Tag: t_critiq77

critical, bold views against HERD instinct or conventional mainstream thinking

[18] retirement burn rate: 33-50% of current

Posted on by tiger40490

This is my first serious look at CRBR (retirement burn rate) forecasting.

People told me that as kids grow up, my burn rate would decline enough to make my cash reserve appear deep enough (or too deep) for my lifetime. This is despite inflation and medical needs. I think now I am seeing an early sign. Grandparents also see it.

In contrast, some financial planning “experts” say that retirement burn rate is 70% of prime time income. I disagree.

  • my current burn rate is about half my income in Singapore.
  • my current burn rate can half when kids grow up.

Q1: In retirement, how many percent of your current income is required to sustain a comparable lifestyle, assuming asset returns (yield, appreciation…) match inflation?
A: (Conventional wisdom): 75%.
%%A: 20 to 33%, for a comfortable SG lifestyle.

Q2: In retirement, how many percent of your current burn rate is required?
%%A: 33 to 50%

My 2016 burn rate analysis shows that only 2k/m is couple base burn rate, so the conventional wisdom estimate is inconsistent with my experience, and over-generalized and highly misleading.

If I retire in Malaysia or China then burn rate should be even lower.

— needs vs wants .. Pauline Teo’s book is the first to point out this difference. In Feb 2021, I told Felicia of OCBC that many retirement discussions mix wants and needs.

I asked Aaron of DBS “Among the retirees you know, there must be many whose cash flow needs become significantly lower because kids have grown up.” Aaron said yes but other retirees increase spending after retirement, often on extravagant things, such as sight seeing, dining out, gifts for grandchildren. I find this lifestyle naive (lacking wisdom) for a retiree so I asked him further “But those spends are not financial Needs like medical needs or survival needs. I can understand if I have 3 times more money than needed as a retiree, I would probably spend it, rather than leaving it to my kids.” Aaron agreed.

According to both Aaron and Felicia, some Singaporeans seem to fancy “retirement in style”. They would see their burn rate increase when they stop earning salary! Are they day-dreaming?

The rationale seems to be “After working hard for decades, now I can pamper myself !” OK maybe for the first 5 years.

BGC rental yield projection: local^foreign tenants

Posted on by tiger40490

Hi Raymond,

Today I want to focus on local tenants vs foreign tenants.

For our 33-square-meter studios, the reported 40k monthly rental was really foreign tenants market rate.  There’s a hidden rental market — the local tenants market. This market was invisible to us because our units are brand-new and high-end, so local tenants are unlikely to afford them. When the rental market is down, then we need to rely on the local tenant market. Rental yield is much lower.

As a rule of thumb, it’s dangerous to rely on foreign tenants, whether we are a landlord in Singapore or BGC.

There are other “haircuts” to hurt our rental yield. So in the end, we won’t get SGD 12k annual rental income as promised. I think SGD 6k would be lucky. After the pandemic, I hope to earn SGD 8k/Y net income.

This is a hard lesson for me.

— haircut: vacant months — many owners accept it and leave their units vacant for more than a month.

Sense of urgency is needed.

— haircut: condo fees — Whether we have tenants or a vacant unit, we must pay this fee 🙁

— haircut: commission — at least one month per year. If we were local owners then we would be able to pay the rental agent once only and manage the lease by ourselves.

— haircut: utilities

— haircut: currency movement

overpriced property market: homeOwnership,sdxq..

Posted on by tiger40490

In overpriced markets like Beijing, rental is relatively underpriced and represents a real bargain. However the Chinese doesn’t perceive the bargin in a positive light, due to a deep, long-held preference for ownership, as an essential basis of security, achievement, social status.

I feel it’s an irrational bias, although I could be biased.

How about sdxq homes? Poor bargain in terms of rental demand and commute

How about Ivy League colleges and UChicago? Poor bargain, according to Kyle.

In all of these cases, mainstream preference is NOT an accurate reflection of the correct priority in my situation. It’s crucial to honor my own preference (and wife’s) rather than other people’s preferences.

CPIx-inflation fear: discrediting high-saving (minimalist)lifestyle

Posted on by tiger40490

Since my 20’s, many people around me have drilled into me notions like “your $1000 /squirrel/ away will be worth $500 in 10Y (or 20Y), so saving 60% of your income every month is less advantageous than spending 90%”.

(The same people also say that “If you can invest profitably, then it’s a different story”, but we always stopped there because none of us has that skill.)

This is the mainstream view. Well, since my 20’s I have gradually increased my savings rate. I guess it was 2-3k when I was earning s$5k. Now it’s touching s$10k.

Q: Was I unwise and regretful maintaining high saving rate?
— A: On the contrary, I think I am insightful and incredulous, with a healthy dose of skepticism. Luck is a secondary factor.
— A: No. SG government squrrels away some amount in every term, to build up the past reserve. The purchasing power didn’t drop to below half over the years. In fact, I think it has grown.
— A: No. ERE author and MMM each saved up enough and retired early. Apparently, their savings didn’t lose value due to inflation.
MMM has a blog proclaiming — once you save up 30Y worth of living expenses you will be able to retire.
— A: No because I have managed to leverage my savings to invest profitably not in traditional stocks, mutual funds, insurance products but in overseas and local properties.
— A: No because I don’t know where I could have spent more. I can look at my peers’ burn rate breakdown
— A: most important, inflation rate in my personal experience has not been half as high as predicted (by those pundits). My best-effort analysis is 30Y SG inflation: personal xp.

Only a small portion of my personal “basket” has doubled in price over 30Y.

Live life2the fullest, but@low burn rate

Posted on by tiger40490

A favorite among marketing slogans is “Live life to the fullest”, as you have it once. I guess the ERE author can say he is living his life to the fullest. I don’t need to benchmark with him.

Similar to him or unlike him, I do feel I’m living my life to the fullest. There’s nothing missing in my current carefree life. My current life is satisfying and complete.

The Buddhist would say there’s still a lot of unsatisfied desires and pains lurking beneath the surface. Admittedly, these pains will surface, but hopefully become mild and forgotten. The current carefree /bliss/ is obviously impermanent, and possibly short-lived, but in this blogpost I care more about the contributing factors:

  • foundation: marriage, health, citizenship,
  • green Cornerstone: rewarding, low-stress job
  • red Cornerstone: boycott to FOMO/FOLB
  • red Cornerstone: Brbr, ffree
  • # The red cornerstones are based on cash flow.

2019 article against CDY #

Posted on by tiger40490

https://www.investors.com/etfs-and-funds/personal-finance/dividend-stocks-dangerous-burn-investors-ways/ is a typical criticism of my stock-pick system.

If I find a blue-chip in recent decline causing its CDY to appear rising, I often see a giant (minimally) wounded but not dead. Once I buy it, it’s possible to experience further fall + dividend cuts. No surprise, no regret.

The author uses the SP500 price rise as a benchmark to judge dividend stocks. I have a slightly but fundamentally different need as a recreational investor. I need peace, I need the firewall around my stocks. I practice buy-n-forget. The low-dividend growth stocks (in SP500) are not good enough for my needs.

— short-sighted.. See 3episodes@ non-recreational trading.. about half my investments (excluding rEstate) were held long term so my trec qualifies myself as buy-n-hold investor.

If you look at a short window like 1Y, then dividend “return” is always dwarfed by price movements. Commentators often talk about DYOC “wiped out by a k% price drop” or “overshadowed by f% appreciation”. This is short-term perspective. I refuse to engage in such discussions.

Over the long term (only), dividend has a much bigger impact.

In a down turn, perhaps 60% of your stocks are underwater. The cumulative dividend payout would be an important compensation and cushion, as described in price buffer build-up: ineffective

 

 

consistent high payout: rEstate^stocks^mufu

Posted on by tiger40490

For ffree and other purposes, the rare gems are those financial assets that pay consistent annual payouts while maintaining liquid value, as defined in my 2 stringent criteria .

  • liquid value … unrealistic for rEstate
  • maintaining value … not too volatile  not losing value due to unsustainable dividend payout, as happened in many Allianz fund

So far only 2 asset classes come close towards this high bar : 1) rental properties in U.S., SEAsia.. 2) dividend stocks. A number 3 might be HY/PE

— regular blue-chip …… Among the stable, non-tech blue-chip stocks, the vast majority pay dividends below 4%.
If you buy relatively low, then a dividend aristocrat would reward you with growing DYOC.

Many U.S. stock brokers support fractional sell, so you may argue that an investor in my mindset should consider total return rather than dividend yield. I hesitate. Consider a fast-riser stock. Unlikely a dividend-aristocrat company, fast risers are managed for stock price growth, not consistent high dividend ! Its business model, its competitive landscape probably doesn’t support consistent high dividend.

— mufu … I don’t know any mutual funds that meet my criteria 🙁 They can pay max 5% dividend after annual fees. Anything higher tends to erode NAV. Their payout ratio exceeds 100%, well above the 60% threshold for safe-dividend stocks.
— SG condo … won’t pay even 3% 🙁

SG retirement brbr: questionable estimate #Pauline

Posted on by tiger40490

 

See also ## CRBR estimates

[[invest like Buffett for parents]] is a reasonably useful book with realistic observations and tips, but not in its estimate of retirement nest egg.

On Page 7, author Pauline estimated SGD 1500/M of retirement burn rate for her dad. I see it as a realistic estimate as of 2017, when the book went to print.

Then from there Pauline estimated SGD 360k to last 20Y, while ignoring CPF-life. A Singaporean need not amass SGD 360k before retirement, because about SGD 200k locked [1] into CPF-life would pay out $1500/M for life.

[1] The catch is … horrible liquidity, standard feature of annuities.

Based on the SGD 360k estimate, Pauline then used a longer retirement_phase (reflecting improving female life expectancy) and 3% compound inflation rate over a 25Y “working_phase” to arrive at SGD940k. She used “Singapore high inflation” as a rallying cry for her readers to “amass SGD 1M”, but that’s inconsistent with my personal experience. 3% compound inflation rate is an overestimate. In Singapore, if home price inflation is removed (as per CPI criteria), then I would estimate a 25Y inflation factor of 1.4~1.6, so her father’s $1500/M retirement burn rate would become $2200 or 2500/M over the 25Y “working_phase”.

Pauline reached a shocking conclusion “In fact, all Singaporeans who are 40Y old and below would know that we would need at least SGD 1M in savings in order to retire safely”. Well, 90% of the world population aged below 40 has much less savings than that, so according to her, either SG is extremely expensive or most of the world population are unsafe in their retirement prospect!

— Why I bother to write this blogpost
1. There are many propaganda messages like “SG is the most expensive city”, “SG inflation is horrible”, “You need $1M to retire”… This book is the first serious yet non-academic presentation of the $1M estimate.
2. I like Pauline’s retirement burn rate estimate of SGD 1500/M, consistent with other ## CRBR estimates.
3. 3% compound inflation rate is an overestimate compared to my 30Y personal experience, but to her credit, Pauline’s estimate of “prices doubling over 25Y” is more realistic (closer to my experience) than other propaganda estimates.

the affluent often favor Funds over stocks@@

Posted on by tiger40490

In this blogpost “the affluent” refers to anyone qualifying as clients of SG wealth mgmt,  having SGD 200k account balance.

Rebecca of UOB suggested that many of his affluent clients prefer (mutual or ETF) funds rather than stock trading.

— reason: professional mgmt (with the mgmt fee) .. highly questionable value-add in reality
“Peaceful sleep” is a major selling point of professionally managed funds.

Active fund managers analyze individual stocks and hand-pick them. I criticized it in bluechips=slightly more dependable than mufu
— reason: professional assistance from financial advisor .. probably a key factor.
In contrast, these advisors will not help them trade stocks because there’s no fee to be earned !
— reason: no interest no time no expertise .. I think more than half of these affluent clients lack enthusiasm (risk appetite), free time or expertise to pick stocks by hand.

Q: in terms of Funds vs stocks, how do I compare to the affluent? I only have some very vague presumptions about the age, nationality distributions of “the affluent”.
A: I guess many of them favor ETF or mutual funds, rather than stocks. The Vanguard 2020 report is an analysis of investor preferences.

Q: how relevant is it to understand fellow investors?
A: I think the relevance may grow.

Y am suspicious of(overseas)developers

Posted on by tiger40490

At least 95% of the information (on a developer) presented to me is favorable, too favorable, unbalanced. The people preparing the information are paid to put the best foot forward. Why would they bother to raise a concern unless it is obvious like short history?

As investor, I have to seek the negative signs and question marks. I can’t “keep an open mind and be fair to the developer.”

I have to practice selective listening.

I can’t 一碗水端平. I must tilt it towards caution.

— Eg: Alan of Propnex said Propnex need to perform their due diligence on MIH because Pronex can’t afford to damage their reputation.

I basically told Alan that if things go bad, I suffer a lot more than Propnex does. This is not completely fair — perhaps Propnex suffers in unknown ways, but still they are only selling the product and they don’t pay for it.