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Mutual Funds, Debt-based Crowdfunding, and Land Investment

Summary of our first Singafrog Finance meetup

Great turnout and discussions for our very first Singafrog Finances meetup yesterday June 13th at the Hub!

The idea is simple: in the jungle of investment opportunities for expats in Singapore and beyond, how to make the right choices?

The journey is usually a minefield of salesy agents, phony scammers, hungry bankers and it’s very, very hard to understand where to set foot.

For this very first meet-up, I decided to gather three of my first four investment plans:

  • A platform to build a portfolio of mutual funds, iFast, and my advisor Olivier Frapin from IPPFA
  • A land investment company called Walton, and my consultant Jebie Ganda
  • A debt-based crowdfunding platform present in China, Singapore, Taiwan and Cambodia called New Union and my account manager Clay Teoh

Clay Teoh (New Union), Olivier Frapin (IPPFA) and Jebie Ganda (Walton)

Among the audience, about 20 expats from 30 to 55 looking for different solutions. Everyone has one small piece of the puzzle, so let’s see how we can all make a clearer, bigger picture : )

Mutual funds: a long-term discipline for different risk profiles

Mutual funds are relatively easy to grasp: they are funds that “trades in diversified holdings and that are professionally managed”, says Wikipedia.

Basically, you work on mutual funds with an advisor, who helps you to onboard and pick your funds.

Olivier Frapin is one of them and compares his job like a chef: “you have 900 funds on iFast, the platform I use. They’re like as many ingredients in a kitchen. Based on your preferences, spicy or sweet, savoury or sourish, I will prepare your plate, or your portfolio”.

So you don’t handpick specific stocks (say Apple) or bonds (say US bonds), but rather you define your risk profile, from very aggressive to very conservative, and you let your advisor suggest the mix, which you approve of each time there’s a change.

A view of the iFast platform, where one line = one fund in the portfolio

The rules: total flexibility, you get in or out when you want, no lock-in period.

The key to success: discipline, as you should be putting a given amount of money every month, on medium to long term (5-8 years minimum). I'm putting $1k/mth to begin with.

Volatility (read: when value goes down) does exist, but on the long term, stocks and bonds are up, and so should you if you keep that discipline in mind.

One thing I liked in particular is the complete split between the advice of Olivier (whom you pay 1% per year), and the investment side (you transfer your funds on iFast, and the advisor can only advice, not take any decisions on your behalf). This is quite empowering.

Land investment: get a piece of Florida, and hope to resell it to developers

Land investment, or land-banking, is another story totally. Way more risky, the industry has also known quite a lot of scams and collapses.

The principle: you buy a “unit” of land, usually in the US or Canada, alongside many other co-investors. The platform which serves as a market, Walton in our case, will then develop the land and resell it at a profit to a developer.

In land banking, one typically buys land at its lowest value, and sells before development begins

The target plots of lands are commonly around city areas where development of new communities is expected. Once an offer comes to Walton (usually by a city council, or a developer), they will submit this offer to the vote of co-investors. If 60% minimum agree on the exit price, then, the money comes back in your pocket.

With average returns of 12% per annum, the offer is tempting. It does not go without two risks: currency, as your plot is valued in USD ($10,000/unit), and the lock-in time, which can be from 4 to 15+ years depending on the offers and votes.

The main issue with land-banking is the sulfurous reputation of the industry. Any Google search will look ugly, so invest in full knowledge! That being said, Walton has been around for 37 years and the track record so far looks good.

Debt-based crowdfunding: the beauty of SME loans with guarantees

I must say that among the three options discussed at this first meetup, my preference goes to debt-based crowdfunding.

The idea is very simple: a SME tries to raise money. Bank says no most of the time. Clay Teoh, my account manager at New Union, shares that typically, "if the company can’t show two years of full financial reports (meaning at least three years of incorporation), there’s little chance the bank will accept to lend".

So New Union’s job is to curate projects - they get 20-ish per week and accept only 2 to 4 every month; get collaterals to safeguard the investors (us) such as invoices or property. Then, the agreed amount (after assessment) between New Union and SME will be crowdfunded by us, private, individual investors.

How debt-based crowdfunding works for a typical 3-month project

What I really like is the short-term lock-in it implies, from 3 to 12 months maximum. Interests per annum are around 6-9%, and paid monthly. Principal comes back at the end of the term.

As a SME owner myself - and having a “complicated” relationship with banks - I totally support the usefulness of such an investment.

But guess what, rule #1 of personal finance is that you don’t put all your eggs in the same basket : )

Risk level, currency basket, and our next meetup!

The discussions we had after those presentations offered other insights on what information we all look for and can’t find, such as:

  • currency risks, and how to cover/protect from it. We’re Europeans, living in Singapore, possibly moving to Dubai or Hong Kong or London in 2-5 years time, so what should be our currency basket like? No clear answer at this stage, so I’ll try to get a pro on this for an upcoming meetup
  • risk level: a surprise to me is how little we all are literate on finance and investments, especially for us French people as we love our big nanny-gov, but after a few years abroad, we understand she’s been a somewhat greedy one, and we need new options
  • real estate: a common “obvious investment” for many, not without constraints (high upfront investment, risk of unpaid rent in some countries, risk of real-estate bubble or currencies in others such as Malaysia Iskandar projects)

Overall, our common feeling is that we’re all very early on our personal investment journeys!

It took me 4 months and about 20 meetings to decide over my first four choices, so sharing sessions like this are proving useful, be it only to get participants' opinions and tips.

Next meet-up is scheduled for Tuesday, September 20th, and I’ll curate three other investment proposals/speakers… I probably won’t have invested in all as I have almost already invested all that I wanted for this year 2016 (about $45k), but eagerly looking to my future bets : )

Also, you can take a look at our Singafrog Finance spreadsheet where we try to update these insights, one column, one investment at a time.

Oh, one last thing! My fourth investment, are you asking? It's here! #nerd #kraken #crypto #xbt #eth #ltc #dao

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