Updates for the past year

I've not been updating my blog for the longest time. The last post I wrote was in November 2011. So many things happened these few months. Just a quick summary....

November 2011 - 4 month pregnant. Launched website1.

December 2011 - Started discussion with web designer on my second website, and continued to improve on Website 1. At this time, I was 5 months pregnant.

January 2012 - 6 month pregnant. Busy with chinese new year preparation. Signed up and completed an iPhone Apps application course. First deal for Website1 was concluded.

February 2012 - 7 months pregnant. Started looking around for my first commercial property.

March 2012 - 8 months pregnant. Managed to find an investment property that provides more than 7% rental yield. Set up a company to hold this property and were juggling with the GST paperworks and negotiating for bank loan. Quite a headache.

April 2012 - 9 months pregnant. Helper arrived in mid April. Delivered Baby 2 in end April 2012.

May 2012 - Was doing my confinement. Completed the purchase of our commercial property. Officially launched Website2.

June 2012 - Started marketing for my Website 2. Closed 2 deals for Website2 by end June.

July 2012 - Tie-up with a childcare to run my Website2 promotion.

Aug 2012 - Maternity leave should officially end in 3rd week of August. Thereafter, it will be the start of my no-pay leave.

Dual Currency Deposit

I visited a bank recently and was introduced to Dual Currency deposit.

HOW IT WORKS

Firstly, customer has to choose two currencies. For simplicity, let’s assume SGD and AUD.

For illustration,

Current exchange rate is S$1.16 per AUD.
Established strike price is S$1.2 per AUD.
Contracted SGD interest rate : 0.75%
(This rate is higher than prevailing SGD interest rates).

At a pre-determined date, say, 1 month later, if the exchange rate goes up to S$1.25 per AUD, I'll get the deposit back in SGD (the weaker currency). However, the bank will compensate me with a slightly better SGD interest rate (of 0.75%).

If exchange rate goes down to S$1.1 per AUD (that is, AUD depreciated), I'll get my deposit back in AUD at S$1.2 per AUD, which is the strike price.

MY CONVERSATION WITH THE BANKER

Me : What happens if AUD crashes to, say S$0.95/AUD?
RM : Don’t worry, this is very unlikely.
Me : What if it really happens?
RM: wlll, then you just continue holding in AUD. You can plan for a holiday in Australia. Or hold it in an AUD account and wait for it to climb back up. One good thing about AUD is that the interest rate is much higher than if you were to hold in SGD.
Me: Errm.. but I still don’t feel comfortable.
RM : If you are worried, you can just opt for a shorter tenure, say 2 weeks. That should be quite safe.
Me : Errm.. ok. Can you tell me what is the maximum risk that I am exposed to? Can I lose everything?
RM: No, don’t worry. Unless AUD loses all its value, which is not possible right?
Me : Hmmm.. let me go home and think about it.


VARIOUS SCENARIOS

Investment Amount : S$10,000
Current exchange rate is S$1.16 per AUD.
Established strike price is S$1.2 per AUD.
Contracted SGD interest rate : 1.00%

SCENARIO 1 : AUD APPRECIATE TO ABOVE THE STRIKE PRICE AFTER 1 MONTH (SAY, S$1.25/AUD)
I would get back my S$10,000 +S$8.22* = S$10,008.22
[*interest earned after 1 months at 1.00%]

SCENARIO 2 : NOTHING HAPPENS, THAT IS, EXCHANGE RATE DID NOT MOVE MUCH.
I would get back my S$10,000 +S$8.22* = S$10,008.22
[*interest earned after 1 months at 1.00%]

SCENARIO 3 : AUD DEPRECIATE TO ABOVE THE STRIKE PRICE
I would get back in AUD at pre-determined exchange rate of S$1.2 per AUD, that is, A$8,333.33

If the prevailing exchange rate is S$1.1 and I need my SGD back, then I would only get back,
= A$8,333.33 x S$1.1/AUD = SG$9,166.
Net Loss of S$10,000 – S$9,166 = S$834.

If I were to continue holding my deposit in AUD, the 6% in AUD interest rate would take me more than a year to recoup back my loss.


MY THOUGHTS
- In fact, the customer is as good as selling an option on the alternate currency at the exercised (or strike price) and the "additional interest" is merely the option fee earned. The bank is very likely to have either earned a certain portion out of the option fee or the bank could be taking the opposite side of the trade unless it hedges it out in the market.



Does it make sense for me to invest in such products?
- Only if i've some uses for AUD currency, e.g. business needs, or if I have children who are studying in Australia, if I really do have plans to tour Australia - which means I don't mind holding on the alternate currency.
- However, if one is buying this product solely for investment gains, my personal view is that you are better off, engaging in direct FX trades or buying /selling FX options yourself, rather than getting into a structured product.

On dual currency investment, my gain would have been “capped” while my losses would have been unlimited”. [Payoff is quite similar to selling a put option].


Cap = my gain is limited to the contracted interest rate (over the existing prevailing interest rate).
Unlimited loss = I do not know how much the exchange rate will ultimately be and that is the risk I am taking.

Just my two cents worth.

Leasehold Property on Freehold Land

Over the weekend, I visited the showflat of The Shore Residences, which is strategically located opposite Katong Shopping Centre. I am not exactly looking for a residential property at the moment because I think the price are way too high now. So I just wanted to pop in for fun.

Anyway, I was offered 5% off the launch price if I commit on that day. Despite that, the asking price (after discount) for a 2 bedder still came up to a whopping S$1,370+ for a 103 years leasehold property.

I recalled that this piece of land was supposed to be freehold and found it weird that the developer is selling it as a 103 years leasehold development. It was only after further questioning that I realized that the developer is releasing only 103 years lease for sale though it is a freehold land. Wah, new tactic!

Personally, I would never want to touch this development! Simply because, after a certain number of years, if this developer decides to take back the land, these property owners would have no other parties to sell to except that land developer. Property owners, in my view would be held ransom at the price that the land developer is willing to pay. What a raw deal they have gotten themselves into! And I really wonder whether they know what they have gotten into? Seriously, if I hold a private property, I would want to have the option to sell it the land enbloc to whoever is the highest bidder, isn’t it?

How different is this type of arrangement from HDB which is 99 years and government can take back these housing anytime they want to. For such developments, prices should be marked considerably lower than what they are offering now. I hope this is not the trend going forward, otherwise, land will be perpetually held by such big developers who will control and continue to hold land prices at exorbitant prices. Sigh…

My Portfolio Income for 2009

S$ Dividends received in 2009: $2,568.32
- ComfortDelgro - $100.60
- Cosco - $280.00
- First Resources - $50.00
- First Shipping Lease Trust - $31.90
- F&N - $230.00
- IFS - $90.00
- MacQuaire Reits - $270.00
- Parkway Life - $150.60
- SMRT - $285.00
- Starhub - $370.00
- Suntec Reits - $350.22
- SPH - $360.00 (will be receiving in end Dec 09)



US$ Dividends received in 2009:S$815.57
- GlaxoSmithkline - S$328.77
- Kraft - S$27.06
- MacDonalds - S$100.91
- McGraw Hills - S$48.30
- Microsoft - S$48.50
- Unilever - S$262.03


Interest earned from Deposits : S$1,200


Fees from Lending out my Securities : $145.00 (from July 09 to Dec 09)


Dividend from NTUC Income Shares : S$309

TOTAL PORTFOLIO + PASSIVE INCOME FOR 2009 : S$5037.89 (i.e. $419.82 per month)


Arrgghh.. still a long way to go from my target of S$1,500.

My Expenses for 2009

MY PERSONAL EXPENSES FOR 2009

Food - $200
Transport - $65
Insurance - $465
Mom - $400
Hand phone bill - $25
Income Tax - $210
Miscellaneous (clothes, makeup, skincare, etc) - $120

Total personal expenses - $1,485 (round up to about $1,500)


MY FAMILY EXPENSES

Groceries - $200
Toiletries - $40
Utilities - $160
Conservancy - $65
Cable - $65
Newspaper - $25
Part-time Cleaner - $160
Baby Diapers - $60
Baby Miscellaneous - $50
Baby Health Insurance (Rider) - $20
Babysitting Expenses – $500
Zero Dollar Credit card loans - $135 (ending in Nov 2010)

Total family expenses - $1,480 (round up to about $1,500)
This amount is shared with my hubby, so each person’s share is $750.


TOTAL MONTHLY EXPENSES is $1,500 + $750 = $2,250.

Insurance Planning [End 2009] - Life Insurance

It’s end of the year and there are so many things to do such as setting personal resolution for the next year, reviewing insurance coverage, determining the amount to contribute for SRS, expense budgeting, and the list goes on and on….

Anyway, I’ve decided to do a quick review of my existing insurance coverage vis-à-vis what I actually need. This is one thing at the back of my head but didn't had time to get down to it. I noticed that I have been paying quite a lot in insurance but never really sit down and think through what I really need.


MY CURRENT LIFE COVERAGE

Life Insurance :
- GE Life : $50k (Paying $50 per month)
- AIA Prime Life : $50k (Paying $100 per month)
- AIA ILP : $50k (Paying $100 per month)
- HSBC ILP : $60k (Paying $160 per month)
- NTUC (Term) : $300k (Paying $50 per month) – Cover till 65 years old.
- DPS (CPF insurance) : $46k
TOTAL LIFE INSURANCE : $556K (Total Monthly Premium : $462)


HOW MUCH COVERAGE DO I NEED?

My dependents :

(1) My Mother : $110,000

- I have 2 other siblings, so my mother’s expenses is shared out by 3 persons. $500 x 12 months = $6,000 annually.
- Mum is 58 years old. Assuming her mortality age is 85. Left : 27 year left.
- Assuming 3% inflation.
- Thus, amount required PV = $110,000
[Financial calculator : N=27, PMT=$6,000, FV=$0, i/y=3%]

(2) My Daughter’s Education : $200,000 (for overseas education)

- $200,000 at present value, that is, S$330,000 when she is 17 years old.
- Assuming 3% inflation.
- Thus, amount required = $200,000


(3) My Daughter’s Living Expenses : $174,000

- [$500 (maid to help take care of her) + $300 (food, transport) + $300 (education, textbooks)] x 12 months = $13,200 annually.
- For the next 17 years
- Assuming 3% inflation.
- PV = $174,000
[Financial calculator : N=17, PMT=$13,200, FV=$0, i/y=3%]

(4) My Final Expense : $20,000 (simple funeral)

Total Death Insurance Coverage :
= $110,000 + $330,000 + $174,000 + $20,000
= $634,000


KEY ASSUMPTIONS
I am also assuming that my husband can continue working and save for his own retirement, and my daughter’s expenses will be taken care of by my insurance payout. My current housing loans will also be covered by mortgage insurance that I took with HDB.


ASSESSMENT
My current assets is about $400k (in cash and CPF). Looking at the above, I’ll probably only require $234k (=$634k - $400k) in life insurance. It certainly looks like I am grossly over-insured. Perhaps I should cancel some of my policies and switch to level term life insurance to free up some cash... Hmmm...

My thoughts on SRS Account

- I belong to the 8.5% income tax bracket, and my income tax adds up to about $3,000+ every year, if I don’t contribute to SRS.

How much do I intend to contribute to SRS?

- I plan to contribute $5,000 every year to my SRS account from 2009 onwards. This will help me defer $5,000 x 8.5% = $425 each year.

* Assuming I continue to be in 8.5% tax bracket and continue to contribute $5,000 to SRS account until my statutory retirement age of 62 years old, I will be able to save $12,750 (= $425 x 30 years).

[I started my SRS contribution when I was 31 years old, so 61-31 = 30 years]





Now, by the time I reach statutory retirement age of 62, depending on the returns from my investment in SRS, over 30 years, I would have accumulated
- S$250,013 (compounded at 3%p.a.)
- S$296,642 (compounded at 4%p.a.)
- S$353,804 (compounded at 5%p.a.)


AT RETIREMENT AGE OF 62,

I plan to withdraw S$40,000 each year, that should give me S$3,333 of income each month (= S$40,000 / 12 months in a year).

[Presently, personal income below S$20,000 is not subjected to income tax. And since only 50% of amount withdrawn from SRS account post statutory retirement age is subjected to income tax. This means that I would be able to withdraw S$40,000 each year without having to pay income tax.

Assuming this tax regime do not change and by the time I reach statutory retirement age of 62, S$20,000 is still the benchmark, okay, I know this is quite impossible. Given inflation, it is extremely likely that IRAS will raise the S$20,000 to an even higher sum. That will mean that I may be able to draw out more money without paying tax. the S$40,000 withdrawn each year would give me an income of S$3,333 each month.

Convert S$3,333 to Present Value based on 3% inflation, S$3,333 would give me about S$1,333 each month in present value. Well, this is quite close to the monthly expenses I need to survive on. Currently, I need about S$1,500 for personal daily expenses.


So long can this last me?
Let’s take average return of 5% p.a. The S$353,804 (at the time when I reach 61 years old) will enable me to withdraw S$40,000 each year for the next 8+ years.

So, between 62 to 69 years old, I will tap on withdrawal from my SRS account for my living expenses. Post 69 years old, my retirement nest in cash will then be utilized. Perhaps, I can plan to start my CPF life scheme (annuity plan) from 70 years old onwards.


HOW MUCH WOULD I HAVE SAVED ON INCOME TAX?
Assuming $425 per year for 30 years, the following would be the amount that I would have saved at 62 years old, compounded at the various rates

- S$21,889 (compounded at 3%)
- S$26,223 (compounded at 4%)
- S$31,577 (compounded at 5%)


S$31,577 is equivalent to S$12,630 (in present value) discounted at 3%. Quite a substantial savings actually!

What is Supplementary Retirement Scheme (SRS)?

After reading about SRS account, my hubby and I opened our SRS account last year with UOB.


Background :
- SRS can help higher income earner save tax while saving for retirement.
- SRS is opened to Singaporeans, Permanent Residents and foreigners above 21 and not undischarged bankrupts and are not of unsound mind.
- Participation is entirely voluntary. Participants can contribute a varying amount to SRS (subject to a cap).
- If you earned employment income in preceding year, you are allowed to contribute to SRS.
- The contributions may be used to purchase various investment instruments.


How to Participate:
- You can open an SRS account with one of the 3 local banks.
- There are however, service charges on the account that you have to note.
- The maximum contribution rate for Singaporeans is S$12,750 and foreigners is S$29,750.
- Contribution must be made in cash.


What Can I invest my SRS Funds in:
- Single Premium insurance (including annuity & non-annuity plan)
- Life cover (including TPD benefits)
- Excluded are life insurance eg. critical illness, health and long term care.
- ETF funds.
- Purchase of properties is not allowed.


How to Withdraw SRS Funds:
- Withdrawal from SRS can be made anytime.

- However, if the withdrawal is made before a statutory retirement age prevailing at the time of your first contribution, 100% of the sum withdrawn will be subjected to tax. A 5% penalty for premature withdrawal will be imposed.

- 5% penalty will not apply if withdrawal arises under death, permanent incapacitation, bankruptcy and full withdrawal of SRS balance by foreigner who maintained his SRS for at least 10 years.

- All withdrawal must be made in cash, and withdrawal can be any amount.

- 50% of the withdrawal will be taxed at your marginal tax rate for the following types of withdrawal:

> withdrawal on or after statutory retirement age (prevailing at the time you first contribute to SRS).
> withdrawal on medical grounds
> withdrawal on death
> withdrawal by foreigner who maintained his SRS for at least 10 years from the date of his first contribution.

- Otherwise, 100% of the sum withdrawn will be taxed at your marginal tax rate in all other situations.

- Withdrawals are to be made 10 years from the statutory retirement age or 10 years from prevailing statutory retirement age, whichever is earlier.

How To Save on Service Fees for Current Account?

Do you have a current account with any bank? If so, how much are you paying to the banks every year just to maintain this account?

I did a quick survey and noticed that it is quite common for banks to charge monthly fees and dictate minimum sum to maintain on these accounts.



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For example,

- UOB (i-Account) charges $2 flat per month. On top of that, it levies a $7.50 charge if your monthly average balance falls below S$3k, and charge $10 per cheque book (from the 3rd chequebook onwards).

- DBS (Current Account) charges S$7.50 per month if monthly average balance falls below S$3k.And $10 per chequebook (from the 2nd chequebook onwards)

- OCBC (Personal Current Account) charges you S$7.50 per month if monthly average balance falls below S$3k.

If you had accidentally issued out any cheque without ensuring sufficient funds in your account, bank also charges interests on the overdraft amount, and in some cases, service charge for incidental overdraft. There is also a returned cheque fee of about $40 for every bounced cheque, depending on which bank it is.

******************************************************************

Personally, I do have a checking account that I used pretty regularly, and I have never paid any fee for the account. I’ve always gotten FREE cheque-books and I’m not required to maintain $3k in minimum balance. No penalty for not doing that.

The trick is – I use an unsecured credit line account as my checking account.

In fact, when I first opened my unsecured credit lines with one of the local banks a few years back during a promotion drive, I was given S$30 credit for free.

The only criteria is that you have to earn at least S$20,000 per annum in order to qualify. And YOU MUST MAINTAIN CREDIT BALANCE IN THIS ACCOUNT ALL THE TIME. Never draw down on your overdraft. Otherwise, bank will charge you hefty interest for unsecured loans.

You’ll also have to note that most banks charges annual fee for unsecured credit lines (which can range from $50 to $200 per year). But so far, my experience has been one where banks are more than happy to waive off these annual fees upon customer’s request. (Anyway, if the bank is unwilling to waive, you should just close the account).

In my humble opinion, so long as you use this account prudently and sensibly, it is a good option to consider.

Which is the best CDA account?

I gave birth to my baby girl in mid 2009 and had to decide which bank to open my Child Development Account (CDA)* with.






In Singapore, there are only 2 banks that offer CDA accounts, OCBC and Standard Chartered Bank. I did a quick comparison between the benefits provided by the two banks and came to realize that they are actually pretty similar.


To share, the following are some of the factors which I had deliberated upon.

Interest Rate on CDA Account:
- Both banks give interest of 1% [ No vote to either one]

Branches / ATMs :
- OCBC certainly has more branches and ATM than StanChart, given that it is a local banking outfit.
[To me, this factor is not important because I will not be able to withdraw cash from the CDA account anyway. Depositing cash into the account is only on very periodic basis. No vote to either one]

Exclusive Merchant Offers:
- Both banks have tie-up with selected merchants to offer discounts.
[None of the merchant discounts caught my eyes. Furthermore, I did not foresee that I will be making use of the offers as baby will mostly likely be at home in the first 6 months. So the offers are not really important to me yet. No vote to either one as well].

Free Insurance:
- StanChart offers free insurance for the parents & child. It gives S$25k in personal accident plan if maximum contribution is not reached and S$50k if maximum contribution is reached. It also provides free hospitalization cash if child is hospitalized due to Hand, Foot, Mouth Disease, up to 365 days.

- OCBC have similar free insurance, offering S$20k for death & TPD if there is contribution to the CDA account.
[One vote goes to StanChart for higher insurance coverage].

Additional Interest on Account
- OCBC offers CDA Time Deposit with minimum deposit of S$5k, for 12 months period at 1.2%.
- StanChart offer 1% p.a. for a second account for your child or family, in addition to your CDA.

[This is an important factor to me. Normal savings rate at local banks is only about 0.125%. For every $10,000 that I deposit into this designated StanChart Family account, I’ll earn an extra $87.50 per year. (Multiply that by how much you intend to maintain in the Family Account).

I would rather use the extra cash from StanChart to buy diapers for my baby than to have it deposited in local banks for the paltry 0.125% .What’s more is that there is no minimum amount to maintain the account and no tie-down period, so the funds are liquid in case I need the cash for emergency or for investment purpose.

As such, another vote goes to StanChart].

Other Perks
- StanChart also offers cash back on purchases where new card members can enjoy 20% cash back on all your retail spending for the first 2 months when you sign up for a StanChart Platinum card by 31 Dec 09.

[Those who are currently not holding StanChart card may want to consider this favorably. However, this is not important to me as I already have a SCB card and therefore, this promotion is not applicable to me.]


FINAL VERDICT
Overall, the choice is clear - Standard Chartered, notwithstanding that the interest rates might change over time.

Despite the fact that some of my friends commented that SCB’s customer service is quite bad. To me, it does not really matter as I won’t be using the counter service or telephone service frequently anyway. This is but a debit card which I’ll only be able to use rather sparingly.