Thursday, March 28, 2019

What problem is Financial Independence supposed to solve ?

Image result for millennial problems

I thought it might be a good time to summarise everything I know about The Problem that becoming financial independence is supposed to solve. If no one works on coming up with a proper definition of the problem, financial independence is just like blockchain technology, a solution looking for a problem.

Here is what I know about the problem so far :

a) Emergence of the gig economy

The emergence of the gig economy is a new thing that folks in my generation did not have to contend with. Graduates from the ITE/Poly/University tracks will face an economy that will not give them a permanent employment role 50%/40%/10% of the time.

The effects of being in the gig economy is not truly understood so far because most 20-somethings are energetic enough to earn a decent wage. Problems occur when they fall sick or start to slow down when they have a family. There are knock-on effects when it comes to home ownership and marriage.

Investors may be beneficiaries of this phenomenon because the gig economy keeps folks cautious and this maybe that's why inflation has been benign.

b) Retrenchments are affecting younger workers compared to the past

The latest round of retrenchments in 2018 hit folks in their 40s and PMETs hard. Anecdotes from my students tell me that even some folks in their 30s are being let go by companies. This is likely due to the half life of a good degree becoming shorter and shorter.

I learnt structured programming in JC, then in University Object Oriented programming required a radical rethink of how to write software. These days we have functional programming and just around the corner, quantum computing may enact a paradigm shift which may render all software developers obsolete.

The combined effects of (a) and (b) may lead one to conclude that Millenials today with a degree have about 10 years of regular employment where they can get a steady increment every year with little fear.

Let's look at what happens at the end of 10 years :

a) Your salary will become lumpy as work becomes projectised

I had a great conversation from an old friend today. The problem faced by Gen-X guys like me is not that we will lose a salary. The problem is that our salaries will become lumpier. Our work becomes more projectised and we will paid when someone has an incentive to pay us.

For me, I have a training gig with Dr Wealth. I get paid only after every class. If I conduct a class, generally I will be paid a week later. If I am ill and cannot conduct a class, I don't get paid. I also don't get paid if my services are no longer required by Dr Wealth. I may have to find a new company to partner with.

I am not alone in this regard because a lot of guys my age look for short working contracts and face the same situation. Alternatively, it is a life of moving from retrenchment to retrenchment.

Sadly our home mortgage payments are not lumpy but remains consistent.

b) You will come under pressure to retrain and it would be a fight for survival

The government is not doing this Skills Future thing for fun, they anticipate that folks will have to reinvent themselves quite a few times in their lifetime. As someone who graduated recently from law school, this process of reinvention is a very unpredictable move. In my case, the legal industry not only became unattractive, I had the added weight of ageism against me. Even if I can find a way to become a community lawyer, my paid would be a mere fraction of my last drawn income. In essence, my pay cut would have been more than 50%.

A lot of Gen-X guys are now facing the pressure to retrain, but they have to realise that it's less about retraining but more about readjusting to a lower income and maybe longer hours at work.

Retraining is about survival. You don't retrain to thrive or do better. That is why skills training adverts show discouraged workers, they don't show 40-something uncles going back to SMU and trolling his Legal philosophy lecturer on why Trump is awesome. 

c) Life gets better for a short while, then it starts to sucks

If regular solid employment is going to last only 10 years, then your life is only going to get better for a short while before it starts to suck over the long term. If the future is lumpy and unpredictable, then every financial obligation you are taking upon yourself is going to hurt you over the long term.

10 years basically means that if you have a car. That's the only car you can afford your whole life. You may only go for a home mortgage significantly below what you can afford because it lasts 25 years. I can't even imagine why folks in their 20s today will want kids in this kind of economic environment.

If we position the problem statement as what I have above, my solution fits the problem statement perfectly.

(i) Dividends investing allows a lump sum asset to be converted into a perpetual stream of small quarterly payments.
(ii) Leverage can deal with short 10-year  horizon span most 20-somethings face in today's workforce.

( Note : Risk of  margin call makes leverage feasible only for folks who know a lot more about finance. )

The STI ETF has gains 6.92% since inception with a semi-variance between 11-12%. Investing in a disciplined manner to the tune of $1,500 every month for 10 years will barely get you a quarter of a million dollars at the end of the period, after which you will barely get $8,000 a year in dividends.

For this game to be played well, you need to be at the level of the most dedicated FIRErs on the blogosphere. Otherwise, when you hit your 40s, you may be going through the equivalent of Design Thinking programme thinking that it would actually make you valuable to an employer in the future.

2-3 years after that, you will still be back attending another course after getting retrenched


  1. Damn your post is just a ray of sunshine. Makes me want to go into the death biz. At least there shld be enough customers for a while.

    I'm an early GenX, back when comp sci was still a dept in NUS Sci faculty. My observation was that ageism & the 35-yr critical age thing started in the 2000s and became institutionalised as a byproduct of the FT policy. The GFC aftermath just exacerbated it.

    But I think most with above average qualifications & skills shld be able to have a 20 year runway. Enough time for a working couple to afford a modest home & raise a small family, nothing luxurious but OK. And to build a sufficiently large Reits portfolio. Without leverage it'll probably throw off $4k-$5k monthly average dividends. While not earth shattering financial freedom, it gives the family option to operate on barista FI or PT jobs even if both spouses get structural retrenched.

    To build greater robustness, the couple could boost their investment savings by 50%-100% higher especially if both were earning median grad pay. And / or use some leverage to increase dividends by 40%-50%.

  2. Hi Chris

    Great and insightful post as usual! Your points have many elements of truth that reflects workplace realities today.

    If there is a general and prolonged economic slowdown, Will a SG listed REIT portfolio be the solution and sustainble? I can imagine the REIT portfolio may need to restructure with the times due to underlying business changes and trends.

  3. Unknown,

    My fear is that the 20-year career runway is something only Gen-X gets to enjoy. For Gen-Y, I harbour strong reasons to doubt the effective of old career formulas like Engineering->MBA because these days MBAs are a dime a dozen.

    My thesis is that experiences of one generation may not translate well to another.

    Gen Y is still having fun BTW.


  4. INTJ,

    I doubt there is such a thing as a sustainable portfolio which is why we need to constantly pivot and rebalance as times change.

    That being said, I still think REITs have a decent runway for the next year though.


  5. Regarding transitioning to a law career, one needs to understand that it's still kinda a old boys' / old girls' / hierarchical / snotty culture & environment here. One is expected to start at the bottom & "prove" yourself & navigate the politicking & back stabbing as par for the course.

    The first 5 years will suck, initially in both pay & hours, and subsequently in hours. But for those who are good & can play the hierarchical politics, the reward is an exponential increase in pay and a subsequent moderating of the soul sucking hours.

    I know a friend and another acquaintance who did mid-career switches into law in their early-30s. The thing is that both have rich parents who sent them to Cambridge. My friend went over at the age of 28 and squeezed his studies into 2.5 yrs with exemptions. The acquaintance went there at 30 but he managed to do it in just slightly over 1 year --- I have no idea how he could get so many exemptions ... afterall his 1st degree was in EEE.

    For my friend, he benefited financially almost from the start as he originally had a crappy general NUS arts degree and was working in a ministry in the early-1990s when civil service pay was still quite sad. As for the acquaintance, he definitely suffered opportunity cost & pay cut, but managed to match his peers after 2-3 years in a big-4 law firm, and after that accelerated well ahead of them.

    For those who have already achieved a substantial standard in their current industry, it will be a big opportunity cost, and it depends how bad the push / pull factors to compel one to suck it up for significant number of years.

  6. Unknown,

    My seniors enjoyed a rosy period in the legal industry and most of my JD guys are doing ok. I would not advice juniors to think that this period will be the same as in the past.

    Generally speaking, you are also correct. Social capital matters a lot in the legal industry than other industries and at times like this, it is crucial to determine who can make it.


  7. Hi Chris,

    I am of view that 20 years runway is sufficient for a single to achieve FIRE in the Singapore context. I am one of the said BBFA example which you mentioned in your previous posts. Life is indeed great with the simple needs and wants.


  8. Ben,

    More importantly, are you convinced that someone currently in his 20s have a 20 year career span ?

    I'd like to hear your reasons because I can be wrong so I want as many possible alternative viewpoints here.


  9. Hi Chris,

    Let me share my views and corporate world journey as requested. You may want to note that the below views as per my perspectives which may not represent the general public's views.

    Yes. I am deeply convinced that one will at most have about 20 years career span. As you may be aware, I quitted the corporate world sometimes in end October 2018 on my own accord. I was being reminded by the management of my last employer on the likelihood of being made reductant of my role due to the Artificial Intelligence ("AI"). I was being reminded to upgrade myself on a consistent basis or lest being made reductant by compulsion. This is despite my late working hours from 8am to 11pm daily on the weekdays.

    I can sense the imminent circumstance in which the retrenchment will come sooner than later. The Managmement has been trying to cut the headcount by 90% in the previous department of my last employer. I decided to pull the trigger on the full-time employment as I feel that it is not worthwhile having to slog for about 80 hours per week and I could sense that my health deteriorated due to long hours of work. I am not fully convinced by the AI in taking over the work in my department. As per my perspective, this is so-called justified reason in reducing the headcount. I can sense that the so-called fortunate retained 10% staff will eventually have to take over 100% of the workload. The Management has been advocating on the phrase "Do more with less" mindset and hopefully instill such mindset in the mind of the staff.

    I believe that you would have heard about the Authority stating such phrase to the citizen.

    Since the start of my fledging corporate world careers sometimes in 2000, I already set my mind and forsaw that my career will last at most 20 years. No doubt, I could have stayed on and get the retrenchment benefits in my last organisation. I do not see any point in staying as I have not been long with the organisation as I changed companies during the course of almost 18 years of the corporate career. The retrenchment benefits would not have been great. Health is of my upmost concern which pivoted me to making the exit from the corporate world.

    The benefits of changing jobs have given the benefit of significant remuneration increase with each company change. My last organisation was the fourth company in my corporate world career.

    In view of the above prediction, I embarked on the dividend growth investment and the yearly generated dividends gave me the courage and buffer to tender my resignation last year.

    It has been a few months since I left the corporate world. I can sense that my health is improving albeit no income. I feel happier and more relaxed in my daily lifestyle. By the way, I got the distance learning degree during my time with the first organisation. I joined the first organisation with the diploma qualification. Hence, you could have predicted that I started off in the inferior card in the course of my corporate world career. I might not be worse but I made the best use of the dealt card and sought to improve the start-off situation to the best of my abilities.

    On your question of someone currently in his/her 20s, I still maintain the same belief that the 20years career span still applies in the current situation. I think that span might be shorter as per my perspective. This is due to fast advancement of the AI which will reduce the career span. I might be wrong. Novethless, this is as per my perspective.

    To be continued in the next post


  10. Hi Chris,

    Continuation of the previous post.

    It is not over for this individual currently in his/her 20s. The known recipe towards overcoming such circumstance is to save and invest right from the start of the career. My preference investment choice will be in the share investment on my DIY approach. The dividend growth investment is my believed choice and it has served me well till to date. I avoid the investment-linked products and insurance policy (coupled with unit-trust related investment) and am of view that this will derail my retirement plan. I buy term insurance which only caters to about 0.5% of my last drawn monthly remuneration. The general maximum allocation is 1%.

    Last but of not least, I (being a BBFA) goes to great extent towards making my transition from a full-time employee to a early FIRE individual smoother and easily.

    My apologies for the above lengthly reply.

    Hope the above view will be useful in your assessment.


  11. Thank you for your perspective Ben !

    I doubt you are BBFA lah !