Tuesday, May 28, 2019

The Global Economy Will Adjust To The New US-China Economic Hostilities

The period of relative calm in the markets was rattled by an endless stream of provocative tweets from US president Trump as the US government ratcheted up the trade war and tech war against China. Oh boy! Did the global media have a field day on this latest development. Some of the headlines were more fear-inducing than horror movies. Droves of analysts, experts, economists, fund managers, talk-show hosts are talking about an impending recession in 2020. Or was it 2021? Sorry, these people keep changing their minds. Everything seemed rosy and bright between January and April, remember?

Look, don't get me wrong. I'm not saying that the trade tech war is a non-event. You should be concerned if you have huge positions in shipping and tech/semi-con stocks. However, there are lots of other industries not even remotely affected by this. It's business as usual for these sectors. Life goes on. You won't hear Marvel fans saying "Hey honey, let's not watch Avengers: Endgame at the cinema because some intelligent people said a recession might be coming."

Many investors still do not understand that stock prices fluctuate all the time. Sometimes, they fluctuate more. This is not the first trade war the world has experienced. The US waged  a trade war against Japan and a Cold War against the USSR back in the 1980s. Strong, capable management will adjust and work out solutions over time. They always do. Kerry Logistics, a Hong Kong firm, has said that trade tensions are actually boosting activities in Southeast Asia. Which S-REIT has lots of warehouses in the SEA region? Yup, you've guessed it! Mapletree Logistics Trust. It's unit price has been rather stable ever since the trade war erupted, closing at $1.48 on 10 May before the avalanche of Trump tweets and closed at $1.49 today.

Monday, May 20, 2019

Hidden Danger Of Early FIRE

Time horizon is a critical factor in retirement planning. It is the duration you need your assets to work for you, usually spanning 20 to 30 years. Over that few decades of retirement, a person's purchasing power can be seriously eroded by the inflation monster. Nobody wants to get to 80 and discover the money has run out. That's not fun. Aged poverty is cruel, especially in Singapore where the costs of living is high and the medical fees even higher.

One of the potential big mistakes early FIRE wannabes make is underestimating the effect of inflation. Sure, the numbers look rosy right now. Mr. X is able to enjoy his carefree life, playing computer games at home, playing Magic The Gathering with his friends and cultivating bonsai at his balcony. However, his lack of a stable monthly salary affects his ability to grow his portfolio, not to mention the lack of contributions to his CPF account. Most of the dividends he received would be spent on living expenses, leaving little for re-investment. If he delays his retirement by just another decade, things would be so much better. 45 is still a pretty early retirement age. All the salaries & bonuses he received in that extra decade of full-time work would enable him to grow his portfolio to a point where the returns can compensate for inflation. Furthermore, all the contributions to his CPF savings in that decade would allow him to enjoy a larger CPF Life payout at 65 years old. 

When you are young, invest in yourself. Upgrade your work skills and knowledge because your career is the engine of your wealth.

Achieving Sustainable FIRE
My advice to all those early FIRE otakus is to take inflation into consideration. If you are relying on your portfolio providing the cash flow to cover all your living expenses, you likely need some growth, just to increase the odds of your portfolio cashflow keeping pace with inflation. With this in mind, I would suggest:
  1. Delay your retirement, even if the figures show that you can retire comfortably right now in your 30s or 40s. Take my situation for example. I have a $550k portfolio generating annual dividends of $28k. I still intend to keep working.
  2. Keep your mind active and your body mobile by engaging in part-time work that you enjoy. That extra income can help you keep pace with inflation.

Friday, May 17, 2019

Get Your Fair Share Of The Economic Pie. Start Now!

Investing is really all about laying out cash now to get more back later. The earlier you start investing and the more you invest, the greater your money will compound over time. I do enjoy allocating my dividend cashflow. In fact, I have been rather active in deploying my funds in the current volatile market. It's no secret that global wealth is concentrated in the hands of the elites, the top 1%. It's time we claw some of that wealth back.

In recent years, there has been a stark contrast between 2 segments of the local population - the wealthy, educated cosmopolitans and the poor families trapped/entrenched in the poverty cycle. Social mobility has stagnated, maybe even decreased over the years. This wealth disparity is worsened by technological disruption, which has affected jobs and wage growth. 

When I first started dividend investing, my main objective was to achieve financial independence by building a steady passive income stream. Another motivating factor was my desire to benefit as much as possible from economic growth. In our capitalistic system where wealth is distributed ever more unevenly, how do I get my fair share of the 'economic pie'? One of the best ways is to invest, to own wonderful businesses, especially those with low capex requirements, asset-light and highly cash-generative. Find companies that gush cash and require little capital re-investment. Buy a 'cash machine' and hold it forever.

Do what works and keep doing it
Dividend Warrior