NSF Milestone: ORD! – Finance Report Card and Future Plans

I would have collected my pink IC in the morning when I published this article on 2 July 2021. No doubt, 2 years passed in a blink of an eye. It is time to move on to my next phase of life – University. I am excited to share with you in this article my finance report card on personal finance, investments and future plans as a NSF before I officially become a National Servicemen (NSmen) on 4 July 2021.

Personal Finance

Cash Flow Allocation

There is no change in my cash flow allocation since I last disclosed in September last year. For every $1 inflow of cash, I will allocate $0.55 to investments, $0.21 to Savings and the remaining $0.24 to expenses. I will top up from savings if there is a shortfall in my expenses account and any remainder from the top up will be saved in expenses account for future usage. 

I had a change in investment strategy in investing in S&P 500 ETF. Instead of DCA into the ETF monthly, I decided to only have a certain percentage of exposure to the overall US market in my portfolio.

In addition, as I feel that my warchest is significant enough at this juncture compared to my peers of the same age, I decided to accumulate more to my savings and expenses. Therefore, any amount allocated for investment will be channeled back to Savings and Expenses.

There’s definitely a need to change the cash flow allocation as I transition to the next phase in life. This is due to the fact that I will have more financial commitments from adulting such as insurance so there will be adjustments to be made which I will cover later on.

High Yield Savings Account

I post monthly updates on High Yield Savings Product available in the market, in which you may refer to this article for the latest update. There are two types of High Yield Savings Product – Cash Management Solutions and Insurance Savings Plans and I only use the latter to earn higher yield. 

Why? Liquidity. 

Cash Management Solutions, although offers higher yield compared to Insurance Savings Plans, takes about 3 working days before you can receive your proceeds. On the other hand, Insurance Savings Plans such as Singlife, and Singtel Dash PET offer almost instant withdrawal where you can receive your proceeds immediately. However, Singtel Dash PET charges $0.70 per withdrawal, but I think it is worth the charges to receive your proceeds immediately. 

Case in point, a redditor shared that all his emergency funds are stashed in cash management solutions and he urgently needs his pipes to be fixed and the plumber only accepts cash or paynow. He’s thankful that despite having zero cash in bank accounts, he managed to pay his plumber with his investment dividends. Else, he might need to suffer with poor piping for the next 2-3 business days before the plumber can be called back. 

With that being said, I continue to use Singlife as my main savings account despite its rate of return decreasing to 1% from July. I also keep about 3 months worth of expenses in my Jumpstart account meant for expenses.

Endowus Cash Smart Ultra?

I have to point out the fact that many are recommending Endowus Cash Smart Ultra as it offers 1.8%-2% rate of return which is attractive given that many savings products have been adjusting theirs downwards. I think that it is dangerous to have such thoughts because you are risking more to earn higher yield and the fact that the majority park their emergency funds in cash management solutions. 

Endowus Cash Smart Ultra has an average credit rating of BBB. Though it is still investment grade, most of the funds invested are on the verge of having credit rating of junk bonds. Note that any rating below BBB- will be junk bonds and 3 out of 5 of the funds used have credit rating of BBB and BBB-. 

The question one should ask themself is whether they are taking on too much risk just to improve their funds returns by 0.5-0.6%. A look at the image below shows the maximum drawdown ever recorded since funds inception. Cash Smart Core, with a projected annual return of 0.8-1.0%, has a maximum drawdown of 0.05% and took 6 days to recover from the trough. Cash Smart Enhanced, with a projected annual return of 1.2-1.5%, has a maximum drawdown of 0.92% and took 57 days (about 2 months) to recover from the trough. Cash Smart Ultra has a maximum drawdown of 2.59% and took 100 days (about 4 months) to recover from trough and its projected annual return is 1.8-2.0%.

I believe that investors should not be taking too much risk on investing their cash in cash management solutions. However, to each their own, as it depends on the individual’s risk appetite on such a product. It is important to identify which Endowus Cash Smart is suitable for which particular funds’ needs. I WILL NOT invest in my cash in Cash Smart Ultra but only Core (short term) and Enhanced (long term). 

Accumulated Savings during NS

I told myself on the day I enlisted that I wanted to track my expenses and savings so that I can challenge myself that a non combat fit soldier can save more than $10k by ORD.

I use both Spendee and my excel sheet to track my expenses. Spendee is used to track all my transactions while my excel sheet consolidates and summarises all the transactions into inflow and outflow by categories. After which, I will use the cash flow allocation model mentioned above to allocate my inflow before I gain insights on how much I save with Overall Cash Flow and Free Cash Flow. 

Overall Cash Flow refers to the actual savings I have each month after spending on essentials and wants while Free Cash Flow excludes savings meant for investments. I phased out the usage of Free Cash Flow as I started allocating cash flow meant for Investment back to Savings and Expenses as I wanted to accumulate more monies in the latter accounts. Therefore, Overall Cash Flow will be a better reflection of my savings amassed over the past 2 years. 

After recording close to 450 transactions on Spendee, this is the result I get after 2 years. I managed to save close to $12,350 as a non combat fit soldier and it could have been more if I had not made big purchases when my overall cash flow went negative on three occasions. I would like to make a disclaimer that a small portion of my inflow came from stocks dividend and bank interests. I am surprised that even though it might be a small sum of money each time, it added up to about 2 months worth of Recruit’s allowance. So, it is important to start investing early and look out for higher yield savings accounts or products to make money work harder. 

Even if one did not start investing your money and park their cash in a higher yield savings account, I think it is still possible for a non combat soldier to save $10k by ORD, provided that one has to live frugally.

That’s not the point I would like to make but instead, I think one should try to save as much as possible without sacrificing or compromising their life that they want to lead. I feel that’s more important.

Investment

I am thankful for readers who read my portfolio reveal article in March. The response was better than I expected and I thank everyone who was interested in it. There were changes made to my portfolio ever since the article was posted. I will be explaining what was changed in another article as I would like to keep this article short and easy to digest. 

You may refer to the above image on my asset allocation. There’s definitely differences between my current asset allocation and the asset allocation a year ago in my 1 year milestone post. The main difference will be the introduction of CPF into my asset allocation pie chart. I got inspired by a blogger recently that she treated CPF as a bond-like instrument and I totally agree with her as it gives stable and risk free interest each year. The second difference is cryptocurrency appearing on the asset allocation pie chart. This is because I ventured into cryptocurrency this year – mainly buying Bitcoin and Ethereum. I have built a sizable cryptocurrency portfolio and I do not see myself adding more as I would like to keep within a certain percentage of below 10%. 

Finally, I would like to comment on my cash allocation. I do not usually have such a high allocation in my warchest account but I have been cleaning up my portfolio over the past month by reducing and selling my less convicted stocks and ETFs, overweight stocks by allocation and added new positions.

The image above shows my portfolio allocation. I would like to highlight that as a result of reducing my overweight stocks in my portfolio such as DBS, my positions are evenly allocated in my portfolio except some higher conviction stocks.

Higher conviction stocks such as AMD and SE are allocated with higher weightage in my portfolio. As mentioned above, I have added new positions such as KWEB, PDD, PATH, TSM (not shown), UPST and APPS into my portfolio. I will be explaining my rationale in my next article, so please keep a lookout as usual! 

The image above shows my YTD portfolio’s time weighted returns. My portfolio performance is compared against benchmarks such as VOO, VT and QQQ. It is no doubt that investing this year is definitely much more difficult than last year, especially with the fact that Nasdaq has been trading sideways since February. I am surprised that my portfolio’s YTD time weighted returns outperform benchmarks marginally! I think it is mainly due to my cryptocurrency venture as they are my most profitable positions in my portfolio.  

Future Plans

I mentioned in my earlier section that I would need to look into adjusting my cashflow allocation as I am preparing to transition into a working adult in 4 years time. The image below shows my proposed cashflow allocation as a university student and beyond. 

For every $1 of inflow, I will allocate $0.30 to investments, $0.30 to savings and the remaining $0.40 to expenses.  I will allocate $0.55 to investments, $0.21 to Savings and the remaining $0.24 to expenses. The rationale of having such an allocation is that I have to start thinking about insurance in the future and definitely would require some accumulated cash for premiums to be paid. For now, my insurance coverage is well taken care of by my parents but I will have to look into it by myself sooner or later. Therefore, you should start expecting insurance articles from this blog in the future. 

I will be matriculating to NUS to study in the School of Computing faculty next month. It is unfortunate that I do not have any scholarship. I should be providing updates on how I will be managing my finances during Uni in the future but my current plan is to depend on financial aid and parent’s endowment fund to pay for my tuition fees. I think that I am back living up to my blog name of Frugal Youth Invests as I try to live frugally as a student. 

Closing Thoughts

Contrary to popular beliefs, I think that 2 years in NS just passed by that quickly. 

This 2 year is your freedom to explore things with NS being your only commitment which you can fall back on everytime. To name a few examples, you can learn new skills such as driving, musical instruments. You can even spend 2 years of your time improving yourself for academic or scholarship purposes or learn how to manage your own finances! 

One advice I would give to everyone currently serving is, “Do not count your days to ORD but instead make your day count”. Make each day a fulfilling one and you will not regret when you ORD!

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