Perspectives from Perth (on holiday)

I am on holiday in Perth, Western Australia (WA) and one of the few things that struck me was the relatively high interest rate in WA! I was chatting with the taxi driver as he drove me from the airport to my hotel in Hay Street and even he was a 60 plus year old taxi driver, was entrepreneurial enough to take a loan of about AUD 185,000 to buy a 2000 sq metres piece of land which he sub-divided and intends to sell for much more than that. He was paying a loan rate of 8.75% for his loan.

Wow, if that is the loan interest rate, imagine what is the interest rate for savings and time deposits in Australia!

The more I start to learn and know more about Australia, the more I believe financial freedom lies in relocating to Australia. Many Singaporeans have already taken this route to migrate there and to establish a home there. Why is that?

Perhaps it is the relatively abundant land relative to a place such as Singapore. Perhaps it is the physical space that you can have as no matter how crowded Australian cities can get, nothing beats Singapore rush hour except for Hong Kong and Tokyo. Perhaps it is the fact that costs of your home and transportation, i.e. a car is not prohibitive. In addition, the economy is currently booming in Western Australian as well due to the mining development arising from China and India's voracious appetites for the mineral resources of this continent down under.

Perth is also a place conducive for family life. People go home sharp at 5.30 pm and the Hay and Murray Street (their equivalent of Orchard Road shopping Mal) shuts down around that time on an average weekday night! In winter (middle of the year), it gets dark around 5pm plus. Only on Friday evenings does shopping hours extend to 9 pm and shops operate 12pm to 6 pm on weekends.

But the high interest rate really sets me thinking as the key financial freedom is living within your means, building up your savings and investing it for positive passive cash flows. When the rate of return on your investments is higher, you would need a relatively smaller amount of portfolio investments in order to be financially free. Our Singapore interest rate is so low that returns on your savings is abysmal. It practically forces investors who want a higher return to punt on the stock market.

Travelling has opened up my eyes and ears as I learn more about other possibilities in financial freedom.

May you have a good week and be well and prosper.

G'day from WA!

How to renew your treasury bills automatically on poems

5C_tbills_rollover
Originally uploaded by panzergrenadier

The more I learn about treasury bills, the more I realise it is a good addition to your investment portfolio under the category of money market instruments.

Similar to a fixed deposit (time deposit), you can also do auto-renewal of your 3 month treasury bills using poems.

How does it work, let's look at what poems say,

Terms & Conditions for Rollover

(source: www.poems.com.sg)

"1. By opting for rollover, you are instructing us to repurchase for you, another Treasury Bill upon maturity of your existing paper.
2. We will buy for you, a similar quantity at the next available MAS auction.
3. If this bid is successful, your trade will be processed at a cost of 10 basis points from the actual auction yield. Should the auction bid be unsuccessful, your trade will be processed at the yield available in the secondary market, without deducting an additional spread.
4. This rollover feature will continue indefinitely, until you opt out. That is, we will continue to buy for you a similar quantity upon maturity at the next available auction, until otherwise notified.
5. Opting in or out of rollover must be finalized by 5 trade days before the maturity of your existing paper. After this cut-off date, no changes are allowed.
6. You are only allowed to select rollover for securities that are in your portfolio. "

Points to note for treasury bills investors
Now the interesting point about rollovers by poems is that the spread will be 10 basis points (0.1%) versus 15 basis points (0.15%) that is normal when you buy treasury bills through poems. Why would Phillip securities give you this slight discount? The reason is that when you do a rollover, you take the risk that the yield may go up or down since treasury bills are weekly auctions by the MAS and primary dealers (financial institutions) and the price (or yield) is only know after all bidders have submitted their bids and the MAS decides on what is the cut-off yield that were successfully in bidding for the treasury bills tranche offered by MAS.

Pros and cons of using rollover
But this convenience allows you to let your treasury bills ride on for autorenewal especially if you have earmarked a certain portion of your portfolio in this very low risk and reasonable yielding asset that is guaranteed by the Government. The only catch is that you need to monitor the direction of the treasury bills yield about a week prior to te renewal date so that if you think yields are going way below that of 3 month fixed deposits of similar denomination, then you may want to stop the rollover.

However, if treasury bills yields are trending up, then your rollover will allow you to capture that yield and yet save 5 basis points on the spread that Phillip securities makes from offering this service. So far, I have been very satisfied with treasury bills using poems because the ease and convenience is unsurpassed. 15 basis points I believe is fair payment to them for offering this service to customers.

Try rollover if you want to sleep well at night
If you are an investor who has already decided at a certain percentage of your portfolio should be in treasury bills for the safety and as a protection against the fluctuations in the stock market, consider the rollover option but remember you will have to accept whatever yield is done at the auction. Caveat emptor, so do your own risk assessment and due diligence if this is suitable for you.

Be well and prosper.

Fixed Deposits and Savings

How many of us can remember the POSB squirrel savers scheme? This was where primary school children were encouraged to save by purchasing stamps and pasting them on sheets of squirrel saver booklet. From there, we were also encouraged to open up POSB savings accounts.

I thought that was a brilliant scheme as it encouraged children to save up when young. I also recall the Standard Chartered Piggy Bank where one could deposit coins into the Piggy Bank and then periodically go and deposit those coins into our bank books. The children's passbook issued by Standard Chartered was also very colourful. I remember it contained pictures of Snow White or Dumbo the elephant. I do not have copies of those items anymore so I hope my memory serves me well! :-)

Interest rates in Singapore are at very low rates recently. I found out about qotion.com from Hardwarezone Forums and they confirmed that Maybank was offering the best deal at 2.08% (as at 23 Feb 2007) for their iSavvy internet banking savings account for balances >= $5,000. This is way ahead of the lowest at 0.125%. Do shop around for the best deals as it varies from financial institution to financial institution.

Qotion.com also does a good comparison of local fixed deposit balances as well. Using $10,000 as the amount and 3 month fixed deposits tenure, the best value for money (as at 23 Feb 2007) was Bank of India at 1.55%. If we use $25,000 as the cut-off amount and tenure of 3 months, the picture changes someone, Maybank is still offering a very aggressive 2.68% for their iSavvy Time Deposit while NTUC Thrift comes in at 1.765%.

What do we learn from all this? We need to shop around for the best bargains and the internet does help by lowering search costs. Imagine, the large disparity in fixed deposit interest rates among local banks.

Do your own homework and shop around to find the best deals because we work hard for
money, we should let our money work hard for us!


Disclaimer
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