Multiple Sources of Income

The problem in Singapore's school system is they do not teach financial literacy and entrepreneurship. In the past, it was about rote-learning, trained in a specific manner to gain employment in accordance to the demand and supply of the nation.

Why do we need Multiple Sources of Income?

Never place all your eggs in one basket and employment has shifted from iron rice bowl to present day contract work. Even though your contract with your employer is a permanent job basis, your work is good as your last. The harsh reality is for PMET (Professional Manager Executives and Technicians) to face a more challenging landscape to gain employment when their age hit 40 and beyond. Due to globalisation, you will be competing for jobs with the world. Jobs here today may become obsolete in a few years time.

Currently, most of the employers in my industry is shifting to Kuala Lumpur in Malaysia. This spells for disaster in a few years time. By then, I will be in my early 40 and maybe considered obsolete by others.

Instead of whining, I need to use my present income and resources to create other sources of income.

1st Source of Income - Investment

In my previous post, I have already mentioned from my portfolio, it will create two types of investment income. The first type is dividend income. The second type is capital gain income. This is on the basis that your stock price goes up and you can sell your shares for a higher value. I am still learning about investment, reading up on books and attending courses.

2nd Source of Income - Residential Rental Income

Rental Income can come from the extra room in your house which you can rent out for $600 per month or you can leverage on a second house and rent it out. There are a lot of factors to consider, extra stamp duties, rental income taxation, whether your rental income covers bank interest. Currently, the SIBOR is increasing and rental income is decreasing. I will look into this aspect 

3rd Source of Income - Internet Business

The biggest advantage of starting a business online is it's incredibly cheap. It gains access to wide audience and create scalability in your business. This is a source of income which I am trying to understand and venture into.

4th Source of Income - Coaching/Consultation
Do you have an area of expertise? You can probably use your area of interest and expertise to provide coaching to an individual, to groom the person and help him to maximize his potential. You can provide consultation to a business and provide consultation services to help the business grow through marketing, lean in processes and set up systems to be efficient.

Conclusion
The above sources of income are brief introductions and there are many paths to Rome. The bottom line is time and tide waits for no man, many of my friends took the leap of faith and pursue their passion. I am still hanging on to my comfort zone which will soon cease.

My Investment Journey 2015

It is another year which I have remained invested with aggressive approach, putting all my money into the stock market. Through trading, I understand the greed and fear in me. There was a trade on ThaiBev which I took an leverage position which was beyond my comfort zone and the market went in the opposite direction. Furthermore, I was outstation in Vietnam during the transaction. I knew that I do not have the capability to buy the shares, it was just a trade and time was against me. I was terrified, selling my SGX shares to acquire the shares of ThaiBev.

I experienced a valuable lesson during the China market crash. I was monitoring CSOP A50 ETF 2822.HK when the euphoria sets in. All the aunties and uncles were buying the shares and suddenly the law of gravity kicks in. The shares were falling and I went to acquire a falling dagger, hoping that it will bounce back up. I acquired with every drop in 10% until I ran out of ammunition. Then I tried to sell whenever it recovered more than each drop. Thankfully, I made slight profit from this. The lesson learnt is you can never buy in exactly at the bottom. I believe in discipline in investing as well and you need to have the vision to believe in what you are doing is right.

I was naive as well, listening to my stockbroker that the stocks will forever go up. His advise was to add more to the holdings. Nevertheless, the PE and valuation of the shares in Singapore is low. Now I believe that when I do my own homework and I am convinced of the business, I will not regret or blame others. I will blame myself only. I studied the financial statements of Prada 1913.HK and convinced to acquire the shares at $33 and subsequently at $30. Currently, the share price of Prada is $23.95. 

My current dividend income from my portfolio is a total of S$17,425 as seen below. 

Currently, I only have this path of passive income. I need to create multiple sources of income.

The path to financial freedom is amidst lots of challenges and I forecast that a passive income of S$100,000 per year is required for the family to achieve financial freedom. Probably, I need to scrutinize and reduce the expense drastically to achieve financial freedom earlier in life. Probably to live simply.

Supplementary Retirement Scheme (SRS)

I met up with my financial planner who is professional in his advise and planning which is different from those who I met in past. 

Today I am going to discuss about Singapore Supplementary Retirement Scheme (SRS). The SRS is Singapore government's strategy to address the financial needs of a graying population. SRS is voluntary unlike the CPF. The contribution can be used to purchase investment instruments. Contributions to SRS will enjoy tax relief, 50% of the withdrawals from SRS are taxable at retirement. SRS account is deemed closed at the end of the 10th year of withdrawal period. Any returns from investment through balance in SRS account after Deemed Withdrawal has applied will be taxed.

For 2011 to 2015, the yearly maximum SRS contribution is $12,750 and from 2016 onwards, the maximum contribution will be at $15,300. The strategy which I am thinking of adopting will be to accumulate a maximum of S$400,000 at the age of 62. Then I will draw down $40,000 per year. As half of the amount will be taxable and the first $20,000 will be tax free or 0% tax. From the taxation point of view, with the contribution of SRS will help me to save approximately $1,000 on tax. I can use this contribution to invest on a high dividend stock and grow my tool for retirement.

Below is some illustrations of the calculations:

First $80,000 - $3350
Say next $20,000 - 20000 x 11.5% - $2,300
Total tax = $5,650

If you contribute to SRS
First $80,000 - $3350
Next $20,000 less $12,730 = $ 7,270 (If contribute maximum amount to SRS)
This tier will be subjected to tax of $7,270 x 11.5% = $836.05
Hence total tax now = $ 3350 + $836.05 = $4,186.05

I will contribute to SRS if I still have this happy problem next year. This year is a blessed year, I will enjoy tax relief of $5,000 from my newborn. I need to save up on my emergency fund of 6 month expenses. I did a forecast, this will be achieved by June 2016. This forecast amount will allow me to clear my existing short term loan. Furthermore, this is assumed that I do not throw any more fund into the stock market.

The Three Stages

I was reading the newspaper yesterday and the chartist exclaimed that Singapore stocks is experiencing stage 2 bear market move and this could last more than 6 years. I got curious to understand about different stages of market.

Firstly, there are two type of movements - primary and secondary. Primary movements represent the general trend of the market which will last for few months to years. Once the primary trend is in place, it will remain in place until a counter trend take over. Daily fluctuations can move with or against the primary trend.

Secondary movements are reactive. In bull market a secondary movement is correction. In bear market, secondary movements are reaction rallies.

There are three stages to both bull and bear markets. 

Stage 1 of Primary Bull 
The first stage of bull market is indifferent compared to bear market. The market sentiment is pessimistic. The news in the market is bad and valuation is cheap. At this stage, the smart investors will start to accumulate stocks. They want to own the stocks in the long run. Stocks are cheap when nobody wants to buy them. 

Stocks have reached a bottom and the price momentum starts to slowly build up.When the market starts to rise, there is widespread disbelief that a bull market has begun. After the first leg hits high and starts to go down, the analyst will say that bear market is not over. If it is a secondary move, then the low is above the previous low, there will be consolidation before an advance will begin. When the leg passes the previous high, it marks the beginning of the second leg and primary bull run. This is the stage of accumulation.

Stage 2 of Primary Bull
This stage will be the longest and there will be great advance in prices. The business sentiment is dovish and stocks will increase in valuation. Earnings will increase and overall confidence level will rise.

Stage 3 of Primary Bull
This is stage of euphoria and speculation. During this final leg, the public is fully involved. When you see the everyday aunties and uncles asking you for the next hottest stock to buy, you know the top cannot be far. It is time to sell all your stocks and get out of there.

Stage 1 of Primary Bear 
Once the intelligent investors realise that the business sentiments start to deteriorate, they start to sell stocks. The public is still in the market buying more stocks. However, the market will start to decline. The media and public will still remain bullish. After a slight descent, there will be a secondary move which reflects the portion of the decline. The rally will be fast and steep. This movement will instill confidence to the public that the bull is still in control. The secondary movement will be lower from the previous high.

Stage 2 of Primary Bear
This is the longest duration in the bear market and usually mark by deteriorating business conditions in the economy, shortfalls will occur in firms, profit margins and revenues continue to fall. The sell off continues to persist.

Stage 3 of Primary Bear
By final stage of bear market, all seems to be lost, the public are moving away from stocks. The stocks become very undervalued, the selling continues. The news are always bad and market continues to decline until all the bad news is fully priced into stocks. Only when the stocks reflect the worst scenario, the cycle begins. 

Is Singapore moving into Stage 2 Bear market?