Why we wouldn’t sell our HDB flat to buy just one stock (eg Singpost)

TL;DR

• We think it's not a great idea to be selling a HDB flat and investing the proceeds in a single stock, like what a certain media personality claims to have done. 
• Diversification helps us to spread investment risks. And diversification across asset classes such equities and real estate allows us to smooth out returns. 
• With inflation, we need to invest wisely and for the long term if we want to be retiring comfortably. 
• We can use tools such as a retirement calculator to help us to calculate how much we'd need to earn, save, and invest to meet our retirement goals.

What happened?

In case you have not heard, Singapore’s social media was abuzz recently when a certain media personality shared his latest investment move in a viral tiktok video.

In the video posted by user @thesingaporeanson, the individual claimed that “I sold my HDB flat recently. Then I got the proceeds, and then I put it all in one stock.” 

That’s almost $300,000 in one single stock!

And drumrolls…the stock is “Singpost”. 

Investment merits of Singpost aside, we thought it’s worth sharing why we thought it’s not such a great idea to be following such an investment strategy. 

While most of you probably wouldn’t take “FinTok” too seriously, we just thought it’s good to have this out there for the close to 3,000 people who liked the video anyway. 

3 reasons why we wouldn’t sell our HDB to buy a single stock

#1 – Diversfication, diversification, diversification 

In explaining his decision to invest so much into a single stock, he shared that he has a strong belief in the company.

“If I’m not a strong believer right, I would not have thrown about $300,000 into SingPost, am I right?” he asked. 

The interviewer then went on to question if diversification is really necessary. 

This is where we think diversification is what allows us to sleep more soundly at night. 

As we shared in Beansprout’s investing philosophy, diversification allows us to spread our risks. 

After all, there’s always something unexpected that could happen against our best-laid plans. 

In the case of SingPost, there could be more competition coming into the postal market in Singapore. 

Or Alibaba might decide to sell its stake in the company one day, just like how there were reports that Tencent was looking to sell its stake in Meituan

Yes, there might be a perception that Singpost is low-risk because Temasek has an interest in the company. 

But low risk should never be taken to be no risk, as we’ve seen for some market darlings like Hyflux in the past. 

#2 – Diversification also means spreading risks across asset classes 

Another reason why diversification works, is because different asset classes may have varied returns over time. 

And the whole idea of having a diversified portfolio, is to be able to smooth out these returns. 

This is where owning property assets could come in to help provide some diversification away from stocks. 

From the URA property price index chart below, what we can see is that property prices in Singapore have trended up over time.

Yes, there were dips along the way such as during the global financial crisis in 2008-09, and after the government introduced cooling measures in 2013. 

But the property market has always recovered and the average property price today is higher than what it was in the previous peaks. 

In fact, the price of the average private property would have close to doubled from 2005 till now. 

(Some might argue that a HDB flat is not a property investment but with a decaying 99-year lease, but try saying that to the owner of the five-room loft unit in Queenstown’s SkyTerrace@Dawson that sold for a record S$1.418 million recently.)

The same can’t be said of investing in single stocks. Using Singpost as an example, its share price today is half of what it was back in 2005! In fact, its share price today is as low as what it was during the global financial crisis. 

Even for a broader basket of Singapore stocks measured using the Straits Times Index (STI), the value today is still lower than what it was in its previous peak in 2007. 

#3 – Invest wisely and for the long term to beat inflation

The individual also claimed in the interview that he could “eat Hai Di Lao or Ding Tai Fung every day for two person, for 16 years” with the $300,000 of proceeds from the HDB sale.

He highlighted that he “wasn’t kidding” and that he “calculated (it) already”.

We know that it wasn’t a joke, but we just wonder if inflation has been considered in his calculation. 

Inflation, or the price of goods and services going up over time, is something we all need to consider when making our retirement plans. 

This is especially so with the red-hot inflation we have seen in recent months, and how the Monetary Authority of Singapore has warned that inflation might remain higher than what most of us are used to. 

If we were to take inflation to be at 2% per year, the $50 that he had budgeted per Haidilao/Din Tai Fung meal would cost $69 in 16 years time. 

If inflation is higher at 3% per year, then the same meal would cost $80!

In the event that we have not buffered for such price increases or our investments are not generating the expected returns, then our retirement lifestyle might not be what we have envisioned it to be.

This is one of the key reasons why we should be investing wisely and for the long term!

What would Beansprout do?

Regardless of one’s conviction in Singpost shares, we think it is not prudent to be putting all our eggs in one basket. 

It’s not even about whether Singpost is a good investment idea. There’s always a likelihood that Singpost could see a massive turnaround and he could potentially make a handsome gain on his investment in the coming years. 

But when it comes to money and our retirement planning, we’ll still sleep better at night with the following principles:

• Diversification helps us to spread investment risks
• We should also think about diversification across asset classes, including real estate.
• Invest wisely and for the long term to beat inflation 

What's the next step I can take?

The CPF retirement calculator can be helpful tool to help you calculate how much you'd need to earn, save, and invest to meet your retirement goals.

What we like is that there is a lot of customisation in the calculator, including putting in different assumptions on:

• Your desired retirement age
• Your desired retirement income
• Your current level of income, expenditure, and savings
• Your current level of CPF savings and contribution (can be linked via Singpass)
• Expected inflation rate (We mentioned that this is something we need to consider in our retirement planning earlier)
• Expected investment returns across different assets

However, the retirement calculator can be quite intimidating for beginners who are starting to plan their finances. 

For example, it will require you to put in your own estimate of returns on your investments, which may require some research or advice from a professional.

Do you have other retirement calculators to recommend? Share with the Beansprout community on our Telegram group.