Tag: t_need4reflect

[21]SDB liquidity #selective cashout: not available]mufu

Posted on by tiger40490

The more I watch the kettle, the more pain.

— On 18 Feb 2022, I spoke to a FSM advisor in depth. I compared SDB to some of my best div stocks and realized that I have different expectations for each asset class:

  • for div stocks, I have much longer holding windows [don’t want to be specific here, but at least 3Y]
  • .. but I expect consistent DYOC. Many dividend superstars have a commitment to that.
  • for SDB, I need liquidity: 1) time-bound dips. I also need 2) shallow dips, which is satisfied by this asset class.

It turned out SDB is failing expectation #1. The macro environment is not so drastically different from the past 30Y, so I blamed the fund managers (across the industry) for poor management.  Now I would blame the SDB asset class for failing my expectations, if the very best fund manager couldn’t deliver. That’s why I compared SDB to div stocks.

Now I think as an asset class, SDB is low-return, small loss, but not always better liquidity. For a fair comparison, FSM advisor reassured me that the dip would remain small (much better than stocks), and NAV recovery would arrive within the timeframe I set for my stocks.

One factor is selective cash-out (introduced in a 2021 mail to XR). FSM Advisor pointed out that most of the SDB issuers are reputable and consistent with coupon payments, but I am unable to see their coupon payout, and I can’t filter out the underwater bonds, and cash out the rest without loss. Selective sell-out would enhance liqudity of the SDB mufu.

Sugg/Plan 1: since there’s a high chance that Shenton SDB will decline further over the next few months, let’s sell $2k and watch the market. (Will maintain the deep-frozen 38k so as to capture the upswing.) If in a few months I see a 1% recovery in this mufu, we will progressively get back in, hoping to capture the upswing in time.

I discussed Sugg 1 with FSM advisor. She said many informed/patient investors would probably hold out for a recovery within 1-2Y (rather than timing the market), so I think it’s not stupid to hold. I told her that I would probably Feel better executing my Plan 1.

As of the call I had $4k invested in Shenton SDB. I did sell half at a price around 1.586. Now price is even lower, vindicating my decision.

— On 20 Dec 2021, I spoke to a lady at Fullerton regarding https://www.fullertonfund.com/fund/fullerton-short-term-interest-rate-fund-c/, followed by a chat with a FSM advisor.

This fund holds investment grade (average BBB+) short-duration (2-3 Y average duration) bonds including corp bonds, without HY bonds like those China property corp bonds.  Default risk is low with the underlying bonds.

Q: why the recent drop in NAV?
A: 1) rate hike and 2) China sentiment. The Fullerton lady emphasized that the sell-off in China depressed all market segments, as many investors dump all China corp bonds including investment-grade.

Q: what’s the projected impact due to upcoming rate hikes across the globe?
%%A: a CB announcement would (immediately?) translate to higher market yield i.e. lower NAV, but over time, the return on the fund will hopefully (am not so sure!) recover and catch up with the prevailing higher rate.

Q: based on historical chart, I would say every decline was followed by a reversal within a year. Average annual return is 2-2.5%, so can I assume this time round will be similar? Well, there are only a few historical occurences.
A: managers often hold IG bonds to maturity, and then deploy the repayment to buy new bonds, whose returns are higher during rate rise.  I guess that’s the mechanism of the reversal.

Jolt: However, how soon is that maturity? Average duration across existing bonds is 2Y+ ! So this mechanism won’t kick in within a year 🙁

If this fund can deliver 2%pa return as historically, then it is likely to beat my mtg interest cost. It would qualify as a parking spot for my borrowed dollars.

Jolt: However, the NAV could zigzag till late 2022.  Remember that once I sell #1173 I would have plenty of cash to capture the recovery. Now I think the recovery will not be over so soon. Instead of holding all the way through the recovery, (AA) means “sell now and buy after CompletionS”.

Q: When and how much is the expected mtg rate hike? Remember MBR is under OCBC in-house control.
A: As of Oct 2021, most mortgage brokers and bank executives agreed that the full impact of these global actions on Singapore will only be realized in 2023

Q: How fast and big are the hikes?
A: As of Dec 2021, the anticipated rate hikes (projected 2 to 3 in FY2022) is likely to end shy of 1%, rising at a quicker pace in FY2023 and FY2024, as widely polled by Economist.  The first rate hike may only occur in May 2022, as polled widely.

— Which option is safest? Earmark 42k for liquidation before exercise, to reduce quantum. Grab any chance for ABE over the next months, and liquidate incrementally.

AA) liquidate $42k at a small loss now, so as to reduce my housing loan quantum by $42k.
BB) keep the $42k position in FSM and wait for price recovery. The $42k portion of my housing loan will incur a floating interest rate of (projected) 1~1.5% for 12 months from mid-2022 to mid-2023.

FSM advisor is confident about the validity of AA. FSM advisor said BB is risky because mtg rate will probably go up amidst the “3 rate hikes”, but those SDBs could take a hit immediately and take a long time to recover, so I could end up losing on both sides. If those 42k positions decline while my mtg rate trends up, I would feel bad and have to hold longer. I may end up watching the 42k in pain, expecting it to outrun the mortgage rate.

She also pointed out the China sentiment may not get “resolved” so soon. It could depress the NAV of my 42k SBDs over 2022 or beyond.

— Q: is this oth?  Not oth because I care about loan burden, and monthly burn rate.
— soft close .. this fund includes 6%+ current allocation to cash. Too much cash. Mangers currently won’t accept new cash, and risk diluting future returns. I guess this means they are ready to buy new bonds at higher yield, but can’t find enough of them. If they use the idle cash to buy the current crop of new bonds, they would “buy” low coupon rate and stand to lose as yield rises.

show off big nice home@@

Posted on by tiger40490

Remember Zhu Rong’s comment about my simple furnishing in James Madison #25-12 ?

I visited several Chinese middle class home in the U.S. and Singapore.  My home pales in comparison so I seldom invite friends over such as YLZ. I have always felt negative, a bit ashamed and inferior. This sentiment is natural immaturity. Most of us are immature. I think my dad would tell me to relax and let go.

Main focus today is the U.S. context. To a lesser extent, this blogpost also applies to Singapore. My wife envies those families living in luxury private housing.

— Brbr Principle : pay for what’s important to your true self. Guard against mindless peer bench-marking and lifestyle creep

  • I pay for UChicago degree.’
  • I pay for well-connected location with short commute
  • I pay for frequent family reunion flights.
  • … but I don’t pay for a big, nice home just to show other people.

As national leader, LKY followed many unconventional principles.

In my case, this is another of my unconventional principles in personal finance. This and other principles underpin my Brbr, Fuller wealth, cashflow high ground, and bare-bones but growing ffree.

— rental yield is underwhelming in the fancy homes :

  • newer buildings
  • higher floor
  • bigger homes
  • bigger backyard

— fancy home as investment?

Like my sister, many middle-class families would justify their home purchase as something unlike a lavish vacation. Home purchase is an investment. Really? Such a big home entails burn rate burdens due to maintenance, mortgage, and taxes. Rental yield is discussed above. As investment, the saving grace is windfall appreciation.

As explained in big discretionary spends4Chinese middle-class]US and other blogposts a big home could entail up to $6k/M burn rate. Heavy burden.

— immigrant’s American dream — DeepakCM’s point. I think many immigrants come from developing countries. Even a middle class in the home country won’t have such big homes. So when they come to the U.S. they want to experience this part of the American dream.

— financially struggling family living in an expensive home, inherited or purchased

I think this scenario can be realistic — say, a family of four earning $7k/M living in a home worth $1000k.

Would they rather live in a $500k home (half the current home value) with the other half of the money invested somewhere producing $1000 to 3000 monthly rental income?

Answer depends on many factors such as home size, location, floor (the higher the more expensive), but I think if they are struggling financially, then they can trade those nice things for a simpler yet safe and comfortable home + steady income. Remember Ms Cheng’s Bayonne home?

So a big nice home is kinda unneeded and wasted, like a massive lifestyle creep.

Q: Between current income vs windfall appreciation, what’s more important? I guess for a struggling family (me?) income is.

brbr^FullerWealth: 2 barometers@PFF, !!ffree #w1r3

Posted on by tiger40490

I feel Brbr and Fuller Wealth are two related gauges/indicators/barometers of

  • household financial health .. I have recently devised a scorecard.
  • household financial strength
  • family survival capability
  • high ground vs low ground

— ffree analysis .. is dominated by big shocks. Fuller Wealth and brbr have a limited /relevance/.

— black-swan disaster (and resilience)
As a “buffer” ratio, Brbr (winner) is very relevant to disaster coping. Fuller wealth basically assumes loss of salary (perhaps in a livelihood disaster)… also relevant to disaster coping.

Insurers? I am biased against insurance products as a reliable protection against disasters. I’m heavily self-reliant in my outlook.

I prefer the word “disaster”. Resilience operates at the physical, health, attitude, network levels. Financial resilience is a at most half the package of overall resilience.

Compared to brbr, Fuller wealth is more well-known, more discussed, but Fuller wealth assumes a stable operating environment over a long horizon, free of black swan events. History seems to show otherwise, so brbr is more down-to-earth, i.e. closer to reality.

Witnessing the mass layoff during covid19, I hold on tight to my brbr buffer. I might lose my job after a few years, so every month I get paid, I put away 66% as reserve. If and when the salary stops, I would rely on my Fuller wealth.
— inflation as a realistic macro risk (not a crash)
Brbr (winner) and dev-till-70 are more inflation-proof than Fuller wealth.

Fuller wealth would rely on rental or dividend income to beat inflation, they are more unstable but more inflation-resistant than annuity products.
— FOMO or livelihood?
These concepts are all about livelihood. FOMO is kinda naïve in this context.
— low burn rate, high savings rate
Brbr and Fuller Wealth both depend critically on low burn rate high savings rate, where I have a definite advantage.
— Am I anti-growth (rather than pro-growth), backward looking, ultra-conservative, 复古, pessimistic about economic expansion?
Not entirely. I like cautious optimism, cautious expansion. Fuller wealth (winner) is less anti-growth …
— a Toa Payoh barber’s 压力 is presumably brbr. If they earn 2k and spend only $500, then no ground for complaint.
FOMO is probably another factor. The essential needs are probably $500/M

j4: allocate so much laser on CPF

Posted on by tiger40490

I will not spend too much time explaining my justifications..

— j4: complexity .. confusions, mis-information
— j4: liquidity … severe constraints
— j4: high compound interest in SA/RA + payout rate in CPF-life
Zooming into cpf-life, I would say this payout rate is one of the 3 pillars [1] of my retirement planning from 65 onward.

[1] The others include career longevity, health and healthcare.

— j4: high credit rating … The safest long-term investment
I won’t describe in details. CPF-life (and SA/RA) as securities are safer than properties, stocks, gold

long-term ROTI@exp-recon #budget`

Posted on by tiger40490

 

Nowadays I spend 1-2H/month on basic reconciliation (almost painstaking), followed by N hours of reflection, discussion,, Though reconciliation frequency has grown from twice/Y to 12/Y, total reconciliation tcost is probably unchanged. This represents a huge tcost, but also a huge advantage within my age group.

This is one of my top 20 habits in personal finance. I feel safe to talk about this openly, though I should be discreet about my ffree.

Exp recon prevents semi-conscious creep-spending

Detailed expense tracking gives me critical insight. Many (like 5%) of my cohort would benefit significantly from the same insight:

  • where I could realistically cut waste, and by how much
  • what expenses are less discretionary/elastic, i.e. hard to cut
  • why nobody else believes in my burn rate projection yet I should feel confident
  • why on earth my peers’ family burn so fast
  • a better estimate (more than a guesstimate) of my saving rate and NAV growth rate
  • a decent estimate of brbr and percentage savings rate
  • after kids grow up, what crbr my wife and me would hit
  • % breakdown of outlays

— Beware of tcost escalation and falling roti
Sugg: set Target for next monthly outlay?
Sugg: Categorize expenses into non-essential vs essentials.

Beware: These would increase perfectionist pressure on the recon process, and increase the monthly tcost.

Beware of addiction to fake precision. I would say a lot of the financial details in my spreadsheet are only 80% confident/accurate. Best insurance and best validation is the (imperfect) recon. Therefore, an error(incl. omission) within $300 is pretty good in each monthly recon. In contrast, the periodic snapshots are fairly reliable, accurate and detailed thanks to simplicity.

Q: is my monthly exp recon too time-consuming?

The time spent on burn rate control (including exp recon) is rather high, perhaps higher than parenting analysis, QQ.. However, this t-spend is among the most practical, fruitful and time-honored.

I think most ordinary folks don’t have my level of patience, interest, determination.

Remember that burn rate is among my top 5 unique strengths, my top 3 long-term livelihood shields, my top 5 cancer-stress relieves.. The huge value come at a high tCost.

—— budgeting?    Benefits are 1) 99% in burn rate control, and 2) promotion/encouragement of saving. To these ends, I have two alternatives to budgeting:

  1. I tend to have a long-term savings target i.e. what percentage of my salary (eg 100k) is saved to banks or invested.
    .. Not exactly a savings target, but I have a spreadsheet tracking couple’s NAV.
  2. I tend to rely on my expense recon. One practical benefit — setting an expectation for the “next 3M outlays”. It has proven to be vastly more precise, and largely displaced annual budget. That’s why I tend to brush aside the suggestion of budgeting.

It’s useful to set simple, single numbers for annual budget, annual savings (including investments).. I believe that for the x% (20-50%) of individuals challenged by a spending habit, it is indeed useful. But for me, it’s time consuming to separate out investments, transfers etc. The effort is low roti. Therefore, I focus on monthly expense recon.