2024 Review, 2025 Preview And Bob

Another year, another step closer to our step-down age. Here I will share my views for the past year, my opinions of the coming year and an update on Bob’s portfolio.

 

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2024 Review

 

This year would be remembered as the moment when the dreaded I-words in the economy are coming down, after almost two and a half years since the United States (U.S.) Federal Reserve (known as the Fed) started to raise interest rates to combat inflation. Beginning with a surprise move of a 50 basis-point reduction in Sep 2024, the rate cut sent the markets skyward. However, just the week before Christmas, the Fed is signalling the possibility of lesser rate cuts in 2025 in anticipation of potential inflation rearing its head again, which caused a slight tumble in the markets for a couple of days.

 

Still, we are seeing a great bull run in the U.S. and local markets; the S&P 500 had seen an increase of +25.25% year-to-date (YTD) and the Straits Times Index posting +16.33% YTD¹. While the two markets are already on an upward trajectory this year, they are further boosted with the election of a pro-business U.S. president and administration in early Nov 2024.

 

HACK, IPAY & ICLN

 

Going forward in my yearly review posts, I will dedicate a section on the three sectors/industries that I espoused, namely cybersecurity, payment solutions and clean energy, using their represented exchange traded funds (ETFs) HACK, IPAY and ICLN respectively, which I am vested in. The table below (Fig. 1) shows the three ETFs, the YTD performance till 30 Nov 2024, and the compounded annual growth rate (CAGR) from 1 Jan 2018 (nominal and inflation adjusted), since it was at the 2017 review blog post (see here) that I had declared these three sectors to have potential.

 

 

ETF	2024 YTD (till 24 Dec 2024)1	Nominal CAGR (1 Jan 2018 to 30 Nov 2024)2	Inflation Adjusted CAGR (1 Jan 2018 to 30 Nov 2024)2
HACK	+25.11%	+13.43%	+9.45%
IPAY	+27.45%	+8.70%	+4.90%
ICLN	-25.50%	+5.54%	+1.84%

 

Fig.1: YTD and CAGR nominal and inflation adjusted returns of HACK, IPAY and ICLN

 

2025 Preview

 

We could be entering into uncharted waters not just in 2025, but also in the years to come as more geopolitical factors are at play. The world is clearly dichotomizing into two sides of various degrees, with very little room for being in a pure neutral state. Globalization may be dwindling, with autarkic tendencies coming in the form of country, region or even political bloc (e.g., BRICS). These meant that for multinational companies, doing business globally would face obstacles in the form of policy and regulatory risks, not to mention a drop in earnings. For investors who own these companies directly and/or through securities such as ETFs and unit trusts, they may consequently see their investments’ further growth slightly stunted.

 

Yet, not all is lost, and this is where diversification by region/country comes in handy. There are still opportunities in the U.S. markets and on the other side, especially China which is currently the second largest economy around. Being seen as neutral is advantageous especially in places where companies and investments of both sides are traded freely, such as Singapore.

 

Regarding interest rates, if you had read the “2024 Review” section above, the bolded words are deliberately done by me to emphasize that the future is unknown and it is not absolute, so there may be a chance that the number of rate cuts would either increase or further reduced in 2025.

 

Bob

 

As of 24 Dec 2024, Bob’s Bedokian Portfolio had grown to slightly above SGD 125K in value and gained a dividend amount of SGD 3,784.38. Overall, Bob’s portfolio was up 7.25% for 2024. Bob will rebalance on 2 Jan 2025 with another SGD 5,000 injection, so stay tuned to his portfolio.

 

Happy 2025!

 

Disclosure

 

The Bedokian is vested in HACK, IPAY and ICLN.

 

Disclaimer

 

1 – Yahoo Finance, YTD as of 24 Dec 2024

 

2 – Portfolio Visualizer, HACK, IPAY and ICLN between 1 Jan 2018 to 30 Nov 2024 (accessed 24 Dec 2024)

 

Probably The Next Powerful Person In The Market

The most powerful “person” in the market would be Mr. Market itself, for it embodies the entire realm of the financial markets.

(Picture credit: Kaboompics.com from pexels.com)

Just like the story narratives that commonly feature in fantasy novels and games, there is another level of divine beings (sometimes called demi-gods or quasi-deities, depending on which source material you gathered from) below the all-encompassing one. Similarly, such entities do exist in the financial markets, one tier below Mr. Market.

One of them that has the honour to be the next powerful “person”, would be the Fed, short for the United States (U.S.) Federal Reserve. Their near omnipotence led to many investors to follow the famous mantra of “do not fight the Fed”.

With just a few words from the Fed Chairman Jerome Powell on Wednesday, the U.S. markets dropped around 3% later that afternoon. The main perspective from the speech was a possibility of lesser interest rate cuts (purportedly two, out of the planned four) in 2025. The shockwave extended to the local markets on Thursday morning, with the Straits Times Index (STI) dropping from near 3780 at the close of Wednesday to 3720 on Friday evening. This is given since the U.S.’ and our interest rates are positively correlated with each other.

Ironically just a couple of weeks ago, I had commented that a lot of geniuses appeared during the bull market, like mushrooms sprouting after a spell of wet weather. Now with some market pessimism, perhaps I shall dish out some “genius” views on this whole thing.

The Bedokian’s Take

While the Fed have the final say in setting interest rates, they require data and statistics to make the decisions; in other words, the Fed is reactive. If the inflation situation is not as bad as it seems, they might increase the frequency of rate cut to three or back to four the next year. Frankly, if no one can predict the future of the market and economy, I can say the Fed would be at a slight advantage over us in terms of guesstimating.

That being said, or often said by me, these down situations presented moments where one could cherry pick good counters and securities at bargain prices.

However, as at the time of writing this post (Friday night Singapore time, Friday morning New York time), the U.S. market seems to be picking up steam.

Ah well…(shrug)

Investing With Emotions

Yes, you can do that, and I guess most of you would be thinking along this line: 

“Whoa! Wait a moment! Didn’t you say investing must be done on a rational approach, not through emotions?” 

Good question.

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And my answer is: Correct, investing must still be done rationally, but you can capitalise on others’ (not your) emotions to your advantage.

I had mentioned in the ebook that the price of a financial instrument is determined by its demand, supply and market sentiment¹. The emotional factor would come from the market sentiment part; whenever the market is bullish, prices would naturally go up, and vice versa in bear conditions.

It is at these relative extremities that you can consider how to manage your portfolio; when the markets are deemed to be overheated, you could take off some from the table by selling the overpriced securities. And in downtimes, you can look for depressed counters that are still fundamentally strong but got dragged down by negative sentiments. All these actions are also part of portfolio rebalancing, a key component of my oft-preached diversification.

 

1 – The Bedokian Portfolio (2^nd ed), p124

“(Almost) Everyone Is A Genius In A Bull Market”

“Everyone is a genius in a bull market”

This quote was attributed to Mark Cuban, a billionaire investor and entrepreneur. For context, he was commenting on the 2020 post-COVID bull market, which according to him was spurred by the Federal Reserve rather than fundamentals, that brought in many newbie investors into the trading game. The link to the article is under the Reference heading below.

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I am bringing this quote back into this time and day, since we are seeing some assets rising in prices, such as tech equities, properties, precious metals and yes, cryptocurrencies. I have read and heard of some individuals, online and amongst my circle, of them facing boom time in their investment and trading portfolios.

For this, we would congratulate those who had benefitted from the ongoing bull run. Still, we do need to know that it is not just our choices, but also the markets played a part that gave us the happy times that we are experiencing now, so credit must be given to where it is due. 

In good times like now, complacency tend to set in as the notion of fast and easy money is prevalent, leading us to develop mental biases, especially overconfidence and hindsight, which gives a false sense of “control” over the markets and thus, becoming geniuses. Seasoned investors and traders may not succumb to these psychological traps, but new investors/traders, and even those seasoned ones who are swept up by the euphoria, may fall into them. Therefore, it is advisable to stay prudent and cautious even in the face of happy days.

Lastly, as in the reason why I added the word “almost” in the phrase, not all investors and traders are having a field day, for they probably went against the bull market and/or made some wrong choices.

Stay calm, stay focused, stay invested.

Reference

A J Horch. Mark Cuban: ‘Everyone is a genius in a bull market’. CNBC. 20 Jul 2020. https://www.cnbc.com/2020/07/20/mark-cuban-everybody-is-a-genius-in-a-bull-market.html (accessed 8 Dec 2024)

The RTS Question

The issue that is cropping up for retail real estate investment trust (REIT) investors would be the question of the Johor Bahru (JB) – Singapore Rapid Transit System, or RTS, and how this may affect the local retail scene. Scheduled to open in late 2026, the narrative is that RTS would draw some of the shopper traffic away from Singapore shopping malls, due to the convenience of a seamless transport mode into JB via the local MRT subway system.

Screenshot of Causeway Point and Northpoint from presentation slides of FCT’s second half and financial year ending 30 Sep 2024.

One REIT that could experience a relatively large effect would be Frasers Centrepoint Trust (FCT), with its highest earning Causeway Point being the largest mall nearest to the Woodlands Checkpoint, not to mention that another mall, Northpoint City North Wing, is the northern part of Singapore, too. The addition of a deemed easy access means to JB naturally brought concerns to FCT unitholders, with us included.

DBS equities research group had indicated in a report in July 2024 that there is a projected leakage of between 3% and 4% of the 2023 retail sales, with food and beverage (F&B), and services in particular feeling the impact¹. In FCT’s results presentation in October 2024, among some points, it is believed that the northern malls Causeway Point and Northpoint City could give an opportunity for Malaysian retailers to expand their presence locally, and Causeway Point could serve as a connection hub for commuters and shoppers transiting between Woodlands and JB². The range of responses from financial bloggers are varied, from a “all will normalize in time” to “retail scene here is doomed!”, or something along that line.

The Bedokian’s Take

With varying takes on how the RTS affects the FCT northern malls, we could only make calculated guesses (guesstimates) on how things will pan out. The first statistic to get would be knowing the number of Singaporeans visiting JB, and according to a source from the Singapore Business Review, a report stated that around 31% of Singaporeans go there at least once a month³. This is a substantial proportion in my opinion. 

Next, I asked around and heard from my relatives, friends, colleagues and acquaintances regarding their trips to JB, and while the common objective is for entertainment (food, shopping, massage, etc.) for those who went, the frequency of visits is very wide (e.g. once a week to never been there in x years).

Besides for work purposes, the most common finding from my questioning and probing would be the element of time. Most would go only in at the convenience of their own time, such as during weekends, holidays and in late night or early morning hours. The time spent there is not just like an hour or two, but rather at least four or more. Thus, while going into JB, many things are done there as compared to going into a local mall.

That being said, local malls still have a place to fill, catering to either a time too short for an enjoying trip to JB (e.g. going for lunch hour during work, or a quick pickup of an item), or for those people who, for some reason, would not want to go to JB. Though what I surmise here and in the last paragraph are anecdotal, we do not really know how the impact would be when RTS finally opens, and if I really do want to say a piece of the future, it would likely be met with a lot of fanfare, followed by normalisation of the crowd. Possibly there will be some increased frequency of visits for those who goes there often, and probably some converts of those who do not really like going there. Thus, the leakage rates highlighted by DBS is a plausible possibility.

We will see how it goes.

Disclosure

The Bedokian is vested in FCT.

 

Disclaimer

 

1 – S’pore Retail & Retail REITs: More fad than trend? DBS. 10 Jul 2024. https://www.dbs.com.sg/treasures/aics/templatedata/article/generic/data/en/GR/072024/40710_insights_singapore_retail_and_retail_reits_more_fad_than_trend.xml (accessed 1 Dec 2024)

2 – Results Presentation for the Second Half and Financial Year 2024 ended 30 September 2024, p40. Frasers Centrepoint Trust. 25 Oct 2024. https://fct.frasersproperty.com/newsroom/20241025_071259_J69U_TR4IT4NEKBF1OP2M.3.pdf (accessed 1 Dec 2024)

3 – 1 in 3 S’poreans visit Johor Bahru monthly for leisure. Singapore Business Review. 15 Feb 2024. https://sbr.com.sg/leisure-entertainment/news/1-in-3-sporeans-visit-johor-bahru-monthly-leisure (accessed 1 Dec 2024)

Inside The Bedokian’s Portfolio: International Paper

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.

Today’s post is a company that is listed on the New York Stock Exchange called International Paper (IP).

A Chance Encounter

IP is in the business of manufacturing packaging materials, paper and pulp, as well as providing recycling solutions and services. One of the major clients for its corrugated boxes is Amazon, one of the world’s largest e-retailer.

I had chanced upon IP early this year when a video appeared on my YouTube feed introducing it as “how the world’s largest paper company makes 1/3 of cardboard boxes in America” (if you are interested in the video, link to it under Reference below), and it piqued my interest. 

Figures And Opinions

With a price-to-book (P/B) ratio of 1.41 and a forward price-to-earnings (P/E) ratio of 17.21 as of 31 Dec 2023 (the data set that I had used for my initial analysis before the purchase), plus the recent debt-to-equity (D/E) of 69.71% and a current ratio of 1.53, the numbers are more befitting for a Singaporean company than an American one. However, in terms of its revenue and earnings per share (EPS) IP has rather been undulating, with good figures showing in years ending 2021 and 2022, only to go down in 2023 and now slowly recovering towards end of 2024. Same goes for its free cash flow, though they are still in the positive region.

On the financial statement level, IP is not as fundamentally robust as it seems since there are favourable and not-so-favourable variables. While on the safe side it is better not to consider this for investing, I am putting my neck out a bit on this one for its potential, i.e., the environmental factors and economic conditions levels of the Bedokian Portfolio’s fundamental analysis. As of now, IP’s market share in relative to its competitors, within the paper and paper products industry, and basic materials sector stood at around 11%, 67% and 13% respectively for the 12 months ending in the third quarter of 2024¹. Furthermore, while Amazon is flourishing in its other revenue sources, its traditional online retail channel is still currently the largest, and by association IP would benefit by supplying cartons and boxes for delivery means.

Going Forward

IP had clocked an impressive 62.74% rise year-to-date (YTD), more than some of the famous technology companies like Alphabet’s YTD of 20.97% and Apple’s YTD of 23.27% (as of 30 Nov 2024). However, I am looking at IP more towards at least mid-term, i.e. five years down the road. Its acquisition of DS Smith, a listed British packaging firm, would enhance IP’s already existing international presence. Also, price increases slated from 2025 of its products could bring in higher revenues². Last but not least, the incoming American administration favours domestic manufacturing, so IP is for the moment at the right place and time.

All information and data are from Yahoo Finance unless otherwise stated.

Disclosure

Bought IP at:

USD 33.20 at Feb 2024

Disclaimer

Reference

Business Insider. How The World’s Largest Paper Company Makes 1/3 of Cardboard Boxes In America | World Wide Waste. https://www.youtube.com/watch?v=_lsC0aXyY6g

1 – International Paper. CSI Market. https://csimarket.com/stocks/competitionSEG2.php?code=IP (accessed 30 Nov 2024)

2 – Rosengren, Cole. International Paper, Georgia-Pacific try for 2025 fiber price increases. Packaging Dive. 25 Nov 2024. https://www.packagingdive.com/news/international-paper-georgia-pacific-fiber-price-increase-2025/733824/#:~:text=Dive%20Brief%3A&text=International%20Paper%20announced%20a%20%2470,medium%20in%20its%20East%20region. (accessed 30 Nov 2024)

 

Is It A Good Time To Go Into REITs?

With cuts to the interest rates happening, many investors expected that real estate investment trusts (REITs) would see their heydays coming again, after being in the doldrums for much of the past two to three years. Alas, this was not to be. In fact, if you look back even further, Singapore REITs (S-REITs) have yet recovered to its pre-COVID levels, according to the iEdge S-REIT Index (Figure 1).

 

Fig.1: 5-year iEdge S-REIT Index (Source: SGX as of 23 Nov 2024)

By now, if you had noticed that the title of this blog post sounded familiar, you are correct. I had asked (more or less) the same question back on 30 Aug this year, and it is kind of a déjà vu asking it again. If things are on a bargain for quite some time, it does not bode well as their values are seen as stuck without any potential for price appreciation. Or is it?

On a macro scale, several factors contribute to this wave of S-REITs downtrend, but for me I see the two main ones are the incoming U.S. president’s geopolitical and economic policies which are viewed as inflationary in nature (and thus bringing back higher rates, a bust for REITs), and the continued narrative of falling distributions of past quarters. Therefore on the whole, the REITs asset class was dragged down by these concerns, whether will they come to fruition or not.

In addition, as I had mentioned here before, the effects of a lowered interest rate would not be felt immediately but rather at least a couple of years, so there is some “interest pain” felt in the form of costs of borrowing during this phase.

Now back to the question: is it a good time to go into S-REITs?

As usual for my answer, it depends.

Since in general the S-REITs were dragged down as a whole, including those that are deemed fundamentally good ones, which includes having low gearing, resiliency of their properties and potential for higher rental reversions, to name a few. If you are not able to identify which REITs to go for, or going after individual ones is not your penchant, then going for or averaging down on REIT exchange traded funds (ETFs) is another way.

While in general the markets are rising (equities, gold, and yes, Bitcoin) thanks to whom we know will be the next U.S. president, there are still opportunities in other asset classes (like REITs), sectors and industries that are facing a setback. These are the Mondays to look out for to buy in (intelligently, of course), and they would eventually become Sundays again in due time.

Simple Mathematics To Know For Investing

Mathematics, or math/maths, depending on which part of the world you came from, is a subject which almost all of us had encountered in school, and somehow developed into a sort of love-hate relationship with it. However, like it or not, maths (I shall use this short form for this post) is inescapable from our daily lives, such as calculating how much change to get back for a $3.50 meal with a $10 note, and whether two six-inch pizzas are equal to a 12-inch one, etc.

For investing, I shall present two maths concepts to better your knowledge.

 

(Picture credit: athree23 from pixabay.com)

 

#1: Compounding

The famous physicist Albert Einstein once quoted that compounding is the eighth wonder of the world. Yet, several people did not know that there is a second part to the quote, which is “he who understands it, earns it…he who doesn’t…pays it”.

Let us understand the basics of compounding. Supposedly, you deposit $1000 in a financial instrument that pays you a 5% returns every year. After one year, you would have a total of $1050 ($1000 + (5% of $1000 = $50)). After the second year, you will get $1102.50 ($1050 + (5% of $1050 = $52.50)), and so on. For any given number of years (n), the compounding formula is:

P(1 + r) ⁿ, where P is the principal (the initial $1000), r is the returns (5%) and n is the number of years.

The above illustration fits into the “he who understands it, earns it” narrative, but compounding also has a dark side to it, which is the “he who doesn’t…pays it” part. How so?

Instead of returns on the r, replace it with the bank interest charges that you need to pay for a loan, or the annual inflation rate. Imagine taking out a loan that has double digit interest rate, or the value of your $1000 today becoming $995 next year.

Hence, there are two lessons to be derived here; one is to avoid high interest-bearing loans, and the other is to invest your monies with decent returns instead of keeping it and getting eaten by inflation.

 

#2: Percentage Gain And Loss

I came across a maths scenario that goes like this:

I had lost 50% this year, so I need to gain 50% back to make it even.

If you remove the “%” behind, yes that is correct, but in a percentage, it is based on something and not an absolute value in itself. Using the scenario mentioned, I had lost 50% of $1000 which is a $500 loss and that means I have $500 left. Making it back 50% of what I had left (50% of $500 = $250) is only $500 + $250 = $750, and I still have a shortfall of $250 to the original $1000.

For percentages, the formula requires two values: the initial and the final. Thus, percentage change is:

(Final value – Initial value) / Initial value x 100%

So, to go back to $1000 from $500, the actual required percentage gain would be:

($1000 - $500) / $500 x 100% = 100%

Putting in perspective, here are the percentage losses and the actual required percentage gains to break even:

Percentage Loss	Actual Percentage Gain to Breakeven
10%	11%
20%	25%
30%	43%
40%	67%
50%	100%
60%	150%
70%	233%
80%	400%
90%	900%

 

After looking at the table, some of you may feel daunted by the prospect of losses and the subsequent larger jump to return. For a share price drop of say, 30%, 43% is needed to go back to breakeven, and some viewed a 43% jump is a tall order.

But there are numerous examples of prices that recovered, and then eventually surpassed the original price. This is true for counters that have strong fundamentals, whose prices were, to say the least, temporarily crashed due to bad news that could possibly be affecting only for a short term, and this presented a good opportunity to average down and load up.

Where Did You Get The Capital From?

During an investment discussion, one of my acquaintances had asked an interesting question, which is:

“You have been updating about which counter you had bought into, and you seldom sell any. Where did you get the capital from?”

Picture generated by Meta AI

Here are the capital sources:

Capital Source #1: Cash Injections

If you had read the makeup of The Bedokian Portfolio, there is a small portion (earmarked 5% for our case) dedicated to cash. This amount is purely used for investing, and it is not mingled with our normal savings and emergency funds. This is the major capital source especially for our portfolio build with disposal income.

So, what are the tributaries contributing to this cash portion?  On a regular basis there are two: from the portfolio itself (dividends from equities, distributions from real estate investment trusts, coupons from bonds and interest from cash in banks) and monthly contributions from our salaries. This is typical for most people who have an investment plan and portfolio in place. 

As the portfolio grows over time thanks to capital gains and compounding, so does the yield amount, which is fed into the cash part. A 5% cash yield on a $10,000 portfolio is $500, but a 5% cash yield on a $100,000 one is $5,000, and $5,000 could purchase more securities than $500. Add this to your regular contribution, which may have increased thanks to rise in salaries, you would have a larger cash pool to invest with.

There are further exceptions unique to us, such as liquidating our past investment-linked plans, endowment funds and a matured child education endowment policy, and they greatly increased our cash injections.

Capital Source #2: CPF-OA And SRS

The next capital source for us is our CPF, specifically the CPF Ordinary Account (CPF-OA). Since we had finished our mortgage payments and had hit our prevailing Full Retirement Sum, the door for investing the CPF-OA had opened. The main aim of investing in CPF-OA is to have better returns than the current 2.5% rate, though with some added risk. The use of CPF-OA as a capital source comes with limitations, such as the choice of securities and the amount used.

35% of the investible CPF-OA savings can be used for individual local securities and selected exchange traded funds (known as the “35% stock limit”), and a larger amount is allowed for professionally managed products. We invested using funds from these two sub-pools in the CPF-OA, though not to the limit, giving us some spare capital for future allocation.

For our SRS, though miniscule as compared to our CPF, it is still a source of capital that can be deployed, if necessary, though for now it is used on a robo-advisory portfolio.

Conclusion

My acquaintance was a bit surprised and felt “awakened” by the answer, because it is obvious yet hidden in plain sight. I am glad that he had learnt something new, and I hope you had some takeaways, too.

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Alphabet And Apple: Latest Quarterly Results

The past week had seen some notable technology companies reporting their quarterly earnings. For this post, I will look at the two holdings which I had declared must-haves for an investor who is venturing into the United States (U.S.) market for the first time, and we will see if this trend continues to be so.

Apple MacBook showing Google website (Picture credit: Firmbee from pixabay.com)

Alphabet

On 29 Oct 2024, Alphabet had announced stellar third-quarter earnings, with earnings per share (EPS) and revenue beating estimates by 14.6% (US$2.12 vs US$1.85) and 2.3% (US$88.27 bn vs US$86.30 bn) respectively. Overall, revenue increased by around 15% year-on-year (YOY), with the Cloud segment revenue jumped nearly 35% YOY. Other major segments such as Search Advertising, YouTube and Google Play increased 12%, 12% and 28% YOY, respectively.

The share price jumped to above US$180 before settling at US$172.65 by the week ending 1 Nov 2024. This represented a year-to-date (YTD) performance of +22.51%.

Apple

Apple announced their fourth-quarter earnings on 31 Oct 2024, with EPS and revenue beating estimates by 2.5% (US$1.64 adjusted vs US$1.60 estimated) and 0.4% (US$94.93 bn vs US$94.58 bn estimated) respectively. Services and iPhone revenue streams improved 16% and 3% YOY respectively, but the overall revenue reduced by 1% YOY, which was dragged down by MacBook (-34% YOY), iPad (-10% YOY) and Wearables (-3% YOY).

Apple’s share price dropped from the US$233-ish to US$222-ish, but YTD is still profitable at +15.78% by the end of 1 Nov 2024.

The Bedokian’s Take

Both companies share common characteristics with each other (besides sharing the same first letter): Both are part of the Magnificent 7 that saw huge growth over the past couple of years; both are leveraging on the rising trend of AI (artificial intelligence or Apple Intelligence) in their products and/or services; and both are magnets of suits from regulatory authorities worldwide and targets of policies in the current geopolitical landscape. These in my opinion are the make or slight break for Alphabet and Apple.

Valuation wise, Alphabet seems to be “cheaper” than Apple in terms of the Price-to-Earnings (PE) ratio. As of 1 Nov 2024, Alphabet’s PE ratio was at 22.9, lower than Apple’s 36.6, and the current S&P500 PE, which is to be seen as the “average”, was standing at 29.2. 

Though financially, the two are fundamentally strong in their balance sheets and free cash flow, the main concern for Apple is that it is facing a decelerating revenue growth. This would impact its valuation and subsequently may cause a downward pressure on its share price. Still, based on the latest number of active Apple devices worldwide, it climbed from 1.5 billion in 2020 to 2.2 billion in 2023¹, demonstrating its wide moat effect. As for Alphabet, it still holds market leading services like YouTube and search advertising, so the moat is relatively safe.

With the companies’ resiliency shown in their moat status, I still opine that they are good to go, though circumstantially for my case I would view it as an average up. A thorough fundamental analysis is still required on your end should you want to enter them for the first time.

Disclosure

Bedokian’s average price for Alphabet (US$131.43) and Apple (US$93.07) based on US$/S$ exchange rate of 1.32.

Disclaimer

1 – Laricchia, Federica. Number of Apple’s active devices in selected years from 2016 to 2023. Statista. 19 May 2023. https://www.statista.com/statistics/1383887/number-of-apple-active-devices/ (accessed 2 Nov 2024)

Investing Your Supplementary Retirement Scheme Account?

Supplementary Retirement Scheme, or SRS for short, was introduced in 2001 and it is part of the Singapore Government’s multi-pronged strategy to address the financial needs of a greying population. It is a voluntary scheme that complements the Central Provident Fund (CPF). Thus, the SRS forms part of the basic make-up of our portfolio multiverse structure, along with the CPF and investment portfolio using disposable income. 

Besides saving for retirement, the monies that go into the SRS account are eligible for tax relief, so there may be some tax savings depending on the total relief amount and income bracket of the individual. The contribution limit for Singapore Citizens and Permanent Residents is SGD 15,300 and SGD 35,700 for foreigners per calendar year, and that means the deadline for the contribution is on or before 31 December.

 

Picture generated by Meta AI

Should I Open An SRS Account?

Before jumping into the how of investing in one’s SRS, we need to address the why first, and honestly there is no correct answer. In my view, if you have some spare cash lying around and want to reduce your tax bill, why not start it? 

Granted that the spare cash can be deployed into your disposable income portfolio, but that does not bring down your tax payable. Similarly, you may have maxed out your CPF contribution limit and still have some more headroom to the SGD 80,000 personal income tax relief cap. If you had hit both aforementioned conditions, then the case for opening an SRS account is stronger.

Even then, if you had not hit those conditions, you could still open an SRS account, like my case; I want to reduce my tax payable, so I just contribute to it. When I started my SRS, my CPF SA had already hit the prevailing full retirement sum for some time, so any further topping up via voluntary contribution does not invite tax relief. Also, I view SRS as a form of forced savings from which I have a stash of funds by age 62 (for me. Now is 63).

 

Investing Your SRS

If left uninvested, the funds in the SRS earn 0.05% per annum based on the latest information available, which is akin to a typical savings account. From an investment viewpoint, that yield hardly compensates for the inflation rate, hence investing it is a no-brainer option.

Unlike CPF where there are limited investable amounts and choices, you can plonk in the entire SRS into various financial instruments (shares, bonds, exchange traded funds, unit trusts, etc.), endowment annuity plans, bank fixed deposits and bank structured deposits. As with any investment decision, the choice of what to invest in depends on your product preferences and familiarity, risk appetite and tolerance. You can have more than one type of product within your SRS, for it is in itself, a portfolio universe.

 

Open Your SRS

If you have yet to open an SRS account, it is advisable to do so as soon as possible. The official retirement age in Singapore is set to go higher at 64 after 1 July 2026¹. Opening the SRS account would “lock” the withdrawable age at the prevailing retirement age, i.e. if you open now, you are able to start drawing down your SRS account from age 63, regardless of what is the prevailing retirement age when you reach 63. You can have only one SRS account, and you can open your SRS account with either DBS, OCBC or UOB.

 

Bonus Paragraph: What Is Inside The Bedokian’s SRS?

Now I am doing a regular contribution to a robo-advisory portfolio consisting of 60/40 fixed income/equities make-up, with an annualized internal rate of return of 9.48% so far. As I do not invest the whole works and have spare funds inside, I may deploy the balance in individual securities. 

Disclaimer

Reference

Supplementary Retirement Scheme. Ministry of Finance. 7 Dec 2017. https://www.mof.gov.sg/docs/default-source/default-document-library/schemes/individuals/supplementary-retirement-scheme/srs_booklet---7-dec-2017e42cafd2dab847f78b5cfb6919b476b2.pdf  (accessed 20 Oct 2024)

 

1 – Boo, Krist. S’pore retirement age to go up to 64 in 2026, re-employment age to rise to 69. The Straits Times. 6 Mar 2024. https://www.straitstimes.com/singapore/politics/s-pore-retirement-age-to-go-up-to-64-in-2026-re-employment-age-to-rise-to-69 (accessed 20 Oct 2024)