Cory Diary : Cash Flow

Shifting to a Cash Flow Mindset in Money Management

As I shift my mindset to focus on short term cash flow in managing my finances, it becomes clear that understanding cash flow generation as a whole is essential, especially considering that most stocks pay dividends.

This concept is particularly important for those who do not possess significant wealth that can be safely parked in savings without worrying about potential shortfalls. For retirees and many others, being able to cover bills, fees, and expenses is critical, especially as these expenses are expected to grow over time. Therefore, putting every dollar to work and allocating it according to different risk levels seems like an intuitive approach.

Where to Start

To begin, I can gather current expense estimates and draft a plan outlining various income sources to support these expenses. For instance, let’s assume an annual expense of $100,000. To clarify, the table below uses arbitrary numbers for simulation purposes. In this scenario, the total income is 54% buffer on the annual expenses. [ updated error ] 

However, if I increase my estimated expenses to $135,000, the revised table would look like this:

With this adjustment, I now have a buffer of only 14%.

Analyzing Expenses

This analysis provides a valuable guide for managing my expenses. I could refine my calculations by reducing the allocations for retirement and insurance since I typically won’t receive my first payout until age 65. Additionally, insurance policies may need to be surrendered to access funds.

There are various levers to adjust in this financial plan. 

The fundamental idea is to continuously monitor and improve one’s financial situation while also maintaining motivation throughout the process.

If my planning goes exceptionally well, I might even consider including my spouse's expenses or other discretionary costs. If we find ourselves below our target income, we can optimize returns by reallocating savings or exploring other investment opportunities. The initial table heavily relies on equity and property incomes. As we approach age 65, additional pension streams will become available to us. However, there are always other options to consider as we navigate different levels of risk.

Conclusion

Adopting a cash flow mindset allows for better financial planning and resource allocation. By continuously assessing and adjusting our strategies based on our changing circumstances and goals, we can create a more secure financial future. 

Cory Diary

2024-11-25

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.

Cory Diary : How it happens - Retire Series

Reflections on Parenthood and Financial Planning

When my first daughter was born, we were overjoyed. It was an extraordinary feeling to witness a living being emerge from the love my partner and I shared—something that transformed my life from solitude to family. We were busy, but our finances were manageable. There was still a fire in my belly when it came to work, especially since it was pre-COVID—specifically, the year 2019.

The Decision for a Second Child

We decided to have a second child, Rui. However, this journey was not as smooth sailing as the first. We faced medical complications both before and after her birth, leading to rising medical bills and increased stress in managing our finances. Fortunately, I had been investing in dividends for some time, which, along with our jobs, allowed us to manage our expenses exceeding $130,000 annually.

The Challenge of Time

The hardest challenge we faced was time. Money often became a means to buy time, which we realized was incredibly important. Soon enough, we noticed that Rui's development was lagging behind her peers by one or two years, despite the care she received. We recognized that she would likely need more attention and support before entering primary school.

I hinted to my boss about any potential retrenchment packages, but there was no budget allocated for such initiatives. Eventually, significant organizational changes at the management level created opportunities for layoffs funding this year. Thankfully, I am qualified and given Early Retirement instead, which comes with much larger compensation.

Early Retirement

Over the years, I have simulated various asset and portfolio scenarios to support this decision. I started with achievable lower goals and gradually increased them as I refined our strategy while working and watching our children grow. Despite my previous efforts to calculate the amount needed for retirement, I found that it was never quite enough mentally. One just has to bite the bullet and take it. The rationale is simply that my children are growing up and my age cannot wait. I do not want to miss their growing-up period too.

Now that Rui is four years old and with limited time on our hands, I conducted yet another rough financial analysis based on the proposed early retirement package. Interestingly, I may also qualify for additional pension benefits due to a long overseas assignment. While it’s not a substantial amount, it could help offset local taxes.

Financial Position

Today, I believe with confidence to be a point where I do not need to draw down from my portfolio assuming my expenses stay at the current level including inflation. Same time I've reduced risk levels in the stocks I've chosen and increased my fixed income investments as an emotional buffer. Managing my housing loan effectively has provided leverage without becoming a burden; I've calculated this based on cash flow principles.

A crucial aspect of our financial strategy is that my partner is still working and has her own savings. This gives additional peace of mind. While I cover most family expenses, she manages her basic needs and occasionally contributes financially. This arrangement works well because I want her to build her long-term insurance savings for added emergencies.

Financial goal calculation is a moving target to start with. For instance, I initially targeted an annual investment income of $48,000 in my early years and later pushed that goal up to $60,000 or more in stages. To expedite this timeline, I implemented a plan for drawing down from the portfolio while also maximizing contributions from CPF (Central Provident Fund), pensions, and fixed income investments. 

Recent increases in rental income have also contributed positively. Although not all strategies were easily implemented or successful, starting early with saving and compounding made a significant difference. As we finetune the plan, we also make the bar higher when possible such as allowance for larger expenses or add inflation buffer. ( link on calculation )

Supporting Family

While it may be a taboo subject for some, I think it is important to share this as it can also be part of the critical equation when it comes to retirement. We do not hope to leave anyone behind. I have always contributed significantly to supporting my parents since my single days—a practice that continues today which I have refused to cut so far.

Fortunately, if necessary, I could reduce this support without significantly impacting their well-being; however, this would be a last resort as they are now advanced in age. There are not many years I am allowed to provide them.

Cory Diary

2024-11-16

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.

Cory Diary : Portfolio Management Update

Democrats have suffered a shocking defeat. The concerns I have heard include illegal immigration taking away low-income jobs and depressing local wages, the unfairness faced by legal immigrants who waited in line, and the increasing number of Americans on food stamps in modern America. Many of them probably live worse than those in many developing countries. The numbers are staggering in modern America. Thoughts they should do better with Democrats for the past 8 years but it doesn't seem so.

It looks like Donald Trump has a significant amount of work to do to address this segment of the population. He has his hands full and will likely be quite stringent on foreign policies due to mounting national debt While keeping American employed. The well known concerns today are Inflation Increase which will impact Interest rates.

With this knowledge, we will continue to pursue allocation in the U.S. of strong global businesses to capture some growth for our portfolio. With limited knowledge of the U.S. stock market, I will continue to focus on just a few obvious key stocks that have a strong moat and are large corporations in the S&P500. The recent uptick has put all U.S. stocks in the blue finally ( Picture 1 ). This could easily turn red, but the current expectation is that it will grow more blue until year-end. How blue? No idea.

Pciture 1 : US Stocks P/L YTD

On the local front, banks continue to report strong results unabated despite lower net interest margins (NIM). Net interest income (NII) and other earnings continue to drive profitability across all banks. There are no clear signs of weakening. As our allocation is quite significant, I have done another round of rebalancing, reducing bank allocation back to 40% on this recent run-up. REITs encountered a steep dive in price, and this is where most of the raised funds went.

There are multiple adjustments that I will not mention here. Picture 2 is the current allocation.

Picture 2

With current high allocation in FCT, decided to add another counter CICT for more dividends and diversification. Delisted the investment account counter from the chart to make space for it. Adding another low growth REIT stock is defensive move.

Currently Equity Portfolio YTD performance as follow ( Picture 3 ).

Picture 3

The STI did better when we include their dividends, but I am happy with what I currently have always if the result is always that. The banks may still have some runway as they are above 5% yield. DBS's share buyback will likely mitigate on reduced dividend distribution fatigue in the future. So while they are going to buy at a higher price, this process makes the dividend even more sustainable. The price-to-book (P/B) ratio will theoretically go up if net tangible assets (NTA) remain stable; however, I doubt it will be much, if at all. The focus on banks remains on yield and payout ratio sustainability. 

In conclusion, the recent developments in the political and economic landscape underscore the importance of a well-considered investment strategy. As I navigate uncertainties, my focus remains on building a resilient portfolio that prioritizes stability and growth. By strategically reallocating assets, emphasizing strong businesses with competitive advantages, and diversifying my holdings, I aim to safeguard my investments while pursuing opportunities for returns. Ultimately, these decisions are driven by my commitment to achieving peace of mind for myself,  ensuring that I am well-positioned to adapt to changing market conditions and capitalize on future growth prospects.

Cory Diary

2024-11-09

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.

Cory Diary : Review Sheng Siong Business Update

Before I started the review, I trimmed my position to right-size the allocation after the recent run-up prior to the Business Update. Personally, I maintain a sizable position in Sheng Siong to receive reasonable dividends and provide an added buffer for the stability of my portfolio. I still hold a sufficiently large position today.

Margin

Sheng Siong's gross margin has been steadily increasing, now exceeding 31.3%. The net margin is at 10.8%, which has also seen an increase. Basic EPS reached 2.6 cents last quarter. Trading at $1.60, this translates to a 6.5% earnings yield on an annualized basis, although this may be slightly lower in practice due to the earnings cycle. However, I suspect some of this could be cashless and might enjoy a premium if they decide to sell their properties. I could be wrong about this, but it won't significantly affect my outlook as I consider it a bonus.

Currently, the annualized dividend yield is about 4%. Compared to alternative investments, this is not particularly impressive since higher earnings and dividends can be found elsewhere, albeit with much higher risk. Therefore, my allocation is always managed to outperform fixed deposits or T-Bills. Since these are not capital-protected investments, there is inherent risk that must be sized appropriately for my situation.

China

On the China front, they reported a minor loss, which I find interesting. In the near term, I do not expect much of an earnings catalyst from that region. Conducting business there is likely challenging for supermarkets, and if the market turns unfavorable, it could be quite detrimental. This is something to monitor closely.

Lease back and final thought

Another point to note is the separate acquisition announcement and leaseback by DFI, which could provide a regular boost to income. Sheng Siong is one of the few rare companies in the SGX market where I can sleep well and earn something; however, we cannot become complacent.

Cory Diary

2024-11-02

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.