Friday, 2 December 2016

Meeting portfolio targets for the year

In Jul 2016, I did a End of Jun 2016 Financial Update post and set out goals for our net worth and asset portfolio. I'm happy to say that they have all been met at this time before 31 Dec 2016!

The monthly tracking of the figures on the relevant pages of the blog charts the progress well. I know it's showing a lot of positive figures and percentages but that's what happens when you have dual income and no kids. Most of the growth is coming from cash injections into the various portfolios as the markets have been quite flat for the second half of the year.

It's a reminder to earn more income, spend less and push the spending multiple & savings rate upwards. More importantly, it's motivation for us to keep working hard while we are relatively young. If I'm being honest, my wife and I have been feeling weary of work lately. It's a crunch time for both of us and we are getting hammered every day.

We are still surviving but can't imagine doing this when we are older and have kids. Hopefully we will be in a better position then to control our workload by relying less on our jobs for income. Anyway, here's our performance against our targets as at end Nov 2016.
1. Net Worth

Target - S$100,000
Actual - S$176,105

Cleared this goal by a mile, which means I'm setting too low a target. This is after taking into account the fact that I have been steadily lowering the market value of our property due to the weakening property market.

I continue to underestimate the ability of our net worth to grow. The rate really does accelerate once you put your mind to it and apply the law of large numbers. The logic to us is simple. We have a limited work shelf life and our tolerance for long hours and high stress decreases throughout the entire time.

We navigated ourselves to jobs that have decent pay and manageable hours. It's not about what we are passionate about since we have the rest of our lives to develop that. The focus was to maintain an acceptable rate of exchange between time and money at our jobs.

The work itself isn't particularly exciting but we change roles and scope every few years to keep things interesting. Long-term career strategy is to learn and earn as much as we can until we get retrenched. Which might always happen sooner than we think.

2. ETF Portfolio

Target - S$40,000
Actual - S$54,577

I increased the monthly amounts of automated investments into the Singapore ETFs and made some purchases of the new REIT ETF. That's what allowed us to exceed the target by about S$15,000. My concern is that I have not made any new investments into international ETFs.

We have a significant overexposure to the local equity markets and will need to increase our investments in overseas equity markets. I'm hoping Smartly can help with this after it launches by us making regular contributions to an aggressive portfolio of international ETFs held with the robo-advisor.

Which brings me to a number of questions that I have for Smartly at the moment:

  • Can I specify the proportion/mix of the international ETFs? E.g. 40% developed equity, 30% emerging equity, 20% REIT and 10% bond. Or do I have to choose from a fixed number of portfolio types from conservative to aggressive risk allocations?
  • How frequently can I contribute to my portfolio? E.g. weekly, fortnightly or monthly.
  • What happens when I make my contribution? Some form of rebalancing of the portfolio?
  • Are the dividends/distributions reinvested automatically or can they be paid out?
  • How often can I change my portfolio proportion/mix or type?
3. Share Portfolio

Target - S$120,000
Actual - S$132,111

I averaged down on the telecommunication stocks due to price weakness and did little else but that was enough for us to exceed the target by about S$12,000. The share portfolio is expected to grow much slower than the ETF portfolio anyway.

4. Other Portfolio

Target - S$150,000
Actual - S$160,100

The surrender value of our wholesale life policies have been growing slowly and consistently but contributed little to us exceeding the target by about S$10,000. It was mainly due to our monthly savings that we allocated as investment cash.

5. Total Portfolio

Target - S$500,000
Actual - S$511,587

Meeting all of the above goals resulted in us exceeding our total portfolio target by about S$12,000. Our CPF balances have been growing quickly due to the employer and employee contributions from our jobs and as we used more cash to pay off our housing loan. It's essential that we have retirement funds earmarked for spending when we actually stop work completely.

Regardless of whether we achieve financial freedom/independence, we would like to stay engaged and productive with some form of paid work. These retirement funds are for when we actually get old and no longer wish to engage in paid work. Purely for spending purposes.

As the monthly investment, spending and saving processes get more habitual and automated, my intention going forward is to make the entire thing self-sustaining. This means I need enough passive income to be generated and re-invested to grow the asset portfolio regardless of market movements.

And I only need to have enough salary to manage my expenses with no need for savings injection into the asset portfolio for it to grow. Maybe then will I engage in lower pay full-time or part-time jobs with less stress!

Sunday, 27 November 2016

Getting ready for year end

If it's not obvious by now, the number of posts each month is dropping significantly. This is due to the workload at my job getting heavier as I start to integrate into the team. I have much less time and energy to devote to the pursuits of my non-core personal interests such as blogging.

As for core personal interests such as spending time with my wife, family & friends and exercising, I continue to make the effort to do so on weekday nights and especially during the weekend. Which results in me being less engaged with this blog as I try to achieve some level of balance between all these various aspects of my life.

But this is me trying and I hope to get a better handle on things going forward. Anyway, the year end is coming and it's a good time to start getting ready for it. Or at least reflect on how the year has gone so far although I might write a more proper post for it in the new year.
1. Should we make any CPF cash top-ups?

Since we will have worked the full year, we are considering making cash top-ups to our Special Accounts for the tax relief and building up of our retirement funds. We did this for the years 2014 and 2015 but are likely to make an exception for the year 2016.

It was essential then because we haven't worked full-time in Singapore before 2014 and wanted to build up our CPF balances (especially the Special Accounts) quickly for the decent interest earnings to kick in.

With the monthly CPF contributions, our balances have grown to an acceptable amount and in line with our asset allocations. There's no longer a need to make cash top-ups to our Special Accounts to build up our retirement funds but maybe just small amounts for the tax relief.

2. Should we make any changes to the investing strategy?

The focus has always been to increase our passive income received and I continue to invest in ETFs and dividend stocks to achieve that. Changes are already in progress as I try to automate the dollar-cost averaging of the Singapore ETFs at the cost of incurring higher expenses via the monthly investment plans of banks.

Once Smartly is launched, I intend to automate the dollar-cost averaging of the International ETFs again at the cost of incurring higher expenses via the robo-advisor. I still make periodic investments into dividend stocks such as my recent averaging down of local telecom stocks but they are less frequent.

3. Should we continue tracking our net worth, income and expenses?

Yes! It can be a time-consuming exercise pulling together all the relevant information to make the updates but the data obtained has been useful. I intend to further develop my data collection and analysis tools to start making financial projections based on identifiable variables. Or tap into FinTech to plug the gap for me.

4.  What are the major risks to us now?

It's become increasingly apparent that our investing strategy is turning into a numbers game. The more funds we allocate to ETFs, the less important our ability to apply any investing strategy or even the need to be concerned by financial news.

Both the economic conditions and job markets are definitely deteriorating. Our retrenchment risks will continue to climb if the situation doesn't improve. We might still be okay for 2017 but are likely to have problems in 2018. We will have to watch our cash allocations carefully next year to buffer for this. No point over-investing our cash early on and are forced to liquidate our investments later on.