About 20 years ago, I had a dangerous idea.
The idea was that if I could lower my expenses so much that I could live on my dividends, I would be able to farm my entire paycheck into the stock market every month and see exponential growth to my net worth in such a way that my better-performing peers would find hard to match.
You might also like
This idea is no longer controversial today given how mainstream the FIRE movement is, so when I became a trainer, I amped it up a notch, proposing that employing leverage on a carefully balanced portfolio can fast-track a student into becoming a retiree. (I share how this works here)
What we see as mainstream ideas today probably came from a dangerous idea several years ago – how many folks can predict the rise of a currency that is not backed or supported by a central bank of any country a decade ago? Even using paper currency as a replacement for barter was controversial thousands of years ago.
I review three dangerous ideas spreading on the news and the financial blogosphere this week and share what I think about them. The criteria I use to consider these ideas “dangerous” is that they are often not done by mainstream Singaporeans, may present problems if executed, or can even lead to tragedy if done wrongly.
1) Retire Now, Work Later
On 17 October 2021, Abel Ang, a CEO of a medical technology company and Adjunct Professor of Nanyang Business School, proposes that parents relook the traditional idea of working first and retiring later. His central thesis is that parents can prepone their retirement, quit their jobs to raise children, and re-enter the workforce later.
Even the author of the article admits this is not for everyone. The biggest issue is that currently, HR professionals will raise questions when looking at a resume with a significant time gap and would be suspicious of job candidates. We’re also facing a work environment where skills and experiences depreciate much faster, making re-entry to the workforce a colossal challenge. The final result is that whoever does this will experience a drastic drop in pay.
Another problem is that we still live in a society where it’s more acceptable for mothers to quit working to raise their kids but not fathers. There is a lot more social resistance for men to do this.
Even as an idea is impractical for most people, it may be possible for some. Adopting this approach is possible when the person has skills that will not depreciate over time, like having solid cooking skills or crafting leather goods.
One example of booming success was the proprietors behind hawker stall Ham Bao Bao, who closed their hawker stall in Beauty World when they had a new baby. Ham Bao Bao is now back in Sam Leong Road, and hipsters are mobbing their booth.
2) Rent instead of buying property
On 18 October 2021, Leslie Yee of the Business Times proposes that young professionals consider renting a property instead of buying it. His approach considers two scenarios. In the first scenario, the person buys a piece of property and services all expenses regarding the purchase, including interest rate payments and maintenance fees. In the second scenario, the person rents and farms his capital into a real estate investment trusts portfolio. In his simulation, he concludes that both approaches result in almost the same net gain.
The problem with simulation is that varying the input can result in hugely different outcomes. The best way to assess the rent or buy decision would be to understand the simulation, conduct it independently, and ask if it applies to your situation.
In my case, I bought my executive condominium at around $860,000. The current price in SRX is approximately $1.2M – $1.3M just after the minimum occupation period. I’m not convinced that I would be better off if I had rented instead, even though I have a reasonably extensive portfolio of REITs. I am, however, confident that a REIT portfolio is superior to buying a second property, where I may be subject to ABSD, GST, taxes or a lousy tenant.
The rent or buy decision has broader considerations beyond dollars and cents. I prefer to live amongst neighbours who own their property because they are more likely to look after it and treat the neighbourhood with care. There are positive externalities from building a nation with high homeownership.
On the other hand, having a generation of young Singaporeans bogged down by mortgage payments would stifle risk-taking, and we may become less innovative and entrepreneurial than other societies.
3) Hold two jobs at the same time to become a CPF millionaire
On 18 October 2021, Mr Loo Cheng Chuan of the 1M65 fame authored an article that proposes the idea of 1M48A, where a single person can become a CPF millionaire by managing his funds intelligently, not over-leveraging it on their homes.
Mr Loo’s central ideas should not attract controversy as they are mathematically correct more often than not, so I suspect it’s the entertaining way he presents them. I’m betting he gets slammed big time for this one.
But this time around, he did have something novel to share with us. His idea is that if you can hold two jobs simultaneously, you can double your CPF contribution. Even better, in the discussion forums, Mr Loo claims that the contribution cap of $37,740 is also doubled should you be able to earn more than $6,000 each for both jobs.
I suspect Mr Loo will get a lot of flak for suggesting that young people hold two jobs, but I love this suggestion. We see professional jobs pay well but expect employees to work over 12 hours a day and at weekends. Why is it not believable that someone can split his time over two jobs, perform the same number of hours and even get higher pay?
I genuinely love this idea because the truth of my lifestyle as a trainer is that I can push the bulk of work after office hours to negotiate to go back to a 9-5 job without affecting my collaboration with Dr Wealth.
In essence, Mr Loo has given me a bit of hope. As I went through law school a couple of years ago, there was a four-year gap where I was not contributing money to my CPF. Adding another job can give me a chance to make up for the lost time. But in my case, it is not two jobs. I will be reporting taxes as an employee and a sole proprietor simultaneously, so I’m not too sure whether I can double my contribution cap.
There is only one real way to find out.
We need to learn how to deal with dangerous ideas
What makes personal finance fun is that now and then, someone will attempt to share a dangerous idea. The best approach is to give each idea fair consideration. Just because the idea does not work for you does not mean it will not work for others.
Case in point, after decades of getting slammed on social media for accumulating enough money to live on investment income, I’m still seeing younger bloggers get attacked for accumulating $100,000 before 30.
Your response should incorporate open-mindedness, and you should be able to apply different mental models in verifying whether these ideas work. Understand the working of the person who is proposing the picture and not just its outcome.
Sometimes, the only way to find out whether it works is to try it out yourself.
And…if you still prefer to stick to the ‘safe’ side and pursue something that’s proven, I’ll be sharing how my students and I build dividend portfolios that we can live off. Join me and learn how
