumulate into savings account then buy 1 lot by 1 lot from SGX.