So back to our regular programming here: net worth! Recently I took another look at my current net worth, which has been going up and down thanks to currency fluctuations, but has been generally going up. The problem is, it’s still too far. I’ve been working on this for about a year now (I started this whole thing August last year), and I’m still short of S$4,307,334. That’s a LOT of money to be made in the remaining 9 years!

Now, if I were Warren Buffett working during the years between 1965 to 2007, getting a return of 21.1% on my money year after year (a feat in the past that Buffett himself said: “can’t be duplicated or even approached“), then… I’m pretty much set. Just work hard, be good, live well beyond my means for 9 years, and this 5m10y project will become reality!

With a much more realistic return of 5%, though, I need to put in roughly SGD400k (US$250k) a year to hit my target. Which is wayyyyy above what I earn in an entire year!

Ahhh. So far, and yet so far.

To make a long story short, after cashing out my investments recently, I am sitting on an amount of cash that qualifies me to be a premier/priority banking client in Singapore.

Now, I know that premier/priority banking is just a poor man’s version of the true private banking, which is still in the future for me. Not now. But I’d be lying if I said that I wasn’t at least a bit excited though.

I mean, hey, imagine not having to queue with 745 other people in front of me everytime I need to go to a bank! Imagine getting “personalized attention” thing from this “dedicated Relationship Manager” person! Imagine having a limousine fetching you from Changi airport to your home! (That last one is not there anymore.)

Sounds good, no?

Well… unfortunately, my experience with a few of the local banks that offer premier/priority banking turned out to be frustrating, humbling, and eye-opening, all at the same time.

In the grand scheme of things

They must've learned from this guy.

First of all, there are the Relationship Managers. My first impressions of those premier banking Relationship Managers (RMs) were terrible.

They are horrible, horrible listeners! Not a single one of them stopped for even a second to listen and understand what I need from them. Instead, throughout the whole discussions they were just aggressively trying to sell me products. It never felt like I was having a discussion. The whole conversation was just sales pitch after sales pitch after sales pitch after sales pitch after sales pitch.

It was disappointing, really. I get better service from the tellers whom I see in my usual, decidedly non-premier, regular banking.

It made me wonder, really. Aren’t premier banking RMs supposed to give you better service than this? Isn’t the service you get here supposed to be way above what you get from the POSB tellers?

Then it dawned on me. In the grand scheme of things, SGD200k might be a big amount for you (it certainly is a big amount for me!). But in the world of premier banking, SGD200k is just an entry level, minimum amount, that puts you at the very bottom of the premier banking ladder.

Now that explains a lot of things, doesn’t it? No wonder I get better service from the non-premier banking people! I was a reasonably-sized fish in the normal, non-premier pond. But in the premier banking pond, I am just one ikan bilis among the halibuts and the salmons swimming in this pond. Coming in at SGD200k, I am literally the poorest client they have! No wonder those RMs didn’t even bother to pretend that they care!

5m10y: "Premier Anchovy"

I’m guessing here, that those people who’ve just barely made it into the private banking pond are getting the same bottom-of-the-barrel treatment as well in the private pond. (Of course I might be wrong here–I’ll write about it in this blog when I’ve become a millionaire a few years from now.)

But back to premier banking. So what’s so special about it? If the only thing you get from becoming a premier banking customer is more sales calls, why bother at all?

Well, the other things that premier banking is supposed to give you are: (a) preferential rates, and (b) access to products that “normal” banking customers don’t have access to, and (c) lifestyle privileges.

Let’s see how big of a deal these things are.

Preferential victims

Preferential rates. The word preferential is supposed to make you feel warm and fuzzy inside. After working hard for all those years, now, after all, you are a preferred person. Ahhh… that feels good doesn’t it?

Naw, sorry. Preferential rates, if my discussions with the premier RMs are any indicators, really mean that they prefer to screw you than other people.

Preferential? Why don't you kiss my... my potato!

Consider the deal I was offered, to buy a certain ETF with the “special rate commission” of only 0.5%. So if I buy USD100k, the commission is USD500. Quite small, isn’t it? Until you realize that in optionsxpress, you can get the same thing for USD68, and don’t even get me started on Interactive Brokers–those guys will only take around USD20.

Those dual currency deposit that they do is equally bad too. You’re basically selling a put option cheaply to them, quite a lot cheaper than what they could get from the market, and they’re still quote you a spot rate that is quite far from what they can get from the market. Here’s a very good post about this by icecold1967.

These preferential rates can vary widely from bank to bank too. At one point I got two offers for exactly the same product, same terms, and the interest for one offer is 20% higher than the other (close to 8% vs. 6+%, if I remember correctly).

Preferential? Not very much so, I’m afraid.

How about those special products nobody else can have access to?

Early in 2008, I met up with my (now ex) financial advisor, who was “VERY excited” because she was able to “get me special access to products which, until recently, were only accessible to accredited investors“. The only condition was that I had to put in at least SGD50k, and the commission was way heftier than what I had been used to pay.

I rejected it right there and then. In my experience, this kind of deal is almost always a rip off, especially for the little people. The price you’re paying is almost never worth whatever it is you’re supposed to get from those special, otherwise inaccessible things. Lucky me. If I had gone with that special deal of hers, I would have lost much, much more, than just exorbitant commissions.

Look, here’s the thing, kay? There are certainly products that only certain people can have access to. And it is true that some of those products are better. People like Warren Buffett, for example, get a lot better deal when he invests in a company. Way better deal than what regular investors like me can ever hope to get.

Hitting the high notes: not for DBS customers.

But products aren’t automatically better for you and me just because normally they are inaccessible to us! For instance, don’t you feel a bit lucky if you’re not one of the richer people who would have qualified to invest with Bernard Madoff, unlike this Singapore-based gentleman?

And of course, those of us in Singapore is very familiar with DBS High Notes, again one of those special products offered by these Relationship Managers to DBS’s wealthier clients–which, unfortunately, includes older people who don’t know anything about credit linked notes too.

All I’m saying is, drop the notion that just because something is inaccessible to us it is automatically better than the readily available options.

Sometimes, you’ll get screwed more, for less return. No good.

Lifestyle Privileges

Honestly, for my personality, among the “benefits” of premier banking, this is probably the most useless one. You’re not helping me one bit by giving me 5% discount if I spend 1000 dollars in some overpriced spa. Duh. Discount my bill by 20%, then we’ll talk. Okay?

Will I still go for priority banking?

Yes. But I’m not going all starry-eyed about this. I’m going in after comparing all the features, perks, and convenience that different banks can offer me. And when it comes to actually buying products, I will shop for the best deals, even if it means taking money off my balance with the bank and losing my “premier” status.

The only way those RMs can get commission out of me is if they have something that I really want, at a price that can’t be beaten anywhere else. Nobody can manage your money better than yourself! Only you are interested in you–your RM doesn’t give a damn about you! You shouldn’t give a damn about them either–just use whatever service and help they can give you. Now to me, that’s what this whole premier/priority banking is all about.

UPDATE (17 March, 2009): and be sure to read this article about private banking, written by my favourite author Doc Money. That article has convinced me even more that once I’ve reached the private banking level, I’ll be sorely disappointed again.

(Images courtesy of rick @ flickr, the US Federal Government, Decadent @ flickr, and daveiam @ flickr in the order of appearance.)

The fact that banks like Merrill Lynch paid out $15 billion bonuses after $42 billion losses, or that Citigroup paid out $4 billion after two multibillion-dollar rescues, have been discussed and beaten to death. 

People were outraged, politicians were in disbelief, and President Obama called it the height of irresponsibility and shameful. But the biggest surprise for me in this whole matter is finding out how stupid these erstwhile “financial masters of the universe” are with their own money. 

There are many articles about disgruntled bankers (like the ones working for Citigroup, who only got $4 billion dollars in bonuses this year) who spend way more than their salaries, and therefore are royally screwed when they find that their bonus for 2008 is nowhere near the ones in 2007. 

Weird, eh? On one hand, these Wall Street people are supposed to be a lot smarter than us financially. But talk about personal finance, and these guys are no different from Mike Tyson or Michael Jackson! I mean, honestly, I won’t be surprised to find that a lot of people are smarter financially than Mike or Michael (note to self: don’t name son Mike or Michael). But being smarter financially than a guy who makes 10 to 100 times what you make? That’s gotta make you stop and think for a while, eh? 

Do this so you can self-proclaim yourself smart

So what I, a self-proclaimed “financially smarter than Wall Street bankers” guy did with my bonus, which just came in a few days ago (in January)? Well, I (1) gave some money to my parents, (2) planned a nice dinner with my family and (3) am going for a simple holiday later this year with my family.

The rest of it (around 90% of it) will be allocated this way:

1. 25% will go into either a AUD or a GBP fixed deposit.
2. 15% will go into ready cash for investments, in case a good one comes along (been eyeing MSFT for sometime now).
3. The rest will go into strengthening my safety net. We don’t know whether we’ll still keep our jobs tomorrow these days.

I like to think that that plan of bonus usage is pretty smart (Please feel free to let me know if you have any other ideas though!)

One of my friends bought a high-end home entertainment system. One of them bought a freakin car (on credit! The bonus is used for down payment). Another planned a holiday to Japan (which is a freakin expensive country, not to mention the strength of the yen right now).

(It kinda made me wonder actually: am I the only one who’s feeling the urgency of this financial crisis?)

Later on I realized something: it’s not that they don’t feel the economic pressure. They do. But the way they experience pleasure is totally different from me. They need to spend bonuses and reward themselves to get motivated.

Whereas for me, seeing the bonus figure is all the motivation and reward I need. I don’t get any kick out of spending money–my kick is from earning and investing money. And no, I’m not saying this to boast or feel self-righteous. I’m not sure why I’m wired this way either.

Oh well. That’s probably why I liked uncle Scrooge McDuck so much as a kid :)

(Images courtesy of AMagill @ flickr and Kanou Hiroki @ flickr, in the order of appearance.)

The job

Whoah. What a year. The job cuts are coming, and seriously, nobody is safe. NOBODY is safe.

I thought “headcount reduction” was something that would happen to other teams, but not mine. My team handles a critical business function, and we have been doing really well despite the economy situation. Why let go anybody from such a team, right? 

Wrong. No such luck.

Last week, my peer was let go on the spot. I felt really sorry for him, especially since his wife was on her way to getting retrenched too, but at the same time I’d be lying if I say I wasn’t relieved that it wasn’t me. 

That made me add one important item to the Roadmap: do everything in my power to keep my job for now! This is important. 

The emergency fund

I’m quite happy to find out that I was able to reach my February 2009 target of S$80k early. Because of this, I’m raising my target to S$110k by February. 

The (non-existent) bonus & raise

With the number of jobs cuts happening in the market right now, I have given up my last sliver of hope of getting any salary increment or bonus for this year. Whatever I get, if any, will be a nice (and very welcome) extra.

The business

Is going slow, unfortunately. Most of my energy is spent navigating the storm in the workplace.

The wealth management

I cashed out all of my mutual funds, thereby realizing the paper loss and possibly missing the market bounce, if any. I believe that our current situation is a deep systemic problem and it’ll take more than just a few months to recover from. 

A nice extra is that I can shop around for lower commissions. My previous financial planner insisted on charging higher commission because of the advisory services, but look where it got me now. I might as well manage it myself, at least I know that it is my fault. 

I am looking into options as a strategic investment. Also I have found a place to put my cash that gives a reasonable interest rate, compared to other similar alternatives. 

The path to CFA Charter

As you must have seen, this blog has become a lot more CFA-ish recently. My study is going well and I am confident I will pass the exam in June 2009. 

Discussion with other would-be millionaires

It’s REALLY HARD to find a REAL millionaire who will have enough time, energy, and willingness to spend them for an extended discussion with a bunch of millionaire wannabes (like me).

I certainly don’t mean any disrespect when I say that any discussion with other wannabes like me is really just the blind leading the blind. It is not arrogance, it is fact when I say I can’t see how someone who has been at it for 10 years and still not being a millionaire can guide me in any way.

The December Roadmap

And finally, this is the updated roadmap:

If we’re talking about living a good, comfortable life, sure, past a certain amount, it’s not about how much money you make, but more about what you do with that money, and managing your expectation. 

But if we’re talking about becoming a millionaire, then it’s a whole another discussion altogether. This whole “it’s not about how much money you make” thing just doesn’t cut it anymore when what we’re talking about is becoming a millionaire.

Becoming a millionaire means that we’re dealing with a hard, objectively measurable number, and with it comes the assumption that we’re talking about becoming a millionaire rather soon(ish).

Sure, we’ve all heard about personal finance authors doing the “save X% of your income for 40 years invested at Y%” thing. Hey, given 40 years, it doesn’t take a Warren Buffett to be a millionaire. And in 40 years, 1 million dollars will worth a lot less. (Try plugging in the value of 1 million in 1968 and see how much it’s worth today.) 

But if what we’re talking about is becoming a millionaire and retire in your 40s or 50s, this whole “what you earn doesn’t matter” bit is just wrong. Especially if you’re a 30-something like me, and only have about a decade or so to reach the status. 

It’s like this: if what you want to have is a nice, pleasant drive, what car you have probably doesn’t really matter as long as it’s decent, clean, well-maintained… whatever.

But if you’re racing to a defined finish line, saying “what you earn doesn’t matter, what matters is what you do with it” is like saying that in a race, it doesn’t matter whether you’re driving a Renault 4 or a Dodge Viper, because, after all, if the Dodge Viper is running with 3 flat tires, the Renault 4 will still do better… right? (If it sounds absurd and silly, it’s because it is.)

Let’s put it this way: if you are smart with your money and personal finance, making double of what you make now will bring you there twice as fast. As simple as that. And you don’t become suddenly stupid with your money just because your income doubles, correct?

(Image courtesy of Jeff Belmonte @ flickr)

1. The business has been going slowly unfortunately. Load at work has been unbelievable.
2. Thanks to the economy, I think it’s quite realistic to say that my target of getting a 6-month bonus for 2008 ain’t gonna happen
3. The market has been so volatile, I’ve decided to wait with some money ready on the side–taken from the safety net. I’m planning to build back the safety net to around 80k by February 2009.
4. I’ve registered myself for CFA Level 1 Exam in June 2009!
5. I’m in discussions for other potential income streams. Hoping they all go well and provide more security for my family in this uncertain times.

Uncertain times

“Some 21 percent of those with salaries of $100,000 or more say they are living paycheck to paycheck, according to a recent survey conducted by CareerBuilder.com.”

Amazing isn’t it? I still remember when I broke the S$100k p.a. for the first time. I was super ecstatic. I know, it’s in Singapore dollars, so it’s less than US$100k, but hey, S$100k is a lot of money in Singapore as well! My savings actually jumped quite significantly when it happened. No doubt that the rising prices add to the pressure and reduce the general savings rate, but one will be in red if she has nothing to save in the first place!

“The amount of money Americans save has been declining for decades. Most recently, the personal savings rate was 1.2 percent of after-tax income, according to the Bureau of Economic Analysis. A couple years ago, the rate was actually negative, meaning consumers were dipping into savings to cover expenses.”

Time to tighten the belt!

I wish I had found this site before I wrote this post and this page, which, in retrospect, aren’t really accurate. After including my mortgage, my net worth isn’t really that big actually… it’s even negative! :-S I’m gonna update the net worth page tomorrow to point to my Networth IQ page instead.

(UPDATE: Wrong. My net worth is not negative. It’s actually way positive, because I didn’t include in the calculation the house I currently live in.)

It’s really inspiring to see how people in my age group and income bracket can have such high net worth. I’m hoping to learn a thing or two from them! 

And if you’re going there, please drop by and say hi! Here’s my public profile: http://www.networthiq.com/people/5m10y