Ok yes, ok.
Dear Singapore government, I apologise for this impudent title. Afterall, ALL of us started buying bonds after we started working.
Don’t quite catch me?
Well, your CPF contributions from employment are channelled to your own Special and Medisave Account and CPF Board then uses these monies to purchase Special Singapore Government Securities. So yeah, the 4% interest that you earn from those accounts come from the yields of these bonds.
So everyone should be quite familiar with bonds, uh huh? 😉
That aside, there’s no doubt that the Frasers Centrepoint Limited (3.65% Per Annum) Bond is the first time I chose to actively include bonds in my own portfolio. More details below:
What Have I Bought?
Firstly, some basics for those who are close to clueless.
The Frasers Centrepoint Limited (3.65% Per Annum) Bond is a seven year retail bond. Frasers Centrepoint Limited (FCL) will redeem it at par value (price you purchased it at) at the end of seven years. And well, it’s tradeable on the market during this time period.
The bonds pay out coupons twice a year, on 22nd May and 22nd Nov each year, from 22nd Nov 2015 (first payment) to 22nd May 2022 (last interest payment). 22nd May 2022 is also the maturity date of the bond.
Therefore, if you had bought $10,000 of this bond, you can expect a coupon of $182.50 on 22nd Nov 2015 and 22nd May 2016 to add up to the 3.65%. Effectively, it’s a dollar a day.
FCL can also choose to redeem the bonds earlier. What’s the impact? Over here. Fellow blogger LP has done a terrific job on this on his site: Bully The Bear and there’s little I can add. He’s really the go-to-guy on our local blogosphere if you’re keen to brush up on your bonds knowledge.
On his advice, I balloted for 21 lots. And since I expected an overwhelming response, I only anticipated a partial allocation, like about 50%.
But well, I received the full allocation. And I ain’t complaining. So that’s $21K of our assets in this bond.
My Lowdown On Bonds
It’s all about diversification within bonds.
If you have $1 million of assets and hold 50% of it in bonds, you really shouldn’t be holding $500K in just one type of bonds, unless it’s the Singapore Saving Bonds.
And the only reason why I participated in this bond offering was that it is likely to yield at least a 1% premium compared to the Singapore Saving Bonds (SSBs).
FCL is backed by Thai billionaire Charoen Sirivadhanabhakdi (try pronouncing that) after his successful takeover of formerly local conglomerate F & N. And honestly speaking, there’s really only a small chance of FCL collapsing in the next 7 years.
But still, I wouldn’t want to risk more than 10% of my assets in this company and within my bond allocation, I would probably mix it up with the SSBs and if one of the local banks restart their bond offerings, yours truly would be taking a closer look.
A 3% yield for bonds overall is a reasonable target that I am aiming for.
Why Bonds Now?
A year and a half ago, I wrote an article about why most Singaporeans don’t hold government bonds. And at that point, I didn’t hold any bonds too. So why now?
Then, our portfolio was smaller. Couple with the fact that we were both working pretty well-paid jobs, we wanted to be aggressive in our investments.
Motto: More money in markets, more growth. Hohoho…
Fast forward 1.5 years and some things have changed. We are taking turns taking sabbaticals, yours truly has taken a pay cut to do something that is much less monotonous. Money is still being continually socked away but at a much slower pace in the past year than previously. Therefore, it’s reasonable to become more conservative and allocate a decent proportion of our assets to bonds.
Furthermore, I am becoming more and more open towards indexing a bigger part of my portfolio. A 70/30 stock and bond allocation sounds about right with some rules set that triggers some form of re-balancing.
Even though I am doing a half-decent job with my own stock picking, I am starting to believe that I might prefer to use this time to pursue other interests. Well, that deserves a post by itself and more time needed to ponder over this investment philosophy change.
That’s all folks. If you missed the balloting, there’s every chance of purchasing when the bonds start trading on Monday, 25 May.