In Buddhism, the Noble Eightfold Path refers to the following:
Right Understanding 正見
Right Intent 正思維
Right Speech 正語
Right Action 正業
Right Livelihood 正命
Right Effort 正精進
Right Mindfulness 正念
Right Concentration 正定
It is a core and profound teaching providing a practical guide to living. Today we are just borrowing the term to use it for our purpose. The analogy ends with the number (eight) and perhaps how we should have important foundations (i.e. Right Understanding and Intent) before we progress. For those interested and want to learn more about the Noble Eightfold Path, please ask ChatGPT :)
For our investment journey, I have thought long and hard about what would be the several important components of our balance sheets (assets) or types of investments to build wealth over time, in the Singaporean context. The following is what I have come up with, based on my own experience, which I will go through point-by-point in this post and another follow-up post.
Active Income
Cash, T-bills
Pension / CPF
Property
ETFs
Stock portfolio
Top picks for the home run
Speculative investments / private equity / Gold / Others
Active Income
Years ago, Robert Kiyosaki wrote a so-called seminal book named Rich Dad, Poor Dad. He introduced the concept of passive income. His message was that we should all aspire to generate passive income, through investment, property etc. Then we didn’t have to work etc etc. It was a big myth. Looking back, I think the book did the world a dis-service. We all have to work. That’s the way it is.
Today, I would turn the concept on its head. Passive income can never surpass active income. Take your work seriously. If you don’t like your job, quit and do something else. The active income is the basis of building wealth. Importantly, save up so that you have cash, a big retirement nest egg or pension and property (#2, 3, 4 below).
At a certain point in life, you may acquire the capabilities to not work for someone else. You have achieved the pinnacle in your career and it’s time to slow down. You will still need active income. This is where things get interesting.
The interplay between cash, investments, property can support your transition to do something else. Hopefully this still generates active income which can become supplementary to your investment income which can sustain your lifestyle.
Cash, T-bills
Next we have cash and T-bills, we cannot live without cash in the modern world. While it has no meaning in the animal kingdom, or if you own a farm which can sustain yourself, it is essential for most people today. There are real-world examples of people running out of money and then starving to death. As such, it is important to always have cash. The rule of thumb is 12-18 months worth of liquid cash in case shit happens.
Related to cash is my favourite investment today, which is the first post on this substack. Some of the cash should be invested in T-bills. Singapore 6 month T-bills continue to give 3.7%pa and US ones are even higher. It comes back after six months (effectively you only get 1.85% for 6 months). Honestly, there is no need to do any other investment for most people. Just put all the spare cash (minus what you need for the next 6 months) into T-bills. If you want to remember the one thing from my last 2-3 years of writing on this Substack, this is it. Buy T-bills. Read my first post.
Pension / CPF
In Singapore, almost every worker needs to contribute to the national pension fund which is called CPF. For young readers, this is more a pain because you think what is rightfully yours is being locked away. But as you age, the payout day gets closer, then things become really, really relevant.
If you have made the right decisions, you stand to take out a lot at age 55. It could be hundreds of thousands of dollars. Alas, CPF is being used to fund property (the next topic), children’s education and what not. So a significant number of Singaporean cannot hit what is known as the minimum sum which is about SGD200,000. So there was a big backlash that the Singapore Government has cheated us, locked away all these monies. We never see them. We die and it only gets passed on to future generations.
To me, it’s a case of mis-understanding and not getting all the right information. It is complicated, but it’s all out there. While people called CPF a scam, on the flipside, a guy name Loo Cheng Chuan started the 1M65 movement that utilized the compounding of CPF and grew his money to >SGD1,000,000. Originally, he believed he would get a payout of SGD1,000,000 when he turns 65 (hence 1M65). But he way surpassed his own calculations. He now has way more and he is only in his 50s.
So, think hard about the decisions you need to make with CPF. It can be literally life-changing. Aspire to be like Loo Cheng Chuan.
Property
I have written one important post about property. In sunny Singapore, we are fortunate to have great leaders who had the foresight to devise a national strategy which allowed 80-90% of Singaporeans to own their homes. So I would presume most readers here would own your own homes.
Your first home is very precious. Don’t trade it.
The second property onwards is then investment. Property provides leverage for individual investors and by and large generate positive returns over time. But you could also lose a lot of money if you are not careful. Strive to pay down mortgage fast, then the real investment game begins.
The abovementioned are more like bread and butter of our financials in this lifetime. Please make sure they are secured before you think about anything else. In the next post, we shall discuss the risky stuff. Stay tuned!
Huat Ah!
Main blog:
http://8percentpa.blogspot.com/
This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.