Saturday, July 30, 2011

Net worth update (July 2011)

Net worth for July increased by $1604.15. Total expenses is less than $200 and I managed to save more than $300 from my allowance. Also, remuneration from my internship and the rise in value of investments account for the increase in net worth.

 My internship has ended and I will be resuming my tuition which pays around $300 a month. I will maintain my current spending of $10/day in order to save an additional $200 from my allowance. This means that the cash portion of my net worth should increase by about $500 per month from now.

Sunday, July 17, 2011

Record breaking expenses

Total expenses for the past 17days is just $70.30. If I maintain my expenses at $10/day, my total expenses for the month will be a mere $210, allowing me to save the remaining $290 of my allowance. On top of that, I will be able to save 100% of my internship pay.

The application window for the government bursaries is now open. The maximum quantum of the bursary that I will be applying is $2900. This will be a substantial boost to my net worth if the application is successful. My target net worth by end 2013 is $70,000. If everything goes well, this target will be easily achieved. 

Saturday, July 9, 2011

Investing a million dollars

I have mentioned in my 'Me and my goals' page that I will accumulate $1 million by the age of 38 and let it compound at a 10% rate for 17 years till I reach 55 years old. A question that I always ask myself is how am I able to achieve a 10% annual return consistently for 17 years? There are 2 instruments which I can invest in, namely stocks and real estate.

Stock market
The stock market consists of different categories of stocks and funds which include growth stocks, blue chip stocks, real estate trusts, business trusts, shipping trusts, exchange traded funds, etc. Finding a particular stock which consistently yields 10% per year can be an arduous task. To play it safe, I would invest in an exchange traded fund(ETF) which tracks a particular index(eg. STI ETF). A strategy would be to invest a lump sum whenever the value of the ETF falls by at least 30%. This will give us a higher margin of safety and larger returns. A 10% return would then be much easier to achieve. As most people will be too focused on catching the bottom during a downturn, a 30% fall in prices would probably be a rough indicator that stocks are undervalued again.

Investment value at the end of 17 years(assuming 10% return) : $5,054,470


Another method to invest a million dollars is to invest in rental properties. First of all, I will set aside 20% for down payment of a $1.5million condominium(assuming zero contribution from CPF). I will also set aside an additional $100,000 for renovation and miscellaneous, which amounts to $400,000 in total.

If the monthly rental is $3,500(assuming constant), I will be able to clear $714,000 of the mortgage in 17 years using the rental income alone. Assuming tenancy rate is around 70% during this 17 year period, I will have to fork out $214,000 for the mortgage.

- Total mortgage remaining at the end of the 17year period: $486,000 (assuming rental rate does not rise over the years and zero contribution from CPF ordinary account for downpayment)
- Assuming value of property rises 5% per year(30 year annualized return of URA private property index at 6%/year), value of property at the end of 17 years : $3,438,027
- Investing the remaining $386,000 in stocks at 10% return(using the stock market strategy discussed above) over 17 years: $1,951,025

Investment value at the end of 17 years: $4,903,052

*To make the calculations simpler, I did not take into account that interest payments of the housing loan will make up a huge chunk of the mortgage and all calculations done above are based on the assumption that interest rate of the mortgage loan is 0%. However, do note that the interest payments have been factored into the underestimated rental of $3,500.

Friday, July 1, 2011

Cost of owning a car

Many Singaporeans start to own a car at the age of 27 or 28. They might think that they could well afford the car since the monthly installment is probably a small fraction of their pay (20%?). I will now try to break down the costs of owning a car:

Monthly car instalment : $700
Car insurance : $100
Petrol : $300
Cash card : $100
Season parking : $100
Total: $1,300

In contrast, the monthly cost of taking public transport is probably just $100

This means that one will be spending $1,200 more than a person who takes public transport. If the person who takes public transport were to invest that $1,200 every month at a rate of just 5% for 10 years, he would have accumulated $186,338. Given a dividend of 5%, his additional monthly passive income at the end of 10 years would be $776.

Target for July

My target for this month is to increase my net worth by at least $1000. 

I will save 100% of my internship pay and maintain my target of spending less than $10/day. This will enable me to save an additional $200 from my $500 monthly allowance. Also, I believe market sentiment will improve this month due to improving market sentiments and the bailout of Greece. Thus net worth at the end of July will be at least $34,342.