Thursday, June 12, 2008

Stretch your dollars series: Borrowing to invest

I received a mailer advertisement with my UOB cashplus statement. Initially I thought it was the usual 0% interest fund transfer with a 5% processing fee.

Nope, this time the processing fee is only 1.5% with 6 months 0% interest rate.

The minimum amount to borrow is $10,000. The website is here:

(According to my mailer, the promotion ends 15 July, not June 30 stated on the website.)

A quick calculation shows that the annualized interest rate is roughly 3.4%, 2% higher than SIBOR.

This is certainly enticing to me!

The interest accrued is actually $150 upfront. If you have read my stretch your dollar series
here, I have planned to use $1000 to pay my starhub bills in advance, together with my usual definite expenses. In this way, I can get a 10% rebate of $100. Now, even if I just leave $9000 in the fundsupermart cash fund for 6 months, at a conservative yield of 1% PA, I can get back $45 after 6 months. Which means the cost of borrowing is only $5 for 6 months!

Of course I still have to pay back a minimum sum of 3% (roughly $300) per month for 6 months before the 18% PA interest rate is reverted. Hence the borrowing cost is at most $10 for 6 months.

What’s the plan now?

I am actually planning to use the $10,000 this manner:

1) $1,000 for advance payments to obtain cashback of 10%
2) Invest $9,000 into Singpost before XD. In this way, by December 2008, the total dividends I have collected will be 5 cents per share, yielding roughly $450.

My total gain will be $550. After interest deduction of $150, my yield will be $400. By December I will be able to repay the remaining amount of $8200 (estimated) as my year end bonus is usually above $10,000.

In a way, I see it as advancing my year end bonus to invest into Singpost business now.

However, my current credit limit is only $8000, based on my payslip 2 years ago. Hence I need to send them a written mail and latest payslip to “upsize” my credit limit.

I hope they can increase my credit limit to $10,000 in time or else I will not take up the fund transfer promotion at any higher rates.

If I get lucky, I can win an Audi R8 too! Though I will definitely put up for sale to buy more Singapore Blue Chips!


crystzal said...

Very interesting analysis. Do keep track of money borrow from UOB and return on time, else will impose penalty.

Why you choose to buy singpost? I never buy any share b4. 9k will be able to buy how many lots?

Take care

Sgbluechip said...

I will likely to top up another 1.1k to buy 10 lots. Singpost is a stable business with quarterly dividends payout.

The foreign population of Sg is increasing and Singpost is likely to benefit from mail, logisitcs and remitance services.

How many letters do your family receive each day/month? Is it increasing?

crystzal said...

Yup a lot of letters in mailbox. I like Singpost coz used to collect a lot stamps....It has the monopoly.

Is 10 lots the minimum requirement to buy ? If 5 lots can still buy ?

Good weekend

Sgbluechip said...

Yes, you can buy a minimum of 1 lot or 1000 shares. Check with your broker on the brokerage payable for 1 lot and 10 lots.

Jeflin said...

SingPost is a very stable stock especially in a volatile market. They have good dividend payouts of 5% but it usually trades within a narrow range.

crystzal said...

Thanks bluechip. I will go and find out more... :O)

Jeflin thanks for the sharing too.

Apreciated too.

PanzerGrenadier said...

Your Singpost share price may tank ex-div, especially if some bad news comes quickly after that date that results in a capital loss on paper for Singpost shares.

But generally, it does trade in a narrow range and is relatively defensive. But even defensive counters can tank e.g. if Dow Jones is down by 200-300, almost all blue chips still get affected to some extent.

Be well and prosper.