What are the most common money management problems?

I recently had 2 conversations about money, one was with a friend with 4 kids and one millennial who just started on his financial journey. Despite them being so different in so many ways, I realized that they both have very common perceptions when it comes to managing money.

Here are my thoughts on some of the common money management problems of beginner

1. No idea what is considered safe/reasonable return

Just because the bank savings interest rate is a pittance does not mean that your investment returns have to be so also. While I don’t advocate yield chasing, being too risk adverse is not helpful too.

I advocate having goals in mind and use time and effort to understand the risk and rewards of the various investment opportunities presented in life. Not everyone will be able to land a million dollar opportunity in life, but having educated yourself you will be able to identify the most risk adjusted investments to choose in any stage of life.

2. Saving and investments out of sync with life goals

Investing <$400 a month in an index fund might be great start. But in the grander scheme of things $5,000/year is really a drop in the financial whirlpool of expenses, especially so when its inflation adjusted. In order, to have any kind of meaningful investment income you need to recognize that investment is really like an iceberg, the passive income portion is really backed up by a large portfolio of invested funds.

This means that investment and insurance amounts need to vary with needs and life goals. They are not set in stone and left to be forgotten. One needs to be engaged in your wealth building journey.

3. Underestimating future expenses

Younger Singaporeans underestimate expenses inflation later in life. While most of the spending in your 20’s is discretionary and can be cut back on, spending in your later years are likely not to be, add in the aged parents and young children and you get a combustible stickybomb most can’t shake off.

The problem of the sandwich class is real in Singapore and needs to be taken more seriously. The friend with 4 kids is considering realizing the gains from his BTO home to buy a larger but older condo, I’m not sure how doing so will help him in his wealth building journey, but he says that when you have a family “you manage”. Well, I really hope he manages to en-bloc in the future, cuz that might be his retirement sum.

Sembcorp Marine Corruption Probe

The recent market rally has been a most unusual one. Overall, most investors are still tepid about the general economy. This means while many are likely to have sat out of the rally, those who took part are looking for indications of a change in sentiments to reduce their holdings.

I picked up Sembcorp marine during the recent market correction as its price fell by 10% after news that its office in Brazil was raided by anti-corruption officers. I found it strange that such corruption considered rampant in Brazil could have implicated Keppel Corp but left Sembcorp unscathed.

While nothing has been proven at this juncture. Semb Marine will likely be facing a fine probably on the same scale as that of Keppel Corp, given that the contracts awarded to the yards by Sete Brasil are about the same in number (article). While it is still early days yet for any conclusion to be reached on this.

However, there are always two sides to a coin and the present Semb Marine has had more breathing space given its recent deleveraging exercise, provided by parent Semb Industries and Temasek. I also like the fact that the soon to be in force IMO Sulphur 2020 cap has meant more Sulphur scrubber installations and the progressive change to D2 standard for BWMS would likely increase the amount of business with semb Marine for this year, as they are more exposed to this sector than Keppel. Though in most likelihood will only cushion any impact from the fine should it be implicated.

Similar to First Reit, this is a turnaround play for me, as the heavy volume selling is likely to taper off soon while I wait for the market to recognize Semb Marine’s value. While more bad news may follow, I believe that the income reports for the coming 2 quarters will vindicate my thesis.

In the long term, while they have their own niches. On their own Sembcorp and Keppel are still small players in a very large offshore market. That said, their technical know-how and execution ability are still considered top rate in this industry. With the ongoing global trend of mergers for shipbuilders it would not be difficult to see how synergies can be form through a merger, especially when some of their yards are located in close proximity with each other.

Turning back to the portfolio, the equities part of the portfolio crossed the 50k milestone this month. Including the bonds part of the portfolio and my warchest I believe we should be in good stead to capitalize on any opportunities offered by Mr. Market.