I would like to do more of complete portfolio update, as I realise that my past updates were abrupt and messy. Actual statements were shown, without much background and explanation. This should be a good update to be more understandable to both new and savvy investors.
I’m actually not fully comfortable with showing my complete portfolio and net-worth, and I would never do it in my real life. However, I think its good that I share on bonds and leveraging, which are topics fairly unique in the Singapore blog universe. Its also a good exercise for me to think through the risk and return of my overall portfolio.
I own 4 different bonds and an income fund :
|Name||Bought price||Current Price||Market Value|
|Temasek 3.625%||102.2||116.72||USD $290,000|
|Commerzbank 7% perpetual||106.85||92.11||USD $184,000|
|Credit Suisse 5.625% perpetual||103.25||98.02||SGD $245,000|
|HSBC 5% perpetual||104.4||95.43||SGD $237,500|
|Pimco Income Fund 4%||10.08||9.52||SGD $209,000|
The total market value of these is about SGD $1.36m. Assuming the full 70% Loan-to-Value (LTV), my real asset value is $410,000, with financing of $955,000. My average lending rate from my bank and brokerage is around 2.5%, with the leveraged yield at 9%-10%. This includes the amount I need to pay back when the bond is called, as I bought them above par value. The par value of bonds when they are issued is always 100, and 100 is also the price that the issuer pays when the bond is called (issuer pays off the debt). Bonds are typically issued at $250,000 each.
With the exception of the Temasek and Pimco assets, the rest are a class of securities called Additional Tier-1 (AT1) bonds. This is the riskiest debt issued by banks. When the bank’s reserves fall below a certain number, these bonds can be wiped out or converted to equity. This risk is compensated with higher coupons of 5% and more. These are considered medium risk bonds. I balance this out with Temasek and Pimco, as these should be considered low risk.
I would not recommend this kind of portfolio to the average person. Besides needing a high amount to invest, you must have significant reserves to avoid margin calls, and I had some very anxious times. Most people can only afford to hold just a few bonds, and that means a high concentration risk. That said, it is very rare that big swings happen to bonds, and I hope I have seen the last one in my lifetime. When I’m older, I would stuff it all into CPF LIFE, earn the guaranteed 4% yield and sleep soundly at night. But that is still some time away.
Some may also be concerned over my $955,000 leverage, and I can understand that. For me personally, I reason that most people at my age or with my assets don’t blink at buying a second property, and they take on a million dollar or more mortgage loan. Why should borrowing money to buy bonds be viewed any differently? In fact, bonds can be the better investment as its highly liquid and there are no taxes involved. I can sell it today and get the money by the end of the week. No ABSD, no stamp duty, and no property agent fees. I also don’t need to deal with tenants, repairs, or a ton of paperwork. The annual return for bonds is also higher at 9%-10%, vs rental yields of 2%-4%. The downside is that bonds don’t enjoy the same capital appreciation of property, but I think property appreciation is going to be much less in the years going forward anyway.
It makes total sense for me to borrow at 2.5% in order to directly earn a fixed coupon of 5% or more. It almost feels like free money, and it is admittedly addictive. I have resisted borrowing too much as it might just explode in my face. I also built a large buffer of 186% with stocks and cash, meaning all my assets need to fall around 30% before I get margin called. That isn’t likely, and I think I can manage. I can even top it off again with over $150,000 of stocks and cash.
My stock holdings are pretty straightforward. Total holdings of USD $222,000 or SGD $ 315,000. I’m bullish on US equities and the USD. I want to increase these as I think with low interest rates, stocks will do better than fixed income. So I channel all my bond coupons back into stocks.
I’m not likely to sell anything anymore. I’ll cash in when my kids goes to university and to top-up my CPF retirement sum. Hence, I realise I don’t really care whether it goes up or down. It doesn’t matter as my sell date is like 20 years later. So I don’t feel ecstatic when it goes up or panicked when it goes down.
I’m also considering buying more S&P 500 ETF, despite what I mentioned earlier about not buying index funds. It still is a great anchor and far less volatile than tech stocks. Bets like Amazon and Nvidia can turn out badly, but the S&P 500 ETF won’t go too wrong.
I have about USD $80,000 and SGD $20,000. This is probably a higher cash amount than what I need, and I’m looking for opportunities to deploy.
I’m not super keen to put up my net-worth as it seems showy. But I really earned it in the worst way possible, and most people wouldn’t want to go through the same process. I have also realised that net-worth doesn’t mean all that much to me as it doesn’t change my habits or how I spend. Living below your means and always having more income than expenses are much more important than net-worth. But anyhoo, net-worth is what most people are keen to know.
Total net-worth = $410,000 bonds + $315,000 stocks + $130,000 cash = $855,000