Tag: t_legacy

legacy planning sounds better than estate planning

[23]steward@multi-gen reserve #dementia

Posted on by tiger40490

 

Genesis: Singapore’s past reserve is a multi-gen reserve … requires reliable stewardship

— well-off kids … I did some simple math with my wife.

  • Assumption: grandparents don’t spend too much of their current NAV on nursing homes or medical.
    .. Based on this assumption, after they pass away, most of their NAV would eventually go to the 2 grandchildren. Perhaps SGD 2M ignoring inflation.
  • Assumption: Aunt Genn doesn’t cash out on her Sydney home, and spend most of it.
    .. Based on this assumption, in 40 years she may pass on a large bequest to the 2 grown-up niece/nephew. I would be very old by then.
  • my own NAV… I will not discuss.
  • ^^ All in all, my two kids could end up with SGD 3~5M available to them during their adulthood.

— stewardship .. I’m more concerned about my son. By age 25, I hope he will be mature enough to know budgeting, BurnRate control, risk-taking/risk-assessment, due-diligence, wealth preservation,,, With this maturity, he would take care of his inheritance.

More and more frequently, I’m planning to keep my wealth under my own control, as a steward (guardian) till my 80s or even 90s. But I want to downplay this factor. I can’t let my kids rely on my stewardship. By age 30 they will be independent.

If my kids are unable to hit above the median salary, then my stewardship and the reserve would become important.

I think “multi-gen reserve” and “stewardship” are phrases to capture part of this (vague) concept.

— dementia .. I enjoy cashflow management for my own money and my family’s money.. many big and small daily decisions. These are real-world decisions with implications, so my mind is taking on real tasks. Financial decisions also have some cognitive complexity, so I think it’s a nice, enjoyable brain exercise.

— rEstate appreciation .. Most of my properties would be sold eventually. Hopefully one of them could be held long term, but in which city?

Beijing property … Once grandparents sell it, it would become cash and stop appreciating

— Gold … negative yield i.e. carry cost

##pff protection: powerless against SOME swans[def]

Posted on by tiger40490

Q: Why do you think Singapore among many small countries keep building their national reserve, if the reserve are powerless against so many disasters?
Q: Why does the global insurance industry has grown over centuries, with ever wider coverage, and many policies lasting 50-100 years?
Q: Why do credit unions (and banks) even exist if long-term saving and lending is actually based on shaky ground?
Same Answer: The reality is , the world will not end in 100 years, so the consistent savers do build up /formidable/ resources.

We tend to exaggerate the likelihood of various headline disasters, and then reach un-calibrated, quick, sweeping conclusions that “financial protections are often close to useless”. Such protections including

  1. gold,
  2. insurance plans
  3. government health insurance
  4. bank deposits in a resilient currency

Financial protections can be more reliable than other protections like levees, military protection, self-defense…. See also reliable shield: burnRate^wellness habits. There are rather few disasters that financial protection can’t help at all.

  1. political upheavals [looting, revolutions] that seize assets of private families. This happened to my father’s family and my mother’s family, but I won’t say financial protections were completely useless. It also happened in Cambodia (Grandpa pointed out) and perhaps Eastern Europe. I discussed this with grandpa. He said this will not happen again in China.
    • rare: armed conflicts — somewhere in your country is still “manageable”, but if it hits your city, then I hope money can buy you some travel tickets or weapons. Such things never happen out of the blue, so you have years to prepare.
    • Defining feature: anarchy including government-sanctioned anarchy
  2. hospital overrun — at national level can still be manageable, but if your city hits hospital capacity and somehow you can’t seek treatment in another city, then money can’t help. I think this happened in Wuhan, Span, Italy, NYC. Thanks to lessons from covid19, this is less likely to happen.
  3. ==== For below items , financial reserve can provide partial /relief/ or at least buy some precious time
  4. stock market boom and bust, wiping out a big chunk of your wealth. One of the most frequent disasters.
  5. government financial reform hurts my cohort. I am confident that in well-managed systems like SG or U.S. we would be given sufficient advance notice/warning.
  6. burglary .. nowadays most people keep bulk of assets offsite.
  7. — For the items below, the threats appear to be approaching from a distance. The financial cushions you built can buy you some time + some real benefits relative to the unprotected larger population.
  8. rare: high inflation more than 50% a year
  9. severe currency devaluation short of hyper inflation .. imported inflation
  10. very rare: famine — hitting somewhere in your country is still “manageable”, but if famine hits your city then money can’t help. Luckily such things always develop over decades , never suddenly like a pandemic, so your money can help you prepare. Other rare natural disasters include earth-quake, tsunami, but they affect fewer people.
  11. population aging leading to ever more people drawing from (rather than contributing to) a dwindling pool
  12. peak oil
  13. global warming and sea level rise; climate change and desertification.
    • Note sudden global-scale natural disasters including cosmic collisions happen only in sci-fi.
  14. global protein shortage but short of famine

— “Black swan” the concept .. Most writers use this term for _financial_ events. By strict definition, black swan events are so rare and unpredictable that assessing the probability will be guesswork and not based on data.

Is it simply better to put aside this theory? Well, one can study the pattern of past black-swan events and try to learn something, but I don’t know how useful that is, given that predicting similar events are by definition nearly impossible. I find it fun to read history. It doesn’t always offer any actionable insights though.

SG economy has experienced many large shocks. (These shocks could be considered white swans.) I feel the PAP leaders understand the vulnerability inherent in this system. They try to turn the vulnerability into agility.

 

gradually grow→.5→1%@NAV allocation2gold

Posted on by tiger40490

I keep track of the couple NAV. 5% probably means 100k.

Q1: So how many percent of that can be held in gold before age 50?
A: 1->2-5%. Remember gold ≠ a growth asset or an income source

— Q2: how would it change after that?
A: It can grow to 10% as I shift my focus to safer assets such as

  • HDB flat — is a safe asset despite the lease hold. I might downgrade after kids grow up, to increase gold allocation. At that time, will I find any motivation to do so?
  • blue chip dividend stocks — are safe assets but not as safe as CPF-life.
  • CPF-life? I still want to max out but not at 55, but at 65, despite the diminishing bequest

When we adjust our allocation, it’s important to keep an exposure to gold.

splurge #sis,athletes #cf Creep

Posted on by tiger40490

Splurge is more conscious than semi-conscious luxiry spend . Splurge is different from creep. Splurge is more conscious and faster; Creep is more recurring and seldom big-ticket items. (splurge is both a noun and a verb)

I need to watch out for this tendency in my kids. This tendency is found in every one of us, including me. The earliest eg: At the end of our New Silk-route venture, we had some bank account balance. In the end each person received $200+, but before that, I proposed (more than once) that we spend the balance on a feast. Luckily, the other shareholders decided to divide the balance and take home.

— I think my ctbz(寸土必争) micro-saving habit helps curb the splurge tendency + semi-conscious spend.

— Q: Why don’t I feel “safe” giving my wife a bigger monthly allowance?
eg: A: exactly because I have seen how my mom increased her spending 3 folds or more when we relocated to Singapore to earn a much higher income.

— why I want to live a long life and control the rate of “release” to my offspring.
eg: On 31 Dec 1993 on his return to China grandpa left some 5-digit sum for my sis. In 1994, she asked me to release it to her and subsequently spent it over a short period. I tend to say “12M” but possibly 6M or a few years.

— splurge tendency and the quick easy money
eg: Many professional athletes squander away their peak income, and descend into cash flow low ground after retirement.

eg: Many homeless people receive an inheritance or and squander it away within a year. It’s hard for such a individual to suddenly learn responsible spending.

eg: https://www.getrichslowly.org/how-and-why-i-sold-get-rich-slowly/ described the temptation to splurge.

gold∉Productive asset,but what@@

Posted on by tiger40490

http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart shows gold price for last 100 years, denominated in USD. Better disable logScale and inflation-adjustment. The TotalReturn chart is dubious because dividend reinvestment is not always possible. See my blogpost on compound return.

https://www.longtermtrends.net/stocks-vs-gold-comparison/compares DJ. Clearly gold isn’t a growth asset comparable to stocks. Gold underperformed U.S. stocks only in that country and over specific periods.

  • over 50Y, gold matched U.S. stocks
  • over 30Y, gold underperformed U.S. stocks
  • How about Japan stock index? Europe index?

Therefore, Gold can be considered a

  • wealth preservation asset …. a.k.a…. legacy asset
  • defensive asset … a.k.a….. crash-proof asset
  • defensive against long-term inflation and currency depreciation
  • long-term inflation-hedge asset
  • diversification asset

But gold is not a growth asset as properties and U.S. stocks. You are unlikely to grow massive wealth using gold. Few people expect to make money when buying insurance. If you by gold, don’t keep looking at its market value. Put it aside just as you would do with an insurance policy.

 

gold^property^annuity : long-horizon

Posted on by tiger40490

This blogpost is mostly long term considerations and focused on (51%) gold, as a long term preservation and diversification. Beware gold is NOT a growth asset

I have done enough (too much?) thinking and discussing on insurance products. This analysis builds on that.

— Different holding periods to realize the partial capital protection
Both gold and insurance are non-growth assets providing reasonable long-term “capital protection”. This partial protection have multiple limitations beyond inflation.

In the “standard” scenario, both require holding power for potentially long period. In special scenarios both can show quick return.

  • Insurance , not gold, delivers non-negative return as soon as you die (or TPD).
  • Gold , not insurance, can show a positive return depending on market

— current income … (long-horizon consideration?)
gold is hopeless. In fact it has negative yield.

Reliability and credit rating is higher with CPF-life than my other non-work income sources. However, rental income tend to grow.

— windfall appreciation:
annuity is hopeless

In normal to good times, properties are promising. In the long run, U.S. properties outside a few special cities, do NOT show strong appreciation.

In very bad times, gold can appreciate hugely.

— long-horizon inflation risk:
Annuity provides a fixed payout that fears inflation.

Globally, annuity returns usually derive from bonds. As global life expectancy grows, there might be increasing allocation to bonds on the global level. Long bonds fear inflation.

I feel rental and dividend assets are an inflation-hedge but increase credit risk (+market risk)..

Gold is the strongest currency over long horizons.

— long-term wealth preservation esp. through black swan crashes
No “asset” is 100% safe, fire-proof, war-proof, everything-proof. Among them, Gold might be the best, if you find a way to store it safely in the local city, and if liquidity remains high.

In war, cultural revolution or famine, your gold (or any asset for the matter) will not buy you food, medicine or air-tickets !

Gold’s long-term appreciation doesn’t depend on local economy whereas property can fail if the local economy fails. Other investments also pose higher (market, credit, country…) risks over longer horizons.

I have very low (below 1%) allocation to stocks currently but when my allocation grows to 10%, gold hedging may become important.

— high maintenance?
annuity is best; property is worst.
Physical gold requires storage. Perhaps some paper gold can be considered.

— liquidate when you must, in X years?
Insurance is the right asset to liquidate when you have an “acceptable” reason to liquidate such as TPD. You are not subject to the market condition in X years.

If you need to liquidate for some other reason, then all three liquidations can be …. unprofitable, poorly-timed, depending on the X. In this scenario, gold has a better chance of being profitable.

— logistics of liquidating:
gold is way better, but still has limits. Consider war time. Your physical gold (and properties) would be hard to liquidate if you happen to be in the war zone.

— difficulty of holding long term. Nothing new here. See items above

— legacy:
legacy depend on many of the factors above.

Gold is the easiest to inherit, or to manage, by inexperienced family members including my wife.

annuity has a bequest amount, which shrinks as I live longer.

 

##assets2designate as legacy @65

Posted on by tiger40490

At 65, when I set aside ERS for cpf-life, I would confront an essential question:

Q: as I grow more fragile and risk-averse, which assets are best suitable as legacy for my children, knowing that they may need to liquidate or manage these assets?

Will the heirs be too young to manage some assets (either too liquid or too complicated)? When I pass on my kids would be mature enough.

— inflation .. Even though SGD inflation has been well managed, legacy planning needs more caution against long-term inflation. My kids may live in another country. Even SGD inflation may worsen in 50Y.
— commercial_annuity .. inflation sensitive 🙁
🙂 payout is reliable
🙂 surrender value grows
— cash is the easiest but inflation-sensitive
— stocks — relatively easy to manage
— gold: physical coins or bars
My kids need to know how to store them. Perhaps use a gold vault.

Long-term appreciation is more proven.
— gold: structured products backed by some companies
— HDB unit
I trust the Singapore system. However, make sure the remaining lease is adequate unless location is excellent.

If remaining lease is, say, 30Y when I pass on at age 96, I think my kids (in their 50’s) can still liquidate it or rent it out for decades.
— U.S. properties
The U.S. system is also fairly mature and efficient.
— SEA properties — hopefully my kids will be old enough to manage them through/despite the imperfect local “systems”.

gold^bccy^U.S.eq^rEstate: long-term strength #w1r4

Posted on by tiger40490

For the purpose of legacy planning (including inflation hedge), this blogpost is 51% about gold, 30% about stocks.

  • I see the strength in gold over a 200Y horizon. It has proven its strength over 2000Y. CB (Central banks) slowly build up and carefully transport gold reserve precisely because gold provides time-honored, enduring, strength to the respective currencies.
  • I see the strength in properties over a 70Y horizon, but this strength is location-specific. Discussed below.
  • I see the strength in U.S. stocks over a 30Y horizon, considering numerous regime changes.

— large holders of gold tend to be central banks. In comparison, here are the largest holders of other asset classes:

  • gov bonds — similiarly held by governments, banks, insurers, corporations. gov bonds provide strength and stabilization.
  • Commercial and large rental buildings — held usually by corporations and governments .
  • individual residential properties — held by individuals + corporations.
  • stocks — bought and sold by individual investors, buy-side institutions

Boom-n-bust … describes stock and residential property bubbles, not gold. However, gold can become overvalued.
— typical holding period

  • stocks — months, up to 5Y for retail investors
  • residential properties and long bonds — decades
  • gold — generations. I believe most large holders of gold don’t sell often. Say price is now $2k/oz. If a CB decides to sell 1% of its holdings, it would probably impact the market right away. Therefore, I suspect the large movement is due to small investors.

— Since the invention of money, gold has held its strength, so what could derail gold’s strength?
Disruptive technologies threaten to destroy the special position of petrol, but is there a disruptive technology against gold? I don’t see any sign.

gold offers inflation hedge only over the long term. https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html “If you look at the very long term, gold should hold its value against inflation. But in any shorter period, it may or may not be a good hedge”

==== other inflation hedges
Actually, I don’t worry too much about SG inflation.
— bccy

How about bccy as a long-term inflation hedge? Any proven inflation hedge must be stable. Gold is much more stable than BTC.

https://www.channelnewsasia.com/commentary/crypto-ftx-sbf-bankrupt-crash-binance-3068201 says
The value proposition of crypto was supposed to be a hedge to the dollar or more conventional parts of the market.

Or that it would hold up in value if everything else fell. But an asset that offers that kind of hedge is rare; most assets are somewhat correlated, especially when the market drops. Rareness normally means an expensive asset that offers a lower return, possibly negative yield. You pay a big price for that kind of safety and it’s hard to find. The fact that crypto offered such high returns indicated it was never a good hedge.

— “real asset”.. Some investment salesmen (or economists?) use “real asset” to refer to precious metals + rEstate. They find something in common between those asset classes — anti-inflation, and not based on a paper document like stocks and bonds.

Actually, I think SP500 ETF is also anti-inflation, but for a different reason. The Achilles’ heel of stocks as long-term inflation hedge (bold claim) is the short history of stock market .. 50Y vs 2000Y for gold. Regime change is rather frequent.
* I feel the price chart before 1945 is largely irrelevant.
* Due to high inflation high interest,, the price chart before 1980 is also largely irrelevant.

— property market is extremely location specific.
Eg: Beijing/Shanghai growth has been exceptional and unreasonable.

If your location is not a tier 1 city or attractive to the property-loving Chinese investors, then long-term capital protection is questionable.

windfall⇒legacy

Posted on by tiger40490

I think some windfall-focused property investors are hoping to build a legacy for their kids.

Legacy is valuable to some extent but is a low priority to me. It’s good to understand these kind of individual differences, so I can get a better picture of my own priorities.

Over the long horizon, Property markets and my offspring’s priorities are too hard to predict.

[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.