Earn one million dollars (in 6 years time)

A reader pointed out that it is nearly impossible to turn my $350k portfolio into $1M in 6 years time as I would need an annual compounded return of 19.1% to reach that amount.

(Snap shot of my 360k portfolio invested funds from my trading platform)

Am I being unrealistic?

To be honest, I could possibly set an impossible target judging from current circumstances, as most people think. However, to put things in perspective, perhaps there is a way (at least theoretically) to meet the target.

As a portion of my portfolio consists of CPF stocks as well, the following calculations will be based on CPF investment returns and reinvestments.

Considering I earn $80k per annum now. I spent approximately $24K a year, or $2000 monthly. I have a remaining $56k for investment.

My dividend income amounts roughly $20k a year. Thus, I have about $76k for investment. To be conservative, I put the figure to be $66k. Hence I have $10k for CPF contributions to Medisave and Special account and other off budget spending, that cannot be invested.

Assume it is year 0 on Dec 2009.

Hence from year 1 to year 6, I have $66k for investment into my $350k portfolio every year, till 2015.

Question 1: What is the annual compounded rate of return do I need for my portfolio to hit my target of $1M by 2015? ($66k invested in year 1, compounded annually (7.1%) for 6 years will have a value of $99.6k in year 6)

Answer: 7.1%

To attain this figure it means that I reinvest $20k dividends and at least $46k cash (and CPF) into my portfolio.

My assumptions for the above calculation are as follows:

I have the discipline to reinvest at least $66k (CPF+CASH+DIVIDENDS) into my portfolio from year 1 day 1.

My salary increment is stagnant from 2010. (It is in fact going to be higher, if I stay on my current line).

I do not experience catastrophic financial events (again) that would wipe out my portfolio and bring it back to starting point. (No snakes and ladders game again please, I got a weak heart)

Question 2: Assuming I have the discipline, but due to my limited ability returns yield only 5.5% compounded return. (i) How much will I have at the end of year 6? (ii) How long will it take to hit my target of $1M?

Answer: (i) $937k at the end of year 6 (shortage of $63k); (ii) 6.54 years (takes roughly 6 months longer)

Not a bad plan actually! My current portfolio is giving a decent dividend yield of $20k per year, consider I have bought ARA, Suntec, Fortune Reit, SGX, HL Finance, Starhub over this year. My trading income has also given me a decent return. Hence, at least for this year, I would earn a minimum of $20k dividends (and trading income).

The good thing is that I only need to set aside $66k per year to reinvest into my existing portfolio. My dividend income and pay will rise and I will be able to enjoy a higher standard of living. Hence I do not assume that inflation is non-existent and standard of living remains constant. In fact, I may be able to get married and still achieve this target!

Question 3: However, consider my Singapore centric portfolio, then what is the anticipated Straits Times Index in year 6 (2015) for my portfolio of stocks to be worth $1m?

This is probably the most difficult question to answer. If I assume that STI returns an average of 7.1% from year 1 to year 6, this means that it will have to rise from 2700 points to 4074 points from 2010 Jan to 2015 Dec!

However, as my strategy (philosophy) here is biased towards dividend income investing, I would only need to invest in stocks that pay 5.5% dividend yield and 1.6% capital appreciation annually. Hence, STI may hover at the region of 3500 points in 2015, but my portfolio may have already exceeded $1M.

Hence, I do think that having a million dollars in 6 years time is (remotely) attainable.

That said, we often plan with caution, execute with confidence and the rest is up to fate. I am 35% done with the journey. Please follow me through.

If my advertisements are of interest to you, please follow them as well. It will be a good catalyst to my financial journey.

How to withdraw money from your paypal account

As my readers have realised from my right column bar, there is an advertorial "Money for your website". Websites with google page rank more than 0 and are willing to earn money from ads will receive upfront advertisement payments from my company. No meet up is required and we pay in US$. I would like to demostrate simply how to withdraw funds from paypal.

Step 1: Log into your paypal account

I have just withdrawn money, so the balance is 0.

Step 2: Go to "withdraw funds"

Step 3: "Click withdraw funds to your bank account" and you will end up below:

Lastly, fill in the amount you would like to withdraw and click "continue". It is ok to fill in in which ever currency you had received in the first place. Paypal will automatically convert it into your home currency. However, the exchange rate may be poor. A spread of 2.5% was taken from me!!! The indicative fx rate on fxstreet was US$1 to SGD$1.39. Look at what paypal charged me:

Do take note that any withdrawal amount lower than $200 will be levied a $1 admin charge. I hope this answers to the many email queries on payments on USD and Sing dollars withdrawals. That said, paypal is still quite efficient in handling money and I have called them on their Singapore hotline for some money matters. The money will be credited into your local bank account within 5 working days.

Jason Marine IPO

I seldom blog about IPO as I have never made money from it. Usually company owners who want to sell their business will weave a compelling story to entice people to invest. If I own a company that is really profitable, I would need an offer that I can't resist before I sell it. I will never sell it at fair value. Hence, I never believe in get-rich talks because if I find a gold mine, I will not tell anyone about it until it is empty.

However, the IPO market can rarely be predicted using fundamental analysis. Based on my observations on current market sentiments, the IPO launches for the first day are largely positive.

Considering the outlook for marine sector is looking up, Jason Marine may have a good run up on its first trading day.

As my faithful readers will know, I never have any luck making money from IPO. One of my major mistakes in investing IPOs is holding them for too long without any cut loss strategy in place. Hence for Jason Marine IPO, I will sell it on its debut trading day, be it at a loss or profit. Since it only costs $0.21, 10 lots will cost a mere $2101 including $1 admin fee if you subscribe over ATM.

However, there are only 500k shares for public up for grab, 15.5m shares have already been placed to institutions. Chances of being allocated the IPO are rather low. Personally, I feel that there is a good chance to profit from the IPO from the first day, though this view is made purely without any fundamental analysis.

Post dated: Jason Marine soared on the first day of IPO to 40 cents. Currently it is last traded at 41.5 cents. That is a whopping 98% return!!

Flash update on SPH Financial Year 2009 Results

Full year profit: $422M

Net profit down 3.6% from 2008

Group operating revenue: $1.3B (largely unchange from 2008)

Final dividends: 18 cents (total 25 cents for FY 2009)

SPH paid 19 cents final dividend in 2008, (total 27 cents in FY 2008 and 26 cents in FY 2007)

DBS 1% Unit Trust Sales Charge

DBS Unit Trust Sales Charge has been publicized widely recently on papers. This is 50% cheaper compared to the 2% charge by online portals and financial advisors. Moreover, financial advisors, especially independent ones quote a wrap fee that demands their clients to pay 0.5%-2% of their asset under management (AUM) annually. This is a hefty charge, considering a 1 million portfolio, you will be paying $10,000 (1%) to your financial advisor yearly, even if your portfolio is underwater, losing 10% annually. Also, the wrap fees force sells your best performing unit trust (even if it is in the red) to pay for the management fees quarterly.

Hence, engaging such portfolio advisors will mean feeding them as long as you live. Unless your advisor can earn you over and above the market expected returns of 8% per annum, you will be better off investing on your own.

As soon as I read the advertisements, I went over to Fundsupermart to search for good DBS fund house deals. One of the funds, DBS Global Properties Securities Fund caught my eye. This fund invests in REITS around the world and pays out quarterly dividend (in units) regularly.

Below is the payout history:

At current price of $0.60, investors will be able to get a decent yield of 10% and diversify into global property equities and ride the property recovery market.

I do not know how good the fund is, but it may be a good deal for investors looking for a potential place to park their CPF ordinary funds.

I have written once on why I do not like Unit Trust here, but this fund may change my perspective.

I might just invest $5,000 CPF money for some global exposure to the property market.

The future of Starhub after losing EPL

Starhub lost the broadcast rights of EPL, ESPN, STAR Sports and STAR Cricket last week which explains the huge plunge in its share prices. It was down from $2.16 to a low of $1.94 on Friday before rebounding to close at $2.

Is there any future for Starhub?

Starhub is known for paying hefty dividends over the years and at 18 cents dividend per share, the yield is at 9%. Considering its bottom during the crisis was $1.76, $2 seems to be rather attractive buy for a yield and recovery play.

To put things in perspective, cable TV accounts for about 20% of Starhub’s revenue. It has about 550,000 pay TV subscribers and it is not known how many families actually subscribed cable TV purely for soccer.

Reports over the weekend showed that many subscribers and soccer fans will be hanging onto Starhub even though EPL can only be watched on Mio TV. Of course, the reports can be biased as we do not have the actual numbers or expected churn rate.

Personally I feel that losing EPL is a prelude to more losses of TV subscribers to Mio TV. As much as I do not like Singtel, I cannot help but to admit that Singtel has the full financial muscle to boot Starhub out of the cable TV market altogether.

Now that Singtel has committed a large sum of money for the EPL, it is only a matter of time before it competes with Starhub on Discovery, HBO, Animal Planet and other premium content. (Not to mention the 2010 World Cup will be another bidding war highly anticipated by market watchers.)

If the worst case scenario materialised, Starhub will be at the deep end of the water.

Starhub might be its victim of its success of bundling the 3 services into discounted packages. Now that Singtel can do the same, Starhub will need to spend more on marketing, retention and content to remain a market player.

The question is, can it afford it at all?

Starhub nearly pays out all of its operating profit as dividends and I have once questioned its ability to sustain its dividend policy here.

Based on its 2H 09(distressed) balance sheet, Starhub’s current assets stands at 500M versus its current liabilities of 695M. It has a long term loan of 842M, but has only cash balances of 237M. Starhub is easily the highest leveraged Straits Times Index component stock and telco in Singapore.

Given its distressed balance sheet, Singtel has chosen an apt time to enlarge its cable TV market share well. Singtel obviously know that Starhub will be mindful not to engage in a price war as it might not be able to get funding after all. With strong ammunition to target Starhub’s wobbly defence, how long can Starhub sustain the cut throat competition?

I estimate pay TV accounts about 80M of Starhub annual profits (given its 400M revenue). This translates to about 4.7 cents per share earnings. It is not a clear cut of losing 30% subscribers to Singtel translates to 4.7cents less 30% as Starhub might lose other subscribers of mobile and broadband to Singtel as well (double edge sword of bundling strategy). Hence, the repercussion effects are high and difficult to predict.

The only way for Starhub is to lower its pay TV rate, acquire customers on longer contract periods and treat loyal customers like me well. It has to look beyond its current marketing model and rethink its strategy to keep its subscribers base. Once Starhub loses its subscribers base below a critical level, it will be burning cash for its cable TV business. Then, it will need to give up everything to Singtel and compete on level grounds with M1.

That said, for the next few quarters, up till 2011 Dec, Starhub will not lose out much of it subscribers as it has strong followers for its Education, Entertainment and Infotainment package. HBO, Star Movies, VV Drama are staple TV for many, especially foreign families. I do not think that family subscribers consist only of soccer fans. For existing subscribers of cable TV, the content is largely part and parcel of life and EPL is only the dessert for one or two soccer fans in the family.

However, I still think the future is still bleak for Starhub unless it changes its pricing and marketing strategy. There are so many things it can do to turn the situation around given its large retail presence. I do hope it can fend off Singtel’s cash burning strategies.

Selecting a gym membership with swimming pool

Due to work and studies commitments, I have become rather unhealthy, as I sit on the chair for long hours without knowing and moving. Hence, I decided to look for a gym membership that would best serve my needs.

Basically, I would need a gym membership that is near my workplace or home that comes with a swimming pool. I intend to spend 45 minutes to an hour each time.

My budget is only $40 monthly.

One reputable gym got back to me and offered me a promotion: 36 months of gym membership (all gym access with pool at Suntec) and 6 months free, together with 3 complimentary sessions of workout with a personal trainer. It costs an average of $48 monthly. The only drawback is that I have to commit for 3 years at one go and the pool at Suntec is quite far (though within walking distance) from the gym.

Another gym membership costs roughly twice the price but there is no “lock in” period. It also comes with an integrated pool beside the gym but is too far from my workplace. Besides, it is way above my budget.

Registration fees were waived for the above 2 gyms.

I enquired on the SAFRA (Energy First) gym package and was appalled that it costs almost $60 per month after registration fees and monthly fees were factored in. If you have been to SAFRA gyms, you know it is only a slight tad better than the community sports centre ones.

The SAFRA membership was given by my company and we sometimes conduct our meetings there. My only impression of the facilities and environment is “minimalist” theme and a heaven for teenage kids. The bowling allies and pool centres are remembered to be packed with teenagers in the afternoons. However for less than $4 a month membership and an additional 7% off caltex petrol, I do not expect the sky.

After much consideration, I decided to go for the cheapo and convenient way of signing up for my community centre gym instead. It costs me a mere $10 monthly and comes with a treadmill and a few weights machine. It is only a 5 minutes walk from my home and this translates to savings on car parking and time. I will go for a swim in SAFRA clubs twice a week (which is free for members) and hit the treadmill twice in my community centre for 45 minutes. The drawbacks are it can be rather crowded in the evening and some people there can be boorish and vulgar. Not recommended for ladies though!

Hence my total cost for the healthy lifestyle cost a mere $18 a month inclusive of parking fees. Not bad for 4 workout sessions a week. The good thing of spending way below my initial budget is that I do not feel pressurised to go the gym or pool as my “sunk costs” are low. Even if I reduce the frequency of the exercises by 50%, I do not feel wasteful as I got a pretty good DIY hybrid deal.

Healthy lifestyle, here I come!