CPF Life Necromancy

We don't really know how long we will live although the projection is currently around 85 years. Of our remaining years, we're not even sure if these years are spent living healthy lives. Quite a decent number of years may be spent in a hospital in a zombie-like state.

So building on the previous articles on 1M65 idea, a question arises as to whether we are confident that we can actually get back that $500,000 that we have so painstakingly saved in our CPF program. 

In my opinion, if you want to get to experience your CPF savings, you need to figure out how CPF Life works.

The best analogy for CPF Life for the fantasy gamer is that it is Necromancy, a Black Art involving channeling the energies of dead people. Annuities channel derive wealth not just from the the underlying bond-like instruments it invests in for the annuity holder but also grants mortality credits from dead annuity holders. The wealth of dead annuity holders are channelled towards the those who are still alive. 

This is why these payouts often exceed that of what you normally get from a bond portfolio. 

a) If you are a confident investor or expect a short life, choose the Basic Plan and keep only the Basic Retirement Sum in your CPF Retirement account.

Even a very naive strategy of buying and holding the STI ETF has yielded annual returns of 6.55% since inception. Bank preference shares and bonds can return north of 4% for retail investors. If you can handle volatility in the markets, it may be better to manage the money yourself.

Another reason is if you expect to live a short life. If you have two or more of the high blood pressure, high cholesterol or diabetes, you are not likely going to enjoy a long life. One way of figuring out whether you will have a long life is to just look at your parents or grandparents. Even being left-handed will give you a lifespan 9 years shorter than a right-handed person. As a diabetic myself, I expect a 15 year reduction compared to most of you readers.

If you belong to this category, then by all means keep the least amount of money in the CPF scheme. The Basic Plan plan reduces the amount of annuities you will buy giving you a lower payout but can maximise the amount of money left for your spouse or kids after you pass on. You should also keep the bare minimum BRS sum in your account which is around $90,500 for those reaching 55 in 2020. The worst case scenario is that your kids migrate and you find a way to follow suit and take out your CPF money.

Of course, if you take this path, you have to look after yourself using your own investments.

[ Note : If you adopt this belief about your lifespan, you should also make sure you buy plenty of term life insurance so your family can "strike lottery" when you pass on. ]

b) If you expect live very long, choose the Escalating Plan and maintain the Full Retirement Sum in CPF.

Some Singaporeans will die before their average life expectancy, but others can outlive the average. If you believe that you will lead a long life, earning mortality credits from the annuity plan is the way to go because you will be sustained by your dead fellow citizens. 

In such a case, keeping the Full Retirement Sum (FRS) and following the Escalating plan is your best bet because payments start smaller but grow over time. If you are not very confident about investing, you can push beyond the FRS so that your monthly payouts would be even larger.

Again, if you are the kind of person who has no health issues even in your early 50s and have parents who lived till a very ripe old age, you might stand a chance to benefit more from your portfolio of life annuities. You will be paid so long as you remain alive. Even if you are in a state of living death like a Lich or a Zombie.

Sadly, we don't really have an idea when we will die. Some of us will luck out, but others may get into an accident and pass on very early in life. 

This is ultimately the biggest problem with CPF Life : It provides options that can only be truly optimised only if we have no illusions of the state of our health, something that most Singaporeans, even those with advanced degrees, are unable to firmly grasp.

It is actually quite cruel to leave this decision making to citizens.

• Can Metformin lengthen a healthy person's lifespan as postulated by Tim Ferriss? 
• Does intermittent fasting help a person live longer? 
• What about early retirement as it reduces exposure to a stressful workplace? 
• How much of health and wellness information is real and not a result of corporate sponsorship or balderdash from MLM companies? 

I suppose health the the domain of an entirely different group of bloggers. 

When the mobile version of Diablo comes out, I expect to play a Necromancer. 

The question is whether it is best to play a Necromancer when you play the game of CPF Life.

The Art of the Good Life #47 : Making Friends with Weirdos.

This is a chapter that resonates with me because I have considered myself as an outcast and weirdo. I grew up playing Dungeons and Dragons which was possibly the geekiest hobby you can have in the 1980s. I also spent the greater part of my life as an Internet Troll on YPAP BBS.

Just last week, I met up with an old secondary school classmate and we large spoke about how alienated and out of touch we were with our classmates.

The chapter concludes that a weirdoes life is not a good one, although they belonged to the group of unreasonable men who made a difference to this world. Galileo supported the heliocentric model of the Solar system but was tried by the Inquisition for his troubles.

The formula for the Good Life according to this chapter is to befriend the weirdoes but do not be seen as one. This way, a person can be one of the first to exploit a paradigm shift and yet would remain chummy with the status quo. It's a little hypocritical, but it is a good way to have the best of both worlds.

Within part of the FIRE community, the BIGScribe Facebook group can be considered the status quo even though we would be weirdoes when you take the view of the average Singaporean.

The two blogs that are canonical for the FIRE community are obviously the blogs written by Kyith Ng of Investment Moats and anything that contains the musings of AK71. This is classic FIRE at its best. Nothing more needs to be said.

But equally important are two "outcast" blogs/bloggers that are often shared in this BIGS group :

Money Maverick

One is the Money Maverick blog which I find highly entertaining because it is written completely supported by commissioned sales interests. I actually treasure its articles of late because it gives me a glimpse of what commissioned sales personnel are thinking and keeps me updated on the products that the industry is peddling to most citizens. While I do not agree with it's logic most of the time, it is at least an attempt to provide a different point of view from the FIRE movement.

Needless to day, whenever Money Maverick appears on BigScribe, it gets a frosty reception from the FIRE fanatics of social media. After some deliberation, I think we're all better off if we encourage Money Maverick moving forward.

I'd rather have something novel to read even though I may not agree with it.

Marcus Neo of Dr Wealth

To be fair, Dr Wealth is generally a mainstream blog that shares decent personal finance articles. But one contributor, specifically Marcus Neo, deserves special mention because he has a gift for polarising readers.

One of my favourite episodes was when Marcus started a shit-storm over whether it was to earn more money or save more money. You don't have to agree with his logic, but it made people passionate about whether folks should buy Starbucks coffee.

My personal wish for the financial blogosphere is for a FIRE troll blog to emerge from our midst. The best guy to do this is a super-successful salesperson or businessman who lives a life completely antithetical to FIRE. He shows off his Lamborgini, Rolex watches, and scoffs at people who buy low expense ETFs. Bonus points if he is short and looks a little like Jho Low.

This kind of blog would be the enemy that our FIRE movement deserves.

 

A gentle critique of Loo Cheng Chuan's 1M65 idea.

Everything I do with my finances is based on my own readings and self-study. I never had a mentor or a Sifu when it came to money. In similar vein, I seldom attend financial talks unless I have to give a talk myself and get to listen to other speakers on that day.

Very recently, one of my ex-NS buddies contacted me after reading about commentary at Channel News Asia and as it turns out, he now works with the Institute of Financial Literacy so he sent me an invite for a free lunch. During that event, I was very fortunate to listen to talk by Loo Cheng Chuan. Perhaps not coincidentally, Loo is also going be featured in Seedly on their next AMA session which can be found here.

On the whole, I enjoyed Loo's presentation. It was logical, and I can relate to him because he spoke candidly about having to cope with the Anti-PAP trolls after he shared his message.

The essence of his message is quite simple : Transfer your CPF-OA to your CPF-SA. Over time, a married couple can accumulate $1,000,000 in their CPF-SA accounts on the 4% interest rate and retire as a millionaire household.

( As a point to note, I myself have maxed out my CPF-SA in my early 30s and can attest to the effectiveness this strategy. The reason why I did that is a humorous anecdote I share with all my workshop attendees. )

a) Is this achievable by an ordinary family ?

The median income of a family is $9,023 per month. 37% of that figure is $3,338.51 or approximately $40,000 a year. Compounding an annual contribution of $40,000 at 4% can allow an account to reach $500,000, or twice the FRS assuming it is $250,000, within 10 years.

Once the CPF-SA is maxed out, CPF-OA returns can be enhanced further with CPF-IS. Putting 35% of your CPF-OA into the STI ETF or the SREIT ETF has a decent probability of achieving 4% in blended returns, so about eight more years of accumulation may be required to reach $1,000,000.

So it is definitely possible for a couple to max out the CPF-OA to CPF-SA over the medium term and attain $1,000,000 over the long term.

Is this achievable before 50 years old ? Very possibly !

b) Why is this not ordinarily done in practice ?

Another point raised by Loo is that this is often not done in practice because we draw out the CPF for many reasons. Most couples use up their CPF-OA to lock into a piece of property. Other couples use it to pay for medical expenses and children's tertiary tuition expenses. So Loo is definitely correct to point out that housing and retirement are trade-offs against each other.

Critique of 1M65

Naturally, even though I approve of most of what Loo shared with us,  I have some concerns over some of the smaller aspects of his ideas.

a) The assurance of millionaire status allows a person to persist through market downturns.

This is a very novel idea, but I'm not sure whether it works in practice.

While I did max out my CPF-SA to its minimum sum early in life, I don't remember having an easy time during all of the recessions. I did survive the 2008 recession and accumulated during that era but I was as unhappy as any other investor.While I was relieved that my CPF-SA could generate 4% during these two years, I persisted mainly because I had data that market downturns eventually end and whoever was left in the markets will be rewarded with an early retirement REGARDLESS WHAT HAPPEN TO CPF.

b) Voluntary Contributions to CPF to max out the CPF-SA earlier may not be optimal use of your money

I felt that a line is crossed when Loo made the suggestion to voluntarily contribute to CPF using his hard earned money. Initially, I liked that this can reduce income taxes, but I question whether in the grander scheme of things, a 4% guaranteed return is such a big deal.

If you are money unsavvy Millenial, 4% looks like a steal compared to what you can get from an endowment fund or deposit account like DBS multiplier. But for most savvy investors, 4% is chump change. Also note that from 2008 - 2012, based on government surveys, retiree households face an inflation above 5% and I am eagerly waiting for 2018 figures to see if this persists.

Getting 4% with a decent probability is child's play if you are willing to guy direct from SGX. Astrea IV Bonds yield more than 4%. Ditto for banking preference shares. Long term returns for the STI ETF is in the region of 6-7%. The CPF is a long term investment and over the long term, it is way better to be fully invested in equities.

c) This hinges on whether the CPF policy remains constant.

Over the short term, I can safely say that we have a stable government. But over the long term, it may be too much to expect CPF policy to remain stable. This may not be a fair expectation in any society.

What happens when the CPF-SA returns get pegged to 1% above 10 year bonds ? This will result in an instant drop in returns.

And what happens if a future government delays CPF Life payouts to 70 years old ?

Nothing under the CPF program is guaranteed for citizens by the Constitution.

d) Even if you do this, you are at best a faux millionaire.

Can you consider yourself a real millionaire if your assets are stuck in CPF Life and the only way to extract the entire set of benefits is to literally outlive your fellow Singaporeans ?

This is the fundamental feature of annuities. Folks who die early end up contributing their assets to support those folks who are left alive. A large CPF Life allocation merely guarantees that you are making other Singaporeans who live longer than you richer.

The real CPF SA millionaire is a long lived Singaporean. I think that is critically missing from Loo's presentation is the importance of staying healthy to beat the actuarial assumptions of those who designed CPF Life.

I have made several controversial suggestions in the past on this blog, like taking Metformin and getting into a regime of intermittent fasting as it has worked to extend the life of laboratory animals and choosing escalating premiums to beat the actuarial tables designed by the CPF folks.

( Note : My suggestion has been shot down by a close relative who is a medical doctor who does not believe that Metformin can extend a healthy person's lifespan. )

On balance, I think Loo Cheng Chuan is the real deal, and I encourage you guys to engage him for his next public appearance.

The Investment Book of 5 Rings

One of the my favourite RPGs of the moment is Legend of the 5 Rings and one of the really cool design elements of the game is that it deviates from Western themed RPGs by not using the typical character attributes like Strength, Intelligence.

Instead your attributes are based on the 5 Rings of Air, Earth, Fire, Water and Void.

The elements are used to resolve dice rolls when you adopt a stance in combat or an approach to solve a problem. As it turns out, this is a pretty useful system to think about investing.

We all have some kind of emphasis and weaknesses when it comes to investing. Sometimes this can come in the form of being particularly strong in an element.

People with the gift of Fire are passionate and inventive but folks endowed with Earth are emotional stable and calm.

Let's run through this 5 element system and adapt this to field of investing.

a) Air

Air is the element of subtlety and precision. We tap into Ring of Air to refine something.

When it comes to investing, Air determines your analytical skill and how deeply you can go into investment research. A person strong in Air can read the footnotes of a balance sheet and determine whether his investment thesis is likely to achieve fruition. Those strong in the Ring of Air know the key attributes of management and how each company department will generate revenue in the next quarter.

Too little Air and your understanding of your investments would be shallow. Too much Air and you will be paralysed by your analysis and would not be able to build a diversified portfolio to meet your needs.

b) Fire

Fire is the element of passion and invention. We tap into the Ring of Fire when we want to form an investment hypothesis.

When it comes to investing, Fire determines how inventive you are. Perhaps cryptocurrencies are correlated with Gold. Fire allows you to make a clear guess on something that is not obvious to others.

Fire is also the element for leverage. Use leverage properly and it can speed up your journey towards financial independence. Use it wrongly and it will spell your financial demise.

c) Earth

Earth is the element of stability and restoration. We tap into the Ring of Earth when we want to defend from bad consequences.

When it comes to hedging, Earth is the element of the historical understanding of financial events. It covers the use of bonds, dividends, insurance and various hedging tools to reduce the volatility of the portfolio.

Too little Earth and you will not have a great sleep at night as your portfolio is rocked by volatility. Too much Earth and inflation will sap your investment returns.

d) Water

Water is the element of adaptation and change. We tap into the Ring of Water to understand present trends and transform our portfolio to meet them.

Water governs the importance of asset allocation and thematic investing. Understanding and reacting to market cycles is governed by the Ring of Water.

To little Water and your portfolio becomes resistant to change, locking you into too much equities in a recession. Too much Water and you lose out to brokerage expenses.

e) Void

The Ring of the Void is about nothing and everything. It is the Ring of meditation.

The Ring of Void governs financial mathematics and the raw theories of economics and finance. At the personal level, the Rung of Void determines how much you can link up your personal happiness with your material wealth. What personal sacrifices you will need to make to attain your target wealth is governed by the Ring of the Void.

Too little Void and your money becomes meaningless to you as you are unable to appreciate your financial achievements. Too much Void and you find yourself motivated by the importance of money but did not put any emphasis on how to actually achieve it.

One useful way of employing this framework is to think about approach to investing based on these five elements.

My approach is has a stronger Ring of Earth, Fire and Void. Earth comes from my emphasis of keeping a portfolio volatility as low as possible and my love for dividends. Fire comes from my new found confidence in my leveraged portfolio. Void covers my willingness to embrace financial theory and tie it my existential needs.

I am weak in Air and Water. I eschew financial statements and have no time for deeper analysis, preferring to read the research reports from others. I am also not very good at assessing the skill and integrity of managers. As for Water, I tend to stick to an equity portfolio even in bad times an experience a decent amount of pain during a recession.

Therefore, my investment journey would be greatly improved if I can improve my Rings of Air and Water.

Try this exercise to figure out your own approach towards investing.

The Art of the Good Life #46 : The Arms Race.

This chapter reminds us to avoid the Arms Race.

This advice is particularly relevant in Singapore.

The biggest arms race in Singapore is the game of buying tuition for your kids. Parents are fighting an arms race that sees their children studying much harder but being unable to meaningfully do better than their peers because the other kids also have a lot of tuition. The only effect of playing this game is to enrich tuition centres.

At the professional level, the legal industry is also big red ocean that sees the top A level students being thrown into an industry that is facing disruption from technology. This means that, across the generations, lawyers are getting smarter, putting in more hours at work, but getting the same amount of salary when divided by the number of working hours they put in. The Supreme Court has put up a bombshell consultation paper that nay see significant changes to how much lawyers can charge clients for large civil cases. There is a possibility that billings may go down from these set of reforms.

If you find yourself in an arms race, the best strategy would be to put yourself into a smaller pond where you can win consistently. The wiser and richer parents today are relocating their children to Australia where they can have a happy childhood and enjoy an economy that has ever seen a recession for the past 27 years.

The same advice applies to freshly minted legal associates. If you find yourself stuck in an office full of brilliant colleagues, you need to know that making partner would require a lot of personal sacrifice with a huge chance of failure. One alternative would be to specialise in an area and cultivate your own pool of customers to eventually strike out on your own. The other would be to start thinking about how you can transition into becoming legal counsel for a multi national.

Even financial blogs face the same kind of competition against each other.

There are a lot  bloggers who excel at explaining financial concepts to beginning investors. Others may become experts in the new age bank accounts that give higher returns. Also popular are articles on how to optimise the use of a credit card.

These are areas which I cannot possibly be good.

Thankfully, there are plenty of things that I can write about for intermediate investors who want a deeper insight into the deeper workings of the Singapore Stock Market. By now you should know that I mainly write for myself. The articles are areas which I have a deep personal interest in.

Why do engineers get so little credit for building massive wealth ?

Ok, so you guys probably know that I've spent the greater part of the week fending off trolls after my commentary appeared on Chanel News Asia. This is the third time I was exposed to mainstream media and each time I try to develop a new approach to engage critics who mobbed my articles. So this time, I think the strategy of engaging critics was a lot better since I started conversing with them directly on Facebook.

However, some things don't change.

Critics first attacked me for being single the first time I showed up in Me and my money in 2005. After I got married and made my second appearance, they attacked me for not having kids. This time round,  I have a family so they accused me of being an elite because of my educational qualifications ( When I don't even come from Raffles, ACS or Hwa Chong franchises ). On Seedly, some folks attacked me for coming from a privileged background. The only exception being the BigScribe FB group because I'm a regular troll there myself and many denizens count as friends there.

Here's something interesting : Never once did the critics ever accuse me of having an engineering background.

There is evidence to show that if you accuse someone of becoming a millionaire because of his engineering background, the accusation will be largely fair.

Here are the results of a survey done on millionaires by University of Georgia in 2006. You can find this survey in the book Stop Acting Rich by Thomas Stanley.

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Primary Occupation	Percentage
Business Owner / self-employed	28%
Senior corporate executive	16%
Middle manager	11%
Engineer	9%
Physician	8%
Marketing / Sales Professional	7%
Attorney	5%
Educator	3%
Accountant	2%
Homemaker	2%
Others	9%

The concentration of engineers amongst the millionaire population in the US is higher than that of doctors or lawyers. It is, in fact, under-represented in statistics as many business owners and executives have an engineering background. Jeff Bezos, the richest man in the world, majored in electrical engineering and computer science in Princeton.

In our local blogging scene, engineers and computer scientists dominate the FIRE movement. LP and Alvin Chow of Dr Wealth studied engineering. Kyith Ng of Investment Moats studied computer science so he largely belongs to the same habitus.

According to research, engineers are out-performers even within the millionaire's category. Engineers convert earned income into wealth at a rate 22% higher than other millionaires. Tactically, engineers are found to live in smaller homes and so they have tinier mortgages and, surprisingly,  tend to favour Toyota as a car brand instead of German engineering brand like Mercedes or Audi.

Armed with this insight, I started to read research papers by psychologists on engineers to see if there is a way to data mine the psychological traits of engineers which may lead to some insights on wealth accumulation and the stuff I find is a fairly honest assessment of my own people :

Engineers are emotionally stable, but often the point whereby they become too impersonal. They are straightforward, direct and to the point. They are goal oriented, conscientious and favour the direct approach to problem solving. I suspect they, very much like myself, hate consensus-driven decision making. On the downside, they have very little interest in people and are often unimaginative. Contrary to what people might think, engineers are energetic and balanced between extroverts and introverts.

While this hodge-podge of traits may not mean very much, it all points to one important fact - Engineers are socially indifferent. In all the surveys on the behaviour of millionaires, being socially indifferent is an important trait for wealth building. You need to ignore naysayers if you want to live a frugal lifestyle. 

Of course, this leads to the question many readers might ask :

I trained as an engineer. I'm hardly a millionaire. Why am I still struggling so hard in Singapore ?

The survey is not mean to  predict attainment of millionaire status. It is a survey of a sample of millionaires in the US.

Furthermore, Singapore does not really have a lot of respect for technology professionals. You don't need to have a degree or have a PE certificate to call yourself an engineer. Engineers certainly do not have a similar body like the Law Society to act as one voice for the profession and look after their interests.

When the government signed the Comprehensive Economic Cooperation Agreement (CECA) with India in 2005, we engineers kept quiet without mentioning that the simplification of cross border movement of cheap indian software developers into the country will drive salaries down and trigger massive job losses to the outsourcing revolution. Hence forth, a generation of young people were turned off by this profession and the engineering programs in NUS and NTU became the garbage dump for students who barely got a B or C for Physics or Math.

( The corresponding problem is that you have a straight-A student in H2 Maths, Chemistry and Physics going to the Faculty of Law in NUS and SMU and claiming that they want to improve access to justice for all Singaporeans by doing pro bono work ! Amazing ! )

No wonder our trains are failing...

At the end of the day, we did ourselves in. We hated dealing with people and love being self-reliant so much that we stopped lobbying for our own interest with the authorities.

Maybe we should have learnt something from other professions like the Legal Profession and figured out how to protect each other more aggressively. You can observe the latest news : Some lawyers publicly now want government support ( and your tax-payer money )  to help cope with the AI revolution.

Information on the next Retirement Masterclass Preview

I teach an Early Retirement Masterclass course. More detailed information can be found here: 
https://www.drwealth.com/ermintro/         

I also teach a Cryptocurrency Course for Conservative Investors :

https://drwealth.com/ChrisYields

 

The Art of the Good Life #45 : If you run your own race, you can't lose.

This chapter of the book cuts pretty close to the bone.

For the past thousands of years, the work of humanity has evolved from that of a generalist to that of a specialist. Our ancestors have to forage, hunt, build their shelters and cook their own food to survive in the wilderness. These days, you can't even call yourself a marketing executive, you might have to specialise in a niche like social media marketing for an employer to take you seriously.

The lesson from this book is to stop reminiscing about being a successful generalist. One formula for success in modern society is repeatedly finding yourself a smaller niche and smaller niche until you can credibly be that big fish in the small pond. I think this lesson is supported widely in local salary surveys. Professional degrees have a higher pay and employment rate than general degrees.

Reading this chapter cuts closer to the bone as I experiment with my new life as a trainer.

The industry is full of forex trainers who dabble in approaches in technical analysis. They charge easily $3,000 to $5,000 per ticket and their courses are basically gateways to more expensive mentorship or training programs. This practice is so widespread that a lot of my potential clients ask me whether I will do the same to them. ( In case you're wondering, my answer is no. )

Over the next year, I will trying to find a niche in this super-competitive industry.

• We will not focus on any market instrument - our course is outcome driven. You sign up with me if you are interested in early retirement, not because I am talking about some new fangled investment product. 
• We have an unmatched alignment of objectives where I personally invest in a co-created portfolio. Can you imagine asking your forex trainer to put his course proceeds into entry points chosen by you ?
• Clients get membership in a closed Facebook group to received subsequent updates on additional material without paying additional costs.

Finally, here's something that is paradoxical that the author fails to share with reader.

If you want to build a credible niche product, further specialisation requires generalist knowledge. 

Just like the iPhone, financial knowledge is further enhanced with knowledge from other disciplines like psychology, sociology and philosophy. This requires a broad liberal arts mindset. For example, I think my exhortation to readers to save more money largely fall on deaf ears because in order to save money, the person needs to have a conscientious personality. It's harder to save if you are not conscientious, which is why regular savings plans have their role in society today. 

Over the weekend, I will be combining Pierre Bourdieu's insight on habitus to explain why having an engineering background can mystically convert income to wealth at a rate 22% faster even when measured in sample space of millionaires.

Early Retirement Masterclass

I teach an Early Retirement Masterclass course. More detailed information can be found here: 
https://www.drwealth.com/ermintro/          

Channel News Asia contacted me last week and asked me whether I would like to write a commentary on whether increased longevity would lead to working for a longer period of time. The result is a commentary on their website that you can access here.

Do note that I'm not exactly a financial consultant. I run workshops for now and I do not deal with buying or selling of any financial product.

Working with Channel News Asia was a breeze. I'd just like to point out something interesting in my original submission which was edited out by Channel News Asia.

In my original submission, I said a few brutally honest soundbites about the insurance industry because I found out that my students for the Early Retirement Masterclass may be over paying for insurance premiums. So in my original commentary, I said that I recommended either going to DIYinsurance.com or an independent financial advisor to get a second opinion. I mentioned that conflicts of interest will exist and so it needs to be dealt with where insurance is being sold by someone who can potentially earn a commission from that sale.

Another interesting edit was my original headline for REITS being a "silver bullet" investment due to its high returns and lower volatility. I totally agree with the editor because the original sounds like financial pornography.

Working with CNA has been fun and I will actually pitch future quantitative investing articles to them before putting it into this blog.

Ok, the next step would be to address the folks who comment on the article on CNA. Here are the comments so far :

a) I paid CNA money to do the article

Actually not only did I not pay to do the article. This project was initiated by CNA staff. Initially, I thought the DR Wealth guys introduced me to CNA but I confirmed that this was not the case.

The CNA guys may have read an article or two from this blog and liked what I have to offer.

b) I am a single with no wife or kids so it is easy to retire

Actually I have been married for over a decade and have a boy and a girl. No one works in my household beyond my freelancing as a trainer.

c) Impossible to get $10,000 dividends a month without a $1 million portfolio

This one is actually quite true. A reasonable portfolio of reits can produce 7% dividends, so $1 million will produce about $70,000 a year. $10,000 a month will require a substantially larger portfolio. I barely get five digits a month because I employ a bit of leverage in my margin accounts.

d) On market crashes

The longest market crash lasts about 700 days in 1998. I survived the 2007 recession by pushing more money into the financial markets allowing me to recover when the markets did.

This next upcoming recession triggered by the US Republicans should be no different. Persistence is key in investing.

e) This approach towards retirement is a gamble.

Too much space has been spent on this blog on addressing whether this approach towards early retirement is actually a gamble. One reader made this assumption without ever thinking about the size of my retirement portfolio.

Retirement feasibility is addressed by computer simulation which is the subject of two of my articles before this one.

f) I am technically not a retiree because I conduct a workshop

One possible argument is that I am not a retiree because I actually run a workshop. In my defence, I work barely 2-3 hours every two weeks to conduct a preview. A workshop occurs once every two months and it lasts 2 days.

I also reinvest proceeds of my workshop fully into a portfolio co-created with my students.

g) I came from a privileged background

This point is fascinating because CNA actually wanted me to address this point when conceptualising the article. A common attack from the public is that I come from a privileged background. Interestingly, at the time of writing, the comments from social media has yet to include this point.

I can't really change my past.

My earliest appearance in the Me and My Money section does contain pictures of me hanging out in my dad's semi-detached house. Even if I built up my retirement portfolio on my own IT salary, unlike many poorer Singaporeans, my parents did not get into my way. So I decided to just let my past be the past and let my approach to retirement speak for itself.

Privilege is a hard criticism to avoid.

The FIRE movement has a couple of academically brilliant ex-scholars who have 1st class degrees. It will always be used by critics one day to show why retirement cannot be achieved by ordinary folks.

As I get more comments throughout the day, I will amend this article to include more rebuttals.

In the meantime, if you are interested in my Early Retirement Masterclass, leave your details here.

Making your retirement safer with a "bear trap" account.

Blog reader with the "Unkown" moniker brought up an important point about the weaknesses of using computer models to simulate the withdrawal of funds from a retirement portfolio. I cannot say that I fully understand the maths, but I think I can explain the problem  to a lay person.

Most of the retirement simulations makes sense, but if you are unfortunately enough to face a nasty market crash just around a year or two after giving the middle finger to your corporate bosses, the odds of running out of money increases dramatically.

Initially I thought that there was no simple solution to this "Sequence of Return" problem - The foremost expert recommends a wonky approach called an equity glide path to resolve this issue. But a quick discussion with Kyith of Investment Moats gave me a useful insight to this issue that can be executed by laypeople.

Kyith summarised the challenge as one to survive the first recession after declaring early retirement.

So here's a possible fix to the problem - Create a second retirement portfolios just to deal with the first market crash after FIRE.

Suppose in the earlier scenario, our BBFA friend has accumulated $432,000 in the form of an equity portfolio to withdraw from social life completely and spend the rest of his days playing computer games whilst spending $1,500 a month. He may be wise to postpone retirement until he builds a second retirement portfolio that I call a "bear trap".

A bear trap allows the suspension of spending from the retirement portfolio until the market recovers upon the first market crash. Earlier on, I built a program to measure the duration of market crashes and the worst crash in the STI lasted 700 days from peak to trough. This means that a bear trap must be large enough to sustain our BBFA friend for around two years. Suppose he needs $1,500 a month, he will need a $36,000 portfolio to complete this bear trap.

Because this bear trap needs to account for a near term market crash, it should be placed in a cash deposit account that can give about 1.5% to 2% every year and not participate in any security that contains any market or credit risk.

This means that BBFA should pull the retirement trigger only if he has one $432,000 equity portfolio and $36,000 lying in a DBS Multiplier, OCBC 360, or UOB One account.

Suppose BBFA really encounters a market crash within 5 years of leaving the work force, he can simply take $1,500 from the bear trap account instead of drawing down his equity portfolio. This gives him ample time for his equity portfolio to recover from the nastiest downturn.

Of course very anxious readers will have concerns about the second and subsequent bear attacks. One possible solution is expand the equity portfolio slightly by 20% so that dividends can be directed to regenerate the bear trap after the first market crash. BBFA has around 6-10 years to fully regenerate the bear trap to prepare for the next downturn. This solution is not very attractive to me because it would be tantamount to reducing his withdrawal rate to around 3.5% instead of the usual 4.17% based on the model.

Early Retirement Scenarios

Thanks to the efforts of BIGS contributor and venture capitalist Lim Der Shing, we now have a decent simulation tool to track what happens when we start drawing out money for retirement. A link to the academic paper and tool can be found here.

I'm going to share two retirement scenarios and discuss the implications of using such a tool to determine the target withdrawal rate and subsequently the portfolio size to support this retirement lifestyle.

Before getting into the scenarios, I just want to highlight a possible controversy to the use of this spreadsheet.

I use the real rate of return of an equity portfolio to be 7.4% which is considered abnormally high for Singapore markets. This is because I derive long term equity real returns as the inverse of the current Shiller PE ratio for Singapore markets (currently 13.5) taken from the link here. Contrary to our collective experience, Singapore markets are cheap and notwithstanding the trade war, we are in a much better shape than Malaysia that has a higher CAPE of 16.6. Therefore, there is no better time than now to have a nice retirement portfolio built on a mixture of Singapore stocks and REITs.

If you are not comfortable with my numbers, simply give yourself a healthy 100% margin of safety from my simulation figures. Retiring based on a bigger margin of safety remains within the reach.

( Note that I also put the real rate of returns for bond is 0.9%. )

Scenario 1 : The BBFA ( Bui Bui Forever Alone ) FIRE retiree

Suppose you are single male, in your 40s and are quite sick of corporate world. You live with your parents and want to spend the rest of your life playing computer games and don't want anything to do with love or marriage.

What considerations would you need to retire ?

• You can assume that you will live to age 90. So your money must last at least 50 years.
• You are willing to spend capital such that your net worth when you die at age 90 is about 50% of your net worth today. ( You have no dependents )

Cranking the numbers on the spreadsheet, to be successful 95% of the time, your safe rate of withdrawal peaks at 4.17%. It also advises the use of a 100% equity portfolio. 

Suppose your monthly expenses is set at around $1,500 or $18,000 annually. The amount needed to retire is $18,000 / 4.17% or $432,000. 

Scenario 1 establishes the most austere form of retirement involving a single male in his 40s who lives with parents and plays computer games all day. The simulation suggests that $432,000 is enough to successfully last 50 years with a 95% probability of success. At the end of his life, he still has around 50% of what he started with which would adequately cover the event that he lives longer than projected.

Scenario 2 : The ordinary retiree

A more realistic scenario was co-created with one of my students who invited me for lunch after class. He had a much more realistic approach to retirement.

Suppose you are a married male, in your 60s and want a portfolio to augment your retirement lifestyle. Your children are already independent and working. Your spouse had her own career and she will mirror your financial strategy.

What considerations would you need to retire ?

• You can also assume that you will live to age 90. So your money must last at least 30 years.
• You are willing to spend capital such that your net worth when you die at age 90 is about 80% of your net worth today. This is because you want to leave a sum of money to your children after you die.

Cranking the numbers, to be successful 95% of the time, your safe rate of withdrawal peaks at 3.85%. It also advises the use of a 100% equity portfolio. 

At this stage, this retiree has already secured a cash flow of $1,000 a month from CPF life. He expects his expenses to be around $2,000 in total (I project retiree household expenses to be around $2,100 in 2018). Dividing $12,000 / 3.85%, we get a portfolio size of around $312,000. 

Scenario 2 takes into account the benefits of having a lifetime annuity like CPF Life so this drastically reduces the required portfolio size of a retiree. 

Observations

First off, in both cases a 4% withdrawal rate used as a rule of thumb is considered quite acceptable. For extreme FIRE practitioners who want to get out of the rate race in your 30-40s, I recommend using 3% instead since you may be retiring with young children in tow. 

There are quite a few interesting observations here. 

In all cases, having 100% in equities results in the highest withdrawal rates. A reasonable retirement portfolio for a couple in their early 50s is also very much possible at around $1,000,000. Of course, you must accept that you have already fully paid your home mortgage, kids are doing fine, you live a simple HDB heartlander lifestyle and your children have no desire to take over your entire portfolio after you die. 

In both of these examples, I omitted the possibility of higher returns by the intelligent application of factor investing, where a balanced portfolio of equities and REITs can be boosted to around 14% returns. I have also omitted the use of leverage which may be dangerous for the retiree but may accelerate the process of attaining the right retirement portfolio size.  

( I'm still doing some R&D to see if the simulation spreadsheet accepts negative numbers )

  

The Art of the Good Life #44 : Cargo Cults

During World War II, natives living  in the islands involved in the War of the Pacific saw soldiers call upon metallic birds which flew past and dropped tin cans which contained delicious food. After the war, a cargo cult was born - natives built planes out of straw to attract these metallic birds which they hoped would drop more food on them.

Some people ask me why I am so obsessed with results rather than process. The reason is that I do not wish to fall into the same category as these cargo cultists. Process is important because it's a shortcut to consistent results, but if I can't get my results, the process has to be improved further. This is even if the process has been adhered perfectly.

The book uses an example of an author who wants to write a book. Instead of writing a book, he goes on to emulate the lifestyle of Ernest Hemingway, living a playboy lifestyle and using only Moleskines notebooks to capture his literary ideas. His book eventually flopped.

To be fair, my investment approach is not immune to the problem of cargo cultism.

When you keep using quantitative backtesting tools to create a high-return low-risk strategy, you can end up using a combination of factors to data-mine historical results. If you follow this strategy correctly, it may not translate to future earnings.

My defence against data mining is to use only factors suggested by quantitative investors who have combed US data for 50+ years. All I do is employ those same factors that work in the US to Singapore Stock Exchange for the past decade with some adaptations of my own.

Here's an example of what I am working on next for my next workshop :

If you are familiar with the characteristics of the STI components, you will be aware that returns have been about 7+% at most for the past decade. Utilising factors in investing does not significantly boost returns because these are stocks that are monitored by major investment houses so markets are fairly efficient. This is frustrating given that STI components attract cheap financing for leveraged portfolios.

The question is whether is it possible to create a different kind of STI the same way US quants call Market Leaders. Market leaders are large, successful businesses that brokers would be keen to provide cheap margin for.

So guided by the existing literature on the US markets, I developed a localised form of Market Leader stocks.

• Stocks must be found in SGX
• Filter out China domiciled counters and REITs.
• Stocks must have a market capitalisation above $200M for adequate liquidity.
• Stocks must be above the median in free cash flow.
• Stocks must be above the median in revenues.

This set of filters will generate about 40+ counters which generate 15.77% returns with a low semi-variance of 11.81% (15 year history plus annual rebalancing) making this a superior starting point for investors to begin quantitatively selecting factors to achieve superior performance. 

Of course this on only a teaser, follow up considerations would be adequately considered in the second run of my workshop.

Races of Wealth Accumulation : The Dwarf, Elf and Orc

Sarah Stanley has continued the good work of her late father Thomas Stanley and updated The Millionaire Next Door into a new book The Next Millionaire Next Door and it is chock full of interesting facts about how to get rich in this current economic environment.

Inspired by both her material and our recent discussion about approached towards early retirement, I thought I'd write about three type of millionaires which I categorise as three fantasy races of dwarf,elf and orc so that we can distinguish three distinct roads to riches.

a) The Dwarf

The largest number of millionaires are dwarves. Hard-working and frugal folks who succeeded by saving as much as they can through penny earned. Dwarves do not have high salaries so they spent most of their lives working very hard and adopting a standard of living well below their peers.

I see myself as a dwarf because my salary throughout my life was not particularly high. The strength of FIRE movement is largely dwarven because it focuses so much on resilience and frugality.

These are the value of a people who spend years underground mining for gold.

b) The Elf

A lesser number of millionaires are elves. Elves are high flying professionals who earn well above the average income. A high flying CEO, investment banker, medical specialist or a legal partner is considered elven.

Elves need to spend a lot of time honing their skills to do well in their careers because they are amply well rewarded for plying their trade. They often become millionaires by the sheer size of their pay check.

Frugality is less important to elves but to reach the ranks of the millionaires, elves do need to spend less than what they earn ( which is a lot anyway ). Frugality is also harder as elves also has to adopt the habitus of the Elven race. For example, law firm partners often mingle with their peers and are expected to adopt the consumption patterns of law firms partners.

As elves do have to spend to keep up elven appearances, the net worth of Elven millionaires is often tied to their properties. The rest is normally spent on keeping up appearances.

c) The Orc

The life of an orc is nasty, brutish and short.

A small business owner faces a 90% rate of failure, but those who do succeed gets to enjoy the life of a powerful Orc Chieftain. Many Orcs die at an early age, but those who make it big usually do it with dash of ingenuity, salesmanship and no small amount of luck.

Those who do make it, make multiples of million of dollars when they do cash out. It seems that Orcs do not need frugality at all, instead Orcs hone their salesman instincts and risk taking ability to kill off any other Orc who end up competing in the same field as them.

I think that it is useful to understand that these three distinct segments are best treated as different races.

It's hard for an Elf to understand why Dwarves work so hard to keep their expenses low. Dwarves may scoff at Elven penchant for high-living. Orcs, having killed 90% of their own kind to become War Chieftains, do not understand why frugality matters to Dwarfs since life is short. Elves think that every other race has little cultural capital. Orcs despise Elven elites and their inability to survive in the harsh realities of small business.

Of course there is always a fourth race. The Undead generally do not expect to reach their financial targets within their lifetime which is why there are four fantasy races in the above picture.

Personal Update : Financial Bloggers are human beings too !

This might seem counter-intuitive to some readers but financial bloggers are human beings as well. 

Following LP's leadership in sharing his thoughts about buying a car, I will also highlight my various sins that I indulged in this week.

We're looking at a fairly serious market bear right now and if you follow my blog, you should know that my pay-check from my workshop would be sitting on some losses because I committed into a leveraged account just before the massive drop today. 

Shrugging the losses aside, I still had extra money beyond my regular dividend pay-checks so today I'm just going to describe what I did with my money after I gave my wife some shopping money. 

a) Got some toys for my kids.

I bought some toys for my son. But a very sharp observer will actually notice that these are actually toys for myself. Kids these days have very little affinity for Transformers unlike my generation. I also have a very low opinion of Peppa Pig and PJ Masks preferring more violent Saturday cartoons for boys. So I sneakily bought the latest Cyberverse Optimus Prime and Megatron for $120. My son does play with his toys but I think he is not old enough to figure out how to transform them yet.

Not in the picture is the boardgame Little Scythe I bought for my daughter. I can't really sustain a boardgame hobby anymore as I lack the time to play with my friends. These days I buy boardgames to teach Clio strategic thinking and Little Scythe is a kid's adaption of award winning war game Scythe. Hopefully we can pick the up up by watching Youtube videos. I also hope to get the neighbour's kid involved because she seems like a pretty smart kid who is on her way to GEP. I want my daughter to pick up gaming skills from her ( because she definitely does not want to consciously pick up gaming skills from me ! ).

b) Books for myself. 

I have probably gone overboard with my book binge because Amazon has this new system that credits dollars into my account that can be used to buy more Kindle books. What is amazing about this system for Kindle users is that using the credits to buy Kindle books gives even more credits so I I easily bought 10+ books that I would not have bought using my own money.

I just want to say that Thomas Stanley's daughter has updated her dad's Millionaire Next Door and you will be seeing a delude of articles that channel this book over the next few weeks. This is compulsory reading if you are a serious financial blog reader.

c) Games for myself.

You also notice on this picture that I went looking for second hand games and managed to pick up a 1st Edition D&D Manual of the Planes from Bookpoint at Bras Basah. RPG books are a rare drop in a second hand bookstore and it is also helpful that I conduct my talk previews in the same building. 

This afternoon I will be going off to pick up my Legend of the 5 Rings RPG.

d) Travelled to Johor for a one  day trip.

As I am still fairly disciplined when it comes to spending money in Singapore, I try to go to Malaysia to let my hair down, so yesterday I went on a one-day trip to Johor. 

To enjoy a Johor trip, the trick is to bribe the locals to bring you around in a vehicle while offering free meals to them. I was brought to many awesome but inaccessible places to eat by my cousins. One of the meals I had was this Nasi Lemak along Jalan Mahmoodiah what is located next to a cemetery. 

I had five meals with my cousins yesterday and the total damage was less than SGD $100. My cousin had a facial in a hotel that cost more than what I spent the entire day (But she's High SES) !

But I had an epiphany yesterday during my trip. I think I may have figured out what the difference between a being a Johorian and a Singaporean and why is it so therapeutic to just go to Johor and spend time there with the locals.

My cousin introduced his gamer friend to me and we hung out for half a day. I really like his pals because he is an English College alumni so he's connected to the equivalent of an RI-ACS network in Singapore. Another words, they watch the same movies and trade the same cultural capital as I do.

What I am impressed about Johorians is this -  his friend never asked me what I do for a living. 

You guys know that this is a sensitive question for me because of my weird career choices as of late and I have yet to come up with a proper 5 minute elevator pitch about myself. 

This is very rare in Singapore and it takes perhaps a few minutes before I had to awkwardly explain that I am both a lawyer and an engineer but currently conducts financial workshops so I work 3 hours once every 2 weeks. Currently I come off sounding very scammy to someone not in the financial blogosphere, almost as sleazy as an MLM practitioner. Even worse, Malaysians working in Singapore actually seem even more eager to size you up so that they can peg you in this invisible hierarchy that permeates Singapore society. 

What does this say about our society versus our neighbours next door ?

For now, I contend with my duplicitous life. In Singapore, I remained disciplined and I pinch every penny.  Once I get to convert $1 SGD to $3 MYR, that decadent side of me is finally free. 

I can bring my relatives to eat 5 meals a day !

 

How long do you need to endure when faced with a market downturn ?

Part of the work of being a trainer is that I am relatively free to pursue some research to improve on my training materials so I got back to some R programming this week.

My statistical programming is rusty again and I have to get back to the basics of understanding data frames and how to put simple packages in my R Studio. And this means dealing with some stuff that professionals find trivial like manipulation of dates and processing the finance data from Yahoo Finance.

Fortunately, I was able to get some useful thing done within the last 2 days. I downloaded historical STI information and was able to measure the duration of market crashes.

I wrote a simple program in R to track crashes on the STI.

This program adopts the following rules :

• A crash occurs when the market dips 30% from the previous market peak.
• The timing of the start of the crash will then be set at the timing of the market peak.
• A recovery occurs when the market goes up 30% from the previous market trough.
• The timing of the market recovery will then be set to the timing of the market trough.

Unfortunately, I can only fetch market data as far back as 1987.

My program them screen dumps the crash data, which I reproduce here.

------

Crash from  1607.1  To  1079.5 

From date:          

1990-03-27

Recovery at date :          

1990-10-11

------

Crash from  2493.7  To  1073.5 

From date:          

1996-02-06

Recovery at date :          

1998-01-12

------

Crash from  1698.8  To  805.04 

From date:          

1998-03-19

Recovery at date :          

1998-09-04

------

Crash from  2582.94  To  1241.29 

From date:          

2000-01-03

Recovery at date :          

2001-09-21

------

Crash from  1808.41  To  1213.82 

From date:          

2002-03-19

Recovery at date :          

2003-03-10

------

Crash from  3875.77  To  1456.95 

From date:          

2007-10-11

Recovery at date :          

2009-03-09

From this dump, we can safely say that the longest period that we will need to endure from a market peak to market trough is 2 years. The longest period is not our most recent recession on 2007, but during 1996-1998 when we had the Asian Currency Crises.

My R program allows me to vary the conditions of a crash. If I set a crash to be 10% from a market peak and a recovery to be 10% from a market trough, I will, of course, see a lot more crashes in my program output but with a shorter duration.

Moving forward, this program will be added to my list of teaching materials for my workshop.

And in case you are wondering, we are not in a crash situation yet.

Over the next few weeks, I will be trying to determine whether an objective asset allocation between stocks and bonds would exist. Will post my findings here.

The Art of the Good Life #43 : The Just World Fallacy

This chapter serves to remind us that the world is amoral and that thinking that morality will win out in the end is a fallacy. The author emphasises that the world is actually unjust and that living stoically would actually result in much fewer disappointments.

One recent event that made quite a number of folks angry is NTU organising a job fair that is exclusive to students with the best grades. It's quite easy to vilify NTU and say that doing this is incongruent with the Singapore's recent attempts to reduce the elitism in society.

But just as hard it is for top students to boycott the event (who wouldn't want an intimate session with an investment bank ?), NTU is in a battle against NUS and SMU for the best students from the local JCs and is already hampered by its poor physical location and super uncool ancient Chinese themed architecture. They have a duty to ensure that their students get noticed by the top companies.

It is also unfair to apply more pressure on our universities and not consider other stakeholders who are also at fault. I suspect the career fair is also supported by government agencies and MNCs. If HR can get direct access to the top cohort of a university, it may mean less effort interviewing new hires. This is why over a decade ago, my finance lecturer would brag about HR departments from Citibank wanting special access to the University Scholars who were studying in the Bizad faculty.

I believe that, over the short term, students will activate their Unions and launch into a pitched battle with their University Administration to ban such invite-only events only to see these career fairs being taken over by the private sector. Over time, though, there is nothing stopping our companies from holding an external event to invite local and foreign grads to a career fair, stipulating a minimum grade to qualify for admission to the fair itself. A paymaster can dictate the terms and have the right not to interview anyone with below average grades.

Which leads us to the question of whether grades truly lead to better performance at work.

I always believed that IT and Engineering are the least elitist of professions because they involve actually solving real problems or creating real products that has to be tested in the market.

In most other professions, the performance of a worker is often rather quite subjective. Two legal trainees can submit a research memo with basically the same legal argument but one submission may be subjectively viewed in a more favourable light because one trainee has been known to have better grades in school or comes from a more prestigious university. The Halo effect can be quite strong where the profession deals with subjective matters.

As angry as many NTU students are, I just cannot see how morality can win on this matter. In fact, I can see a lot of ugliness that can result if we clamp down on these events too aggressively.

With the current arrangement, there is a chance that the person with best grades will be matched with the best jobs. You don't want to have a situation like in legal industry where training contracts or associate positions may be given not on the basis of grades, but by how much social capital the candidate has. This creates a huge advantage for a candidate who comes from a High SES background.

All this points to an uneasy conclusion.

When our leaders say that grades are not important and we should not be defined by our academic performance, gently smile and ignore the propaganda.

Continue to go all out to get the best grades, cultivating a strong CCA record whenever possible. Do all the previous year exam papers and try to internalise the material that is taught.

For those who are not academically inclined, go all out to develop your communications skills, doing everything in your power to turn yourself into the best salesman the world has ever seen.

How to start a war in the financial blogosphere.

The major fracas going on in the financial blogosphere right now started this week when Suze Orman told the Internet why she hates the FIRE movement. You can access that interview here.

This got me thinking about how a pitched battle can occur within the local financial blogosphere here.

Here are my thoughts on how to spark a war in out blogosphere :

a) There are industries here that should really hate the FIRE movement

The Singapore FIRE movement irks people for many reasons.

I can imagine that commission sales agents who sell insurance, active fund managers or even MLM folks will have many good reasons to really hate us.

We have collectively sustained a grass-roots campaign to warn readers about investment products that comes with high costs and we have devoted many articles on how to choose an investment product without any industry bias.

This lack of bias is forcing some institutions to become more honest when dealing with folks who buy financial products.

b) Whoever attacks the FIRE community needs to be very rich.

We are quite used to the many skirmishes in the blogosphere which makes the community quite anti-fragile. FIRE advocates are generally dismissive of small time folks who launch minor attacks like question the Buy Term Invest the Rest philosophy which have been a point of conflict for eons. We know that the folks have personal interest arguing for the traditional "high commissions" approach as they are defending their rice bowls.

What we have not seen so far are folks who have a net worth above $5 million dollars who publicly question the FIRE philosophy. Folks at this level of net worth have the confidence to launch a much more credible assault. Part of the problem is that we are conditioned not to disagree with rich people in Singapore.

So I predict that whoever sparks this conflict will be in the fairly affluent high net worth category.

c) Can the "Suze Orman attack" succeed ?

The Suze Orman attack employs a brutally simple strategy.

Simply get a rich person to tell everyone in Singapore that having $2 million or more is not enough to retire on. Then back it up with possible examples of personal disasters that can befall anyone : terminal illness, escalating medical expenses, university fees, etc. The richer the person sharing the message, the higher the bar is conveniently set. In short,  the rich person is telling that he/she has met this target, but you have not, so you better keep working because you don't deserve to retire.

There is an objective way to blunt this attack.

The Household Expenditure Survey of 2013 says that a retiree household's median expenses is $1,700 but experiences a fairly high inflation rate of 5.5% every year. Now suppose you intend to retire in 20 years time, you will expect to spend around $5,000 every month after compounding 5.5% for 20 years. But this is for an entire household so this covers the expenses of a married couple.

Let's say you are single. This means that you need $2,500 per month in 20 years time or $30,000 a year. This would be only about $750,000 of investible assets in about 20 years time applying the safe 4% withdrawal rate.

There are several factors going in your favour. CPF Life can give about $1,000 a month if you have your minimum sum kept with CPF, it can provide some buffer for you provided that you use a new escalating pay-out plan. So this means that you have a nice buffer in 20 years time.

So suppose you have $750,000 right now and you can already live on your dividend pay-outs, would it be safe to shift to a job you like and stop working for a stifling corporate environment ? After all, folks who like the FIRE movement prefer to think about financial independence over retirement planning.

I think that is a reasonable thing to do. After all, the average net-worth of a Singaporean is around $400,000 which is higher than the median at around 60th percentile. So $750,000 is already a significant sum. Can you retire after hitting $1M even if 20 years have not passed ? Very possibly !

So we can conclude that whoever attempts a "Suze Orman Attack" would have to condemn a large swath of Singaporeans into a lifestyle of permanent and never-ending employment, almost tantamount to a lifetime of slavery !

This includes the current households of elderly who are already retired !

d) The question of whether someone deserves Financial Independence

I'm also thinking about ways to attack the FIRE movement beyond attempting to scare folks into working forever by setting an artificial bar to retire in peace.

One possible attack is to simply question whether a person deserves FIRE in the first place.

There might be a series of moral arguments against the FIRE movement.

Does a person really benefit if he gets a cash flow to retire from the workplace and spend the rest of his life playing computer games and binge watching Netflix ? Does society fare well if a significant portion of the population were to just retreat from the workplace once they can subsist on rental income ?

FIRE may have a significant impact on life decisions. In the US, cit was found that couples with children have a net worth 25% lower than couples without children. Will FIRE advocates sacrifice kids for their financial success ?

Not everybody will seek part time employment or make their lives more meaningful. A significant number will just want to fuck off from participating in society completely. In China, the Fei Zhai Kuai Le movement exists to promote this sense of happy mediocrity. What kind of society are we trying to build if FIRE is co-opted to this new age philosophy of striving to be mediocre but happy ?

Even as a fervent FIRE advocate myself, I believe very strongly that a significant part of the population does not deserve financial independence because of how meaningless their lives will become once the golden hand-cuffs disappear.

So, if someone develops this line of argument of attack against the FIRE movement, I would spend a significant amount of time listening to them, sometimes offering some examples of my own experience. It is significantly better than fear mongering.

Maybe at the end of the day, Suze Orman just wants attention by attacking the most successful sub-cultures you can find on the Internet today.

The Art of the Good Life #42 : The Illusion of Changing the World

The second installation of "The Illusion of Changing the World" argues that you should not try to take yourself too seriously and put yourself on the pedestal.

While inventions can be made by a specific individual, if the individual had not existed, the invention would have been made anyway because many folks in this world may be looking at the same problem. Reinforcing this idea further is that many large companies can change CEOs but company results are often quite consistent no matter who is in charge.

I try not to invest based on my feelings towards a company's management team.

These are subjective evaluations on how well a company is doing.

However, I have to admit that it is possible to assess the strength of management through the proper metrics.

Case in point, the Piotroski's F Score considers a positive and rising ROA as two considerations to see if the company is worth investing in.

I also like the ending of this chapter. Eventually, after anyone dies, there will be part of the memory of at best, their surviving spouses, children or grandchildren.

Thereafter they will disappear from history.