What is the biggest personal finance change you have made since the pandemic?

I was reading post in Seedly titled “What is the biggest personal finance change you have made since the pandemic?” and some of the posts are pretty insightful. Read here.

The post above by Elijah Lee above does struck a chord with me. In a way, it does feel a bit like forced retirement, albeit that I have the rare good opportunity to spend more time with my kids (who are still young). BTW I am still in my current job.

And yes, during the circuit breaker, my spending is further reduced as I spent on the essentials and the necessary bills. Expenses on eating out and transportation is almost negligible.

And yes, I did take a look and think about at my passive income streams, and I wondered giving the recent volatility in the markets and dividend cuts/suspensions, would I be able to stomach that when I am in my 60s or 70s. Basically with a shorter runway (time wise) and with a larger portfolio (monetary wise).

Like Shana Loh above, as much as I acknowledged that investing in stocks is risky, I reckon it would still be a good time to be invested when the market crashed early in the year, over the long horizon.

Although I did not have the luck in picking winning stocks (multi-baggers) in the tech sector or in glove makers stocks, I have nevertheless, managed to increase the dividend income massively this year. Having said that, it is not easy to ride the volatility.

I continued to top up (albeit in tiny amounts) my CPF accounts, doing the DCA into stocks. Going forward, as we are nearing the end of the world, my main aim now is to save up more (as I tend to give my parents a token lump sum every CNY).

Actually, I realised that spending wise (during this pandemic), given the bare boned version – I can actually survive minimally on my passive income. Though I don’t think it is a lifestyle I would enjoy. I can’t imagine what would life be like without my kids. The house would be so much quieter (esp. during the weekends).

I am actually not into watching dramas … although I do watch the occasional movies on Netflix, and videos on Youtube. I spend most of my spare time reading (and was disappointed when newspaper reading was disallowed in the public libraries).

And I reckon if I get older, the medical expenses will rise. I have been contemplating on insurance and beefing it up. So it is still a work in progress.

Going back to the topic, the biggest financial change for me in 2020, would be the big change in my stock portfolio which is heavily skewed towards dividend stocks and a much larger allocation in stocks (in terms of my net wealth).

It could have been the worst or best time. Things are constantly evolving. However, if I had to relive the beginning quarter of this year, I would have probably made the same choices (not knowing what the future holds).

We are already in a new normal. The impact and the duration of this pandemic is not what I have initially imagined. I do not know if this will be the permanent situation in the longer term, but with the 2nd wave (of COVID-19) hitting the West, it won’t change back to the old normal anytime soon.

In my tracking of REITs, business… (more than a decade long perhaps), this is by far the biggest fundamental shift …. in many traditional business, and perhaps the one of the biggest drop in prices I have seen in the many of the traditional businesses (REITs, property, hospitality. tourist related, etc).

Never would I thought that I would be working from home, and video conferencing for all my meetings, etc. The CBD deserted and going to be given a contact tracking token soon.

So yeah, really could be the worst and best time… Only time will tell.

COVID-19 cases are increasing in Europe and the US, Office rents in Singapore are dropping, physical retail shops are closing, retrenchment in Singapore is trending up… all said, it is going to get much worst before it gets better. With news / social media so accessible.. I get plenty of headlines daily.

Stocks just wrapped up their worst week since March (read here)

Europe’s second wave of Covid-19 doesn’t excuse Trump’s failures (read here)

Singapore office rents drop further in Q3, tenants asking for short-term renewals: Report (read here)

Robinsons to close last stores at The Heeren and Raffles City (read here)

Singapore retrenchments, unemployment rate rise in Q3, labour market shows signs of improvement (read here)

Many of the dividend income stocks are hammered (banks, REITs, consumer staples, etc) with only a few exceptions.

Basically, the markets are swaying between the depression of rising Covid-19 cases and hopes of fresh stimulus (fiscal or monetary). In addition given the low interest rate environment, in the search for yield, choices are limited.

It made me reflect upon the latest memo from Howard Marks titled “Coming into Focus” (read here). See below extract:

In my view, the low interest rates represent the dominant characteristic of the current financial environment, creating the dominant consideration for investors: the lowest prospective returns in history (for the reasons described on pages 4-6). Thus I’ve dusted off a presentation I’ve been giving in recent years called “Investing in a Low-Return World.” At its end, after laying out much of the above, I conclude by enumerating the strategic alternatives for investors:

  1. Invest as you always have and expect your historic returns. Actually, this one’s a red herring. The things you used to own are now priced to provide much lower returns.
  2. Invest as you always have and settle for today’s low returns. This one’s realistic, although not that exciting a prospect.
  3. Reduce risk in deference to the high level of uncertainty and accept even-lower returns. That makes sense, but then your returns will be lower still.
  4. Go to cash at a near-zero return and wait for a better environment. I’d argue against this one. Going to cash is extreme and certainly not called for now. And you’d have a return of roughly zero while you wait for the correction. Most institutions can’t do that.
  5. Increase risk in pursuit of higher returns. This one is “supposed” to work, but it’s no sure thing, especially when so many investors are trying the same thing. The high level of uncertainty tells me this isn’t the time for aggressiveness, since the low absolute prospective returns don’t appear likely to compensate.
  6. Put more into special niches and special investment managers. In other words, move into alternative, private and “alpha” markets where there might be more potential for bargains. But doing so introduces illiquidity and manager risk. It’s certainly not a free lunch.

None of these alternatives is completely satisfactory and free from downside. But in my view there are no others.

To put it into the terms I’ve been using over the last several years, how should the balance be set today between aggressiveness and defensiveness? How should you “calibrate” the riskiness of your portfolio? Should it be at your normal level; titled toward offense to try to wrest high returns from a low-return world; or tilted toward defense in deference to the uncertainties, requiring you to settle for lower returns?

As I’m sure is my bias, I lean toward defense at this time. In my view, when uncertainty is high, asset prices should be low, creating high prospective returns that are compensatory. But because the Fed has set rates so low, returns are just the opposite. Thus the odds aren’t on the investor’s side, and the market is vulnerable to negative surprises. This is how I described the prior years, and I’m back to saying it again. The case isn’t extreme – prices aren’t grievously high (assuming interest rates stay low, which they’re likely to do for several years). But it’s hard in this context to find anything mouth-watering.”

Well, it was written before the recent volatility in the markets we have seen over the couple of weeks. Probably more blood bath ahead and narrative could change.

Seriously, with what has happened this year… I wouldn’t be surprised to be flabbergasted again,

So what about you? Let me know in the comment section.

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat. Check out my Facebook Page: https://www.facebook.com/apenquotes.tte.9?ref=bookmarks
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