Added $1,500 to DBS Enhanced Income Fund

I just added $1,500 into the DBS Enhanced Income Fund. Is this because I am cautious about markets, given the shifting of some hot money from Asia markets back to US markets? No, it’s for a very different reason. I am using the DBS Enhanced Income fund as a savings fund for a relatively short term goal. I will be shifting at the end of the year to my new home. It’s a condominium in Bishan that has been under construction. Its expected to TOP sometime this year (rumors say end of 3rd quarter). We will likely make our big move near end of this year.

So, I have got one year (or slightly) less as a time horizon, and I need to set aside some money for it. Now, I could do two things. I can either invest whatever I save as per normal, hope that markets are to shoot up by the end of the year, and liquidate whatever I have to only at the end of the year, at the time I need money for stuff like renovation, furniture and things like that. Or I can setup a fund which is low risk, very stable, but at least still delivers a return better than the 0.1% that savings accounts gives right now.

I choose the latter. Not because I don’t believe this year is a bull run year (I do). But nothing is for certain or guaranteed where investments are concerned, and the problem is, the timing of my move is more or less fixed. There could be any number of factors which delay a full blown bull run this year. Sometimes, an unforeseen crisis crops up, and it could keep markets down for a couple of months. For most of my portfolio, it’s not an issue. If fundamentals haven’t changed, then I won’t shift anything at all. But for this case, the goal is not a movable one (not unless the developer runs into significant delays in completing the condominium). I can’t very well tell my family.

“Sorry, markets are still down, I am waiting for that best time when they have surged up, before I sell some of my holdings, and in the meantime, we are staying put!”

Well, I could say that, and then end up being consigned to sleeping on the sofa for the next 3 months, not to mention having my family all lose respect with me. So, generally, it’s not an option.

Taking the risk and just selling out of market regardless of how they are at that point is not very advisable either. I learnt a harsh lesson about this myself back in 2008. It was May 2008, markets were falling, but haven’t quite crashed through the floor yet. We were then already looking out for a home purchase in Bishan area, but hadn’t committed ourselves to any one particular property. I was in the process of trying to convince my wife that we should just wait until 2011, the year before our son goes to primary 1, and just buy a resale property then.

But we came across a new condominium launch in Bishan (which was so rare, we absolutely had to check it out). And they loved it, and one thing led to another, and suddenly, I found myself putting in a deposit on the property. And buying a property is supposed to be one of the biggest financial decisions that most people make in their lifetimes. (At least the amount of money it involves would make it so).

Once you make your deposit, the subsequent payments soon follow. And so, I found myself selling out of many of my funds at exactly a time when markets were falling, and I was actually quite unwilling to do so. In hindsight, it turned out alright, because after I sold out over $90,000 worth, the market crashed even more. But who knew then? In any case, now I know that if I am going to make a big capital commitment sometime in near future, then it’s safer to put it in a low risk type of fund that isn’t going to crash 40% in a global market meltdown.

I could probably be forgiven about the house purchase thing, since I didn’t know my family was going to fall in love with that condominium and we would end up buying a property 3 years before we actually planned on moving. But now, with the property nearing completion, if I make the same mistake one more time, then I deserve to sleep on the couch for the next 3 months!

So, I will likely be putting all future contributions this year into the DBS Enhanced Income fund, which is only just slightly higher risk than a savings account, but with a return that is more than 10 times higher. Up till the point when I need to use it for renovation, moving, furniture, etc. If the market goes up, like I believe it would, would I be sorry? No! Because I already have monies invested. So, let’s remember not be too greedy here. And if things turn out differently, at least I wouldn’t need to sell my existing holdings. The DBS Enhanced Income fund won’t be affected one bit by how markets are doing, and I can safely sell that at the end of the year with no qualms what so ever.

Depositing my children’s Ang Bao money

Happy Chinese New Year! Most of the visiting is over. My kids, being the responsible, sensible children they are, took all the red packets (Ang Bao) they received, and gave it back to us so that I could save and invest it for them. (In truth, they are still at the stage where an Ang Bao is just a brightly colored red packet which is good for only a moment’s entertainment before they are glad to dump it on mum to get rid of it.)

Anyway, so after tabulating their monies. I invested $500 in unit trusts into each kid’s Fundsupermart account. As I look at their holdings, I can’t help feeling just a tinge of envy. Wow, kids these days are rich. They have thousands of dollars kept in trust for them by their parents from gifts, ang bao money, and in my case, investment returns to compound it as well. My son, who is five years old, going on six has made a $1,835 profit on his portfolio. My daughter, just two years younger, also has a $957 profit on her portfolio. I calculate that with what she already has, even if she only gets $500 from ang baos every year into this account and nothing else, but assuming it grows at an annualized 10% per year, she would have $62,000 by the time she hits 21 years old. Wow, that’s a very big sum of money to have when you have just started working. I am going to have to make sure I teach them both the importance and value of money so that they don’t just recklessly spend it all the moment I hand it to them.

While my kids continue their own journey through life, the good thing about having an investment savvy father, and being at their young age is that they aren’t going to aware about the volatility in markets, nor would they care. (They are more interested in playing their mother’s iPhone.) Which is just as well because some investors would have been alarmed by the recent unrest in Egypt. The entire middle east appears to be seething with instability, and given the amount of oil in the region, not to mention the potential violence that can be unleashed there if things get out of hand, its no wonder investors are turning a worried eye there. Yet, the odd thing is that markets in Europe and US have been surprisingly buoyant despite all the alarming news coming out of the middle east. In Asia, despite strong economic growth in general, concerns over China tightening, and some fund flows from emerging markets back into US and developed markets have seen some sell down in Asian markets.

US is in an especially interesting place now. It doesn’t have the kind of public debt problems that Europe has to deal with, nor is there any danger that the US currency can crash or break apart (its too important are irreplaceable at this stage to go down that route). Yet, valuations are not considered too high, and earnings are zooming away even as the economy shows clear signs of recovery. If you haven’t got any exposure into US, then for the sake of diversification, it makes sense to consider getting some.

Despite my optimism on the US market, it doesn’t mean I have turned negative on Asia. If the largest economy in the world gets on its feet and really starts to run, then that can only be good news for the global economy, and for Asia as a region as well, since exports would benefit from a strong global economy. Given Asia’s own economic strength, and with valuations still relatively cheap, I believe it’s a mater of time before Asian markets resume an upward climb again.

Middle East is a wild card at this stage. While China, and many parts of Asia’s tightening measures against inflation is well expected, and really shouldn’t be a cause of a major sell off. Investors heavily weighted in Asia need to be patient for now. There isn’t any fundamental reason why Asia should fall while developed markets rise. While the middle east is volatile still, the fact that markets like US, which arguably has far more to lose from the middle east blowing up than Asia have been rising rather than falling despite all the turmoil there happening there should be seen as a signal that at least from an investor’s perspective, things are not at a stage where they would have a fundamental impact on whether the US economy or US markets. And in that same vein, then the impact on Asia’s economy, and markets should be relatively muted as well.

Well, in any case, at this stage, my two children couldn’t care less about the Middle East, and the way I am investing their ang bao monies, I won’t let it affect me either. Their portfolio is very long term, since they won’t be touching the money until they are 21 years old. Hence, with such a long horizon in mind, I have chosen to place each year’s ang bao monies into just one equity fund to keep things simple. I am confident that over the long years, despite stock market’s ups and down, the general trend over such a long period will continue to be upwards, and thus, when they finally reach 21, I would be ready to hand over a sizable sum to them. I can then claim credit to have been a good steward of their monies (though in truth, I took the lazy way out and didn’t have to do much at all, ha!). I hope that time don’t arrive that soon yet though. They are very lovable and cute right now and I hope they don’t grow up too fast!