Sunday, 15 March 2015

Making your first few years out of college count as a [Banker] (Part II)

We had discussed about some methods for dealing with the job in the first part of this series. Let's now move on to the other aspects of life that I find matter much more than the job. These aspects, if handled well, provide much more possibilities for the future, will enhance your well being and might even help you seek greater meaning in life. 

Dealing with personal finances

So you've got a great gig going on and you're rocking it in the office. What's next? My advice would be to set yourself up for a life with low expenses and overheads. Here are some ways to figure this out. 

1) Office Perks

Most firms provide for the overtime meal allowances and a cab ride home. Meal allowances in the banking industry generally range from S$20 - 40 at food outlets in the vicinity and you can claim a cab ride home if you stay past [2100] or so, depending on how stingy your firm is. Most firms also do provide an allowance for weekend work, that would comprise of a meal allowance and cab fares to and fro the office. One institution I know has a weekend allowance of close to a S$100 per day, provided you "work" for more than five hours. 

For most people just beginning their career out of college, you'll be loathe to leave these perks unused. In fact, the smartest folks I know would purchase two meals, one to consume for dinner and the other for consumption at lunch the next day. Some might even purchase healthy snacks such as nuts or fruits instead of exceeding the budget at restaurants around the area. Trust me, a healthy option is what you want to be reaching for instead of a Snickers bar at 0400 in the morning. And the large majority try to time their work on the weekends such that they can enjoy the weekend allowance and yet get shit done as well. These allowances do add up to a pretty hefty sum, by my last calculation it would be around S$1,200 - 1,800 per month, depending on how much overtime you put in.

2) Automate your systems

Get your bills sorted out through GIRO or recurring credit card payments. Sign up for a credit card. Depending on your preferences, some would like frequent flyer miles whilst others would prefer cash back. Personally, I fall in the cash back camp, and would recommend the OCBC 360 account together with the OCBC 365 cash back for some form of interest (up to 3% p.a., depending on certain 'performance metrics', and limited to first S$50,000) and some great cash back deals. Generally I don't find any substance in paying annual fees, and with most basic credit cards, you can get annual fees waived, at least in the first year. So make sure you get that tied down. c. S$200 bucks would be quite a substantial sum of cash that you can use for at least 3 solid meals instead of paying for a piece of plastic in a business where the consumer is actually king. 

The most important thing is to ensure your credit card bills get paid in full every month without fail. You can either do that via a GIRO from your bank account or make it a habit to log on to pay your bills in full, to avoid interest charges, which believe me, can snowball if you leave it be. Isn't there a saying that compound interest is the eighth wonder of the world? That's definitely true, and you want that to be working for you instead of working against you. 

I remember vividly that the only time I've incurred additional interest charges was when I paid my first bill and thought that the minimum sum is the only sum required for payment, and you can roll your principal forward every single month, without any fees. Although I managed to get this waived eventually, that was really clueless, abject and naive thinking back then.

Also, you want to start some form of savings. The best way is to set this up automatically such that you pay yourself first. Set up another bank account where you would transfer [ ] to monthly once your monthly pay cheque comes round. Do not touch your savings account unless for investment purposes only. Rinse and repeat. Simple. 

3) Develop your investing skills

Now that you've got the basics in place and some form of savings, it's time to head to the most important subsection in this mini personal finance summary, which is making your money work for you. Look, I believe the bottom line for getting F.I.R.E is to ensure that your passive income covers your expenses, and if you aren't able to utilize the war chest that you have built up efficiently, you'll have to end up selling your time in exchange for cash. These are the facts. The two main ways of obtaining passive income would be to build up a business that generates income for you, or through investments, be it in a business as a limited partner, or in the markets through several mediums (retail investor, fund investor, etc.) Given my lack of business acumen and experience in the former, I'll refrain from exploring that angle and will be focusing on the latter. 

How do you start? You start by accumulating knowledge through reading and then practical knowledge by applying what you have learned to the markets. Full disclosure here - my investments have been limited to the equities space. I don't hold any fixed income investments as I believe staying fully invested in equities would yield the highest expected returns over a sustained period of time (at least five years and above). I'm also against the use of any forms of leverage, including the use of sneaky leverage through property investments, given the golden handcuffs and unnecessary worry that might cause me. I have trouble enough getting a good night's sleep and I don't want to worry about the repercussions of what would happen to my finances should I get laid off.

And yes, like that great song that was sung decades ago, things are always a-changing, especially in investment banking. Just last month, Goldman Sachs' Singapore office laid off 30%  of its staff. My heart goes out to them and I hope that have taken prudent measures on deployment of their cash hoard. I guess the name of the game is optionality - creating enough options for yourself should shit hit the fan. 

I digress. What I would strongly recommend for most investors is the purchase of an index fund that is generally commensurate with the global economy instead of doing stock-picking, for reasons I should surmise in another post. In any case, for index funds, the first one that comes to mind would be the Vanguard S&P 500 index fund. A fund that basically tracks the S&P 500 and has low expense ratios. Besides the components that form the index fund (i.e. the S&P500, STI Index, HSI index, etc.), the expense ratios would perhaps be the next most important input that I'll be evaluating. You want something that has the lowest expense ratios, because you don't want any fat cat fund managers taking more than they deserve. After all, it does not take rocket science to deploy funds to track an index. Lastly, if you're investing in an index fund, it'll be a good move to deploy your cash in stages (monthly, quarterly, etc.) to get some benefits from dollar cost averaging and also to somewhat neutralize market timing bias. 

A caveat here - I don't have any holdings in index funds, though I am fairly certain this is what I would practice if I were to reset the clock. And as much as I'll like to discuss various equity investments and perform case studies on them, I'm bound by certain most reasonable and appropriate compliance restrictions - thus will not be able to provide any insight into that front. 

The way I think about investing is that besides you going to work, you would have [ ] more workers going to work with you, and they work for your sole enterprise, such that in [ ] years time, you can enjoy the fruits of your labor. 

The best time to plant a tree for shade was 10 years ago, and the next best time to do that is now. 

I'm not sure whether it'll be useful to share books for reading and articles that have shaped my thought process on the investments and personal finance front, but if you would like me to, shout out and I'll think about it in more detail next time. 

With that, I have covered part II of this series. In the next part, which should be the last part, I'll discuss about lifestyle inflation, relationships and personal development.


  1. Great post there. I would like to ask what makes you want to recommend index fund when you yourself has chosen to invest in individual equity yourself.

    I know Joel Greenblatt has been another convert from concerntrated equity to diversified positions as well. What about Joel Greenblatt formula investing method? Would you consider this as a way to add more juice to the plain vanila index investing?

    Thanks for the generous sharing. I benefited from your sharing and I am sure you have good karma in everything you do for being a generous soul here. Look forward to your next posting :)

  2. Hi there!

    Good posts! Why don't you do index now? Is it too late?