Sunday, November 30, 2014

CPF optimisation

I know that a lot of Singaporeans complain about our CPF system but personally I think it is a really good one. After speaking to many of my foreign friends, they are all very envious of this retirement scheme that the Singaporean government has in place for its people.

Here is an overview of the Singapore CPF system and how best to optimise your returns, assuming that you have more than sufficient cash for your day to day necessities.

Basis CPF overview:

The Contribution Rates

If your income is above SGD 5,000/mth, there is no contribution from the SGD 5,000 upwards.
Age (Years)
Contribution Rate
(for monthly wages ≥ $750)
Credited to
Contribution by Employer
(% of
Contribution by Employee
(% of
Total Contribution
(% of wage)
Ordinary Account
(% of wage)
Special Account
(% of wage)
Medisave Account
(% of wage)
35 & below 16 20 36 23 6 7
Above 35-45 16 20 36 21 7 8
Above 45-50 16 20 36 19 8 9
Above 50-55 14 18.5 32.5 13.5 9.5 9.5
Above 55-60 10.5 13 23.5 12 2 9.5
Above 60-65 7 7.5 14.5 3.5 1.5 9.5
Above 65 6.5 5 11.5 1 1 9.5
 Table from : CPF

Interest rates earned:

Ordinary Account: 2.5% p.a.
  • What is this? This contribution is for housing, insurance, investment and education
  • How is this calculated:3 month average of major local bank's 12 month fixed deposit or 2.5% p.a., which ever higher
  • What can you use this for? :  Investments that are allowed by the government under this account, subject to a min of SGD 40,000 in the account

Special and Medisave account 4.0% p.a.
  • What is this? Special account is  for old age and investment in retirement-related financial products. Medisave account is for hospitalization expenses and approved medical insurance.
  • How is this calculated: 12 month average yield of 10 year Singapore Government securities plus 1% or 4% p.a., which ever higher
  • What can you use this for? :  Investments that are allowed by the government under this account, subject to a min of SGD 20,000 in the account

Retirement Account  4.0% p.a.
  •  This account is created by transferring the saving from the special account and ordinary account on your 55th birthday.
  • How is this calculated: 12 month average yield of 10 year Singapore Government securities plus 1% or 4% p.a., which ever higher
  • The minimum sum will be SGD 155,000 where at least SGD 43,500 needs to be in your medi safe.
 Special additional 1% : Government shall pay additonal 1% pa.a for first 60k of a member's combined balances, with up to 20k from the ordinary account. This additional interest will go either into the SA or RA

How to optimise your CPF
  • Try to put contribute more CPF per year. From 2015, max you can contribute is SGD 31,350 per year or  addition SGD 9750, over your mandatory contributions (assuming you earn more than SGD 5,000 / mth)
  • Try to hit a min of SGD 60,000 as soon as possible, so that you can earn the extra special 1% interest rate on your money.
  • If this money is purely for retirement and you do not need it till you retired, try to max out your special account as soon as possible. The max is the current CPF minimum sum, which is about SGD 155,000.

The above advice is for those who are not so investment savvy, or maybe others who just want some investments in low risk portfolios. I personally think that a stable 4% p.a. interest in the special account is a good low risk investment for the long term. And with the additional 1% special interest for the first SGD 60,000, I would say that this investment is as good as it gets, based on its risk/reward.

Thursday, November 20, 2014

Rent at Paya Lebar Mall

Rental at Paya Lebar New Mall

Have a friend who is running a small business over there. Heard that rental is about 5plus k/month. And that have to pay 3 months deposit plus current month's rental upfront, every month.

They were initially asked to sign a director's personal liability letter with a 2 month rent deposit but eventually they negotiated to have a 3rd month additional rental deposit and to waive the liability letter.

The rent has 2 structures and they pay whichever is higher.
1. The fix monthly rental of about 5k plus a small commission of all sales (yes the point of sales system is linked to the mall)
2. 12% of the revenue of the shop

Sales has been brisk so far as the mall had just opened. I wish them all the best in this venture!

Friday, November 14, 2014

Brick and Mortar Businesses - Box Rental

I am always fascinated by brick and mortar businesses. To be honest I have never worked in a retail outlet where your customers are the everyday people who are shopping. It is only untill recently did I find out about the basic idea of how such businesses are carried out and the kind of economics that you can expect.

It all started when I tried renting a box in those outlets like toy outpost, box king, go to my box etc.

It was my first try at such a 'retail' business. I admit it is not even a decent representation of a retail business but nonetheless it made me look more closely on how retail businesses operate and how profitable these toy box rental businesses are.

To summarize roughly how I fared, it was almost a break even deal. My rental was $180/mth but I was not selling enough of my charm bracelets to cover my costs. And to add on, the only reason that I broke even, was because there was a Vietnamese client who wanted to do mass orders that I happened to meet when I was at the shop. This particular Vietnamese deal was done outside of the shop, hence I did not have to pay an 8% sales commission to the shop.

Below is a summary of such a business

Box Rental Business Model

This particular box rental shop has about 292 boxes, and I am guessing an average rental price of $150. Assuming 85% of the boxes are leased out, the revenue is about $35k

Rental of the shop was about $22.5k. ( I was told about 20-25k)

I am estimating that they have about 2 full time staff at any one time and 1 manager So assuming a salary of 1.8k a month for the staff and 2.5k for the manager This equates to about 6.1k/mth.

Give and take 2k a month.

I would estimate their profits to be about 4.4k/mth. And this excludes the additional commision that they charge the box owners on every sale.

Conclusion / Caveat
All in all, the business model is sustainable for the box shop concept owner, provided they can rent out as much of their space as possible. But one has to consider the return on invest (ROI) as a whole for the business owners.
This type of retail place will typically require at least a 1+2. Meaning paying 3 months of rent upfront at any one time.  So in this, the cash tied up is about 22.5 x 3=67.5k ( I have assumed this to be the investment and have ignored other costs like renovation etc.)
 If you make 4.4k/mth, your yearly profits are about 53k, a ROI of almost 80%. This is potentially much higher if the box take up rate is higher and having strong sales, which leads to higher commission.

In one of my flea market experience, I met a few people who mentioned that they have tried to sell their products through these means previously but have failed miserably, i.e a total loss of 2k. In fact, I hear from box leasers and even the box shop assistants that most box leasers do not make money.

I wonder how much longer can this concept of business last? If you noticed, now a days, some of these shops are increasing having more empty shelves. I personally think that this business model will not be sustainable in the years to come. This is because I believe the novelty of these shops will die out and 'new entrepreneurs' realized that it is not profitable to hawk their products at such places.

Tuesday, November 11, 2014

Private Equity Investing

In my previous job, I was previously tasked to look into working together with a domestic oil distribution business in a neighboring country. The deal looked fantastic but due to the nature of such a business, it was hard to legally protect oneself when investing privately in an overseas company. The counterparty was more than willing to help keep me comfortable by even having a joint payment receivables account, but contractually it was tough to structure it such that I am able to enforce his customers to pay into such a joint account.

However in the process, I realised that investing in private businesses can yield phenomenal returns if the risks are managed properly. On top of that, having small stakes in various companies will enable to create some form of synergy between controlled businesses.

On the large scale, this would be big private equity funds like BlackRock Inc, a mulit billion dollar fund that buy huge companies. But as an individual, I realised that there was actually still room for smaller investors like myself.

My personal goal is to look out for small sustainable business that needs cash to grow or even an active investor to push the business to a new leve, with the capital required being about SGD 50k.

I have, in the past 1 year, been trying to find such opportunities. In the midst, I have made many new friends and learned about various business models. One business that I was very close to investing was a toy/game store retail business.

This business has a healthy cash flow and business model. They had about a net profit of 30% with a yearly revenue of 300k. There were looking for an investor due to a mishap in one of the purchases of supplies and needed cash to place a reorder. The deal did not go through as it was a sole proprietor company and the owners were unwilling to fully disclose their books prior to me investing 50k. I might be willing to take high risks for high returns, but without doing my own due diligence, this would have been a reckless investment decision.

You may call this angel investing, private equiting investment, venture capitalist, money lending etc. But principally, what I am trying to do is to play a part in multiple small sustainable business with great potential. By having various small controlling stakes in various companies, I believe synegies can be built where resources are shared, thus benefiting the bottom line.

Going forward, I will likely be penning down my thoughts on various business model to serve as a reminder for myself.