The Power of Compounding

Compounding is a simple investment strategy in which you put your money in an investment that pays a return.  At the end of the year, you take your return, or dividend, or interest and reinvest it with your original stake.  Your dividend, or interest, earns a return, too, building you a bigger dividend -- or higher interest payments -- for the next year.

A snowball is the best analogy for compounding.  As you roll the ball through the snow, the surface area gets bigger.   The more surface area on the snowball, the more snow it picks up.  The snowball gains mass slowly at first... but pretty soon, it's so large you can't move it.

Compounding is slow and boring at first.  But gradually, the dividends grow, and your reinvestments increase.  One day, you will wake up to find your account producing thousands of dollars per year in dividends and your wealth a giant snowball.

I find this is very true.  My stock portfolio (snowball), although still small and gaining mass slowly, have already passed two milestones this year:

May - Dividends collected exceeded $1,000 in a month.
Aug - Dividends collected exceeded $1,500 in a month.
 

Alternative Investment - Rebuilding America

Recently received this alternative investment from a colleague.  Rebuilding America is an investment opportunity formed by leading real estate experts to buy foreclosed properties, refurbish and sell them in key growth areas of Chicago, USA, which is able to provide investors with a fixed returns of 38% in a fixed time frame of 24 months.

In brief:

Investment time frame   : Fixed 2 year
Investment return           : 38% fixed return (18% on the 12th month, & 20% on the 24th month+100% capital return)
Minimum investment     : S$20,000
Maximum Investment    : S$40,000

Location: In the city of Chicago such as Washington Park, Hyde Park, Woodlawn, South Shore, Kenwood (home of President Obama).
 

Why Chicago?:
- 4^th largest GDP, Financial and Manufacturing hub of US. Chicago city workers or civil servants required to stay in the City area based on employment regulations.

- Chicago have an upcoming and APPROVED development such as Chicago Loop development and New Lakeside development.

Features: To acquire, refurbish and re-sell the properties. Properties are more suitable to mid-upper scale lifestyle.
 

Target Consumers: Middle to high income earners and city workers or civil servants.
 

Program Benefits:
- Asset backed investment.

- Short/fixed period investment of 2 years.

- Fixed payout of 18% on the 1^st year and 20% on the 2^nd year.

- Proven Method

- Established Property Management and Development Team.

- No currency exposure.

- No maintenance, management fees, capital gain tax or hidden charges.

- The ultimate “armchair investment” with no hassle.

- Secured investment!!

Security of Investment:
- All funds are in Escrow Account with sole intended purpose to purchase, refurbish and sell the properties.

- Investors hold a first charge over all unsold properties plus all monies in the Escrow Account.

- Fully collateralized on physical properties.

- All properties are insured with First American Title, US biggest title insurance.

- Full Trustee administration with FCA regulated Trustee.

- Properties are classified as Trust Property with investors as Beneficiary to the Trust Property.

- SIPP, UK government pensions approved programme.

 

Rebuilding America is an investment program from Infinity Treasures.  They claimed that:
1. They will only receive S$2,000,000 for each month tranche.
2. Ever since it was first launched in September this year, this investment is over subscribed and balloting is required.

Sound too good to be true? And no risk no gain, but Caveat Emptor !

SPH Final Dividend - Christmas Presents

Yesterday, SPH announced a Final Dividend of 15 cents per share, comprising a Normal Dividend of 8 cents per share and a Special Dividend of 7 cents per share for the financial year ended 31 August 2013.

Together with the Interim Dividend of 7 cents (paid in May) and Special Dividend after SPH REIT listing of 18 cents (paid in August), total Dividend payout for FY2013 will be 40 cents.

This high dividend payout makes SPH the star performer in my stock portfolio in 2013.  

However, the main challenge faced by SPH is the shrinking returns of its core business.  People no longer depend on buying and reading newspapers as their main source of information, as many obtain news from the Internet (for free). 

Hopefully the venture into properties (Paragon, Clementi Mall and Seletar Mall) could mitigate some of the losses from the core newspaper business.

The final dividend will be paid on 20 December 2013.  Just in time for me to buy Christmas presents using the payouts.

Oct Fixed Deposit Rates Update - 1.12% P.A.at Bank of China

First some clarifications: Fixed Deposit is not for real investment.  My review on Singapore's FD is limited to S$50,ooo and below; and tenure term not exceeding 12 months.  Fixed Deposit is for parking the emergency fund and allowing immediate access to the fund when needed.  These are also based on the following considerations:

1. Singapore's Deposit Insurance Scheme maximum coverage up to S$50,ooo only.
2. Long tenure term will potentially affect your cash-out value for your emergency fund, as you may suffer a penalty fee for early withdrawal.

Back to the update: Bank of China's 12-months FD rates of 1.12% p.a. is still currently the highest in Singapore.  The minimum deposit amount for BOC FD is S$50,000.   

This promotion is valid for customers with fresh funds only, meaning it is not applicable for money transferred from existing BOC accounts.

There are few branches of BOC in Singapore:
1. Battery Road (BOC Building),
2. Chinatown branch (Furama Hotel),
3. Katong branch (188-192 East Coast Road),
4. Middle Road (BOC Plaza),
5. Maxwell Road (Maxwell House).

According to BOC's website, this promotion is for a limited period only.

Promotion Details:

	SGD Time Deposits Promotional Interest Rates % p.a.
	3-Month	6-Month	9-Month	12-Month
S$50,000 and above	0.55%	0.85%	0.95%	1.12%

Please let me know if there is better offer in the market.

UOB's Structured Deposit 2013 Series (3)

UOB's Structured Deposit 2013 Series appeared to be quite popular.  Series (1) in August and Series (2) in September.  Now, Series (3) is launched in October, but with some revisions from series (1) and (2): 

Series (3) promotional information:
1. Total Guaranteed Fixed Interest of 9.6% of the Principal Amount over 5 years and 11 months (equivalent to an effective interest rate of 1.6193% per annum)

2. 100% Principal Amount guaranteed when held to maturity. 

3. Minimum investment of $5,000

This structure product has a bonus interest component linked to 5 Singapore companies' shares price performance:

Potential Bonus Interest of up to 6% linked to 5 Singapore Company Shares

Shares in Underlying Basket

Ascendas Real Estate Investment Trust ("AREIT") DBS Group Holdings Limited ("DBS") Keppel Land Limited ("KPLD") SembCorp Marine Limited ("SMM") Singapore Telecommunications Limited("ST")

Assuming an investment amount of S$10,000, held till maturity:

1. Best case scenario - If all 5 stocks are at least 95% their initial values:

	Best Case Scenario (Maximum Interest Potential)
End of Year	Guaranteed Fixed Interest Rate on Principal Amount	Maturity Variable Interest Rate on Principal Amount	Total Interest Payable
1	1.6%	1.0%	2.6%
2	1.6%	1.0%	2.6%
3	1.6%	1.0%	2.6%
4	1.6%	1.0%	2.6%
5	1.6%	1.0%	2.6%
At maturity	1.6%	1.0%	2.6%
Total interest payout	9.6%	6.0%	15.6%
Principal + Interest payout	S$10,000 + S$960 + S$600 = S$11,560

2. Worst case scenario - If any one of the 5 stocks is less than 95% their initial values:

	Worst Case Scenario (Minimum Interest Payable)
End of Year	Guaranteed Fixed Interest Rate on Principal Amount	Maturity Variable Interest Rate on Principal Amount	Total Interest Payable
1	1.6%	-	1.6%
2	1.6%	-	1.6%
3	1.6%	-	1.6%
4	1.6%	-	1.6%
5	1.6%	-	1.6%
At maturity	-	-	1.6%
Total interest payout	9.6%	-	9.6%
Principal + Interest payout	S$10,000 + S$960 + S$0 = S$10,960

The bonus interest structure for Structured Deposit 2013 Series (3) has changed again.  Instead of giving out maturity bonus interest at the end, as in Series (2); there are potential bonus every year again, like in series (1).  The best case scenario in series (3) has total of 15.6% interest, comparing with the total 19.3% interest for Series (1) best case scenario.  The total interest for Series (2) best case scenario is only 12.5%.  

Yes, your principal amount is guaranteed, but it is also locked in for the next 5 years and 11 months.  There is a loss of liquidity, if any other opportunity arises.

I have mentioned in my earlier post that the additional 2% bonus interest for Series (1) is not easy to get.  You would need all of the 5 stocks to be 105% over the initial entry price in order to get the 2%.  And it is 2% or nothing, there is no in-between bonus. 

Now, the additional 1% bonus interest for Series (3) is also not easy to get.  You would need all of the 5 stocks (in 5 different sectors) to be at least 95% over the initial entry price in order to get the 1%.  Any of the 5 stocks performing poorer than 95% entry value, and your bonus interest goes down the drain.

Lastly, the interest rate 1.6% is fixed, which means it won't get higher with market fluctuation.  Currently, ICICI Bank is offering 1.50% p.a. for FD (<$50,000) on 36 months tenure term. 

This structure product supposed to end 12th October,  but is it really a "smarter way to invest"?

My Stock Portfolio @ end September 2013

No.	Stock Name	Lots	Portfolio%	Avg Cost$	Breakeven$	Market$
1	Starhub	5	20.22	3.22	2.87	4.29
2	SPH	5	19.37	3.99	3.61	4.11
3	SGX	2	13.69	2.68	0.97	7.26
4	CapitaLand	2	5.83	3.91	3.69	3.09
5	CapitaMall Trust	3	5.54	1.71	1.22	1.96
6	Suntec Reit	3	4.62	1.52	1.18	1.635
7	CDL HTrust	3	4.61	1.66	1.16	1.63
8	Starhill Global	6	4.50	0.71	0.57	0.795
9	SingTel	1.2	4.18	3.21	2.95	3.73
10	AIMS AMPI Reit	2	2.83	1.635	1.64	1.50
11	HPH Trust	3	2.74	0.90	0.86	0.78
12	CapitaMalls Asia	1	1.84	2.12	2.04	1.955
13	SPH Reit	2	1.84	0.935	0.96	0.975
14	FE Orchard	1	1.76	1.18	0.88	1.865
15	Frasers CT	1	1.74	1.79	1.85	1.845
16	CitySpring	3	1.33	0.65	0.48	0.47
17	Boustead	1	1.30	1.44	1.45	1.375
18	Sing Post	1	1.19	0.875	0.69	1.265
19	FE HTrust	1	0.86	0.93	0.91	0.915

Movement in my portfolio in September:-
Sold:- Hyflux
Bought:- SPH, SPH Reit.

Dividends collected in September: $324.91
2013 avg dividends/month: $435.63