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Focus on being debt free, generating passive income or growing net worth?

It has been a relaxing few days as i took leave to focus on my personal finance and plan for myself how to continue my pursuit for financial freedom in 2014. I read with huge interest some bloggers who attain passive income of more than $1,000 a month this year and another blogger who became debt free at a relatively young age by paying off their HDB mortgage loans in its entirety. 

A very mind intriguing thought came to my mind. In our pursuit for financial freedom, do we want to focus on Net Worth, focus on Cash Flow or focus on being Debt Free? There is no right or wrong answer but the mindset can lead to very different outcome eventually and a lot will depend on which stage of the life cycle we are currently in. Let me give you a simple illustration.


Assuming a young couple in their early 30s managed to save $100,000 and this year, they received a bonus of $100,000. With $200,000 in the bank earning low interest, they were wondering what to do with the money. They currently have 2 kids and a remaining HDB mortgage of $200,000. 

Focus on Debt Free

A couple who is focused on being debt free will want to use the $200,000 to pay off its HDB mortgage. This is because it essentially means that they are "officially" debt free and as long as they have enough to feed themselves, they will have a roof over their head. This couple wants to "sustain" their lifestyle.

Focus on Cash Flow

A couple who is focused on cash flow will weigh the alternative use of the $200,000. If they can invest the $200,000 in a relatively safe manner (say in a corporate bonds or REITs) yielding 5% p.a., they would effectively have earn an arbitrage difference of 3% (assuming 2% mortgage loan). Hence every month, their $200,000 will earn 200,000 x 3% / 12 = $500 per month. An extra $500 per month! Not too bad actually if they can eventually generate passive income to cover their lifestyle . This couple wants to "maintain" their lifestyle.

Focus on Net Worth

A couple who is focused on growing net worth will actually view it differently. They will put the $200,000 in the "mortgage-one account" to offset the home loan interest (HSBC and SCB offers such loans previously) and wait for opportunities to use that $200,000. When the opportunities arise, they will invest within their area of competence, be it in properties or stocks or other assets. (I have shared with you previously why properties are preferred because of the leveraging effect). This couple is not afraid to take on "good debts" and in a few years, their net worth multiplied because of the good "debts" and increased in value of their stocks and properties. This couple wants to "enjoy" their lifestyle.

What mindset do you have?

I have a friend who is a few years older than me but his original focus was on being debt free. When the opportunities came, he didn't have the "bullets" to pull the trigger as he has just paid off his HDB mortgage loan. You must also remember that banks prefer to lend money to younger couples in their early 30s. As you aged, the ability to borrow from banks actually falls, especially with all the mortgage rules being implemented. 

When i was in my early 30s, my focus was on growing my net worth. Now that i have crossed 40, i am beginning to pay slightly more attention on generating stable yields (or passive income) but my priority is still focus on growing my net worth. Once i cross 50s, i will want to ensure that i have stable passive income that will allow me to maintain my lifestyle for the next 20 years (assuming i can live till 70s).

SRS and me 

As i reflect back on my SRS account in 2013, i think i am actually too "hung up" on finding yields and creating passive income. I should instead be focused on investing in great businesses and growing my net worth given that i am still relatively young. As such, l would like to change my mindset a bit for the SRS account from 2014 onwards. I would like to take a more balanced approach between finding good dividend-paying stocks as well as growth stocks that will generate the alpha to grow the net worth. The table below shows the portfolio growing at a compounded 7% per annum, i am actually slightly behind for 2013.   

My SRS balance is ~$119,873 versus the targeted $121,880. Let's see if i can "catch up" in 2014 to grow it to $143,108 in 2014 with a lofty target of $778k in 2030.... seemed so far away.

SRS and wifey

To help fund our retirement, i have actually seized control of her SRS account as well and in fact, contributed the money there ^_^. I will share with you periodically her account but her focus (given that it is my money and her low risk nature) will probably be in the more boring stocks that pays dividends every year.

2014 - What stocks to invest?

This may surprise you but i am actually currently looking at a China stock that is in the clean environmental space. China has a huge need to clean up its air and water. In fact, there is a news article today on the opportunities. I will post about it if i managed to get in at the price i want.

Happy SRSing and focus on having the right mindset (if you are still young!)  :)

More 2014 ideas

Here you go

A few more research reports to help you formulate your 2014 ideas.

and for readers who invest in Malaysia, one report for you.

Happy researching.

Second Chance Properties Ltd

Received this annual report in Dec. Readers will know I bought this counter for my SRS portfolio a while back.

The company will pay a second and final dividend of 1.7 cents for the FY ending 31 Aug 2013. 

The revenue and profit figures are not entirely comparable as FY2012 consist of 14 months. 

Fair value properties accounting caused the profit to go up by $42.9m but overall,
this is a simple and well run company that is paying out dividends on a regular basis. 

Anyway, no cause of concern at this juncture. Will continue to hold on to this counter but nothing exciting as well. Zzz..

SRS Portfolio - 30 Nov 2013

A relatively quiet month given that I have only 4 positions but the good thing is all of them are in the black, even China Merchants, which has been in the red previously. 


Received $165 from China Merchant Holdings in November. 


Received $3.94 in interest income. 

I am holding on to too much cash to the tune of $95,875 but in all honesty, haven't have any ideas on where to deploy the cash yet as the stocks at current valuation are generally not "good value". 

Happy SRSing. 

Investment Ideas for 2014

Time really fly. It seemed like yesterday when i shared some investment reports on 2013 strategies.

Here you go. Some early Christmas presents from UBS, DB and CIMB to share with you where to put your year end bonus.

The year end bonus for Civil Servants this year is about 2.5 months (including the 13th month AWS). How did you fare for your bonus?

Did you get a big fat bonus? Share with Mr. IPO on his facebook page. The poll are as follows. How many months bonus did you get or think you will get for 2013?

0 month - My monthly salary is too high. No bonus needed.
1 - A pathetic AWS and nothing more.
2 - My employer is feeling more generous this year
3 or more - I am going to buy myself a new car! 

Brain dead!

I am finally back in Singapore after 2 weeks of business travel. I hope i am done with business trips for the rest of the year having flown to 4 cities in the last 10 days.

I think my brain is suffering from the lack of oxygen from all the high altitude, not to mention all the irregular food intakes due to different time zones. I have almost finished the entire library of in flight movies (or at least those I find worth watching) that I watched a documentary on my last flight. 

Yarsagumba - Himalayan Gold

The documentary talks about a Nepalese man and his 12 year old son who for the first time follows him to hunt for Yarsagumba during the season in the Himalayan. 

Yarsagumba is more commonly known as Cordyceps or 冬虫夏草. It is a worm in winter and after consuming mushroom spores, exploded and died in the ground.  The mushroom spores continue to grow within the body of the worm and the plant exploded out through the head above the ground. 

How it was first discovered?

Anyway, the medicine effects was first noticed by herdsmen in Himalayan who discovered that its herd of animals that ate Cordyceps recovered faster than those who don't. This little potent worm was used in Chinese medicine for Emperors since ancient times! Maybe it is the Chinese version of Viagra. This is an interesting article on whether Cordyceps is worth its weight in cold. 

Himalayan Gold

The price of this worm has increased by 1000% over the last 10 years such that it is said to be more expensive than gold. The villagers can earn a year's wages in 2 months. As a result the entire Himalayan is filled with many worm hunters camping out in tents during the season. 

Learning about financial planning from
this documentary film

Expand into other trade - Diversify

I thought the more "clever" villagers expanded into other business. Instead of joining the thousands of hunters (increasing each year) and the decline in the number of wild Cordyseps due to over harvesting in unsustainable manner, some set up "restaurants" tents at base camps where the hunters can eat in comfort and pay using either cash or "worm gold". Hmmm. That is really quite smart and cash flow generative and has less risk than hunting for the worms since there is no guarantee if one can find sufficient "worms". 

Sounds like a similar investment strategy where you invest around the oil and gas sector (such as those providing services to it) without taking commodity or exploration risk. 

Don't cultivate bad habits - Gambling

The documentary showed the man gambling away the worms which he and his son has gathered in a simple dice game. Many weeks of hard work has gone down the drain due to the temptation for a quick buck. Similar to our pursuit for financial freedom, don't cultivate bad habits and gamble the future away. 

Always be alert - one misstep can be costly

Imaging crawling on all fours at 5000 ft, one mis step and your life is gone. Similarly, we should plan our financial freedom. One wrong move may not kill you but may set you back by a good number of years. So don't over leverage yourself or trade beyond your means. 

On the other hand, you cannot be too cautious as well until you are "immobilized". In the documentary, the man and his son moved higher to a new unexplored area when the area they were originally searching in has an influx of migrant hunters. The new area yielded much reward for them. 

Watch out for unscrupulous hunters!

Some hunters insert metal strips into the worms to boost up the weight to cheat others. Similarly, watch out for unscrupulous management of companies  who may just want your hard earned money without any intention of paying back to you!

YouTube movie

You can search for the movie on YouTube. May not be the same as the one I watched but definitely worth to spend a lazy Sunday afternoon watching it. 

Maybe a little Cordyceps in my chicken soup can help revive my dead brain and helped inspire some investment ideas?! ^_^