Tag: T_defense

Each monthly wage extends Fuller wealth by2M

Posted on by tiger40490

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For the next X years in Singapore, my family burn rate is predictable (no college no mortgage) at around $4k/M excluding transfers, $5k/M total burn rate. I sometimes tell my wife “Every time we squirrel away $60k from (work/nonwork) income, we extend our Fuller Wealth by a year.” This /prognosis/ is almost too good to be true. Simplistic but motivational thought. Long-term forecast is naturally less reliable, subject to multiple upsets but still, some guesstimates can help us plan better. Just remember not to put too much trust in the guesstimate numbers.

This prognosis is a useful yardstick for comparison with other families. Some families can “add a year” quickly (a couple of paychecks), while others need a decade to “add a year”.

— going from strength to strength, from strong to stronger .. In 2018 I had a numerical projection showing barebones ffree. Then in 2020, I wrote to wife another numerical projection showing that salaries are not really needed.

So my Fuller wealth already exceeds those targets. Every new month, my nest egg is now more fortified/resilient [2], growing (by $5k+) towards a new target of “no need to flee to U.S.”

[2] Keystone of the “nest egg” idea is … defense — against hazards, missteps, contingencies, uncertainties.

How does this prognosis differentiate me from my cohort? Many people also grow their nest egg every month, but they don’t have a FIRE target amount like 25Y worth @ living expenses. I have multiple progressive targets.

— Let’s /substantiate/shore up/ some weaknesses of this prognosis.

  1. college cost will become relevant in about 8 years. Fuller Wealth is not about luxury or higher aspiration, but aiming at a basic healthy level of lifestyle.
  2. medical cost?
  3. inflation? Addressed in several blogposts. I believe SG CPI inflation is much lower than …

cashflow LowGround^HighGround [def] #sdxq

Posted on by tiger40490

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I like the visual (albeit loose) concept of “cashflow highground”, similar to “moral high ground “. Physical flow is usually from highground to low ground. Sometimes, I prefer the shorter phrase “PFF highground”.

Each household (single or family) can move between lower ground and higher ground as their life unfolds. Even a country can go through the same, as SG did during covid19.

On a low ground, household outlays exceed income, debts exceed assets, debt servicing is a major recurring expense, or salary income stability is in doubt. Some households sink lower and lower, apparently unable to escape. Common among the immigrants and non-white, non-Chinese Americans. In a contrast, JackZ (Raymond to a lesser extent) lost his job and then hit the pandemic, but thanks to his savings and low burn rate, he probably didn’t sink further.

In a down turn such as the widespread job loss during covid19, you don’t want to find yourself on the lower grounds as they are more at risk of “overrun”.

Remember the WhyFactor production on scarcity? On the lower ground, people struggle to cope. On the higher ground, you can enjoy, relax and live in relative peace and comfort, but lifestyle creep can erode the high ground.

Therefore, on the high ground I feel a need to build up my defense, strengthen my foundation, and raise my ground even higher. So What type of insurance would protect my high ground? Not endowment, not life insurance. Here is my insurance plan:

! Even a middle-lower income household can achieve cash flow high ground, by reducing burn rate (and lifestyle creep), debt,, and build up a reserve and nonwork income stream. I feel Raymond has not done enough on the income side.

— How is BRBR related? Big ticket infrequent outlays are less visible in BRBR, but more clearly felt in high/low ground.

  • Personal prognosis — If I were to take on a USD 700k school-district house, I would slide into lower ground, partly due to high interest and pTaxes.
  • UChicago MSFM — did I slide into lower ground? I would yes slightly due to the high burn rate like 20k/Y.

— How about Fuller wealth?
Fuller wealth as a barometer is one of the best indcators of high/low ground.

— Disaster insurance — such as TPD, major medical and eldershield.
These are rare events so hopefully successful claim rate is low and premium is low. Such low-cost insurance plans help strengthen the foundation of my high ground.

Recall the tallboy vs K3 story?
— How about lifestyle creep? I would venture to say if your income is below 300k/Y, a key difference between high ground and low ground is the attitude/habits on lifestyle creep.

The creeps don’t make a huge difference numerically (because they are small spends) but the attitude does make a huge difference. You have to be conscious of where you spend. You need to review your paste decisions critically.

[16]scenario plann`: asset devalue over50-100Y

Posted on by tiger40490

Here I’m talking about gradual/progressive decline, beyond normal inflation.

In contrast, a sharp decline (discussed in the black-swan blogpost) may precede a V-shape recovery, and is more common at least in my simplistic view not based on any reliable data.

Actually, the protections in the black-swan blogpost also apply here.

A complete and objective assessment would probably rank my asset allocations as

#1 property – SG
#2 property – BJ
#3 property – Cambodia, BGC
#4 SGD or USD cash including CPF
… See also [20]current portfolio4 family livelihood protection, but those other allocations (eg: stocks) are smaller and less prone to long-term gradual devaluation.

So what about a 50% decline in one of these? Some of these assets have the potential to decline even worse, but 50% is a reasonably bad scenario to target. Based on my observations over the last 10-20 years, I feel U.S. and Singapore are fairly resilient, so a 50% decline in my lifetime sounds like low probabilities, but we still need to prepare.

The black-swan blogpost listed top 3 (or more) non-financial protections such as career longevity. However, I need some financial hedges, too.

  • Hedge – gold — probably the best hedges against inflation over 100Y
  • Hedge – USD or SGD cash and bonds — least volatile, more reliable but susceptible to inflation
  • Hedge – US stocks

— legacy planning in the face of lont-term gradual devaluation

If I only leave, say, $1M to my children and grandchildren, then I feel a 50% decline is tolerable. The decline would be gradual and I would have time to liquidate some assets and spend or reallocate elsewhere.

What’s the chance of me leaving more than $1M? Rather low.

— devaluation is always measured against some benchmark, usually against a currency. I suspect that with one exception [3], long-term devaluation is always a local devaluaiton relative to some global benchmark. If this is the case, and if you hold properties or stocks in several locations, you are unlikely to experience devaluation across the board.

What if those locations are heavily correlated (the black thinking hat)? Well, putting on my blue thinking hat, I think yes SEAsia locations might be correlated.  According to this theory, it’s worthwhile to hold some U.S. rental property, but beware the high running cost.

[3] The exception is inflation, not a focus of this blogpost.

t_swan^t_misstep ^ffreeLimitation ^macroRisk #defense

Posted on by tiger40490

k_marro_risk

t_swan and t_misstep tags are mutually exclusive 🙂

  • t_swan .. (a.k.a. externalDisaster) are external, something happening to us
  • t_misstep .. are self-inflicted disasters
  • t_ffreeLimitation .. more broad in scope, so I try to reduce its overlap with t_swan or t_misstep

t_macroRisk is a sister to t_creditRisk and t_mktRisk. It refers to systemic risks beyond mkt risk or credit risk
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Note   t_defense is often a concurrent tag.

[15]black swan crash #600w

Posted on by tiger40490

big picture — financial protections (insurance, diversification, current income…) are important-partially-effective as protections of family livelihood. More important protections are non-financial

  • 1A) health and healthcare system,
  • 1B) strong marriage and family,
  • 1C) resilient career longevity
  • 1D) Good kids working on reasonable jobs would be a strong protection. This factor is largely within my influence as a parent.
  • 1F) strength of Singapore and U.S. , my two choices.

Black swan crash mostly affect stock market and property market. This scenario is different from long-term devaluations discussed in another blogpost

Many stock market crashes saw all the experts proven wrong, but each time, a few people seemed to be prepared for the crash, because … BlackSwan by definition is obvious in hindsight.

I feel every serious student has this same homework — study each crash and draw his/her own conclusions. I haven’t done my homework. I will simply point out that in a stock market crash, if we are cautious to avoid buying at the peak (assuming our judgement is right, though no one can predict.) then most investments should not suffer many years (specifics? no need) of draw-down. Suppose we see the longest draw-down is 8 years. We are right to assume the most likely length of the next draw-down is that long. But statistically we are unlikely to suffer exactly that draw-down, since we are unlikely to invest 100% at the very peak.

I feel developed market eq and bonds both exhibit a long term trend. Central banks will handle any liquidity crunch, so those are likely short-lived crashes.

— 3 CPF-life
— 4) diversification (at low correlation) could help, even tough all assets decline together.
Reality — Some assets recover faster than others. Some fall less than others. By diversifying, I have a reasonable chance of capturing some quick recovery, perhaps on a small position.
— 5) income stocks are safer among stocks, assuming most of them continue to pay dividends.
— 6) Gold is the strongest “currency” and a good hedge for equity market crashes and some (but not all) political upheavals, but you must be prepared to hold it for decades.
— 6b) USD is safer, so is SGD to a lesser extent. Flight to safety.

— 7) gov bonds are safe, partly because
* Gov have the (not unlimited) power to print money
* flight to quality
— 7b) I believe Investment-Grade bonds are safe, because government would inject liquidity to help the “normal” corporations survive and service their debt.

— 8) rental yield is more weather proof than the promise of windfall appreciation.

Suppose my high-yield rental property pays out NetRY 5% vs 2% for a high-end residential. In a down turn, valuation could drop by half. My rental income provides 4 cushion compared to the high-end

  1. in good times or bad times, my rental property is more likely to be rented whereas the high-end is less more likely to be vacant, because my property was bought for the sole purpose of rental.
  2. If both are rented out during the down turn, then my rental property is likely to generate higher rental yield just as before the down turn
  3. higher rental yield is an attractive feature during a down turn, as the prospective owners assess the positive cashflow. This is similar to income stock vs growth stock. Therefore, the valuation drop is less severe than the high-end residential.
  4. suppose we are forced to sell at a loss during the down turn, my cumulative rental income — hitherto received — would offset my losses.
  5. (Not a cushion) The promise of windfall would be very hard to keep after a huge draw down. In contrast, the rental yield was already realized over the preceding years.