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Fergus Tan

Money is meant to help you improve your quality of life

Fergus Tan

Senior Partner at Vision Advisory Management

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Money is meant to help you improve your quality of life

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Senior Partner at Vision Advisory Management

Fergus Tan

Senior Partner at Vision Advisory Management

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FIRE Movement

Investments

Insurance

Savings Accounts

Savings

How to Invest $25000 dollars? What’s the best approach?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 02 May 2020
Hi Anonymous! Growing your wealth is a very vague end result. There are too many ways to grow your wealth, and it depends a lot on life situation, financial needs in the next 5/10 years, and your risk profile. Based on your numbers, you are estimating $2k net salary, with about 35% spending. Those are pretty good numbers. One question I would have is, what differentiates between savings and investment? Is it a time horizon thing, or is it a risk profile thing? I'm gonna give some fairly counterintuitive suggestions, so don't get overwhelmed I would combine the savings and investment bucket. Essentially these are money not used for daily living. From here, you would then look at it as multiple portfolios of investments. For example, there should be a chunk for long term retirement planning. This is money you will never take out until then. Hence, you are more likely to look at putting into something passive. Something that gives a decent equity type return, but will never give you any mega returns. This should be a fixed amount. Say 20% of your income. Forever. Then, there will be another bucket for what I would call, investing for learning. The reality is this. If all you did was passive strategies, you will never gain much knowledge, and you can never outperform the market. In the old days, people could put their money into saving accounts and get 5-7%. Even as near as 1985, the bank interest rate was 6% per annum. But we live in different times today. Imagine folks then who relied on putting their money there, they would not have had the knowledge to get a higher return today. So I would say, take a chunk of your investments to learn. Buy stocks, buy funds, buy options, whatever. Sometimes, you get lucky and make 30%, sometimes you suck and it drops 30%. But make sure this isn't too much of your money. I believe for most people, they spend way too much time trying to chase returns, such that they neglect career progression. The money you earn when you are young is a fraction of the money you earn when you have the skillset and progress in your career. I would recommend putting a lump sum cap, it could be 5k over 1 year, or 10k, or 20k. Up to your comfort. But make sure you set up the retirement plan first. Thirdly I would put money aside for liquidity. This would be used for investments, and it is NOT your emergency funds. The idea is that in life, we need to take risks or we will just get the market average. Imagine if the current crisis came about, you spent time to learn about the markets over the last few months/years, and you know that it's probably a good time to put in a significant chunk of money, but then all your money is already invested. What's next? So in this bucket, I would say keep your money liquid, and don't worry about the interest rate. Liquidity is key. So this could be in a fixed deposit, in a higher interest bank account, or just in your bank. Realistically, at $20k, even if you got 1.5% of interest, that's $300 over a year. This can dynamically change, when economy is better, you shouldn't keep too much money here. Money here isn't working for you. Most people will call this the warchest. Lastly it would be the emergency fund bucket. These are money that will never be used for investments. It is to help you when you lose a job, have a medical emergency, or whatever reason. I don't know you, and I am not sure if you are a high flyer, or prefer a lower profile work, or if you want to earn a lot of money. This will affect decisions. So back to your specific situation, my assumption is you graduated from poly, started work with a decent job paying about $2.5k, and have worked part time over the last few years and garnered a total of almost $60k of savings. I would assume that if something happens to you, your parents are around to bail you out. In that case, honestly I would not keep an emergency fund. BUT, if you are a significant breadwinner in the family, then I would keep a 9 months fund of expenses, which is about $6,300. I would keep a warchest of about $10k. This is in the situations markets drop, AND you made a calculated risk that it is a good time to take risk. Out of the remaining $35k, I would put a lump sum of $15k into a long term investment vehicle, followed by a monthly regular investment plan of $400 a month. This will never stop. Ever. (Even if you get married) Out of the remaining $20k, I would consider putting $10k into invest to learn. This is up to you to choose your weapon of choice. I personally do options writing, but you can do forex, or stocks, or crypto or whatever works for you. This is to build up your knowledge about assets, and hopefully you don't pay $15k for some seminar or tuition fee. The last $10k, I would also invest, but choose things that you know. If you don't know much now, then just dump it into a roboadvisor, or some unit trusts. or some bluechip stock. The purpose of this is NOT retirement planning, but to grow your wealth as a whole. I would then funnel the remaining monthly salary excess into this. ($700+600 - 400 = 900/mo) The purpose of this is to have it for flexible use. As you have more financial committments, this is the account that will be touched the most. Maybe if you made a good return for the year, you can treat yourself to a holiday. But at least you are more assured that you have a retirement plan, a learning plan, and a wealth plan. NOTE!! This is not financial advice or an inducement to trade. Please seek complete financial advice before making any decision. Cheers! Fergus PS: Need more specific advice on your situation? Feel free to reach out to me on Instagram https://rplg.co/fergusig Or you can find me on facebook in the Seedly Facebook group!
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SG Budget Babe

Cryptocurrency

Investments

My child is interested in investing in cryptocurrency, should I support him?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 25 Nov 2019
It depends what does support mean.. If it means giving him money to invest, then nah, I don't think so. This applies to stocks, options, forex, and all other investments too. I believe people should feel an emotional connection to the money they invest/trade, otherwise they may not feel as responsible. This also applies if he is 21 or 25 or 30. Cryptocurrency as a whole, is just a new age scammy form of currency. Should someone be investing in EURO, or Gold, or Indonesian Rupiah for that matter? The answer is, "don't know". I personally invested in forex and lost money. Did some options writing and made money. Did speculative warrants and lost lots of money. Did long term stocks and unit trusts investment and made significant bits of money. The point is, we don't know what the future holds. I personally think cryptocurrency (there are almost 1000 different currency/coins out there now) as a whole is a scam. It is created to sell some sexy story, or to sell a future that may or may not materialise. That's not too different to some stocks and shares to be honest. But you shouldn't put a limiting belief on your child. This may spiral to risk adversity in other aspects of life. There's nothing wrong with speculating and gambling sometimes. Most businesses and billionaires became that way because they dared to gamble. But of course, in a well researched manner. And to reiterate, you should NOT support him financially. At least if you want to, make sure he puts in his fair share so that he will feel the pitch.
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Dividends

Any monthly dividend stocks/UT/ETF to invest in?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 31 Oct 2019
Good news, there are a lot of options nowadays for $100 RSP. If you are below 30 years old, most banks offer a highly discounted transaction fee. For example, OCBC's blue-chip investment plan offers buying and selling at 0.88% of the transaction amount. This means if you buy $100, you would only be paying less than $1 in fees. If you are above 30 though, typically it will be at least $5 or $10 per transaction. In which case, you have other options to look at. In most unit trusts investment, you can look at $100 RSP minimum too. Depending on where you buy them, you might encounter sales charge of around 2% for a non wrap account, and as low as 1% for a wrap account with 0.5% or 1% wrap fee depending on promotions and advisor. What this means is that you can get access to advice provided transaction at $2 per transaction assuming 2% sales charge. Do note, unlike ETF and stocks, unit trusts do not charge for the selling of it. If you do decide to do a wrap account, you actually get the flexibility to switch funds at no additional costs. You were also mentioning about monthly dividends. In the case of stocks, dividends happen on their own time table, and likely to be half-yearly. For unit trusts, you can find those that pay out monthly dividends. In terms of unit trusts, you can also find interesting investment ideas, such as the BlackRock Dynamic High Income fund, which pays out 7%. NOTE!! This is not financial advice or an inducement to trade. Please seek complete financial advice before making any decision. Cheers! Fergus PS: Need more specific advice on your situation? Feel free to reach out to me on Instagram https://rplg.co/fergusig Or you can find me on facebook in the Seedly Facebook group!
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Investments

Savings

FIRE Movement

How much do I need to invest in dividend stocks to get a monthly recurring income of S$1,000?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 31 Oct 2019
Is $1k a month income sufficient to go on sabbatical? There are many routes for you to do it, and there are basically 3 main angles to approach. 1) Portfolio risk 2) Portfolio leverage 3) Drawdown Just from the numbers, to get $12k annual income, you need to achieve 8% per annum from a $150k portfolio.. Portfolio risk means you need to see the asset class to invest in, in order to get the monthly income. Example, if you were to look simply at equity dividends, very likely you are going to get somewhere between 3% to 6% per annum. If you were to look at good bonds, it would be around 1 to 3% per annum. However, you could look at high yield corporate bonds. For example, some Indonesian bonds may offer up to 8 to 10% per annum. But should you be investing 150k there? I don't think so. Likewise, if you were to do options writing, it's possible to get a premium payout of 2 to 4% per month. But this means you may not get back the capital that you put in since the risk is conversion into equity at a lower price. But it will give you the monthly income paid out. Portfolio leverage is another factor. For example, if you were able to get $100k in a personal loan through balance transfers, it is possible to put this to work at a higher rate than the interest you are paying for it. Example, I recently got offered 6 months balance transfer from Citibank at 1.1% per annum, and no processing fee. It's possible to get a 12 months one too. Hypothetically, if you are even able to get a 4% dividend payout, you are positive in ROI. The risk is that your capital is not guaranteed, and at the end of 12 months when you have to repay the loan, you might have to use up your cash capital to cover any losses in investment. Example, let's say you buy into a basket of assets, which pay a blended 5%. You use $150k cash, and $150k loan (at 2% per annum interest to make it simple). So you buy $300k of assets, which will pay $15,000 of dividends. You need to pay interest of $3,000. This means you have a cash flow of $12,000. At the end of the 12 months, your $300k of assets drop to $280k for example. You still need to return $150k of loan, thus your capital left is $130k. Of course, it's possible for your investments to be invested in something safer, but please note that in almost any investment that does more than 4% dividend payout, it is unlikely to be guaranteed in the short term. Thirdly, your option is to do a capital drawdown. For example, if your blended portfolio is 6% dividend yield. This gives 9000 in dividends. You are still short of $3k, or around 250 a month. You will then sell off assets progressively to cover the shortfall, but it means at the end of 12 months, you are likely to have less than $150k. That's again taking into account that your investments are volatile and you won't get back the $150k anyway. Cheers! Fergus PS: Need more specific advice on your situation? Feel free to reach out to me on Instagram https://rplg.co/fergusig Or you can find me on facebook in the Seedly Facebook group!
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Lifestyle

Shopping

Credit Cards

Why would people use Grab Pay rather than using a credit card to directly pay for stuff?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 29 Sep 2019
So many reasons! Essentially tech startups are subsidising the cost of transactions in order to get more users. For example, I top up my GrabPay using a UOB ONE credit card. If you fulfil certain criteria, it will give up to 10% cash rebates every quarter. When I then choose to spend using GrabPay, I might earn grab reward points. If you want to stack 1 more level, You can use Fave app to link to GrabPay. So if you pay using FavePay, you earn 10% rebate on Fave, Grab reward points, and then credit card points/rebates. That's about the best reason actually.
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Property

Investments

What are the options for my 1st property, given my situation?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 29 Sep 2019
If you are looking for the purpose of future capital appreciation, then private beats out HDB in the current market due to the government policy direction which is likely to restrain any HDB capital appreciation. If you are looking to eventually rent out your property for rental yield, then HDB will yield one of the highest yield ever. To be honest, looking at your cash flow, it's also not likely you can afford a private 1 bedroom. https://www.propertyguru.com.sg/mortgage/affordability-calculator Based on 20 years mortgage loan, 5k salary, and 10k annual bonus, with 200k in CPF, and $50k cash, your maximum affordability is $550k. This will result in a loan of $300k and a monthly mortgage of $1k. A typical 1 bedroom condo might be 600-800k, to be honest. I'm not sure about your cash savings, but you would definitely need money for renovation and what not. My suggestion is to go for a resale 4 room actually. If you are comfortable, you might actually be able to rent out for income also. This will also give you enough debt leeway if somehow you get more income and will be able to purchase a second property. Some fruit for thought... Let's say you buy a Jumbo HDB in Yishun for example. Yishun is one of the few districts that have jumbo units which are bigger than 1300sq ft and is essentially a combination of a 3rm and a 4rm HDB. Very likely, you would be able to rent it out for more than $3k. And if you were to rent out the rooms individually, possibly more. Most private property would have a rental yield of 1.5% to 4% max. But HDB can still potentially get a rental yield of 9%. If you still have the dream of living in a private condo, this could help pay for that rent.
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Insurance

Whole Life Insurance

Term Life Insurance

How can I determine how much life insurance I REALLY need, and not just based on arbitrary figures?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 29 Sep 2019
I think going to the basis of why get insurance might be more important... One of the key uses of insurance is to cancel liabilities. In some cases, liabilities and assets are in different stages of liquidity, hence companies have gone insolvent because there are not enough assets to take care of liabilities in the short term, although in the long term liabilities will be nett off. This is a consideration to look at, particularly if you have a lot of illiquid assets such as property. For example, mortgage insurance is crucial, because you don't want the banks to do a foreclosure sale of the house. Another use of insurance is for income replacement. In the case of critical illness, being unable to work means your primary source of income stopped. You would still need to cover your minimum needs, and not to even take into account change of lifestyle quality. Same for death actually. In that case, you are forming an income replacement fund for your dependents. For example, if your parents are in their 60s, their financial plan might have afforded them financial independence for now, but would they be reliant for you for any allowance or physical care in their 70s or 80s? It's a tough question to answer. Not to mention if eventually you get married and have kids, that's new dependents altogether. I had a married friend who just gave birth this year. She is 39 years old, and she told me she has saved enough for early retirement by 45. Looks like her plans just went off the road. The 3rd use for insurance is for alleviating minor inconvenience that is not catastrophic. Examples would be a personal accident, travel insurance, home contents, etc. They will hurt when it happens, but it won't change your lives. This includes situations where your house catches fire due to a neighbour, much like in Ang Mo Kio recently. The last use would be to leave a legacy. My belief is that we are here to leave the world a better place for the future. Our value adds to the world, so as to speak. Even though I am single and no kids, I bought a $1million term insurance when I was 32 years old, many years ago. In the unforeseen circumstance that something happens to me, I will quite definitely change my family's life. If not a wife or kid, then my sister. I've seen enough rich people to know that family background matters during the early years of a kid's development. Some people might set up a scholarship, some might donate to a charity. With regards to term and whole life, there's no answer really... There's a huge range of term products... You have those that cover till 65/70/75, and those that cover to 99. Whole life, you have those with multipliers, which are essentially embedded term insurances, and you have limited pay products. The key is understanding your final objectives and your cash flow forecast for the next 20-30 years of your life. I personally chose to buy a jumbo term for legacy purpose, but note that this covers death. In the case of CI, realistically most CI policies are NOT going to cover you for the whole of life, due to the cost. So expect to undertake the risk in your 70s or 80s if you are alive and have CI. The easiest way to look at it is that term is usually for protection over a fixed period that you know of. Whole life is the safety that covers the whole of life, regardless of when you die. Hence, a term for mortgage cover makes sense. Term for covering yourself until your kids reach 21 years old makes sense. Term for key-man insurance makes sense. Usually, people would use term to get a larger than usual coverage when their budget is not available. I personally have low CI coverage also. This is even though I had relatives (1st and 2nd-degree relatives) who have had diabetes, heart attack, leg amputation, lung cancer, Alzheimer's, blood sepsis due to UTI. I think people generally have different beliefs on CI and it's the effect on death or work. Likewise for Early CI. In most cases of early CI, you are still able to work, hence you won't need extended coverage for that. However, the cost of treatment is still pricey. It is also highly likely that if you do get a CI policy, you would want to get a multi pay anyway. The reason is that if you got CI once, you are unlikely to be able to buy a policy. However, your paradigm then would be that you are more likely to want to buy coverage. So to me, it makes sense for someone who wants to buy CI, to buy a multi pay policy. Based on your profile above, without understanding the risk you are willing to undertake, it seems to me that it may make sense for you to undertake the protection risk by having a lower coverage, and looking to increase your passive cash flow, ie diverting more of your income into investments for the purpose of attempting to replace 50-80% of your active income. You would then look to take a reduced insurance coverage just in case something really happens in the next 30 years (till 62 y/o). Up to a point where if you are willing to stay in B class wards in restructured hospitals and seek CI treatment there, you can actually undertake the risk and channel more towards investments. (And I would heavily emphasize, THIS DOES NOT CONSTITUTE PERSONAL FINANCIAL PLANNING ADVICE AS I DO NOT HAVE THE FULL FACTS. This is just what I might have done if I am in your shoes.) Personally, I suggest you talk to a few more planners. If they dress like a waiter and wants to sell you saving plans, walk out. However, if you do find the first meetup consultation helpful, consider paying a fee, or buying a meal :) If you would like to look for someone who does a deep dive into your goals, values, challenges, and experiences before talking about financial planning, feel free to reach out :) https://rplg.co/talktofergus
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Property

Investments

Lifestyle

Loans

If you can afford to pay for a house in full using cash, is it better to do that instead of taking a loan? Thanks?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 29 Sep 2019
I answered a similar question here https://seedly.sg/questions/what-would-be-a-better-choice-using-lump-sum-of-money-to-pay-off-one-significant-chunk-of-debt-or-invest-that-money?aid=17194 For that, I also created a google sheet, to compare between taking a loan or paying using cash https://rplg.co/slopu In short, If your loan interest is 2.6%, and you are able to get investments at least 2.8%, technically you will come ahead by taking a loan and using the money to invest. You can make a copy of the google sheet and do your own calculations https://rplg.co/slopu But after that, it's really down to your personality and objectives. Some people might find active management of the investments a hassle. Some people feel they can't even do 2.8%, and they feel that they might have a double whammy if banks want their loan back, and their investments are illiquid. There are other intangible factors such as having liquidity just in case or seeing what is your age and all that... There's no perfect answer, but if it was me, it would be the loan any day, every day.
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CPF

HDB BTO

Hello, is it advisable for me to voluntarily contribute additional money into my CPF even though my BTO down payment is coming up?
Mortgage loan is one of the cheaper loans you can find. And in the case of BTO/HDB, you can never refinance the loan. In general, I would suggest you do not voluntarily contribute at this point. In the past, there will be people who would even buy investments with CPF-OA to lock up the money, let the downpayment happen, then sell the investments. I don't think you should do that either though. The biggest reason is that you would want to keep excess CPF-OA monies, and cash on hand, in case of any emergencies like job loss, or being unable to service the mortgage. In the case of keeping cash on hand, you would probably need it for various stuff, such as renovation, daily expenses, etc. Best to sit down and draw out your budget. Understand how much reserve buffer you have, and anticipate any near term large expenditure. If you would like, you can schedule a goalsmapper session with me, and you would get a chart similar to the one attached. https://rplg.co/gmconsult !
Answer image preview
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Lifestyle

Investments

Is the Formula 1 Singapore Grand Prix really bringing in revenue for Singapore?
Fergus Tan
Fergus Tan, Senior Partner at Vision Advisory Management
Level 5. Genius
Answered on 29 Sep 2019
It's a tough question, due to the complex nature of the spillover effects of an event like F1 into tourism, and many other multiplier effects. On the baseline first, an F1 street race can cost between $40-60million to host. (All amounts in USD) This is purely for staffing, stands, road paving, insurance, etc. There's then the licensing fees and all, because well, F1 teams need money to eat. In general, the F1 teams receive more than $1billion over the course of the year and 20 races. The actual licensing fee charged in Singapore is not known, but money comes from somewhere. In the first race in 2008, the known statistic was that the race costs S$150million, and the Singapore government paid 60% of the bill. https://en.wikipedia.org/wiki/SingaporeGrandPrix Very fascinatingly, the total attendance is actually quite telling of the economic mood over the years, and the last 3 years it has actually risen. So where do the other revenues come from? CESS is one of the more significant income sources for the government. During the F1 period, all gazetted businesses have to pay an additional 30% tax https://www.stb.gov.sg/content/dam/stb/documents/industries/hotel/2019%20Cess%20Act%20GuideFinal.pdf https://www.straitstimes.com/politics/parliament-more-businesses-to-be-liable-to-pay-tourism-event-tax Based on past collections, this is about $10-15 million a year. It's not stated if the Singapore government takes a share of the event promotor's profit, but let's assume it's no. Tickets can range from $200 to 1.5k for the 3-day event but note the expense of running such an event include the multiple concerts and what not https://f1destinations.com/the-definitive-ranking-of-2019-formula-1-ticket-prices/ So tangibly, the Singapore government only makes perhaps $20million, out of an annual expenditure of $90 million. There are also multiple disruptions, and deployment of police, security, and spillover time wasted and inconvenience to people working around the area. But there's also the intangible benefits, such as increased brand recognition of Singapore as a tourism destination, potentially longer tourist trips who decide to stay after the F1 period, as well as baseline support for the economy. To draw a parallel example, the public transport in Singapore is actually not a lucrative business. But you need the public transport business in order to have a sizable business so that you can venture into profitable spaces such as taxis, private charters, retail, advertisement, engineering services, etc. The way I see it, F1 helps increase the competency of Singapore companies, so that they gain the skillset to venture overseas to run similar events, or to grow their profits from other complementary areas. Lastly, tourism receipts technically don't benefit the Singapore government directly, but it does help the businesses here get more revenue, and eventually, that helps create a more vibrant economy. This might be a good read https://www.reuters.com/sponsored/article/ten-years-on-f1-success-still-paying-dividends-for-singapore
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