Tag: t_NNIA

passive or activeMgmt income

cashcow^passive^nonwork income

Posted on by tiger40490

“Cash cow” can be passive or active mgmt, but is reliable, not diminishing

“nonwork income” can be passive or active.

Truly passive income is rare.

  • div stock is more passive than rental property, but less consistent in most cases.
  • GRR

Passive (GRR) or active rental income is the best inflation-proof passive income. Dividends are also effective. In contrast, insurance products don’t provide good inflation protection.

brbr^rentalSpread: SG profile4R.X and%%confidence #moon-landing

Posted on by tiger40490

I can explain to XR (or YJL) that 1) his non-housing burn rate if living in SG would be SGD 4-6k,,,,, 2) his rental spread across U.S./SG would be USD 1k [1],,,, but he would have insufficient confidence in my far-fetched estimates.

[1] considering pTax alone, XR said his home rental income post-tax would be up to USD 2k/M, or up to 3k pre-tax

Scenario planning and analysis is equally science and art. I guess most people would say it’s guestimate, and they would have insufficient confidence.

Moon landing — For the laymen, it was inconceivable that scientists and engineers could predict what happens in the world out there, then plan and engineer such a mission, based on experiments on planet earth. My growing confidence in my long-term cash flow projection is similarly based on data and technical analysis —

  • burn rate data from my expense tracking,
  • blogging and analysis,
  • discussions with a wide range of people, as sounding boards
  • Singapore shield plans + polyclinics + nursing homes
  • observation of Singapore relative to U.S. and other systems  — nanny state “principles”, fiscal policies, long-term rental demand.
    • cross-reference : Canadian (+ China) citizens have confidence in public health insurance. Such collective confidence builds over decades of collective experience.

 

$1k NNIA=more meaningful2ME than others

Posted on by tiger40490

Be it SGD 1k for a Singapore family, or USD 1k for a U.S. family, this amount of nonwork income ..

  • is not exciting for my cohort. U.S. cohort’s family burn rate is like 9k.
  • is far from enough to someone without passive income , because this amount is way below burn rate
  • but is a significant addition when my passive income is already close to family burn rate.

current_payout^windfall_far_out

Posted on by tiger40490

https://www.richdad.com/resources/rich-dad-financial-education-blog/january-2010/wealth-is-measured-in-time says

Most people are only familiar with capital gains investing (including windfalls). In other words they are focused on trying to get rich. When you focus on investing for cash flow, you are focused on building your wealth, creating passive income that earns you money without depleting or selling the original asset.

I used to prefer a high annualized return, despite a long wait, such as Chinese properties, land banking products, forestry,,, but in my 40’s I feel I need current income to provide for education, better commute, better home, recreation, self-growth, interest, hobbies, … I have experienced a few show-down cases of current income vs far-out windfall , that shaped my perceptions and preferences.

  • eg 🙁 land-oriented investment is advocated by Alan Shi, but such a remote location has low rental demand. Low current income. In fact, automobile burn rate could be higher. I probably won’t like it.
  • eg 🙁 life insurance — zero income for an extremely long “wait”
  • eg 🙁 endowment plans such as Manulife Universal Life — zero current income + paltry return
  • eg 🙁 land banking promising a windfall? I don’t think there’s any current income.
  • eg 🙁 Allianz IncomeProtector — zero current income + delayed high income. I don’t like it because I need income now, not later.
  • xp: monthly payout — funds on FSM. Overall not impressive since most of the current income seems to come from the NAV
  • xp: Energy 12 — good guaranteed current income + some appreciation potential
  • xp (long): #4-116 — huge appreciation (Realized!) + current income (in terms of realized rental since 2005 + my rental savings). So this is the #1 biggest success story in my entire life.
  • xp (long): Beijing property — huge appreciation + zero current income for me but indirectly my parents are enjoying the rent-free benefits. This is the 2nd biggest successful story.
  • xp: BridgeRetail — high current income (Realized!) + long-term appreciation potential.
  • xp: PeakRetail — lower current income, bigger potential for windfall
  • xp: BGC — promising current income + long-term appreciation potential.
  • xp: Goldman Sachs dividends
  • xp: My 2009 Roth401k voluntary contribution was a regrettable decision. The money is now locked-up when I need it (now). When the money someday gets unlocked, I won’t need it as much as now.

I have concerns over the long wait for a “windfall” (I have never been convinced to buy any):

  1. With such a long horizon, things may not work out as planned. The more “guaranteed”, the smaller the windfall, like the /paltry returns/ of insurance products. On the other extreme, the big windfall of land banking often disappoints investors
  2. our health? Wife or I might get a condition too early and can’t really enjoy the windfall. Even if we can enjoy it at that advanced age, I don’t want to wait for that time, in poor health.
  3. my lifespan? If the windfall comes at 67, I have a few decades to enjoy it, but I would rather get the windfall 40 years before end of life.
  4. inflation? Singapore is OK so far. U.S. is less stable.

Y endowment plans so popular ] SG #Joshua@DBS

Posted on by tiger40490

Based on discussion with Joshua Yap of DBS, this analysis is focused on Singapore, but other countries are not very different.

  • Reason 1: burn rate — some buyers have a burn rate close to 80% of income. When these folks retire they need a ton of help to support the same lifestyle a.k.a. same burn rate.
  • Reason 2: passive income — most people have very low passive income, perhaps below $1k/m. Now I think most Singaporeans are risk averse so their passive income is generated at very low yields so $1k/M at 2% yield requires 600k of nett investment.
    • Joshua said “not many people are blessed as you.” … music to my ear. Joshua was not flattering me throughout the chat. He didn’t need to.
  • Reason 3 (Joshua): many buyers don’t want to work under stress past 65. With an additional income (endowment etc) these folks can afford to stop working so hard under stress.
  • Reason 3b (Joshua): some buyers worry they would no longer be in-demand on job market.
  • Reason 4: (Traditionally the Chinese are slightly better) many buyers such as my sister are unable to save for retirement. I aim to save half my salary, but some can only save $1k/m.

Caution — don’t fall into the superiority trap. An endowment buyer could be stronger (than me) in many ways.

I think Chinese Singaporeans are taught to save for rainy days, so endowment plans follow the Chinese tradition.

##high-ROI ] %%experience

Posted on by tiger40490
S$profit % realized incl capital annual ROI[2] capital category windfall
2.2k 122% over 2Y c 10.5% 10k PE German investment
6.6k very low delayed 10k PE Brazil invest #1 #3Y
2.8k 128% over 2Y [1] c 13% not 14% 10k PE Brazil invest #2
S$200k[3] zero 🙁 c 12% up to 2017 USD 90k home #2 USD90k invested in Beijing
S$240k[4] 237% over 8Y c 11% only 175k home #1 Blk 177
v v    trivial amounts     v v
1.4k 170% over 2Y c 30% roughly USD 2k US eq Legg Mason US funds
below 1k 110% within a year 15% roughly 1k equity selected eq funds

Turned out to be mostly real estate, so all my gold and bond investments pale in comparison.

Actually, at my age I need current income more than windfall… see separate blog

[1] there was $100 admin fee, but they paid out an extra $100 to compensate for it
[2] not compound return if no ‘c’. Note compound return above 4% is lucky and hard to maintain
[3] 2017 value = 20% x CNY 8.5M
[4] excluding rental savings

NNIA ->low-stress job]U.S.

Posted on by tiger40490

Update — CSDoctor said his monthly burn rate is $8k including $3k mortgage+pTax, but excluding some unspecified school fees.

Hi XR,

I remember you said your monthly burn rate was about 9k. I feel your double income is comfortably sufficient. Not so sure why you repeatedly felt a high pressure.

With my overseas passive income, hopefully I can afford to take on a lower paid job close to home or a work-from-home job. I envision myself taking home $10k+ after tax, and we spend $8k excluding mortgage. My wife’s salary and our passive income will be extra income.

To reduce the $8k monthly burn rate, I will

· reduce driving
· buy medical insurance for kids only
· consider smaller houses. $300k in Bayonne would cost me $600/m pTax

I feel that’s a reasonable, not deprived, quality of life for my family. If it’s too tough, I can always consider relocating to Singapore.

Which jobs were low-stress so far? Here they are, ranked

  1. Verizon
  2. Citi
  3. ICE — c++ parser of raw market data
  4. OCBC — c#. I took ownership of two unrelated, less critical applications from the original developers.

U.S.cohorts’property^%%Asia property

Posted on by tiger40490

One thing potentially significant is the upward potential. Look at the Beijing curve and the Singapore curve. The initial increment was more than increment — more like multiplication.

  • AA) appreciation — My SEA investments offer potential for faster, larger appreciation that’s unlikely in a mature market like the U.S.

Familiarity is the opposite side of the coin. The initial increment usually correlates with unfamiliarity to the global affluent investors. BGC enjoys higher valuation partly due to the longer growth track record. U.S. market is familiar to U.S. investors.

Of course there are also risks. Among the risks, these /nascent/ property markets may not take off as Mumbai or Beijing.

  • BB) rental yield

Against the backdrop of these uncertainties, the reliability of rental income looks extremely attractive. This feature is missing from all of my U.S. peers’ property investments I have heard of. Also look at Ashish’s Pune apartment — regular rental income + appreciation.

  • CC) quantum — this factor is even more important to a small investor like me. I don’t have enough cash to buy any of the U.S. properties I have heard of.

Therefore, I feel my overseas properties are superior.

HY/PE[def] #le2Kun.h

Posted on by tiger40490

Hi Hu Kun,

This scheme comes under various names — Private Equity / High Yield bond / co-investment partnership / Ponzi scheme:) I call it HighYieldPrivateEquity

1) Indeed the legal contract names a specific business entity paying “partners” (me) a fixed payout. I just feel the entity name isn’t as important as the real people behind it.

2) Default risk – yes they could run away with my money and declare the business entity bankrupt. Lehman did that to Singapore investors. A more well-known entity is perceived to be safer, but MAS won’t underwrite (guarantee) every financial institution it regulates. There’s still some default risk in some of these products. I look at their track record and their reputation. I feel a big name wouldn’t want to get their names in the news by cheating small investors.

My view on transparency:

  • Most retail products are transparent, otherwise MAS wouldn’t give you license to sell to retail
  • Many transparent and well-known investment products don’t stipulate payout amount or date (Mine spells out everything). This category include stocks, mutual funds, gold. They come with market risk, not credit risk.
  • The best-known and safest products with “guaranteed returns” are offered by heavily regulated banks and insurers. They either pay very low return (CD) and/or require lengthy lock-in period (insurance)
  • High-yield Corporate bonds are transparent and do offer guaranteed return. I find the return still too low, largely due to the transparency. In contrast, mine offers around 15% coupon rate, but what’s the default risk? Once you spend a few hours to understand the business, you can assess the risk. Before you do that, you have to assume default risk is very, very high.
  • Suppose your brother approaches you to lend him $10k and promises to pay you back in a year (or 2) with 20% annual return. Based on your knowledge of his revenue, you could assess his default risk. Without that knowledge, you have to assume default risk is very, very high.

My experience investing in HYPE bonds:

  1. About 30 months ago I put $10k into a German real estate product offering fixed return of 24% over 2Y. Cashed out successfully.
  2. About 18 months ago I put $10k into a Brazil real estate product offering fixed return of 28% over 2Y. Received on 29 Sep 2017

So far, no default no delay. But doesn’t mean “never will”. When will I get hit by the first default event in my investment career? Could be 2018, 2019 … I embrace myself.

My rule of thumb – invest an amount that you can afford to lose.

The “amount you can afford to lose” depends on your nett monthly cash flow + your free cash pile after all liabilities. If you have S$200k cash (or cash equivalent), with no debt but with regular passive income to support your family, then you probably can afford to lose $2k to $10k? With the same $200k cash, some people can afford to lose $50k, if their monthly nett cash flow is very positive like positive $10k.

##guaranteed-return products: poor return^liquidity^credit

Posted on by tiger40490

In these products, the risk is basically credit risk i.e. default risk.

(Some of these products come with an embedded option that retail investor grants to the issuer, to give issuer the option to stop paying the guaranteed return — callable bond.)

To compare this risk, I have to assign some numbers. My own rating “system” is exclusively based on brand awareness, influenced by product marketing. I basically disregard all other factors such as

  • – credit history, on-time payment record
  • – longevity of the business
  • – leverage ratio of the business
  • – how they generate enough profit to meet this requirement

Now let’s look at the products:

  • government bonds — lowest risk.
  • bank deposits — risk is negligible
  • insurance products — risk is comparable to banks. lock-in period is much longer.
  • —– For the above debtors, I basically acknowledge but disregard the risk.
  • Lesser known regional banks and insurers, in developing countries — if they offer much higher return I would be suspicious.
  • property developers — I basically accept the higher risk.
  • unknown entities — very high risk, but I embrace the risk.