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Originally Posted by whizzard
The salaried job has allowed me to rollover my investment income to grow the pot but my annual investment income is well below 10% of the portfolio so it would take quite a while to move the needle. I am tinkering with the idea of employing leverage to increase the returns but let's see how ..... my bankers are offering me loans at an all-in rate of approximately 1% + pa pegged to cost of funds (short term rates). Provided short term interest rates stay low, I could still increase the returns by leveraging my higher yielding bond portfolio. The game will come to a stop when the low and medium term interest rates converge so I am still thinking about it. But, it would give me a nice recurring passive income base for a few years if I set it up properly. I think I can assess credit risks but how interest rates would move is another kettle of fish! Any experts here have any views? I would like to learn. Private bankers only want to sell and earn commissions. I don't trust them at all. Only use them for execution.
Took a fair bit of money out of the equity markets recently. Don't know whether it was a good idea on hindsight as the markets are still charging ahead. Whatever, markets will always go up and down and a realised profit is always better than an unrealised profit. Now, as long as I don't do something stupid with the spare cash I should be fine - patience and adequate research before I redeploy.
I have also sold off my overseas properties. Waiting for the currency markets to move in the right direction before I bring the cash back to Singapore. I don't see the Singapore property market being a particularly good asset class currently but I have my eyes set on something here if it moves to my level. Well located freehold landed properties should still be a good investment class but not the non-landed segment. Again, patience and adequate research and analysis. Else, I just use it to pay off the bank loans for my existing investment properties in Singapore if mortgage rates were to spike up.
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What you are talking about is the carry trade, which Singaporeans with private bankers have been doing for the last 5 years. You are a bit late to the game. However, it's still an OK time to add leverage to your portfolio. A secured credit facility (secured off your existing equities or properties) should not cost you more than SIBOR+75bp and if you negotiate, you should be able to get it down to SIBOR+50bp. This should put your borrowing cost under 1%, not over, whether S$ or USD. On negotiating, your key point should be that you will bring your entire portfolio, overseas, local, property and equities under one bank. Calculate your entire asset base, then lever to a certain safe level. Say, if you add up all your assets and you have $10m and $1m worth of loans (e.g., mortgage), you are probably under-levered. If you are a conservative fella, and it sounds like you are, try getting it up to around 30%. This means, you can borrow another $2m and invest it into bonds or high yield equities. At 5% return, this will give you another $100K of passive income per year. On bonds, long-term rates have risen and are expected to rise more, so I think I would wait a little until for rates to rise more. As a finance professional, you know that bond prices will fall as long-term rates rise. If you are impatient, you can pick up some of the recently issued
UOB Basle III Prefs for around 4.6% yield (they were issued at 4.9%). You are right not to trust private bankers as they will sell you the highest margin products for them rather than the best for you.
I would stay invested in equity markets. Rising rates means that economies are recovering. For Singapore, there is a switch from yield plays to cyclicals. Recovery seems to be taking hold in the US, so you might want to shift some funds there. US real estate is rising rapidly. If you are trying to time the market and willing to feel lousy for a while so you can make a lot of money, put it into Europe, perhaps that villa on the French Riviera.
I wouldn't hope on property prices coming down in Singapore. There are too many people like you waiting on the sidelines with a ton of cash. I personally know 20+. If you are under-levered, why are you paying down your mortages? That is just not sensible. Besides, if you make an arrangement with a private bank by collateralizing your properties and equities, you can always raise a few million in an instant should an opportunity come along. You will always have "dry powder", even without keeping a ton of cash earning nothing.