TheFinance.sg » Fixed Income

Can you lend me some money?

Jared Seah — Tue, 19 Apr 2011 11:43:17 +0000

Before lending money to others at a profit, I must check out the market.

Since I didn’t study so much, I’ll have to use my own life experiences:

1) My broker charged me 6% interest p.a. for my margin account. To lend me money, I have to pledge “collateral” in terms of shares or cash. And not just any shares, my broker classify shares into 3 kinds of ratings: A – can leverage 3 times, B – can leverage 2 times, and C my broker just laugh at me…… I have to pay the interests charges monthly – but can put it on my tab until I hit my margin call limit (some technical stuffs I’ve no clue)

2) For credit card companies, they lend money to me with no collateral. But the interest they charge is 24% p.a. (don’t they trust me?). OK, due to competitions, there are often “promotions” – like charging me 6% p.a. for six months if I transfer my debt from other credit cards to them.

Although no collateral needed, credit card companies require me to pay a minimum sum every month (they are so nice! I no need to pay the principal – just the interest will do. I swear they are in no hurry to get the loan back from me!? They must like me a lot!)

But miss a monthly payment, all sorts of penalties will appear out of nowhere and may even cut my credit limit! (Hey! How come they turn on me so fast?)

So if I want to be a “ah long” (illegal money lender) to lend money to debtors at a profit, 6% p.a. seems to be a good starting point – provided I use the same principle others used on me:

a) I collect collateral of value from my debtor in advance and charge 6% p.a.

b) Or I charge 6% p.a. for max 6 months period (hit and run; life is short!).

c) Or I charge 24% p.a. for unlimited loan period. But I will insist on monthly minimum payments to cover the interests. If they miss a payment, I will do “free” exterior decoration services.

Now, one stranger asked me for a loan with 6% p.a. unlimited loan period. There is a sweetener that if he does not pay my loan back to me in 7 years, he will give me 2% extra to arrive at 8% p.a. How generous!

Meanwhile, I get the 6% interests in 2 semi-annual payments. But the catch is that he can opt not to pay me at all!? He can roll-over the interests into the next year. Like that also can?

That means he can promise me the “check is in the mail” perpetually!? Hang on! Did he pledge collateral to me? No! This stranger so very the brilliant!

There goes my dream of being “ah long”. While I hesitated, many other people have jumped over me to lend money to this strange at “his terms”. And I thought if I lent money it should be at my terms?

Opportunity lost :(

But I felt better after talking to professional “ah long” – they charge 20% interest per month!!! Phew! And I almost lent it out at 6% p.a. :)

About the Author: “Hi! I’m a Singaporean working in Athens, Greece. I aspire to be like the swan that’s here and gone. And if need be, I’ll rather be the hammer than the nail. Yes, it’s from that song. 123, Away, I rather sail away…. (El Condor Pasa)”

Singapore Man of Leisure (welcome to my blog; just google it!)

This post was written by a guest contributor. Please see their details in the post above. If you’d like to guest post for TheFinance.sg, feel free to contact me for details about how YOU can share your tips and knowledge with our community.

CapitaMall Trust Retail Bond

eemin.the.ifa — Wed, 16 Feb 2011 16:56:00 +0000

The next retail bond tranche comes from CapitaMall Trust.

CMT aims to raise SGD 200,000,000 through this programme. There are two components- a 50Mil public offer as well…

Come visit eemin.the.ifa for smart financial planning tips… secrets & more!

Perhaps Another Crisis

Investor Education by SGX and CFA

eemin.the.ifa — Fri, 28 Jan 2011 16:10:00 +0000

SGX and CFA join hands to hold investor seminars as part of a nationwide investor education campaign. There will be a series of six seminars beginning in February. These seminars are aimed…

Come visit eemin.the.ifa for smart financial planning tips… secrets & more!

Europe Debt Concerns

eemin.the.ifa — Mon, 10 Jan 2011 13:54:00 +0000

What’s Next? I came across this report by Wells Fargo Securities on their perspective of the Europe debt crisis development. The report can be accessed here.

Good points made on the debt…

Come visit eemin.the.ifa for smart financial planning tips… secrets & more!

CapitaMalls Asia Bond Issue

Martin Lee — Fri, 07 Jan 2011 02:43:58 +0000

CapitalMalls Asia is the next company to issue bonds to retail investors after the previous tranche from SIA.

There are offering two options, a 1-year bond paying an interest of 1% and a 3-year bond paying an interest of 2.15% p.a. This is the same interest that was paid by SIA.

The bonds will be issued in denominations of $1000 and the minimum amount for application is $2000.

In the event either bond fails to gather at least $20 million in subscriptions, CapitalMalls Asia has the right to cancel the issue.

The application starts from 9am 7th January 2011 and will close on 17th January 2011 at 12pm. It can be done via the ATMs of the local banks and internet banking of DBS…

CapitaMalls Asia Retail Bonds

eemin.the.ifa — Thu, 06 Jan 2011 18:26:00 +0000

Following SIA retail bond offer, CapitaMalls Asia launches its own retail bond offer to the public. The offer is to raise an amount up to $200 million. The bonds will be guaranteed by CapitaMalls…

Come visit eemin.the.ifa for smart financial planning tips… secrets & more!

Fundamentals to Bond Investing

eemin.the.ifa — Mon, 03 Jan 2011 16:24:00 +0000

Free SGX Seminar on Bond Investing. This Saturday 8 Jan 2011 morning @ SGX Auditorium.

Pegged at beginner level, it will help investors get a better understanding of investing in fixed income and…

Come visit eemin.the.ifa for smart financial planning tips… secrets & more!

Do not buy corporate bonds

Alvin — Sun, 19 Dec 2010 23:30:59 +0000

Everyone is familiar with Government Bonds and Treasury Bills. How about corporate bonds? A company needs cash and capital to run or expand the business. There are several ways for the company to raise money. It can borrow from the bank, getting listed, execute rights issues (if listed), take in private investments or issue corporate bonds. Out of these methods, the company will likely choose the least cost of borrowing. So if the company decided to issue bonds, it means that it is the cheapest the way to borrow. More often than not, corporate bonds will give out a higher interest rate (or coupon payment) higher than what the government would offer. In year 2010, we can see some of the big organizations like Temasek Holdings and SIA issuing bonds to the public. Retail investors can only buy and sell bonds listed on the Singapore Stock Exchange. For over the …

MTQ – 1H FY 2010 Financial Analysis and Review

Musicwhiz — Mon, 16 Nov 2009 01:00:03 +0000

Photo by Hythe Eye

MTQ released their results for 1H FY 2010 (they have a March year-end) on October 28, 2009. Since the company only releases results every half-yearly instead of quarterly as they are below the S$75 million market capitalization threshold, this means that I will only be able to review the company’s performance every six months, barring any updates which the company may provide in the meantime. A pleasant surprise I got was a newsletter which the company sent out to all shareholders to provide updates on the Company – most companies I know do not do this and MTQ is certainly very shareholder-friendly in this respect. This is even though its shares are not very liquid and the company is relatively unknown.

My analysis will be split into the usual 3 sections as per my other analyses for my companies; and at the same time I will discuss briefly on prospects and plans.

Profit and Loss Analysis

As expected, revenues dropped 12% year on year from S$45.3 million in 1H 2009 to S$39.8 million in 1H 2010. This was due to softer demand for the Company’s oilfield engineering services as many oil and gas projects were put on hold as a result of the financial crisis and subsequent recession. Engine systems, however, remained relatively resilient and managed to slightly increase its revenue level (in AUD), but with a forex translation loss the net effect was a S$0.2 million decrease in revenue in SGD terms. Read more…

The Almost Perfect Contrarian Indicator

Tiang Chuan — Mon, 24 Aug 2009 01:00:16 +0000

Photo by John Althouse Cohen

Advisers are constantly bombarded with email updates and sales kits from fund houses, especially the well performing ones. The account managers are just doing their job promoting their funds. This can also be a good source of information for advisers, be it for performance ranking, latest economic conditions or even academic information. However, adviser must conduct their own due diligence as no fund house would criticize their own funds. Not all advisers do that.

Hot funds are promoted aggressively by fund houses. I remembered a particular fund which managed to do well in 2008 being marketed very aggressively. Performance updates were sent out regularly and numerous product trainings were given. Some advisers were sold and they too promoted this fund heavily to their clients. During a recent in house investment training, an update on this fund was given. Most were shocked by the poor performance. Few knew about it because the performance updates has stopped some time ago, presumably due to the under-performance.

China funds were also promoted heavily recently. And what happened to the Chinese market? Read more…

The power of compounding in investing

Createwealth8888 — Tue, 20 Jan 2009 09:05:16 +0000

Time could help regular-savings-plan investors chalk up a considerable sum of returns.

Clearly, the initial investment sum plays an important role in the sum of returns. Let’s say you invest $100,000, assuming an investment return of 20%, you would get $120,000 in total. The sum would diminish to $12,000 if you had invested only $10,000 at the same rate of return. So some people may have an illusion that investment only work well for people who invest large sums of money.

Table 1: Investment returns of $100,000 at different annualised rates

Well, not exactly. Even if you invest a relatively smaller amount, you could make a very good return by utilising the power of compounding. What you need to have on your side is TIME; or simply to invest early. Let’s illustrate how much $100,000 would grow at steady rates of return over different periods as shown in Table 1.

Assuming a long term rate of 2% per annum, the initial amount of $100,000 would grow to $ 122,000 in 10 years, and $181,000 in 30 years’ time. However, if you chose to just invest into fixed deposits at this point of time, you would probably expect a lower rate to be used for compounding. The current fixed deposit rates from three largest local bank ranges from 1.4% to 1.5% per annum as at 20 February 2008. If you chose to invest in a diversified balanced portfolio with a 40% weighting in fixed income funds and 60% weighting in global equity funds, you would probably expect returns from 5% to 7% per annum over the longer term.

Thus, if an investor chose to invest in a diversified portfolio with an average rate of return of 7%, the investment could grow at a faster pace. Assuming a rate of return of 7%, in 10 years, the investment will grow to $197,000 and to $761,100 in 30 years’ time.

You may wonder, “What if I am good at building an aggressive equity portfolio and I invest early?” Assuming an annualised return of 12% – in 10-year’s time you would have made $311,000, which is 3.1 times of the original investment amount. The sum balloons to almost 30 times the original amount in the span of 30 years. A great value investor like Warren Buffet generated annualised returns of 21.4% in the past 42 years (since 1966). With the power of compounding, the investment grew tremendously to 336 times the original amount in 30 years. Read more…

Of bonds, yields, stocks and PE

La Papillion — Mon, 28 Apr 2008 10:50:03 +0000

By: La Papillion

I was inspired by Mike’s posting on the stock vs bond deal to do a little more research on my own. From what I can gather, the chart below seems to be the latest updated yields for treasury bill/bonds by SG govt (I’m not sure!)

Quite pathetic right? I’m not sure if I can find any bond yield longer than 20 years old, because the website where I got the data didn’t have such an option for me to choose. Read more…

How to check treasure bills cut-off yields (i.e. interest rates)?

Panzer — Sun, 23 Mar 2008 02:13:39 +0000

By: PanzerGrenadier

The Monetary Authority of Singapore conducts weekly auctions for 3 month treasury bills issued by the Government of Singapore (Ministry of Finance). Every Monday, the results of the auctions for the treasury bill are announced. Read more…

Cash management 101

Panzer — Sun, 30 Dec 2007 05:00:45 +0000

By: PanzerGrenadier

You are interested in your finances to read my blog.

You want to know about investments, personal finance and money management.

Ultimately, you want to be financially free.

Why cash management?
One of the building blocks for growing your net-worth and maximising the returns from your savings is to manage your cash well. Today’s high inflation rates of 4-5% in Singapore has resulted in our savings accounts earning 0.25% having a negative return of 0.25% less 4% (or -3.75%). Thefore, just to mitigate the negative return of holding cash, you should consider cash management to hold as little cash as possible in savings or deposits and try to allocate more towards assets that generate a better return that inflation.

All investments come with risk and therefore even if you are 90-99% invested in assets such as property, stocks and shares, bonds, gold, commodities etc, you would still need to hold some cash. This cash acts as both as requirement for day-to-day living expenses or incidental lifestyle expenses such as renovations, purchase of big ticket items such as car, LCD television, washing machine when they break down or when you upgrade. Holding some cash also diversifies your portfolio and gives you some liquidity to take on larger positions in stocks and shares or other investments should the opportunity arise.

How to manage your cash?

1. Determine how much cash you need on hand
The first step is to determine how much of your investment portfolio should be in cash. Some financial planners advocate a 3 month or 6 months of living expenses as your buffer. Others advocate a percentage of your total investment portfolio, say 5% or 10%. There is no right or wrong answer as each of you vary in risk profile, appetite and personal circumstances.

My own approach is to be weighted at about 5-10% in cash which is very aggressive. This is because I am still fundamentally bullish about the Singapore economy (and hence, the stock market) for 2008 but also realise that the stock market is going to be very volatile.

2. Manage your cash among savings deposits, treasury bills, fixed deposits
Once you have decided that you will need, say 10% of your investments in cash and cash equivalents for living expenses and the budgeted big ticket item, it’s time to actively decide where you will place this cash. Now cash means different things to different people. For me, cash can be broken down to:

a) Cash on hand
- the notes and coins you have in your wallet, cashcard or prepaid transitlink card

b) Savings accounts
- low interest bearing POSB /DBS /UOB /OCBC /maybank isavvy/ stanchart esaver bank account

c) Fixed deposits
- short-term 1 to 24 month deposit bearing higher than savings rate

d) Treasury bills
- short-term 3-12 month interesting bearing zero-coupon government securities

3. A suggested cash portfolio
My own experience with personal cash management is to keep 3 months expenses available. With minimal kept in the savings account. Every month, after my salary is credited into my bank account, I will transfer most of it into maybank’s iSavvy account as it yields 1.68% (as at 28 Dec 2007) for balances S$5,000 to $50,000. I will monitor treasury bills and buy from Poems as it allows me to get in at a known yield less 12-15 basis points (0.12 to 0.15%). I do not get into fixed deposits nowadays because the higher interest paid is not sufficient to offset the relative illiquidity. Treasury bills bought through Poems allows me to sell and convert back to cash within T+1 working day.

During year end when there are bonuses or windfalls, I will reallocate the cash to other investments but put more into treasury bills if I do not wish to buy more stocks and shares or bonds.

In general, Maybank iSavvy + treasury bills are liquid enough as I can get the cash by T+1 or worst-case T+2 which is good enough for most lifestyle expenses. Other unbudgeted big ticket items can be funded through selling some shares but this is usually not the preferred method as I would be under pressure to sell and may even incur realised losses as the portfolio of equities will have some winners and losers.

Tracking your cash
Tracking your cash is important because you should know at any point in time, how much cash you can raise should you need to make changes to your investment portfolio. In addition, I also work out what is my cash holdings generating for me in terms of returns to see how I am doing in terms of growng my net-worth.

At the end of the day, the combination of your cash flows to match your lifestyle as well as your investment asset allocation strategy will determine how much or how little cash to hold. So long as you are aware of where you cash flows go and that you manage to save each month, you are continuing on your journey towards financial freedom.

Be well and prosper.

My Comments:

Hi PanzerGrenadier,

I agree with you that proper cash management is important. However, not many people know that besides our normal savings account and FDs, there are also other products that offer good returns and liquidity.

Like you have mention, T-bills is one. MMF is another option. I’m using POEMS MMF and I can get my money back within the same day if I request for my money before 10am on a working day with my POSB account.

Another peculiar situation which I see some of my friends are doing is saving too much. They have the mentality that the more money they have on hand, the more secure they feel. However, this represents an opportunity costs as this excess money can be invested.

Cheers!
Derek

Source: Five Cents Ten Cents

What is the best risk-free rate in Singapore?

Wilfred Ling — Tue, 25 Dec 2007 16:01:37 +0000

By: Wilfred Ling

During a Christmas gathering with friends, someone asked me for a question: What is the best risk-free instrument in Singapore? It was an easy question.

My answer to that was:
There is no risk-free instrument in Singapore. Traditional risk-free instrument is associated either with a bank deposit (preferably linked wiith the Singapore goverment) or the Singapore Government Securities (SGS). But we know that bank deposits and 10-year SGS is below the inflation rate. It is forecast that inflation for 2008 will be 4-5% per annum.
Read more…

Additional Resource:
The Best Bank Deposit Rates in Singapore by Dr. Money