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8th wonder of the world

I was having a chit-chat with my son in the car during Xmas.

"Son, do you know what is the 8th wonder of the world?"

"No, is there one?"

"Considering that you are going to study for a degree, if there is only one thing I can teach you, this is it. Go Google - Einstein and the 8th wonder... And why you think I make you save your ang pow money in the CPF account every Chinese New Year?"

"errr... to stop me from spending my Ang Pow money lor" 


Toot. 🙄 ... so this conversation didn't really sink into his head, until he received his CPF statement recently. 



"Hmmm.... didn't know I have $15k in my CPF account already. wow interest of $736 is not too bad!" (Back of envelope yield works out to be around 4.6%)

"Well, that is the 8th wonder I was telling you about, why not you flip the page and read the financial tip in the CPF statement"


Again, the picture didn't really sink in. Don't really blame him. I didn't understand it till much later in life. 

"Let's put it this way. The additional interest you can get by saving $1,000 in an account that pays 2% more today will compound to $2,961 at age 65. In other words, if you deposit $100,000 in the special account, you will get $296,100 more in interest than in the ordinary account."

"Wow ... that is a lot of money 💰!"

"Yep...This is the magic of compounding and we human beings are pretty bad in geometric calculation mentally."

Somehow, when you scale up the numbers, it capture their attention better. (Same for the rest of us?)

Today, I would encourage you to make use of this 8th wonder for your retirement planning. 
  1. Invest for the long term 
  2. Reinvest the dividends / interest 
  3. Keep adding on new to your investments every year 
The key point of today's post is to highlight that through the "magic of compounding", there is a lot of "free" money to collect. If you are not investing, you can't benefit from compounding. 

I have witnessed it myself when I change my perspective to invest for the long term - it gives you a piece of mind versus short term trading (speculation). 

Happy compounding your way to financial freedom! 🏖 

A trip to Alcatraz

I spent the pre-CNY week in San Francisco visiting some tech start ups in the Valley. It never cease to amaze me the start up scene in SFO where people wouldn’t blink an eye if you tried a few ventures and failed. In fact, failures are looked upon favorably - as long as you fail honorably and not be a fraudster.

My dad’s generation is the “stay loyal to your firm and never change job” kind. My generation is the “try to get headhunted and move a few times for different exposure (and hopefully higher pay)” kind. The next generation will be very very different and it can head in either a “self entitled” generation or “i want to change the world” generation. Hopefully, it is the latter and will spurn innovation, reduce wastage (sharing economy) and be kinder to the environment.

I am hopeful that the younger ones in Singapore will be more entrepreneurial than mine (X-generation) as well. I am in the midst of looking through the list of tech companies that i want to invest in for the next decade and put some money to work (part of Goal no. 3).

8 new experiences for 2020 - a short day trip to Alcatraz. I have been to SFO several times for work but never had the chance to visit the famous island. Here are some pictures for the trip.


This is the view of the island (on the left) with the city of San Francisco on the right far behind. 


This is where the prisoners are kept. Many have tried to escape but never succeeded. Those who managed to “escaped” the cells are probably drowned by the strong underwater currents.



This is the cell for the prisoners. 3 managed to dig a hole using a spoon behind the sink to escape. They were never found and rumored to be drown.


If you visit the island during evening time, you can have a nice evening view of the city from the island, as well as the sun setting over the Golden Gate Bridge over the Island. 


Here is experience no. 1 for 2020 (8 new experiences for the year). 

Goal no.2 - Passive Income of $150,000

One of my year 2020 goal no. 2 was to achieve a passive income of $150,000 a year and i hit the target just before the year of the Rat (on new year's eve). (I did what i said i would do in the post).

I bought another $400,000 worth of Astrea V Class B (rated BBB) bonds through my private bank. The bonds has a face coupon of 5.75% but are trading in the secondary market at 103.50. The yield to call is around 5% and I finance this purchase through leverage.

The latest cash flow profile from my bonds portfolio is presented below for your reference (not including the interest expenses i have to pay on my home mortgage and loans taken out, which will deduct around $50k).


The bank was willing to lend me the entire purchase price as i had enough collateral but they did warn me about my concentration risk. 

I asked my banker about the financing options available and the financing cost in the various currencies are as follows:
  • USD interest rate around 2.5% (if i recall correctly)
  • SGD interest rate around 2.5% (if i recall correctly)
  • JPY interest rate is 0.75%
  • Euro interest rate is 0.55% (dropped from 0.75% previously)
  • CHF interest rate for 1m is ZERO and for 1 year is 0.12% 
"Can you let me know more about the zero CHF interest rate?" i asked. 

"Yes, we are having a promotion now. For 1 month borrowings of at least CHF 250k, the interest rate is zero. For 1 year, it is 0.12%" 😱 The interest expenses work out to be around S$421! Too attractive to miss.

I took a quick look at the 5 year CHF/USD and CHF/SGD chart and decided to finance the purchases using borrowings in CHF and juice up the returns of my bonds portfolio. Most of the time, i don’t hedge my foreign currency loans as they move up and down over time. For example my JPY loans was in a loss position at one point but now has moved into positive territories. The flip side is that you may need to top up the account if the forex moved significantly against you and you don’t have adequate collaterals. 

A lot of readers have asked me (either via comments box) or via email how I did it and wanted more details. I had just explained the currency part above and I have also shared the "step-by-steps" in a post in June last year. You can find the post here.

With regards to my portfolio mix, i have big positions in the Astrea Series of bonds (bought from the secondary market on the first day as it is too “hot” to get it from the primary issuance). I did a lot of research and analysis on the bonds and am comfortable with the structural safeguards as well as sponsor branding even though it is a asset backed securities (not your typical corporate bond). The investment grade ratings also helped allow me to borrow against them. I also have some bank perps such as the UBS SG AT1 at 4.85% (5 year).

My strategy above only works for those who are comfortable taking concentrated portfolio risk (bankruptcy of any bonds will set you back quite seriously) and borrowing in foreign currencies loans to arbitrage on the low interest rate environment elsewhere.  So this strategy is not suitable for everyone, especially those who can’t stomach forex risks. 

Personally i won’t borrow for REITs/Equities since i am already pursuing a high risk strategy.  I find the fixed tenor for bonds works and matches the liabilities better and gives me a better peace of mind.

Hope i have given you enough food for thoughts for this Chinese New Year and perhaps some ideas on how you may juice up your portfolio.

Here’s wishing all readers a happy year of the Golden Rat! Please take care of your health and monitor the Wuhan coronavirus situation closely. Stay safe and stay alert on both personal and investment front.