Rate hikes and rate cuts

FED started raising interest rates from March 2022 to curb inflation. Rates were near zero, and the hikes bring it to above 5% over a period of 1.5 years.

During this period, banks enjoyed increased profits since they can loan out money for more interest earnings vs what they pay to depositors. This helped the 3 local banks that have large savings deposits.

At same time, REITs suffered as they had to set aside more money to cover higher intest payments for their loans as they refinance during this period, moving money to the banks coffers instead of paying out as dividends to unit holders.

So Uncle think its always good to balance a portfolio with REITs and Banks. When rates are high, dividends from REITs drop because the money goes to Banks. But dividends from banks goes up, so this goes back to you as investor.

I expect banks to lose some earnings as rates get cut gradually over next 1.5-2 years, while REITs will start to recover as they refinance loans with lower rates.

But I don't think rates will go back to pre-2022 days of near zero. So REITs won't go back to previous highs, while banks won't go back to earlier lower prices. But they will balance out.

End of day, as long as the dividends continue to come out from the portfolio at 5% rate, uncle very happy liao.

Comments

Expenses of a middle-classy Singapore uncle with family

I don't know what exactly is considered middle-class in SG, but I figured its the fat range in the middle section if we were to line people up based on income. There will be a steep drop off from the bottom 5% and a steep surge from the top 5, and another galactic surge from the top 1%. Uncle is pretty sure I am in that middle chunk of 90%, and based on my estimation, should be in the front 30 percentile in this chunk. Now, this is how my expenses look like for myself (excluding what my wife contributes). The numbers are on per month and in SGD Car expenses (loan, insurance, maintenance, tax, fuel) = $2,500 Insurance premiums = $800 Utilities bill = $350 Mobile lines for 5 = $90 Home internet line = $30 Services (Netflix, Spotify, iCloud) = $60 Condo maintenance fees = $350 Property tax = $250 Groceries and take out meals = $1200 Allowance for my parent = $1000 Allowance for kiddos = $200 School fees for kiddos = $150 Tuition fees = $270 Piano, and music classes = $900 Sub-Total fo...

Getting comfortable without a salary from working

Not sure if I am there yet. Basically I am effectively drawing down my cash each month, primarily due to 2 things : mortgage and income tax mortgage (after CPF) is about $9k per month income tax is about $5k per month My investment cashflow covers all my other expenses, including utilities, groceries, handphone/internet bills, insurance, property taxes, condo maintenance fees, personal spending. With some input from wife who is still working, I am still out of pocket by almost $11k per month. She will continue to be able to save a decent sum per month and I'll let her grow that and managed it for her via safe investments. Am I comfortable? Not really. I will if I am not out of pocket per month. If I really stop working for good, the income tax amount will go to $0 after 2025. So only mortgage left We can pay off the mortgage but I think I said before, it doesn't make sense since it's our home and we will be locking the money up with little leeway to do other things. So I ...

How Uncle’s financials behave during 1.5yrs of early retirement

Been a roller coaster... Due to changes in USD vs SGD strengths Due to volatile NASDAQ stocks Due to SG stock market movements (but this one is mostly up, and on a bull!) Hopefully 2026 brings peace and some prosperity The above included about $150k of dividends collected Of course the above is nett after Uncle's expenses lah. No need to makan meh? lol The above doesn't include equity in Uncle's home. That is likely around $1.8-$2M SGD Uncle's lao pok car? that's neutral now (resale value covers outstanding loan)

uncle lim kopi

Search This Blog