$$$ KPO and CZM $$$

Friday, April 19, 2019

StashAway - March 2019

Yay! Long weekend! Happy Good Friday and Easter everyone! We will be going to the pokemon event in Sentosa tomorrow. Will you be there too? Hahaha.

Anyway, we have 3 portfolios now due to our new strategy - New Strategy: StashAway + Supplementary Retirement Scheme (SRS):
KPO and CZM Cash - StashAway Risk Index 20%
KPO SRS - StashAway Risk Index 13%
CZM SRS - StashAway Risk Index 13%

1. PORTFOLIO SUMMARY (as of the last day of the month)

KPO
CZM

Based on the statement (28 February 2019), KPO made $371.11 and CZM made $12.04.

KPO
CZM

As of 19 April 2019, the market has recovered quite significantly!
KPO: $995.48 (+12.0% - Capital: $17,750)
CZM: $21.02 (+4.4% - Capital: $750)

2. PORTFOLIO DETAILS 
Note that these are reported in USD.

KPO and CZM Cash - StashAway Risk Index 20%

KPO SRS - StashAway Risk Index 13%

CZM SRS - StashAway Risk Index 13%
Our StashAway SRS accounts are showing a slight difference now due to fees being deducted from my account.

3. TRANSACTIONS


KPO and CZM Cash - StashAway Risk Index 20%:
SGD $451.73 converted to USD $333.11
Exchange Rate: 1.3561 (1.3605 last month)

KPO SRS - StashAway Risk Index 13%:
SGD $247.10 converted to USD $182.18
Exchange Rate: 1.3563 (1.3499 last month)

CZM SRS - StashAway Risk Index 13%:
SGD $247.40 converted to USD $182.40
Exchange Rate: 1.3563 (1.3499 last month)

As you can see, the "bug" has been fixed.

4. FEE CALCULATIONS

KPO
The fee stated is based on the monthly-average assets SGD $17,307.26 x 0.8% / 365 days * 31 days = $11.76 which is definitely incorrect. It should have been ($17,307.26 - $10,000) x 0.8% / 365 days * 28 days = $4.96. As mentioned previously, I was given a $10 credit because the referral promotion did not kick in last month.

CZM
No fee for CZM for the first 6 months.

StashAway VS STI ETF
Since there is no way to compare the performances among the robo-advisors, I came out with a spreadsheet to track our StashAway portfolio performance (General Investing - Risk Level 28) against that of STI ETF which I will be updating on a monthly basis. For simplicity, I shall assume that one can either invest in Nikko STI ETF using POSB Invest-Saver or invest in Nikko STI ETF/SPDR STI ETF using SCB Priority Online Trading (no minimum commission). These would be the opportunity costs while we continue to invest in StashAway.

Apart from the absolute P&L, we should also look at the Reward-to-Risk Ratio where risk/volatility is taken into account. For more information, do read StashAway Clarifications - Reward-to-Risk Ratio. StashAway has the highest ratio of 1.25 which is significantly higher than the other 2 STI ETFs (< 0.4). Let me quote Freddy Lim (Co-Founder & Chief Investment Officer of StashAway), "for every dollar of risk taken, StashAway P28 is producing 1.25 times the return".


This is updated till 19th April 2019 and is based on only 1 of our portfolio - KPO and CZM Cash - StashAway Risk Index 20%.

This month commentary: 
Yay, all the simulated investments are green now. Going forward it will be even more interesting when the commissions/fees incurred by StashAway exceed that of POSB Invest-Saver. This will be a battle between cheaper/lesser fees and asset allocation/diversification...

StocksCafe


Looking at the time-weighted return, we can see that StashAway is "outperforming" the STI ETF (both excluding fees). In addition, it has lower volatility and max drawdown.

Which is the best? Only time will tell :)

This is the link to our spreadsheet - KPO & CZM StashAway Portfolio VS STI ETF which I have also added to Our Portfolio page.

StashAway Referral Link for Our Readers
Here you go: KPO and CZM Referral Link

You might be interested in previous months update too:
StashAway - December 2018
StashAway - January 2019 - $16,051.10
StashAway - February 2019 - $17,397.81
StashAway - March 2019 - $18,780.96

Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right --> Unfortunately, you can't see it on mobile.)

Friday, April 12, 2019

Whole Life Insurance - Do We Really Need Them?

A few weeks ago, a friend approached me and asked for my advice on a whole life insurance plan that his agent tried to sell him. He is not finance/investment savvy so as much as I would like to tell him to "buy term insurance and invest the rest", it is definitely not something he is going to be comfortable with.

Another reason why he is more interested in whole life as compared to term insurance is that he wants the cash value that comes with it. Majority of the people want something back after paying all those premium for many years. Anyway, I got him to send me the policy/projection document.


The policy is Family3 by Great Eastern. My friend will have to pay a $6,000 annual premium for the next 15 years and the minimum sum assured (death benefit) is $87,745. Once the premium term ends, he will be getting a guaranteed payout (2% of the sum assured) for the rest of his life.

Death Benefit
Surrender Value
Illustrated Yield upon surrender based on non-guaranteed projection
Survival Benefits + Cash Bonus
Anyway, I copied the above tables in the policy document to a spreadsheet for easy reference and comparison. When I looked at the illustrated yield upon surrendering the policy, the return is simply poor. A random thought then came into my mind - can we use CPF SA as a substitute for whole life insurance?

We can answer this question by looking at the concerns whole life insurance can address:
- Leaving a sum of money behind for the family/dependants upon death
- Getting back some of the money/premium after X number of years (term insurance cannot fulfil)

Anyway, I went ahead and projected what my friend will be getting if he were to use the whole life insurance premium to top up his CPF SA instead. It is worth noting that I have excluded the tax savings one can get when topping up their CPF SA for ease of computation/comparison too. You can read this to find out more - CPF RSTU - Is It Worth It?

For the benefit of the doubt, I will also be using the higher non-guaranteed (4.35%) projection for all comparison too.

Upon Death


From the first year to year 12/13, the whole life insurance provides better coverage but after the crossover point (year 12/13), one can expect to leave behind more money simply by topping up their CPF SA. In my opinion, the risk can be easily mitigated by purchasing a term insurance at a fraction of the cost for similar/higher coverage and cancelling it after year 12/13 (totally optional) to ensure death coverage throughout. This particular insurance is also interesting because the insured person will receive an annual payout as part of his survival benefit (similarly, there are both guaranteed and non-guaranteed). However, even after adding all the survival benefit, CPF SA still provides a higher guaranteed return/coverage upon death.

If you have been influenced by fake news previously, thinking that one will never get back their CPF even upon death, read this - What happens to your CPF savings when you pass away?

Upon Surrendering Policy


Now if you plan to buy a whole life insurance with the intention of surrendering it eventually to get the cash value back, please don't. You will be losing money almost all the way because the comparison uses the "best" case non-guaranteed scenario.

This may/may not be true for the other whole life insurance but I am pretty sure the return will be higher with CPF. Having said that, don't take my words for it, go ahead and calculate/project it yourself. In the end, my friend decided not to get the whole life insurance too.

So what are your thoughts? Do we really need whole life insurance?

Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right --> Unfortunately, you can't see it on mobile.)

Tuesday, April 9, 2019

Another Bad Deal - Merger of OUE Commercial REIT & OUE Hospitality Trust

An announcement was recently made on the merger of OUE Commercial REIT and OUE Hospitality Trust. I took a look and realized how the merger is a bad deal for both the existing shareholders. In addition, this happened after the OUE Commercial REIT rights issue less than a year ago - OUE Commercial REIT Rights Issue - Very Very Very Bad Deal which meant a double blow for OUE Commercial REIT shareholders.


OUE Hospitality Trust shareholders will be receiving $0.04075 cash + 1.3583 new OUE Commercial REIT shares for every existing OUE Hospitality Trust share. Let's look at the numbers to see why I deemed it as a bad deal.

OUE Hospitality Trust (Before Merger)

Numbers from OUE Hospitality Trust 2018 Annual Report
Last Close: $0.735
NAV: $0.75
PB: 0.980
DPU: 0.0499
Dividend Yield: 6.79%

OUE Commercial REIT (Before Merger)


Last Close: $0.52
NAV: $0.71
PB: 0.732
DPU: 0.0348
Dividend Yield: 6.69%

After Merger

Pro Forma DPU
Pro Forma NAV
Pro Forma Aggregate Leverage
You can see that the pro forma numbers are based on the issue price of $0.57 per new OUE Commercial REIT share.

Issue Price: $0.57
NAV: $0.62
PB: 0.919
DPU: 0.0348
Dividend Yield: 6.11%

What this means for OUE Hospitality Trust shareholders:
- The "buyout" is at below book value/NAV
- You got diluted/the dividend yield drops for the "same" investment

What this means for OUE Commercial REIT shareholders:
- You got diluted big time as the NAV decreases by ~12.7%
- The pro forma DPU shows an increase of 0.0341 to 0.0348 but 0.0341 is not the actual DPU for FY 2018. Unable to determine if it is truly yield accretive as stated
- Increase in gearing/leverage
- Potential decrease in price because OUE Commercial REIT has almost never traded near book value/NAV. Using the pro forma NAV of $0.62 and assuming it trades around 0.8 PB (giving it a little premium due to larger and more diversified assets base), the share price will be around $0.496


Having said that, if you think otherwise and believe that the price of OUE Commercial REIT will increase after the merger. Then there exists an opportunity for you to arbitrage by buying OUE Hospitality Trust share. You can use this spreadsheet for your analysis - Merger of OUE Commercial REIT & OUE Hospitality Trust

We will be staying away. Hope this short analysis will help all the current/future shareholders!

Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right --> Unfortunately, you can't see it on mobile.)