Where and how much funds to put to get 200k payout every month?

[emily51501]

As the title says, the aspiration is to receive 200k/month interest for a lifetime from funds deposited in a solid financial institution. I’d really like to hear the advice of the financially savvy on a) how much to put?, and b) where?

Obviously, a loooot of money will trickle down 200k monthly, maybe even more. The challenge is in allocating the least amount to get to this magic number. Bank td rates are currently at 6%++ net and dropping, but I read everywhere here about interest rates north of 7%. Where???

As the goal is perpetual, the length or duration of the term or period is unimportant, so long as the interest is again, paid out monthly. So no compounding, no real estate invesment, etc etc.

Edited to add:

Starting a business, even with a generous 25%-30% statistical chance of being successful after 5 years, is also not an option in this query.

 

[childofgod4493]

@emily51501 As they say more reward more risk; and as the cliche goes there is no such thing as a free lunch. In finance speak there is always a tradeoff.

So let's start with your 200k/month, that's 2.4M a year.

Let's start at the bottom of the spectrum, say you get 4% net of witholding. That's achievable, some big banks can give you 4.25% net. So you need about 60M pesos. For an amount this big you need to go to big banks, digibank compliance will go crazy.

Let's add a little more risk, say for ease of computation we want an 8% net yield. That means to get your 200k a month we now need 30M from 60M. What can you put your money in? It's a stretch but maybe REITS, so what's the trade off? You may have momentary unrealized capital losses but long term you should be fine. Also you won't be paid monthly but semi annually or annually.

Let's push the envelope a little more. Let's say you want 12% return. So for your 200k a month you now only need 20M. This is where I have been putting funds lately. I have been buying San Miguel Power Perpetual Securities. These are dollar securities traded in Singapore. What's the risk - they aren't required to pay the coupon. Also these in USD not peso, I prefer to hold my funds in dollars not pesos over long term but there is a forex risk. Payments are semi annual. Overall much riskier then REITs and time deposits but I can still sleep at night. I have done my homework which is too long to discuss here.

Beyond 12% I doubt there is any fixed income or quasi fixed income securities. Maybe Chinese property firms at massive discounts. Simply put, your risks are equity like.

 

[1999txag]

@childofgod4493 Thank you good Sir, I love reading comments like this very informative

 

[tobias3]

@childofgod4493

San Miguel Power Perpetual Securities

Where to buy po San Miguel Power Perpetual Securities? available po ba sya dito sa PH? saan po kayo bumibili?

 

[childofgod4493]

@tobias3 Ako I use BDO private bank. You can get their details sa BDO website. Most banks have a private banking group.

 

[tobias3]

@childofgod4493 thanks for the reply sir. nako BDO private bank is for elite clients, out of reach ng ordinary mortals like me LOL

 

[emily51501]

@childofgod4493 I understand that this is traded in sg, in usd, with forex risk, semi-annual payout, etc. How much of a risk is it that they ‘do not pay the coupon’?

 

[childofgod4493]

@emily51501 Well I bought quite a bit; about 25% of my portfolio is in this so my opinion is biased but at least I literally put my money where my mouth is.

So what could go wrong?

One is they don't make enough money to pay their obligations. So even if they want to pay they can't. You need to follow the power industry, know if they are making enough money. You should also be aware of a dispute with the government. in a nutshell they broke their fixed contract with the government and now sell in the open market at a much higher price. Government is suing them but I think RSA will win, not on the merits but because he is RSA.

Second is they can pay but choose not too. I don't think so because SMC is borrowing massively and even the hint of this will spook the markets.

Finally I have some intel that the big holders of debt are SMC employees.

All in all I can sleep at night. Bear in mind the market is zero sum, so if I am buying at a 12% yield someone is selling at a 12% yield so whatever I said they will probably say the exact opposite. I could be wrong and I tell my friends am not telling you what to do, just telling you what I have done and it's your lookout. But if we all lose money we can drink San Miguel beer together

 

[imkendall]

@childofgod4493 Yes majority of smc debt is to ensure RSA and friends gets paid

 

[emily51501]

@childofgod4493 Appreciate the forthright explanation. Feels like walking into a private group’s gentleman’s agreement sealed with a handshake, tapos babakas lang ako. My take could be off but that’s a beginners honest pov. You are right about not putting all the eggs in this basket.

 

[childofgod4493]

@emily51501 Hahaha no where near that. Am just a fat overweight middle aged dude sitting on his ass reading prospectuses. Don't take anything I say seriously. In fact here are the links, read and understand for yourself, wag ka babakas. 99% never bother to read for themselves, be part of the 1%.

https://www.sgx.com/securities/pros...ocuments?value=SMC GLOBAL POWER HOLDINGS CORP

 

[emily51501]

@childofgod4493 Buti na lang mahilig ako magbasa hehe, but I will 100% find time to be part of the 1%. And maybe I’ve watched too many organized crime movies to dramaticize my read on things as such hahaha.

 

[deusvult92]

@emily51501

How much of a risk is it that they ‘do not pay the coupon’?

I want to caution against treating perpetual securities as a "safe" investment as long as the company is solid. The issuer not paying the coupon is not the only source of risk.

Unlike bonds that mature, with perpetuals you are never getting the face value of the bond back. Because of that, one of the biggest sources of risk is increasing inflation and interest rates. If you pay $1000 for a bond that pays $40/year, you are locked into a 4% nominal returns on the investment forever. If inflation is higher than that, you will lose real value every year. If bank interest rates go up to 10%, other people's cash will be earning 250% the returns that your bonds are.

That also means that if you try to sell these bonds in a high interest or high inflation environment, you will have to sell that at a steep discount compared to what you may have paid for them initially.

For example, let's say today, a perpetual bond that pays $5/year is worth $100. You look at your digibank deposits earning 5% a year, think "I want to lock this in forever" and buy one of these bonds.

The next year, some kind of black swan event happens and interest rates go up to 10%. You need cash and decide to sell the bond on the open market. However, because interest rates are 10%, that means buyers have a choice: to earn $5/year, do I stick $50 in a bank account, or do I buy a bond that pays $5 a year? Of course they won't pay $100 for the same bond, even if the holder paid that for it last year. However, they are willing to pay you $50 for the bond, because that will at least match what they could earn if they stayed in cash.

This is an oversimplification of course but TLDR, long-term and perpetual fixed-income securities can be extremely sensitive to interest rates and inflation.

 

[childofgod4493]

@deusvult92 The SMC Power perpetuals have a mechanism that corrects for this - they have a step up function on the coupon. So the coupon increases 2% every 5 years. So yes they can trade at a discount if rates rise but eventually you make a capital gain because coupon increases are perpetual but interest rates are cyclical.

Also SMC makes it a point to call the securities to show financial strength. So the recent 6.5% with step up on April 2024 I researched and found out it would be called at Par. At the time it was trading at 87 cents - so I placed a big bet. So that's 13 cents gain on principal (absolute) and a 6.5% coupon (annualized).

 

[emily51501]

@childofgod4493 Thanks for sharing this tip! Sounds complex to me at this point but at those figures, it is certainly worth researching deeper, and understanding how to access.

 

[sinquisit1834]

@childofgod4493 REITs pay every quarter and I think they pay right now around 5-6% (at least the nice ones) net depending on which REIT.

 

[worshipguitar]

@emily51501 7% tax free in some cooperatives. Need atleast 35M worth of shares.

 

[godbeliever1980]

@worshipguitar Problem is it’s very risky. Coop could go down taking down your funds.

 

[emily51501]

@worshipguitar Thanks for the info. It’s my first time to learn about coops as a means to invest. Looked it up online and there is a ton of material to munch on. First thing I learned is one needs to be a member of the coop to participate. The top ones are military or company-employee coops and that keeps the outsiders out. The other big ones are based outside Luzon. Would you have a few possible options to suggest that I look into?

 

[worshipguitar]

@emily51501 There are coops that allow outsiders to invest (associate member) with the same yield of interest. You're not allowed to vote or run for a position though. It's like preferred shares in a corporation.

Better look for cooperatives that only require their share holders to live in the same city that the cooperative is established. You can look for Barangka Credit Cooperative in Marikina for one.