Do you know how to keep track of the yields on bonds, deposits and the money market?
You can search the Financial database at the the MAS website. The website is well designed. It is easy and fast to navigate.
You can find out the current interest rates, and also the changes during the past months.
Saturday, June 30, 2007
Rating of CPF approved funds
COMMENT POSTED IN MY BLOG
Mr Tan, someone like yourself needs to tell the guys at CPF exactly that a fund is safer than buying a stock.
The guys at CPF are wasting money getting the fund rated by Mercer. This indirectly means that consumers wil end up paying for something that is actually better for the average conservative investor.
It is bizzare that CPF allows someone to buy up to their stock limit in one stock while "worry" about someone buying into a fund.
The CPF guys are either trying to protect themeselves by getting the fund mangement company to pay Mercer so that Mercer can be used as a scapegoat if something goes wrong.
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REPLY:
Not all funds are well diversified and safe. It is necessary for the fund to be rated. This is why CPF appointed Mercer to do the rating.
Mr Tan, someone like yourself needs to tell the guys at CPF exactly that a fund is safer than buying a stock.
The guys at CPF are wasting money getting the fund rated by Mercer. This indirectly means that consumers wil end up paying for something that is actually better for the average conservative investor.
It is bizzare that CPF allows someone to buy up to their stock limit in one stock while "worry" about someone buying into a fund.
The CPF guys are either trying to protect themeselves by getting the fund mangement company to pay Mercer so that Mercer can be used as a scapegoat if something goes wrong.
----------------
REPLY:
Not all funds are well diversified and safe. It is necessary for the fund to be rated. This is why CPF appointed Mercer to do the rating.
Maybank's Regal Structured Deposit
Larry Haverkamp has a new posting on his blog. It talks about the pros and cons of structured deposits. As an example, he looks at a recent one -- Maybank's "Regal Structured Deposit". It links your returns to Palm oil prices which have been booming.
Note: Read Dr Money's conclusion. He said, "if you want a better return (and still safe), you can invest in the money market fund". There is no need to invest in a complicated product.
Note: Read Dr Money's conclusion. He said, "if you want a better return (and still safe), you can invest in the money market fund". There is no need to invest in a complicated product.
Ideal structure of an investment fund
What is the ideal structure of an investment fund for long term investments? Is it an indexed fund?
REPLY:
Here is my concept. The ideal structure has the following features:
* no upfront sales charge (except for a modest transaction fee)
* low fund management fee
* low expense ratio
* preferably an indexed fund, but with a certain margin to deviate from the index
It should be cheaper to invest in a fund, compared to buying a stock on the exchange.
The fund management company can cover its expenses and make a modest profit from the management fee. If the fee is high, the investor has the right to withdraw from the fund and invest elsewhere. This ensures that the fund will always be operated efficiently, for the benefit of its investors.
REPLY:
Here is my concept. The ideal structure has the following features:
* no upfront sales charge (except for a modest transaction fee)
* low fund management fee
* low expense ratio
* preferably an indexed fund, but with a certain margin to deviate from the index
It should be cheaper to invest in a fund, compared to buying a stock on the exchange.
The fund management company can cover its expenses and make a modest profit from the management fee. If the fee is high, the investor has the right to withdraw from the fund and invest elsewhere. This ensures that the fund will always be operated efficiently, for the benefit of its investors.
Fair treatment of policyholders
Hi Mr Tan,
I read your blog about the new regulation on the par fund. How can the policyholder ensure that they are fairly treated? Is it fair for the fund to reduce the bonus in bad times, and take a long time to restore the bonus? Is this fair?
To your credit, NTUC was quite fast to restore its bonus rates when you were there as CEO. Will they continue to treat the policyholders fairly?
--------------------------------
REPLY:
NTUC Income is a cooperative society. When I was the CEO, I ensured the following:
* the fund is invested to earn an attractive return, at an acceptable risk level
* the expenses are kept at a low level
* 98% of the surplus is kept for the policyholder (shareholders take only 2%)
This is why NTUC Income was able to declare better bonus rates compared to other insurance companies. The return is much higher.
Many insurance companies spend too much money on the following:
* paying high commission and sales contests to advisers and agency managers
* advertising their products aggressively
* paying high salaries and other expenses
These expenses come out of the par fund, and will ultimately reduce the return to the policyholders. This is not fair to the policyholders. However, the policyholders do not have much choice, as they are stuck with their contract for many years.
I hope that the new regulations on the par fund will help to reduce this problem. (But, it may take a long time for the results to show).
I read your blog about the new regulation on the par fund. How can the policyholder ensure that they are fairly treated? Is it fair for the fund to reduce the bonus in bad times, and take a long time to restore the bonus? Is this fair?
To your credit, NTUC was quite fast to restore its bonus rates when you were there as CEO. Will they continue to treat the policyholders fairly?
--------------------------------
REPLY:
NTUC Income is a cooperative society. When I was the CEO, I ensured the following:
* the fund is invested to earn an attractive return, at an acceptable risk level
* the expenses are kept at a low level
* 98% of the surplus is kept for the policyholder (shareholders take only 2%)
This is why NTUC Income was able to declare better bonus rates compared to other insurance companies. The return is much higher.
Many insurance companies spend too much money on the following:
* paying high commission and sales contests to advisers and agency managers
* advertising their products aggressively
* paying high salaries and other expenses
These expenses come out of the par fund, and will ultimately reduce the return to the policyholders. This is not fair to the policyholders. However, the policyholders do not have much choice, as they are stuck with their contract for many years.
I hope that the new regulations on the par fund will help to reduce this problem. (But, it may take a long time for the results to show).
Inflated Earnings
In good economic times (as like now), corporate earnings are inflated by the increase in asset prices.
As companies report higher earnings, their share price goes up and the price earning multiples goes up as well. More people buy into the shares.
When the bubble bursts, asset prices drop. Corporate earnings drop as well. In bad times, corporate earnings can drop by more than 50%. You can expect the share prices and price earning multiples to collapse.
Be careful about investing in properties and shares in times of inflated asset prices. It can be risky. Some people consider the current markets to be "frothy".
As companies report higher earnings, their share price goes up and the price earning multiples goes up as well. More people buy into the shares.
When the bubble bursts, asset prices drop. Corporate earnings drop as well. In bad times, corporate earnings can drop by more than 50%. You can expect the share prices and price earning multiples to collapse.
Be careful about investing in properties and shares in times of inflated asset prices. It can be risky. Some people consider the current markets to be "frothy".
HSBC Multi-currency account
Dear Mr Tan,
I am a retiree. I would like to seek your advice regarding HSBS's Multi Currency Savings Account which the bank has been quite active in its promotion.
This single online account gives you easy access to 10 major currencies. You can transfer funds from one currency to another, as well as enjoy attractive interest rates on all 10 currencies offered.
It appears that the account offers attractive interest rates ie more than the interest rates that local banks are offering. In your opinion, do you think it is good to invest?
------------------------
REPLY:
I think that it should be all right. As you are not locked into the investments (except for the short period of any fixed deposit), you have the freedom to move your money among the various currency according to the interest rate that they pay you.
You do need to be careful about investing in foreign currency as it may fluctuate in value compared to Singapore dollars.
Someone suggest that you should also compare the interest rate offered on this multi-currency account, compared to the similar instruments in the market. You should also consider the charges for converning the money. I agree.
Generally, it is good to have the convenience of managing it in one account. Actually, I wanted to open an account myself, but I have not got down to doing it.
I am a retiree. I would like to seek your advice regarding HSBS's Multi Currency Savings Account which the bank has been quite active in its promotion.
This single online account gives you easy access to 10 major currencies. You can transfer funds from one currency to another, as well as enjoy attractive interest rates on all 10 currencies offered.
It appears that the account offers attractive interest rates ie more than the interest rates that local banks are offering. In your opinion, do you think it is good to invest?
------------------------
REPLY:
I think that it should be all right. As you are not locked into the investments (except for the short period of any fixed deposit), you have the freedom to move your money among the various currency according to the interest rate that they pay you.
You do need to be careful about investing in foreign currency as it may fluctuate in value compared to Singapore dollars.
Someone suggest that you should also compare the interest rate offered on this multi-currency account, compared to the similar instruments in the market. You should also consider the charges for converning the money. I agree.
Generally, it is good to have the convenience of managing it in one account. Actually, I wanted to open an account myself, but I have not got down to doing it.
Investments of the Money Market Fund
The money market fund is invested in short term bonds and treasury bills. Here are the current yields from these investments:
* treasury bill: 2.22% (3 months) 2.25% (1 year)
* government bonds 2.58% (5 year)
Daily interbank rates: fluctuate between 2.25 to 3%
Depending on the mix of the instruments, the return of the fund should move within the above range. The fund manager deducts 0.25% to cover its expenses.
Alternative: If you do not wish to invest in the money market fund, you can buy the treasury bills or government bonds directly. You have to pay some transaction fee to the stockbroker or the bank.
* treasury bill: 2.22% (3 months) 2.25% (1 year)
* government bonds 2.58% (5 year)
Daily interbank rates: fluctuate between 2.25 to 3%
Depending on the mix of the instruments, the return of the fund should move within the above range. The fund manager deducts 0.25% to cover its expenses.
Alternative: If you do not wish to invest in the money market fund, you can buy the treasury bills or government bonds directly. You have to pay some transaction fee to the stockbroker or the bank.
Better governance and disclosure for par policies
Dear Mr Tan,
What are your views about the proposed measures to ensure better governance and disclosure for par policies? Will it help to ensure that the consumers will get a higher bonuses and a better return on their par policies?
----------------------
REPLY:
This is just a first step. To ensure its success, a lot of work has to be done over the next few years, to improve the system.
There are two important aspects of the new measures:
a) governance; internal rules that guide the management of the par fund (ie the fund holding the assets of the participating policyholders)
b) disclosure; to disclose the impact on changes in the bonus rates to the participating policyholders
In the ideal situation, the par fund should be managed in the interest of the par policyholders, as follows:
* the fund should be invested to earn a good return over the long term, at an acceptable level of risk
* the expenses should be minimised (so that most of the return will accrue to the policyholders)
* there should be a "fair method" of distributing the surplus between the policyholders and the shareholders
The management has to observe high integrity in managing the par fund and to treat the policyholders "fairly".
In the past, many life insurance companies are operated as "mutual companies"(ie without shareholders). It was easier to ensure that the fund is runned in the interest of the policyholders.
Nowaways, most life insurance companies are operated as stock companies (with shareholders). The companies have to face the challenge of ensuring "fair treatment" of the policyholders, while trying to give the best return to their shareholders.
The proposed new measures try to solve these challenges. It is not easy. But it is worthwhile to make a start.
What are your views about the proposed measures to ensure better governance and disclosure for par policies? Will it help to ensure that the consumers will get a higher bonuses and a better return on their par policies?
----------------------
REPLY:
This is just a first step. To ensure its success, a lot of work has to be done over the next few years, to improve the system.
There are two important aspects of the new measures:
a) governance; internal rules that guide the management of the par fund (ie the fund holding the assets of the participating policyholders)
b) disclosure; to disclose the impact on changes in the bonus rates to the participating policyholders
In the ideal situation, the par fund should be managed in the interest of the par policyholders, as follows:
* the fund should be invested to earn a good return over the long term, at an acceptable level of risk
* the expenses should be minimised (so that most of the return will accrue to the policyholders)
* there should be a "fair method" of distributing the surplus between the policyholders and the shareholders
The management has to observe high integrity in managing the par fund and to treat the policyholders "fairly".
In the past, many life insurance companies are operated as "mutual companies"(ie without shareholders). It was easier to ensure that the fund is runned in the interest of the policyholders.
Nowaways, most life insurance companies are operated as stock companies (with shareholders). The companies have to face the challenge of ensuring "fair treatment" of the policyholders, while trying to give the best return to their shareholders.
The proposed new measures try to solve these challenges. It is not easy. But it is worthwhile to make a start.
Friday, June 29, 2007
Yield on Money Market Fund
Dear Mr Tan,
The fixed deposit interest rate is very low at the moment (<2%). I consider parking a sum of said $30,000 in the Flex-Cash (ie Money Market Fund) as it return is stated at 3% or more.
What do think, is it a right move?
-------------------
REPLY:
The yield on Flexi Cash has also fallen in recent weeks. It should be about 2% p.a. now.
I think that it is all right to put into Flexi Cash as you have the flexibility to take it out at any time, without any penalty.
The fixed deposit interest rate is very low at the moment (<2%). I consider parking a sum of said $30,000 in the Flex-Cash (ie Money Market Fund) as it return is stated at 3% or more.
What do think, is it a right move?
-------------------
REPLY:
The yield on Flexi Cash has also fallen in recent weeks. It should be about 2% p.a. now.
I think that it is all right to put into Flexi Cash as you have the flexibility to take it out at any time, without any penalty.
Money market fund - NTUC Income
Hi Mr Tan,
Recently, I put a sum of money in NTUC money market fund. The bid/offer rate was 1.066, but it drop to 1.065 the following day.
Assuming I had invested 100,000 units, I would have lost $100. Is my assumption correct ?
Why does the price go down? The MMF is not a safe investment. Perhaps I should park my saving in FD or Govt Bond, correct?
-----------------------
REPLY:
You should look at the price over several days and not on a specific day. The drop in price is probably due to a unusual situation (eg usually due to change in money market interest rate) and is corrected the following day.
If you wish to take out your money, you can ask NTUC Income to wait until the price reaches a certain level, so that you are not subject to this temporary fluctuation.
For example, I wanted to withdraw some money when the price was at 1.066. It had been at this level for many days. I gave instruction to make the withdrawal when it reached 1.067. It occured within a few days.
Recently, I put a sum of money in NTUC money market fund. The bid/offer rate was 1.066, but it drop to 1.065 the following day.
Assuming I had invested 100,000 units, I would have lost $100. Is my assumption correct ?
Why does the price go down? The MMF is not a safe investment. Perhaps I should park my saving in FD or Govt Bond, correct?
-----------------------
REPLY:
You should look at the price over several days and not on a specific day. The drop in price is probably due to a unusual situation (eg usually due to change in money market interest rate) and is corrected the following day.
If you wish to take out your money, you can ask NTUC Income to wait until the price reaches a certain level, so that you are not subject to this temporary fluctuation.
For example, I wanted to withdraw some money when the price was at 1.066. It had been at this level for many days. I gave instruction to make the withdrawal when it reached 1.067. It occured within a few days.
Subprime lending
Source: Wikipedia
Subprime lending, also called "B-Paper," is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history.
A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others.
Subprime lending is typically defined by the status of borrowers. A subprime loan is, by definition, a loan made to someone who could not qualify for a more favorable rate. Subprime borrowers typically have low credit scores and histories of payment delinquencies, charge-offs, or bankruptcies. Because subprime borrowers are considered at higher risk to default, subprime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees, or an up-front charge.
Proponents of the subprime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market. But opponents have criticized the subprime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. subprime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default, and several major subprime lenders have filed for bankruptcy.
Subprime lending, also called "B-Paper," is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history.
A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others.
Subprime lending is typically defined by the status of borrowers. A subprime loan is, by definition, a loan made to someone who could not qualify for a more favorable rate. Subprime borrowers typically have low credit scores and histories of payment delinquencies, charge-offs, or bankruptcies. Because subprime borrowers are considered at higher risk to default, subprime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees, or an up-front charge.
Proponents of the subprime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market. But opponents have criticized the subprime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. subprime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default, and several major subprime lenders have filed for bankruptcy.
Property Insurance
When you insure a property, you should be covered against the following perils:
* Fire, lightning, explosion
* Bursting or overflowing of water tanks
* Theft or burglary - has to be caused by forcible and violent entry
* Malicious damage
* Riot & Strike
* Earthquake, wind and storm, flood
* Fire, lightning, explosion
* Bursting or overflowing of water tanks
* Theft or burglary - has to be caused by forcible and violent entry
* Malicious damage
* Riot & Strike
* Earthquake, wind and storm, flood
My management style
How do you describe your management style?
Reply: I set values and goals.
I work with my colleagues on the broad strategies to achieve specific goals. I let them choose the specific strategy and take the specific ations to achieve the results.
I let the results decide on whether they have taken the right actions. Often, the actions can be modified, so that the results can be improved.
My colleagues who worked with me for 5, 10 or more years, generally like my style. I describe it as the "entrepreneurial" approach.
Reply: I set values and goals.
I work with my colleagues on the broad strategies to achieve specific goals. I let them choose the specific strategy and take the specific ations to achieve the results.
I let the results decide on whether they have taken the right actions. Often, the actions can be modified, so that the results can be improved.
My colleagues who worked with me for 5, 10 or more years, generally like my style. I describe it as the "entrepreneurial" approach.
Engaging the customers
How does NTUC Income engage the customer (during the time that you were the CEO)? Does this help in the development of its business?
MY REPLY:
Over the past years, NTUC Income has actively communicated with its customers (policyholders) on the following:
* NTUC Income is a cooperative society
* Most of its surplus are distributed among its participating policyholders
* It shareholders receive only 2% of its surplus
* Its primary aim is to serve its policyholders (members) by offering low cost and a better return
* NTUC Income communicate actively and in a transparent manner
* It does not need to maximise profit for shareholders (ie avoid conflict of interest)
This active communication strategy has built up a strong loyalty among its policyholders.
MY REPLY:
Over the past years, NTUC Income has actively communicated with its customers (policyholders) on the following:
* NTUC Income is a cooperative society
* Most of its surplus are distributed among its participating policyholders
* It shareholders receive only 2% of its surplus
* Its primary aim is to serve its policyholders (members) by offering low cost and a better return
* NTUC Income communicate actively and in a transparent manner
* It does not need to maximise profit for shareholders (ie avoid conflict of interest)
This active communication strategy has built up a strong loyalty among its policyholders.
How to run a world class call center
I wish to share this secret about how NTUC Income wins the award for being a world class call center:
* it uses low cost, effective technology
* the calls are answered immediately by a human voice (without the need to press buttons)
* it has a low turnover rate of employees
* the front line officers handle simple calls and refer difficult cases (about 5% of calls) to specialists to call back
The cost of the technology is only 10% to 20% of what big organisations spend on their call center systems, without sacrificing on the necessary functionalities.
By using a two level system of handling enquiries, it is easy for the front line officers to handle 95% of the calls (with less training and better service quality). They refer the difficult enquiries and complaints to the specialists. This reduces the stress of the job.
They enjoy providing the customer service.
I was involved in the strategy to build up the call center when I was CEO of NTUC Income.
* it uses low cost, effective technology
* the calls are answered immediately by a human voice (without the need to press buttons)
* it has a low turnover rate of employees
* the front line officers handle simple calls and refer difficult cases (about 5% of calls) to specialists to call back
The cost of the technology is only 10% to 20% of what big organisations spend on their call center systems, without sacrificing on the necessary functionalities.
By using a two level system of handling enquiries, it is easy for the front line officers to handle 95% of the calls (with less training and better service quality). They refer the difficult enquiries and complaints to the specialists. This reduces the stress of the job.
They enjoy providing the customer service.
I was involved in the strategy to build up the call center when I was CEO of NTUC Income.
Importance of Customer Service
How important is customer service?
My view: it is very important, especially for a financial institution. It allows the provider to build a long term relationship with the customer.
I observe the following principles in dealing with customers:
* attend to their matter promptly
* be honest, open and transparent (ie HOT)
* look after the customer's interest (helps to build trust).
A good customer is willing to pay a fair price that allows me to meet the expenses and make a fair profit.
I keep my cost low by reducing waste and operating efficiently. This is also appreciated by the customer, as they do not have to pay more for good customer service.
My view: it is very important, especially for a financial institution. It allows the provider to build a long term relationship with the customer.
I observe the following principles in dealing with customers:
* attend to their matter promptly
* be honest, open and transparent (ie HOT)
* look after the customer's interest (helps to build trust).
A good customer is willing to pay a fair price that allows me to meet the expenses and make a fair profit.
I keep my cost low by reducing waste and operating efficiently. This is also appreciated by the customer, as they do not have to pay more for good customer service.
Primary values that drive a business
What are the primary values that drive NTUC Income's business (during the time that you were the CEO)? Are these values responsible for the success of the business?
MY REPLY:
The primary values were:
* act in the best interest of the customers
* act honestly, with integrity, and be transparent
We act in the best interest of the customer and offer good value in the form of lower prices or better return on their savings. We achieve it by operating efficiently, reducing cost and cutting down on wastage.
We were able to earn an adequate margin to meet our expenses and to provide a modest profit to shareholders.
We act honestly, with integrity. We offer products that meet the genuine needs of the customer. We keep the product simple, so that they can understand it, and choose it for its value.
Some business make profits by offering products that "cream off" the customer. They "hype up" the products beyond its real value. We do not engage in these misleading practices.
These values allowed us to build strong loyalty and trust from our members (customers) and contributed to the growth of our business.
MY REPLY:
The primary values were:
* act in the best interest of the customers
* act honestly, with integrity, and be transparent
We act in the best interest of the customer and offer good value in the form of lower prices or better return on their savings. We achieve it by operating efficiently, reducing cost and cutting down on wastage.
We were able to earn an adequate margin to meet our expenses and to provide a modest profit to shareholders.
We act honestly, with integrity. We offer products that meet the genuine needs of the customer. We keep the product simple, so that they can understand it, and choose it for its value.
Some business make profits by offering products that "cream off" the customer. They "hype up" the products beyond its real value. We do not engage in these misleading practices.
These values allowed us to build strong loyalty and trust from our members (customers) and contributed to the growth of our business.
Stop paying premiums earlier
Dear Mr Tan
I bought a living policy (to cover critical illness) from NTUC Income. It requires me to pay premium until age 85. I am not prepared to pay premium for so many years. What should I do with this policy?
------------------
REPLY:
You can decide on when you wish to stop paying the premium, say at age 60, 65 or 70. At that time, you have the following options:
* cancel the policy and receive the cash value
* convert the policy to a "paid-up policy"; you do not have to pay any more premium, and will be covered for a reduced sum assured
You can ask the adviser to get NTUC Income to quote the cash and paid up value at age 60, 65 and 70. You can decide on when is the best time to stop paying the premium
I bought a living policy (to cover critical illness) from NTUC Income. It requires me to pay premium until age 85. I am not prepared to pay premium for so many years. What should I do with this policy?
------------------
REPLY:
You can decide on when you wish to stop paying the premium, say at age 60, 65 or 70. At that time, you have the following options:
* cancel the policy and receive the cash value
* convert the policy to a "paid-up policy"; you do not have to pay any more premium, and will be covered for a reduced sum assured
You can ask the adviser to get NTUC Income to quote the cash and paid up value at age 60, 65 and 70. You can decide on when is the best time to stop paying the premium
Thursday, June 28, 2007
Revision of premium under Critical illness plan
Dear Mr Tan,
I bought a critical illness plan. It has a clause that allows the insurance company to revise the premium rate in the future, subject to a cap of 1.5 times. I am worried that the cost may be unaffordable to me. What are your views?
--------------------------------
REPLY:
For most life insurance plans, the premium rate is guaranteed for the entire term of the contract.
The only exception is for a critical illness plan. There is a clause that allows the insurance company to revise the premium rate, if it is necessary due to an increase in claims.
The reason for this clause is:
* the plan covers several critical illnesses, such as cancer, heart failure, etc
* the insurance company is worried that the claim rate for some illnesses may increase significantly in the future (beyond what was projected in the premium rate)
* due to this uncertainty, they cannot guarantee the current premium for many years into the future
If the claim rate is kept within the current projection (which already allows for higher claim due to age), there is no need for the insurance company to revise the rate.
So far, the claim experience has been favourable. There was no need for the insurance company to revise the rate. I believe that this situation should continue into the future.
I bought a critical illness plan. It has a clause that allows the insurance company to revise the premium rate in the future, subject to a cap of 1.5 times. I am worried that the cost may be unaffordable to me. What are your views?
--------------------------------
REPLY:
For most life insurance plans, the premium rate is guaranteed for the entire term of the contract.
The only exception is for a critical illness plan. There is a clause that allows the insurance company to revise the premium rate, if it is necessary due to an increase in claims.
The reason for this clause is:
* the plan covers several critical illnesses, such as cancer, heart failure, etc
* the insurance company is worried that the claim rate for some illnesses may increase significantly in the future (beyond what was projected in the premium rate)
* due to this uncertainty, they cannot guarantee the current premium for many years into the future
If the claim rate is kept within the current projection (which already allows for higher claim due to age), there is no need for the insurance company to revise the rate.
So far, the claim experience has been favourable. There was no need for the insurance company to revise the rate. I believe that this situation should continue into the future.
Collateralised Debt Obligation (CDO)
Recently, you hear about problems with the sub-prime mortgages in USA. There is a high default rate among these mortgages. The high default has now affected the CDOs that are issued on these assets.
Here is a definition about CDOs from Wikipedia:
Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.
CDOs divide the credit risk on a portfolio of fixed income assets among different tranches. They issue senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches(unrated).
Losses are applied in reverse order of seniority and therefore junior tranches offer higher coupons.
Using CDO technology, from one portfolio of generally risky assets a range of products are created, from the risky equity tranche to the relatively lower-risk senior debt.
Lesson: There are many complicated financial products in the market. When things go wrong, it is quite difficult to sort out who takes the losses on the various tranches of the products. It is risky to invest in these products.
Here is a definition about CDOs from Wikipedia:
Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.
CDOs divide the credit risk on a portfolio of fixed income assets among different tranches. They issue senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches(unrated).
Losses are applied in reverse order of seniority and therefore junior tranches offer higher coupons.
Using CDO technology, from one portfolio of generally risky assets a range of products are created, from the risky equity tranche to the relatively lower-risk senior debt.
Lesson: There are many complicated financial products in the market. When things go wrong, it is quite difficult to sort out who takes the losses on the various tranches of the products. It is risky to invest in these products.
Structured products advertised in the newspapers
I have studied many of the structured products that are advertised in the newspapers recently.
Here are my observations:
* many products have an element of speculation, ie you will get a higher return if certain events happen; for some products, you may suffer a large loss under other specified events
* the advertisements usually do not give the essential details; you have to ask for the prospectus or the brochure
* it is difficult to predict the likelihood of these events or to calculate the likely amount of the gain or loss (even for an expert like me)
* after paying the embedded charges and the marketing expenses, the products are likely to give a poor return to the investor
Lesson: Do not invest in these products; you are paying a high cost and not getting any real value.
If you wish to take risk, invest in equity directly. If you want a safe investment, buy government or highly rated corporate bonds.
Here are my observations:
* many products have an element of speculation, ie you will get a higher return if certain events happen; for some products, you may suffer a large loss under other specified events
* the advertisements usually do not give the essential details; you have to ask for the prospectus or the brochure
* it is difficult to predict the likelihood of these events or to calculate the likely amount of the gain or loss (even for an expert like me)
* after paying the embedded charges and the marketing expenses, the products are likely to give a poor return to the investor
Lesson: Do not invest in these products; you are paying a high cost and not getting any real value.
If you wish to take risk, invest in equity directly. If you want a safe investment, buy government or highly rated corporate bonds.
Save for children's education
COMMENT IN MY BLOG:
If you are require some money after some years (e.g. 20 years later for children education) and insurance, it may not be good to buy a term plan and invest the rest as Mr Tan said.
At the 20th years, it may be a market down turn or the companies you bought are valued lowly by the market, and you are not able to get a decent returns - though the chances are low if the time is long.
With an endowment fund, all reversionary bonus declared in the past years are guranteed, your are more assured of a reasonable returns and assured cash after 20 years.
----------------------
MY REPLY:
If you save for your child's education in a large, well diversified, equity fund, you are able to withdraw the savings over a few years to fund the education expenses. This ensures that you get an average market return and is not affected by the market price at a specific maturity date.
You can enjoy the benefit of a higher long term return from the equity market. This return is likely to be much higher than an endowment plan. You also save on the high charges embedded in an endowment plan.
You also have the option to move to a bond fund closer to the maturity date, and avoid the fluctuation in the equity fund.
If you are require some money after some years (e.g. 20 years later for children education) and insurance, it may not be good to buy a term plan and invest the rest as Mr Tan said.
At the 20th years, it may be a market down turn or the companies you bought are valued lowly by the market, and you are not able to get a decent returns - though the chances are low if the time is long.
With an endowment fund, all reversionary bonus declared in the past years are guranteed, your are more assured of a reasonable returns and assured cash after 20 years.
----------------------
MY REPLY:
If you save for your child's education in a large, well diversified, equity fund, you are able to withdraw the savings over a few years to fund the education expenses. This ensures that you get an average market return and is not affected by the market price at a specific maturity date.
You can enjoy the benefit of a higher long term return from the equity market. This return is likely to be much higher than an endowment plan. You also save on the high charges embedded in an endowment plan.
You also have the option to move to a bond fund closer to the maturity date, and avoid the fluctuation in the equity fund.
Critical illness rider
Dear Mr Tan,
I bought a basic life policy with a few riders (ie accident, critical illness, etc).
I was assured by the insurance agent that all premiums for the riders would be loaded up to a maximum of 1.5 times the original premium.
When the policy document arrived, only critical illness had a written clause that indicates that premium would be capped at 1.5 times the original premium. There is no cap on the other riders.
Is this all right?
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REPLY:
I believe that the premium for the basic policy and all the other riders (except for critical illness) are already fixed at the current rate for the duration of the contract. You can check with the agent to confirm that this is the case. If so, you do not have to worry about future increase in the premium rate for these riders.
The premium rate for critical illness is the only rider that is subject to revision. This is the practice of the insurance industry, and reflects the possibility that the claim on critical illness may increase significantly in the future. In your case, your insurance company has set a capped at 1.5 times of the premium.
I bought a basic life policy with a few riders (ie accident, critical illness, etc).
I was assured by the insurance agent that all premiums for the riders would be loaded up to a maximum of 1.5 times the original premium.
When the policy document arrived, only critical illness had a written clause that indicates that premium would be capped at 1.5 times the original premium. There is no cap on the other riders.
Is this all right?
---------------
REPLY:
I believe that the premium for the basic policy and all the other riders (except for critical illness) are already fixed at the current rate for the duration of the contract. You can check with the agent to confirm that this is the case. If so, you do not have to worry about future increase in the premium rate for these riders.
The premium rate for critical illness is the only rider that is subject to revision. This is the practice of the insurance industry, and reflects the possibility that the claim on critical illness may increase significantly in the future. In your case, your insurance company has set a capped at 1.5 times of the premium.
Index Funds
Dear Mr Tan,
What are your views on index funds?
http://www.sgx.com/psv/securities/etf/documents/isharesmsci_sinprospectus.pdf
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REPLY:
Please read my FAQ. I like investing in index funds due to its low cost. In the case of Singapore, a good index fund is the ST Tracker Fund
What are your views on index funds?
http://www.sgx.com/psv/securities/etf/documents/isharesmsci_sinprospectus.pdf
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REPLY:
Please read my FAQ. I like investing in index funds due to its low cost. In the case of Singapore, a good index fund is the ST Tracker Fund
Application of actuarial know-how
1. Here is an example of how actuarial know-how can be applied in motor-car insurance
100,000 people insure their cars
20% have an accident each year
Total claims to be paid is estimated to be (say) $60 million (average of $3,000 per claim)
Expenses to run the business $20 million
Total is $80 million
Each person has to pay a premium of $800
The insurance company can charge more, to make a profit margin
2. Different premium rates
Not everyone pays the same premium rate of $800
Some people are more accident prone
Some vehicles are more expensive to repair
The premium rate varies according to the type of risk
3. Time value of money
The claims are paid one, two or more years in the future
The premium can be invested to earn an income
This can be used to reduce the premium rate, or to increase
the profit.
100,000 people insure their cars
20% have an accident each year
Total claims to be paid is estimated to be (say) $60 million (average of $3,000 per claim)
Expenses to run the business $20 million
Total is $80 million
Each person has to pay a premium of $800
The insurance company can charge more, to make a profit margin
2. Different premium rates
Not everyone pays the same premium rate of $800
Some people are more accident prone
Some vehicles are more expensive to repair
The premium rate varies according to the type of risk
3. Time value of money
The claims are paid one, two or more years in the future
The premium can be invested to earn an income
This can be used to reduce the premium rate, or to increase
the profit.
Wednesday, June 27, 2007
Role of Insurance in Financial Well-being
Talk at Junior College
Mr Tan Kin Lian qualified as an actuary in 1975. He was the chief executive of NTUC Income for 30 years from 1977 until his retirement in 2007.
In his talk, he will touch on the following topics:
* Economic functions of insurance
* Careers in insurance
* Role of an actuary
* Special skills requied to be an actuary
Insurance plays two important economic functions. It is a way of managing risks of individuals and businesses. Each person contributes a small sum of money (called a premium) into a pool to pay the claims of the people who suffered the insured losses. By reducing risks for all the parties, it helps people to carry out their economic activities and daily lives, without being financially destroyed by an unfortunate event.
Life insurance is also a way for ordinary people to make regular savings for their future needs. The funds that are mobilised can be invested for the long term to build the infrastructure and the productive capacity of the economy. It also earns a return on the funds to be shared by the investors.
The insurance industry provide careers for the following categories of people:
* marketing and sales
* customer service
* technical (underwriting risk and managing claims)
* investments
* administrative, support, technology and management functions
The actuary plays a special role in the insurance industry. He evaluates the risks and calculates the premium rates to be charged for the risks. His skill is applied in all fields of insurance, namely in life, general and health insurance.
He has to use two special knowledge:
* statistics showing the chance of occurrence of certain losses
* time value of money, as the losses may occur at various times in the future
Some actuary also play an important role in marketing and communication. He can explain the insurance and financial products in simple terms for the ordinary people to understand.
You can read more about Mr Tan and his special area of knowledge from the following:
Blog
Website
Mr Tan Kin Lian qualified as an actuary in 1975. He was the chief executive of NTUC Income for 30 years from 1977 until his retirement in 2007.
In his talk, he will touch on the following topics:
* Economic functions of insurance
* Careers in insurance
* Role of an actuary
* Special skills requied to be an actuary
Insurance plays two important economic functions. It is a way of managing risks of individuals and businesses. Each person contributes a small sum of money (called a premium) into a pool to pay the claims of the people who suffered the insured losses. By reducing risks for all the parties, it helps people to carry out their economic activities and daily lives, without being financially destroyed by an unfortunate event.
Life insurance is also a way for ordinary people to make regular savings for their future needs. The funds that are mobilised can be invested for the long term to build the infrastructure and the productive capacity of the economy. It also earns a return on the funds to be shared by the investors.
The insurance industry provide careers for the following categories of people:
* marketing and sales
* customer service
* technical (underwriting risk and managing claims)
* investments
* administrative, support, technology and management functions
The actuary plays a special role in the insurance industry. He evaluates the risks and calculates the premium rates to be charged for the risks. His skill is applied in all fields of insurance, namely in life, general and health insurance.
He has to use two special knowledge:
* statistics showing the chance of occurrence of certain losses
* time value of money, as the losses may occur at various times in the future
Some actuary also play an important role in marketing and communication. He can explain the insurance and financial products in simple terms for the ordinary people to understand.
You can read more about Mr Tan and his special area of knowledge from the following:
Blog
Website
Express differing views
The visitor to my blog include:
* ordinary people who are interested in financial education
* insurance and investment professionals
My blog is intended mainly for the ordinary people. Most of them find my views to be educational and useful.
I also welcome the contribution of the professionals, as they add to my limited knowledge. They can tell me more about certain products in the market, to allow me to make an analysis.
Some of them express views that differ from my views. This is all right. They should avoid making judgement. After all, it is just a view.
* ordinary people who are interested in financial education
* insurance and investment professionals
My blog is intended mainly for the ordinary people. Most of them find my views to be educational and useful.
I also welcome the contribution of the professionals, as they add to my limited knowledge. They can tell me more about certain products in the market, to allow me to make an analysis.
Some of them express views that differ from my views. This is all right. They should avoid making judgement. After all, it is just a view.
Trading in Endowment Policies
There is a website service (in the UK) that allows a policyholder to find someone who is willing to buy his endowment policy for a better price than the cash value offered by his insurance company.
The advertisement says:
* We offer an exclusive 'execution-only' service for people wishing to sell their unwanted endowment policies.
* Shop around the endowment marketplace in order to try and find you the best offer for selling your endowment policy.
* We will usually get you a number of offers for your endowment policy.
This is how the "trading" works. The insurance company has a monopoly of your endowment policy, and will offer you a poor value. This allows them to make a profit when you surrender your policy.
By approaching the market place, you may be able to find another buyer who can give you a higher value. They will keep the policy till maturity and still make a profit over their funding cost.
I believe that someone tried to introduce this service in Singapore. But I am not aware if it has been successful.
The advertisement says:
* We offer an exclusive 'execution-only' service for people wishing to sell their unwanted endowment policies.
* Shop around the endowment marketplace in order to try and find you the best offer for selling your endowment policy.
* We will usually get you a number of offers for your endowment policy.
This is how the "trading" works. The insurance company has a monopoly of your endowment policy, and will offer you a poor value. This allows them to make a profit when you surrender your policy.
By approaching the market place, you may be able to find another buyer who can give you a higher value. They will keep the policy till maturity and still make a profit over their funding cost.
I believe that someone tried to introduce this service in Singapore. But I am not aware if it has been successful.
Structured products and life annuity
COMMENT POSTED IN MY BLOG:
Mr. Tan,I agree with most of your write-ups except for your view on structured products and annuity.
First, I think you are not conversant with structured products.They are very low risk if you understand them and you can say they offer free lunch.(good return at almost no risk)
Secondly, CPF offers the best annuity . It has good payout and has options to let you choose the duration and amount of payout. If you want to recieve until 100 years old it can be designed as such.
Today Insurers'annuities are not comparable except maybe variable annuity.
As a whole it is commendable of you to educate the public.You are indeed providing a social service. Thank you , Mr. Tan.
---------------------
MY REPLY:
Most of the structured products which are capital guaranteed give a poor return. For example, the Swing Fund that recently matured gave a return of 2% in total for 5 years. During this period, the stockmarket went up by more than 50%.
If you want no risk, invest in a government bond. You can get nearly 15% for 5 years. This is much better than the structured products which give less than 5% (after deducting the charges).
Leaving your money in CPF to earn 4% per annum is a good idea. It is also a good idea to invest in a participating annuity plan from NTUC Income. You should see an insurance adviser to learn about the difference. You can make a better decision.
Read the FAQ.
Mr. Tan,I agree with most of your write-ups except for your view on structured products and annuity.
First, I think you are not conversant with structured products.They are very low risk if you understand them and you can say they offer free lunch.(good return at almost no risk)
Secondly, CPF offers the best annuity . It has good payout and has options to let you choose the duration and amount of payout. If you want to recieve until 100 years old it can be designed as such.
Today Insurers'annuities are not comparable except maybe variable annuity.
As a whole it is commendable of you to educate the public.You are indeed providing a social service. Thank you , Mr. Tan.
---------------------
MY REPLY:
Most of the structured products which are capital guaranteed give a poor return. For example, the Swing Fund that recently matured gave a return of 2% in total for 5 years. During this period, the stockmarket went up by more than 50%.
If you want no risk, invest in a government bond. You can get nearly 15% for 5 years. This is much better than the structured products which give less than 5% (after deducting the charges).
Leaving your money in CPF to earn 4% per annum is a good idea. It is also a good idea to invest in a participating annuity plan from NTUC Income. You should see an insurance adviser to learn about the difference. You can make a better decision.
Read the FAQ.
Financial Planning Tips and Products
If you wish to have my financial planning tips and an explanation of the common products, you can read the FAQs here.
Tuesday, June 26, 2007
Low cost endowment plan
Dear Mr Tan,
Are there any low cost endowment plan? I like to get a secure return of about 4% per annum, and have life insurance cover built in as well.
-----------------------------
REPLY:
You can buy a single premium endowment plan. It should give you a return that meets your target. The upfront charge is usually less than 3% of the single premium. This allows the policyholder to earn a good return (after deducting the charges).
I am not aware about any monthly premium endowment plan that are designed to be "low cost". It is possible for this plan to be designed with an upfront charge of (say) 20% of the annual premium. This will give a good return to the policyholder. There will be a good market for this product.
Most endoment plan that are now in the market have an upfront charge that take away one year's of premium. The net return is poor.
Are there any low cost endowment plan? I like to get a secure return of about 4% per annum, and have life insurance cover built in as well.
-----------------------------
REPLY:
You can buy a single premium endowment plan. It should give you a return that meets your target. The upfront charge is usually less than 3% of the single premium. This allows the policyholder to earn a good return (after deducting the charges).
I am not aware about any monthly premium endowment plan that are designed to be "low cost". It is possible for this plan to be designed with an upfront charge of (say) 20% of the annual premium. This will give a good return to the policyholder. There will be a good market for this product.
Most endoment plan that are now in the market have an upfront charge that take away one year's of premium. The net return is poor.
Streettracks Gold Shares
streetTRACKS® Gold Shares is the first gold-backed exchange-traded fund to be listed in Asia. It is designed to track the price of gold and trade like any stock on the exchange.
The Gold Shares are backed by physical allocated gold bullion and are denominated in U.S. dollars. Investors can buy as little as one board lot of ten shares, with each share priced at approximately one-tenth the spot price for an ounce of gold. If the gold price is USD 650, the minimum investment amount is USD 650.
The Gold Shares are backed by physical allocated gold bullion and are denominated in U.S. dollars. Investors can buy as little as one board lot of ten shares, with each share priced at approximately one-tenth the spot price for an ounce of gold. If the gold price is USD 650, the minimum investment amount is USD 650.
Transparent interest rate on home loans
Hi Mr Tan
What are your views about the "transparent" interest rate charged by DBS Bank on their home loans? It seems to be slightly higher than the interest rate of other banks. As the interest rate moves with the interbank rate, will I have to pay more, if interest rate goes up?
--------------------
REPLY:
I prefer a transparent interest rate. The rate charged by DBS is based on a interbank rate, plus a premium of 1.25%. I think that this is a fair rate.
It is better to have a transparent rate. This ensures that you will get a fair rate, even if you do not monitor it closely.
There were news reports that some banks adopt many tranches of board rates previously, and may be overcharging some customers, who do not monitor the rate closely.
It does not matter that the interest rate may move up or down with the market. Over the years, this will average out. It is more important that you arrange with the bank for the following:
* keep the same monthly payment, even if interest rate goes up
* flexibiilty to make early repayment, if you have the cash.
What are your views about the "transparent" interest rate charged by DBS Bank on their home loans? It seems to be slightly higher than the interest rate of other banks. As the interest rate moves with the interbank rate, will I have to pay more, if interest rate goes up?
--------------------
REPLY:
I prefer a transparent interest rate. The rate charged by DBS is based on a interbank rate, plus a premium of 1.25%. I think that this is a fair rate.
It is better to have a transparent rate. This ensures that you will get a fair rate, even if you do not monitor it closely.
There were news reports that some banks adopt many tranches of board rates previously, and may be overcharging some customers, who do not monitor the rate closely.
It does not matter that the interest rate may move up or down with the market. Over the years, this will average out. It is more important that you arrange with the bank for the following:
* keep the same monthly payment, even if interest rate goes up
* flexibiilty to make early repayment, if you have the cash.
Invest in Gold ETF
Hi Mr Tan,
What is you view in investing in Gold via Exchange Traded Funds (ETF)? Is it a good time to go into Gold?
--------------------
REPLY:
I am not familiar with investing in gold, and also the right "timing" to invest in gold.
Some experts believe that gold should be part of a well diversified portfolio. If the current price is not too high, it may be a good time to implement this diversification.
--------------------
FROM MY STOCKBROKER:
The Counter is Gold 10 US $ under stock exchange. Seller @ US 63.80(Last done 63.60)
It is similar to trading in STI-ETF. However, this is in 10 shares and in US $
Fom the above indication, you can buy min of 10 shares, the cost will be US$ 638
According to my colleague, this price is fair as it is close to physical gold and move in tandem to it.
What is you view in investing in Gold via Exchange Traded Funds (ETF)? Is it a good time to go into Gold?
--------------------
REPLY:
I am not familiar with investing in gold, and also the right "timing" to invest in gold.
Some experts believe that gold should be part of a well diversified portfolio. If the current price is not too high, it may be a good time to implement this diversification.
--------------------
FROM MY STOCKBROKER:
The Counter is Gold 10 US $ under stock exchange. Seller @ US 63.80(Last done 63.60)
It is similar to trading in STI-ETF. However, this is in 10 shares and in US $
Fom the above indication, you can buy min of 10 shares, the cost will be US$ 638
According to my colleague, this price is fair as it is close to physical gold and move in tandem to it.
Insights into Financial Investments
Dear Mr Tan,
Thank you for so unselfishly sharing your knowledge with us. I especially appreciate your insights into financial investments and your friendly approach. I enjoy reading your blog!
I wish you all the best.
Thank you for so unselfishly sharing your knowledge with us. I especially appreciate your insights into financial investments and your friendly approach. I enjoy reading your blog!
I wish you all the best.
Understanding Research
Research is important to build our knowledge based industries in Singapore. Besides manpower and infra structure developments we must bring our capabilities to higher levels through research in order to advance and remain competitive.
Dr. Lee Kum Tatt has been involved in many fields of research in his life. He shares with us his experiences and views on how he classified research and how they are evaluated. Read his article on Classification of Research Activities in his blog.
Dr. Lee Kum Tatt has been involved in many fields of research in his life. He shares with us his experiences and views on how he classified research and how they are evaluated. Read his article on Classification of Research Activities in his blog.
Insurance is pooling of risk
Insurance is pooling of risk. If we have a large group of people joining an insurance scheme, everyone pays a contribution to the pool. The contribution is used to pay benefits to those few who have to make a claim for the insured event, e.g. death or accident.
If you join a pure insurance scheme, the cost should be quite low. It is based on the total amount of claim divided by the number of people, plus a small loading to cover the expenses.
Unfortunately, the real cost to the consumer could be much higher, due to the following factors:
* the pure insurance is combined with some other benefits, such as savings and investment
* a proportion of the premium is used to pay the commission for the adviser to sell the product
* the consumer may not get a good deal
If you buy the simple product that offers only the pure insurance, you will be able to compare the prices charged by a few insurance companies. You can get a product that offers you the coverage at a modest cost.
Lesson: Go for the simple products that you can understand and make a comparison. You can get a better deal.
If you join a pure insurance scheme, the cost should be quite low. It is based on the total amount of claim divided by the number of people, plus a small loading to cover the expenses.
Unfortunately, the real cost to the consumer could be much higher, due to the following factors:
* the pure insurance is combined with some other benefits, such as savings and investment
* a proportion of the premium is used to pay the commission for the adviser to sell the product
* the consumer may not get a good deal
If you buy the simple product that offers only the pure insurance, you will be able to compare the prices charged by a few insurance companies. You can get a product that offers you the coverage at a modest cost.
Lesson: Go for the simple products that you can understand and make a comparison. You can get a better deal.
My approach towards my career
Hi Mr Tan,
I'm just finished NS and is currently awaiting for my enrolement into NTU to study engineering. During my free time, I had been thinking about my future goals and what I want to achieve in the future, in my personal development, career, wealth ,and family and friends.
I'm writing to you hoping that you could share with me your advice. What made you chose the path you have choosen? Before you started out did you had a vision of what you want to achieve? Did you just know by instinct that the financial industry was the right fit for you? Was money the primary consideration?
As a corporate veteran, what are your views? Is it really hard to get promoted these days? Do you have any advice on how to successfully climb the corporate ladder? What in your opinion are the most important factors or skills that has contributed to your carrer? Is it the people-skills like they always say (EQ) rather that the credentials? Any tips on how to be a people person ?
------------------------------------
REPLY:
I decided to take the actuarial course because it suited my interest. I was strong in mathematics and was able to communicate clearly. These strenghts make it quite easy for me to pass the actuarial course. However, for most other people, this course was considered to be very challenging and difficult.
I know that the actuary is well paid, but it was not an important factor to me. Interest was more important. I enjoy studying the actuarial course, because the subjects are very useful for many aspects of daily lives, eg financial, investment and demographic matters.
I also took an active interest in learning about information technology and how to program computers to do the calcuations, data processing and other work. They help to make it easy for business to be conducted more efficiently, at lower cost and better customer service.
Here is my approach towards promotion in my career:
* I learn the skills that are useful for my work
* I put them to good use, to improve the business results
* The opportunity for promotion will come
* I am patient.
I hope that you find these remarks to be useful.
I'm just finished NS and is currently awaiting for my enrolement into NTU to study engineering. During my free time, I had been thinking about my future goals and what I want to achieve in the future, in my personal development, career, wealth ,and family and friends.
I'm writing to you hoping that you could share with me your advice. What made you chose the path you have choosen? Before you started out did you had a vision of what you want to achieve? Did you just know by instinct that the financial industry was the right fit for you? Was money the primary consideration?
As a corporate veteran, what are your views? Is it really hard to get promoted these days? Do you have any advice on how to successfully climb the corporate ladder? What in your opinion are the most important factors or skills that has contributed to your carrer? Is it the people-skills like they always say (EQ) rather that the credentials? Any tips on how to be a people person ?
------------------------------------
REPLY:
I decided to take the actuarial course because it suited my interest. I was strong in mathematics and was able to communicate clearly. These strenghts make it quite easy for me to pass the actuarial course. However, for most other people, this course was considered to be very challenging and difficult.
I know that the actuary is well paid, but it was not an important factor to me. Interest was more important. I enjoy studying the actuarial course, because the subjects are very useful for many aspects of daily lives, eg financial, investment and demographic matters.
I also took an active interest in learning about information technology and how to program computers to do the calcuations, data processing and other work. They help to make it easy for business to be conducted more efficiently, at lower cost and better customer service.
Here is my approach towards promotion in my career:
* I learn the skills that are useful for my work
* I put them to good use, to improve the business results
* The opportunity for promotion will come
* I am patient.
I hope that you find these remarks to be useful.
My blog had 60000 visitors
Dear Mr Tan,
Congratulations for having more than 60,000 visitors to your blog. This is a milestone during this short span of time (since 8 Feb 2007).
Once again, thank you for the free and independant advice on financial matters.
--------------------------------------------------------
REPLY:
I receive an average of 500 visitors a day. The visitors have incresed in recent weeks.
Congratulations for having more than 60,000 visitors to your blog. This is a milestone during this short span of time (since 8 Feb 2007).
Once again, thank you for the free and independant advice on financial matters.
--------------------------------------------------------
REPLY:
I receive an average of 500 visitors a day. The visitors have incresed in recent weeks.
Market Timing
COMMENT POSTED IN MY BLOG
Mr. Tan, you seem to be an advocate of market timing, from most of your postings. Investors following your advice are in great danger. I think, Mr. Tan, you need to get your understanding of investment right.
Despite your many years as a CEO of Income and to be fair to you, your knowledge of investment is horrendous.
You better stick to insurance. Even in this area I also find your recommendations not appropiate sometimes. You have great knowledge in products but not planning.
You are sincere, there is no doubt at all. but this is not enough. Hope you take this in good spirit of sharing.
----------------------------------------------
REPLY
I posted a study by Plexus Asset Management. It showed the experience over the past 100 years in the United States. For a investor who made an investment at a time of high market P/E ratio, the return over the next 10 years is lower than for other periods.
If you wish to ignore this study, it is all right. In my case, I prefer to avoid investing a lump sum at a time when the market is high. I prefer to wait for a more normal time. It is all right, if you make small monthly investments, and take take advantage of "averaging".
Mr. Tan, you seem to be an advocate of market timing, from most of your postings. Investors following your advice are in great danger. I think, Mr. Tan, you need to get your understanding of investment right.
Despite your many years as a CEO of Income and to be fair to you, your knowledge of investment is horrendous.
You better stick to insurance. Even in this area I also find your recommendations not appropiate sometimes. You have great knowledge in products but not planning.
You are sincere, there is no doubt at all. but this is not enough. Hope you take this in good spirit of sharing.
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REPLY
I posted a study by Plexus Asset Management. It showed the experience over the past 100 years in the United States. For a investor who made an investment at a time of high market P/E ratio, the return over the next 10 years is lower than for other periods.
If you wish to ignore this study, it is all right. In my case, I prefer to avoid investing a lump sum at a time when the market is high. I prefer to wait for a more normal time. It is all right, if you make small monthly investments, and take take advantage of "averaging".
Three in one
Jakarta imposes a "three in one" system. For certain roads, during certain hours, each car should have at least 3 people. If not, the driver has to pay a heavy fine.
This is simular to the "four in one" system adopted in Singapore about twenty years ago.
This is simular to the "four in one" system adopted in Singapore about twenty years ago.
My experience with Valuair
I took Valuair to Jakarta and back.
My experience is positive. The seat is comfortable. They serve a light meal on each trip. The fare is a discount of about 30% compared to Singapore Airlines.
The only disadvantage is that they allow a maximum of 9 kgs for a bag taken into the cabin. I had to check in my bag.
My experience is positive. The seat is comfortable. They serve a light meal on each trip. The fare is a discount of about 30% compared to Singapore Airlines.
The only disadvantage is that they allow a maximum of 9 kgs for a bag taken into the cabin. I had to check in my bag.
Saturday, June 23, 2007
Useful to have a financial or insurance adviser
I suggest the following approach for the ordinary lay person:
* learn about the basic aspects of financial planning (eg read my FAQs)
* use a low cost financial or insurance adviser
The adviser who can help you to make the best decision for your circumstances. If you do not take up a lot of their time, they can give you the advice for a low fee or to earn a modest rate of commission. For example, the advisers from NTUC Income falls into this category. By using the adviser, you can save a lot of time, and make a better decision.
For example, I can buy shares through the internet. But, I find it useful to go through a stockbroker. The fees have now come down to 0.3% (down from 1% a few years ago). I find it to be a fair rate of commission for the time spent by the stockbroker.
* learn about the basic aspects of financial planning (eg read my FAQs)
* use a low cost financial or insurance adviser
The adviser who can help you to make the best decision for your circumstances. If you do not take up a lot of their time, they can give you the advice for a low fee or to earn a modest rate of commission. For example, the advisers from NTUC Income falls into this category. By using the adviser, you can save a lot of time, and make a better decision.
For example, I can buy shares through the internet. But, I find it useful to go through a stockbroker. The fees have now come down to 0.3% (down from 1% a few years ago). I find it to be a fair rate of commission for the time spent by the stockbroker.
Future return depends on your entry level
I saw a study by Plexus Asset Managmeent. It looked at the P/E ratios of the S&P 500 index for each year from 1871 to 2006 and calculates the average ten-year forward real return.
Here is the findings
Lesson: Your future return depends on your entry level. If you invest in the stockmarket now (at P/E ratio of about 18 times), the likely real return over the next 10 years is 5.7% p.a. (and not the high return of past years).
Here is the findings
Average Average
P/E ratio 10 year return
8.5 11.0% p.a
12.0 8.1% p.a
15.0 6.1% p.a.
17.6 5.7% p.a.
21.6 3.2% p.a.
Lesson: Your future return depends on your entry level. If you invest in the stockmarket now (at P/E ratio of about 18 times), the likely real return over the next 10 years is 5.7% p.a. (and not the high return of past years).
Free and independent advice
COMMENT POSTED IN MY BLOG:
Don't you think it's good we have Mr Tan here dispensing his free and independent advice in financial matters?
Why should financial advisors get a fee? From Mr. Tan free unbiased recommenation, you can get free independent financial advice at NTUC's business centre, and still get your financial plan implemented. There is no fee.
Just imagine if the rest like the banks and insurers follow the leadership of NTUC, would it be great cost savings for the consumers? In fact, I don't see any flaw in this business model at all. Free advice, low cost plans, zero fees.
Don't you think it's good we have Mr Tan here dispensing his free and independent advice in financial matters?
Why should financial advisors get a fee? From Mr. Tan free unbiased recommenation, you can get free independent financial advice at NTUC's business centre, and still get your financial plan implemented. There is no fee.
Just imagine if the rest like the banks and insurers follow the leadership of NTUC, would it be great cost savings for the consumers? In fact, I don't see any flaw in this business model at all. Free advice, low cost plans, zero fees.
Friday, June 22, 2007
Global stockmarkets
There are two important developments on Friday on the global stockmarkets:
* The China stockmarket came down 3%, due to fear of new measures by the government authority to cool the market
* The US stockmarket came down by more than 1%, due to worries about the subprime mortgages and Bear Stearnes fund.
Will this be the start of an overdue correction?
For those who invest for the long term, there is no need to worry about this type of market correction (if it comes). However, for those who are investing for the short time, you should pay special attention to the development for the next week.
* The China stockmarket came down 3%, due to fear of new measures by the government authority to cool the market
* The US stockmarket came down by more than 1%, due to worries about the subprime mortgages and Bear Stearnes fund.
Will this be the start of an overdue correction?
For those who invest for the long term, there is no need to worry about this type of market correction (if it comes). However, for those who are investing for the short time, you should pay special attention to the development for the next week.
Financial Adviser in Australia
The financial adviser in Australia play a useful role in helping the client to save money on:
* income tax
* superannuation (ie to save for retirement)
The tax system in Australia is complicated. The adviser help the client to arrange the financial affairs to get the best tax saving. The client his happy to pay for the advice, as it is more than covered by the tax saving.
In Singapore, there is little tax saving for most people. Hence, the financial adviser cannot give this value to Singapore clients.
The adviser can help the client to choose the right product. Unfortunately, the adviser gets a commission that is built into the product. This adds to the cost paid by the client. The value added by the adviser is doubtful, as it is impossible for any expert to advise on the fund or product will perform better in the future.
Lesson: Invest in a low cost fund (where you pay less charges to the fund manager and adviser). Invest for the long term.
Read in this FAQ.
* income tax
* superannuation (ie to save for retirement)
The tax system in Australia is complicated. The adviser help the client to arrange the financial affairs to get the best tax saving. The client his happy to pay for the advice, as it is more than covered by the tax saving.
In Singapore, there is little tax saving for most people. Hence, the financial adviser cannot give this value to Singapore clients.
The adviser can help the client to choose the right product. Unfortunately, the adviser gets a commission that is built into the product. This adds to the cost paid by the client. The value added by the adviser is doubtful, as it is impossible for any expert to advise on the fund or product will perform better in the future.
Lesson: Invest in a low cost fund (where you pay less charges to the fund manager and adviser). Invest for the long term.
Read in this FAQ.
Look after the interest of ordinary people
I watched an interview with a US Senator on television.
He argued the case for a change in some tax code, so that "the tax can be applied fairly to all". He said that it is his duty to reflect the wishes of his constitutents in the legislation that is being passed in Congress.
In the globalised economy, it is important that there should be voices to look after the interest of the ordinary people. The US system of democracy appears to handle this matter quite well. The issues that affect the ordinary people are brought up and aired in the Congress.
He argued the case for a change in some tax code, so that "the tax can be applied fairly to all". He said that it is his duty to reflect the wishes of his constitutents in the legislation that is being passed in Congress.
In the globalised economy, it is important that there should be voices to look after the interest of the ordinary people. The US system of democracy appears to handle this matter quite well. The issues that affect the ordinary people are brought up and aired in the Congress.
Importance of savings - a view from an elderly person
I met an elderly person. He told me about his approach towards financial matters, when he was young. I wish to share his thoughts:
* I realise the importance of savings when I was young
* When my friends spend their money on holidays, I keep them as my savings
* I bought property at that time, when it was cheap
* I own a few properties over the years, which appreciated in value
* The savings give me the confidence to do things on my own
* Many young people over-spend and had debts on their credit cards. It is stressful to be pressed to pay these debts.
* I realise the importance of savings when I was young
* When my friends spend their money on holidays, I keep them as my savings
* I bought property at that time, when it was cheap
* I own a few properties over the years, which appreciated in value
* The savings give me the confidence to do things on my own
* Many young people over-spend and had debts on their credit cards. It is stressful to be pressed to pay these debts.
Improve the call center of the Telcos
Dear Mr Tan
NTUC Income has a good call center. The customer does not need to push any button to speak to a staff. Why don't you get the call center of Starhub and SingTel to follow this customer friendly approach?
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REPLY:
I will be happy to give some suggestions to them, if they are willing to listen.
I know that they have already invested a large sum of money to install their telephone system. But, I have an idea to help them to make a change, with minimal expense.
I believe that the cost of handling a customer enquiry will still be the same under my new approach, and the customer satisfaction level can be improved considerably.
Perhaps, the customers should tell these companies to improve their services.
NTUC Income has a good call center. The customer does not need to push any button to speak to a staff. Why don't you get the call center of Starhub and SingTel to follow this customer friendly approach?
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REPLY:
I will be happy to give some suggestions to them, if they are willing to listen.
I know that they have already invested a large sum of money to install their telephone system. But, I have an idea to help them to make a change, with minimal expense.
I believe that the cost of handling a customer enquiry will still be the same under my new approach, and the customer satisfaction level can be improved considerably.
Perhaps, the customers should tell these companies to improve their services.
Improve the public transport now (not later)
There is a letter published in the Straits Times. The writer argued that we should improve the public transport now, rather than later.
I agree. I suggest the following approach:
* get more trains to run on the MRT lines
* provide feeder services to bring people to the MRT stations and bus terminus
* run express bus services (with few stops) between the major towns
* build a second level to the Central Expressway and the Pan Island Expressway
* allow more operators to run the feeder services, using light buses (like Hong Kong)
My basic approach is:
* do the easy things (like what has been suggested)
* do it now
The government decided to improve the road network by building the Kallang Paya Lebar Expressway. But it is taking too long, more than 10 years. It is still not ready.
I guess that it will take 3 to 5 years to build a second level to an existing expressway.
I agree. I suggest the following approach:
* get more trains to run on the MRT lines
* provide feeder services to bring people to the MRT stations and bus terminus
* run express bus services (with few stops) between the major towns
* build a second level to the Central Expressway and the Pan Island Expressway
* allow more operators to run the feeder services, using light buses (like Hong Kong)
My basic approach is:
* do the easy things (like what has been suggested)
* do it now
The government decided to improve the road network by building the Kallang Paya Lebar Expressway. But it is taking too long, more than 10 years. It is still not ready.
I guess that it will take 3 to 5 years to build a second level to an existing expressway.
Does Land Transport Authority listen to the public?
COMMENT POSTED IN MY BLOG:
Mr Tan,
Any idea what is stopping LTA from implementing those simple ideas you have mentioned. These proven ideas had been urged and discussed by the public 15 years ago, - the efficient light feeder buses in Hk s one of them, the faster MTR in HK is another efficient service. But it seems our LTA always seems ignore pulbic advise. They turn left when you tell them to turn right. They went their own way, and now 15 years later, the transport is not economical anymore, and even worse, not efficient at all.
Like everyone said,- they should Listen to your customers first. They dont have to think so hard as customers feedbacks are enough of solutions to solving the transport woes.
They should not waste anymore time wasting taxpayers money that goes against the feedback of customers.
They should overhaul their internal problems. They should be overhaul to listen and be more responsive to the needs of customers, the commuters.
It is not worth employing high-paying expert who does not live in Singapore nor take a bus at all.
Mr Tan,
Any idea what is stopping LTA from implementing those simple ideas you have mentioned. These proven ideas had been urged and discussed by the public 15 years ago, - the efficient light feeder buses in Hk s one of them, the faster MTR in HK is another efficient service. But it seems our LTA always seems ignore pulbic advise. They turn left when you tell them to turn right. They went their own way, and now 15 years later, the transport is not economical anymore, and even worse, not efficient at all.
Like everyone said,- they should Listen to your customers first. They dont have to think so hard as customers feedbacks are enough of solutions to solving the transport woes.
They should not waste anymore time wasting taxpayers money that goes against the feedback of customers.
They should overhaul their internal problems. They should be overhaul to listen and be more responsive to the needs of customers, the commuters.
It is not worth employing high-paying expert who does not live in Singapore nor take a bus at all.
Thursday, June 21, 2007
Invest in a unit trust
SOMEONE POSTED THIS COMMENT IN MY BLOG
The Ideal plan from NTUC Income is a regular-premium ILP. These kinds of products (including the ones from NTUC Income) have extremely high expense ratios compared to Unit Trusts and ETFs.
Before you decide to invest, remember to ask Income to quote you the expense ratio and compare it to a regular-saving Unit Trust.
You can check the FAQ of the Ideal plan. The plan charges 15% of the savings for the first 3 years and that's not including the loads and management expenses.
This is definitely a bad deal compared to a Unit Trust.
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REPLY:
If you can find a unit trust that accept regular savings that can be invested in a fund with low initial and annual charge, you can send them to me.
I understand that most unit trust have high annual charges and expense ratios (which include a trailer fee payable to the financial adviser).
But, if there is really a low cost unit trust, it will be great for consumers. And I shall be happy to recommend it.
The Ideal plan from NTUC Income is a regular-premium ILP. These kinds of products (including the ones from NTUC Income) have extremely high expense ratios compared to Unit Trusts and ETFs.
Before you decide to invest, remember to ask Income to quote you the expense ratio and compare it to a regular-saving Unit Trust.
You can check the FAQ of the Ideal plan. The plan charges 15% of the savings for the first 3 years and that's not including the loads and management expenses.
This is definitely a bad deal compared to a Unit Trust.
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REPLY:
If you can find a unit trust that accept regular savings that can be invested in a fund with low initial and annual charge, you can send them to me.
I understand that most unit trust have high annual charges and expense ratios (which include a trailer fee payable to the financial adviser).
But, if there is really a low cost unit trust, it will be great for consumers. And I shall be happy to recommend it.
Invest in an index fund
Hi Mr Tan,
I am 30 years old and I have been searching for investment which suits my risk appetite. I finally found your blog and I am quite impressed with index fund. Could you tell me more about it and how to invest in this fund?
My ideal index fund is
1. Global equity which is well diversified.
2. Low sale and annual charge.
3. Modest dividend
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REPLY:
The closest to an index fund that you can invest now is the ST Tracker Fund that you can buy from the stockmarket. The only problem is that the Singapore stockmarket is at a high level now.
You can read my views in this FAQ.
If you are investing your monthly savings for the next 30 years, you can consider the Ideal plan from NTUC Income. You can invest in the Balanced or the Growth fund. Although it is not an index fund, the charges are among the lowest available in Singapore.
I will ask X to advise you.
I am 30 years old and I have been searching for investment which suits my risk appetite. I finally found your blog and I am quite impressed with index fund. Could you tell me more about it and how to invest in this fund?
My ideal index fund is
1. Global equity which is well diversified.
2. Low sale and annual charge.
3. Modest dividend
--------------------
REPLY:
The closest to an index fund that you can invest now is the ST Tracker Fund that you can buy from the stockmarket. The only problem is that the Singapore stockmarket is at a high level now.
You can read my views in this FAQ.
If you are investing your monthly savings for the next 30 years, you can consider the Ideal plan from NTUC Income. You can invest in the Balanced or the Growth fund. Although it is not an index fund, the charges are among the lowest available in Singapore.
I will ask X to advise you.
Difference between Logic9 and Sudoku
Dear Mr Tan
I find that a difficult puzzle in Logic9 is easier to solve, compared to Sudoku, even though the number of initial blanks are about the same. I find Logic9 more enjoyable. Can you explain the difference between Logic9 and Sudoku?
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REPLY:
Logic9 follows the same rules as Sudoku. You have to fill in the blanks with the numbers 1 to 9 so that it does not repeat in every row, column or box (3X3 squares). This puzzle is printed daily in Today (as Sudoku Plus) and MyPaper (as Logic9).
When I generate a difficult puzzle, I make sure that it has a unique, logical solution. If you follow the right steps, you will be able to solve any difficult puzzle. This is why my puzzles are quite enjoyable to solve for people who like to think logically.
You can find out more about Logic9 here.
If you buy the Logic9 book, you will get 4 tips on how to solve the puzzles, including the difficult level. The booklets are available from many bookstores listed in the website.
I find that a difficult puzzle in Logic9 is easier to solve, compared to Sudoku, even though the number of initial blanks are about the same. I find Logic9 more enjoyable. Can you explain the difference between Logic9 and Sudoku?
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REPLY:
Logic9 follows the same rules as Sudoku. You have to fill in the blanks with the numbers 1 to 9 so that it does not repeat in every row, column or box (3X3 squares). This puzzle is printed daily in Today (as Sudoku Plus) and MyPaper (as Logic9).
When I generate a difficult puzzle, I make sure that it has a unique, logical solution. If you follow the right steps, you will be able to solve any difficult puzzle. This is why my puzzles are quite enjoyable to solve for people who like to think logically.
You can find out more about Logic9 here.
If you buy the Logic9 book, you will get 4 tips on how to solve the puzzles, including the difficult level. The booklets are available from many bookstores listed in the website.
Learn Logic9 (Sudoku) at Prime of Life Exhibition
I shall be demonstrating Logic0 (Sudoku) at the Prime of Life Exhibition to be held at 13 to 15 July at Millenia Walk.
The demonstration will be held in the afternoon of 13 and 14 July and the morning of 15 July.
At the demonstration, I shall be teaching three tips on how to solve the difficult puzzles. This will take 20 minutes. After that, the participants have the chance to take part in a contest to win prizes.
Here are the advantages of learning Logic9:
* it is fun, especially when you know how to solve the puzzle!
* keeps your mind alert (and keep alzheimer away)
* attendees at my past talks enjoyed my tips!
The exibition is targeted at the older people, aged 45 and older. More details will be announced by the organiser in due course. Watch out for the newspaper advertisements.
The demonstration will be held in the afternoon of 13 and 14 July and the morning of 15 July.
At the demonstration, I shall be teaching three tips on how to solve the difficult puzzles. This will take 20 minutes. After that, the participants have the chance to take part in a contest to win prizes.
Here are the advantages of learning Logic9:
* it is fun, especially when you know how to solve the puzzle!
* keeps your mind alert (and keep alzheimer away)
* attendees at my past talks enjoyed my tips!
The exibition is targeted at the older people, aged 45 and older. More details will be announced by the organiser in due course. Watch out for the newspaper advertisements.
Wednesday, June 20, 2007
Travel Insurance Claims
1) Does the insurance company factor in the inflated claims in calculating the premium rate?
Reply: The insurance company uses the claim experience to determine the premium rate. This usually includes a certain proportion of fraudalent claim. If there are more fraudulent claims, the insurance company makes a loss. They will increase the premium rate to cover the loss.
2) Can the insurance company mark a "ceiling" on the claim amount in case of loss of bag during travel, rather than approve the amount submitted by the claimant?
Reply: For some type of loss, there is a limit specified in the policy. Usually this limit is quite high, and there is room for fraudulent claims up to this limit. It can still be quite costly, if many people make fraudlent claims.
Reply: The insurance company uses the claim experience to determine the premium rate. This usually includes a certain proportion of fraudalent claim. If there are more fraudulent claims, the insurance company makes a loss. They will increase the premium rate to cover the loss.
2) Can the insurance company mark a "ceiling" on the claim amount in case of loss of bag during travel, rather than approve the amount submitted by the claimant?
Reply: For some type of loss, there is a limit specified in the policy. Usually this limit is quite high, and there is room for fraudulent claims up to this limit. It can still be quite costly, if many people make fraudlent claims.
Inflated Claims on Travel Insurance
A friend told me that it is now quite common for Singaporeans to make inflated claims on their travel insurance policy. They lose a bag for (say) $200 and they make a claim for $800 on a false invoice.
These claimants do not realise that they are committing a crime of cheating, and can lead to quite severe punishment. It is not worth making such a false claim.
The inflated claims will also cause insurance companies to raise their premium rates for travel insurance. This will not be fair to the honest policyholders who do not make inflated claims.
These claimants do not realise that they are committing a crime of cheating, and can lead to quite severe punishment. It is not worth making such a false claim.
The inflated claims will also cause insurance companies to raise their premium rates for travel insurance. This will not be fair to the honest policyholders who do not make inflated claims.
Target savings at retirement
How much savings do you need at the time of retirement?
Here is my rule of thumb:
* calculate the annual sum that you need to cover your living expenses
* multiply it by 25 times
Assume:
* you retire today
* you have a fully paid home
* your children are all grown up
* you need $1,000 a month for your living expense
* you will need a capital sum of 25 X 12 X $1,000 = $300,000
You can invest 80% of the capital sum (say $240,000) to buy a life annuity (which is likely to give you $1,000 a month, but it depends on your age) and keep the remaining 20% ($60,000) as a contingency fund.
If you retire in 10 years time, you need to add inflation to the target sum at the rate of (say) 2% per year. If your target sum is $300,000 today, it will have to be $366.000 in 10 year's time.
Read this FAQ on Life Annuity.
Here is my rule of thumb:
* calculate the annual sum that you need to cover your living expenses
* multiply it by 25 times
Assume:
* you retire today
* you have a fully paid home
* your children are all grown up
* you need $1,000 a month for your living expense
* you will need a capital sum of 25 X 12 X $1,000 = $300,000
You can invest 80% of the capital sum (say $240,000) to buy a life annuity (which is likely to give you $1,000 a month, but it depends on your age) and keep the remaining 20% ($60,000) as a contingency fund.
If you retire in 10 years time, you need to add inflation to the target sum at the rate of (say) 2% per year. If your target sum is $300,000 today, it will have to be $366.000 in 10 year's time.
Read this FAQ on Life Annuity.
Retirement
Source: Wikipedia
Retirement is the point where a person stops employment completely.
A person may also semi-retire and keep some sort of job, although usually out of choice rather than necessity. This usually happens upon reaching a determined age, when physical conditions don't allow the person to work any more (by illness or accident), or even for personal choice (usually in the presence of an adequate pension or personal savings).
The retirement with a pension is considered a right of the worker in many societies, and hard ideological, social, cultural and political battles have been fought over whether this is a right or not. In many western countries this right is mentioned in national constitutions.
Retirement is the point where a person stops employment completely.
A person may also semi-retire and keep some sort of job, although usually out of choice rather than necessity. This usually happens upon reaching a determined age, when physical conditions don't allow the person to work any more (by illness or accident), or even for personal choice (usually in the presence of an adequate pension or personal savings).
The retirement with a pension is considered a right of the worker in many societies, and hard ideological, social, cultural and political battles have been fought over whether this is a right or not. In many western countries this right is mentioned in national constitutions.
Buy Insurance For A Discount
Dear Mr Tan,
I went to NTUC Income to purchase Enhanced Incomeshield with cash rider for my whole family.
I wanted to purchase the policy directly, instead of going through an agent, and to get a discount. But since you left the organisation, it seem to withdraw this benefit.
After discussion with my wife, we decided to leave the place without purchasing the policy as we find no benefit of purchasing without any discount.
We might as well ask for an agent in case we need service in the future to make a claim. Do you have any good agent to recommend for me who will look after our long term benefit?
----------------
REPLY:
I will get X to assist you.
I went to NTUC Income to purchase Enhanced Incomeshield with cash rider for my whole family.
I wanted to purchase the policy directly, instead of going through an agent, and to get a discount. But since you left the organisation, it seem to withdraw this benefit.
After discussion with my wife, we decided to leave the place without purchasing the policy as we find no benefit of purchasing without any discount.
We might as well ask for an agent in case we need service in the future to make a claim. Do you have any good agent to recommend for me who will look after our long term benefit?
----------------
REPLY:
I will get X to assist you.
Financial Planning for Teachers
I have been invited to give a talk on financial planning for teachers. For those who are not able to attend my talk, you can read about my tips here
Financial Planning for the Young
Financial Planning for Senior
Financial Planning for the Young
Financial Planning for Senior
Hong Kong's public transport system
COMMENT POSTED IN MY BLOG
Hong Kong’s public transport network seems more well-connected and three-dimensional, consisting of railway, MTR, tram cars, bus, minibuses, taxi, ferries, etc; all these are viewed as convenient transportation means for residents. Hong Kong and Beijing' MRT interval seems to be 2 or 3 minutes only. Actually buses carry largest volume of passages in many large cities. "Public transit first" and public bus ways is also common in Hong Kong, Paris and Beijing, etc.
An interesting thing is, Hong Kong people seems more to enjoy the walking, I often see lots of people walking along lanes or walking-skyway in HK island, while Singaporeans seem less willing to walk, with walking-way system everywhere.
Hong Kong’s public transport network seems more well-connected and three-dimensional, consisting of railway, MTR, tram cars, bus, minibuses, taxi, ferries, etc; all these are viewed as convenient transportation means for residents. Hong Kong and Beijing' MRT interval seems to be 2 or 3 minutes only. Actually buses carry largest volume of passages in many large cities. "Public transit first" and public bus ways is also common in Hong Kong, Paris and Beijing, etc.
An interesting thing is, Hong Kong people seems more to enjoy the walking, I often see lots of people walking along lanes or walking-skyway in HK island, while Singaporeans seem less willing to walk, with walking-way system everywhere.
What is Research?
This is a hot subject for all those who are involved or want to be involved in Research as their occupation, profession or career. Research is getting very important in our increasingly competitive world.
Dr. Lee Kum Tatt has vast experience in these activities in his life. He is going to share with us his thoughts on this subject using special cases as his illustrations. Read some of the interesting stories of how research has helped him and others.
Dr. Lee Kum Tatt has vast experience in these activities in his life. He is going to share with us his thoughts on this subject using special cases as his illustrations. Read some of the interesting stories of how research has helped him and others.
Difficult life of a taxi driver in Singapore
I RECEIVED THIS E-MAIL
Hi,
I refer to the post of your blog regarding grouses of taxi drivers in Singapore.
One thing I understand is that KL taxi drivers actually own the taxi after repaying off the whole amount. And more so happy when they costs the same as a Singapore taxi but in RM$. They do not have to answer to anyone.
In Singapore, a normal taxi costs about $60K+. The hirer has to pay rental of $90 on average everyday. After 2 full years, the costs of the taxi can be recovered back but the poor hirer still continue to pay rental to the company. He does not own the taxi. He is still working for the company. Worse still, there are no benefits like MC, CPF, leave, bonus,etc. & has to work like a slave to earn more than $90 per day so as to make an earning. There is no freedom. If the driver wants to rest by taking offday, he still has to pay rental.
Thus how can the Singaporean taxi driver be happy?
I personally feel taxi drivers in Singapore are a bunch of pitiful people.
Hi,
I refer to the post of your blog regarding grouses of taxi drivers in Singapore.
One thing I understand is that KL taxi drivers actually own the taxi after repaying off the whole amount. And more so happy when they costs the same as a Singapore taxi but in RM$. They do not have to answer to anyone.
In Singapore, a normal taxi costs about $60K+. The hirer has to pay rental of $90 on average everyday. After 2 full years, the costs of the taxi can be recovered back but the poor hirer still continue to pay rental to the company. He does not own the taxi. He is still working for the company. Worse still, there are no benefits like MC, CPF, leave, bonus,etc. & has to work like a slave to earn more than $90 per day so as to make an earning. There is no freedom. If the driver wants to rest by taking offday, he still has to pay rental.
Thus how can the Singaporean taxi driver be happy?
I personally feel taxi drivers in Singapore are a bunch of pitiful people.
Make my blog more interesting
Someone complained that I have censored his comments in my blog. In his case, the statement is not correct. I posted his comment into the main page of my blog and separated a paragraph into two (to make it easier to read). His original comment remained in my blog.
I do have the ability to censor a comment in my blog. I will do it under the following situations:
* where the comment is offensive to another person
* where it is defamatory
* where it has a mischievous intent
So far, I have not found the need to use this censorship power (except for a rare occasion long ago).
I respect the views of other people, even if they differ from my views. I only ask that they express the view in a respectful manner.
When I copy someone's comment into the main page of my blog, I observe the following principles:
* I may edit the comment to be briefer and clearer (only if necessary)
* The original message is kept intact
* I do not quote that person's name (unless I have his or her permission)
* I may change some details to avoid that person being identified by his friends
I hope to receive views and comments from readers for posting into my blog. It becomes more interesting, if it is contributed by several people (and not just my views).
I do have the ability to censor a comment in my blog. I will do it under the following situations:
* where the comment is offensive to another person
* where it is defamatory
* where it has a mischievous intent
So far, I have not found the need to use this censorship power (except for a rare occasion long ago).
I respect the views of other people, even if they differ from my views. I only ask that they express the view in a respectful manner.
When I copy someone's comment into the main page of my blog, I observe the following principles:
* I may edit the comment to be briefer and clearer (only if necessary)
* The original message is kept intact
* I do not quote that person's name (unless I have his or her permission)
* I may change some details to avoid that person being identified by his friends
I hope to receive views and comments from readers for posting into my blog. It becomes more interesting, if it is contributed by several people (and not just my views).
Strange simple English
Someone described my writing as "strange simple English". A few other people told me that they find my views to be easy to understand.
I observe the following:
* use short sentences
* use simple language
* write like I speak
* write in a positive manner
For example, I do not say "not bad". I say "good".
I observe the following:
* use short sentences
* use simple language
* write like I speak
* write in a positive manner
For example, I do not say "not bad". I say "good".
Universal ID - now known as OpenID
I posted a suggestion to create a universal ID. Someone said that this idea is now being worked on, as "OpenID".
Here is the description from Wikipedia:
OpenID is a decentralized single sign-on system. Using OpenID-enabled sites, web users do not need to remember traditional authentication tokens such as username and password. Instead, they only need to be previously registered on a website with an OpenID "identity provider", sometimes called an i-broker. Since OpenID is decentralized, any website can employ OpenID software as a way for users to sign in; OpenID solves the problem without relying on any centralized website to confirm digital identity.
OpenID is increasingly gaining adoption among large sites, with organizations like AOL acting as a provider. In addition, integrated OpenID support has been made a high priority in Firefox 3[1] and Microsoft is working on implementing OpenID 2.0 in Windows Vista
Here is the description from Wikipedia:
OpenID is a decentralized single sign-on system. Using OpenID-enabled sites, web users do not need to remember traditional authentication tokens such as username and password. Instead, they only need to be previously registered on a website with an OpenID "identity provider", sometimes called an i-broker. Since OpenID is decentralized, any website can employ OpenID software as a way for users to sign in; OpenID solves the problem without relying on any centralized website to confirm digital identity.
OpenID is increasingly gaining adoption among large sites, with organizations like AOL acting as a provider. In addition, integrated OpenID support has been made a high priority in Firefox 3[1] and Microsoft is working on implementing OpenID 2.0 in Windows Vista
Photos of my grand-daughter
You can see more photos of my grand-daughter, Vera. Her mother is my eldest daughter, Su Ling. Her father is Vitali Zagorodnov from Russia.
Tuesday, June 19, 2007
A piece of inspiration
Do you know who is the winner of the "Britain Got Talent" singing contest? He name is Paul Potts. He is a mobilephone salesman.
You can hear about his inspiring story and his good singing in Su Ling's blog.
You can hear about his inspiring story and his good singing in Su Ling's blog.
Is the stockmarket too highly valued?
Is the stockmarket too highly valued? Is it safe to enter into the stockmarket now?
Some experts look at the price earning ratio of the stocks. This is the current market price divided by the earnings per share. Historically, a ratio of 15 times looks at a fair level. If the P/E ratio is 25 times, it is considered as expensive. If it is less than 10 times, it is cheap.
At the current level of the ST Index of 3,600 for the Singapore market, the P/E ratio is likely to be about 18 times. Some experts argued that it is not too high. So, it is safe (according to this view).
I remember in 2003, the ST Index was at 1,200. If the current P/E ratio is 18 times (ST of 3,600), surely, it must be only 6 times in 2003 (ST of 1,200)?
This was not the case. In 2003, the profits of the companies were about 25% of today. So, the P/E ratio in 2003 was around 24 times. Many experts argued, on the P/E ratio, that you should sell the stocks.
What is the flaw?
It is wrong to calculate the P/E ratio based on the latest year's profit. It is better to use an average of 3 to 5 years to calcuate the P/E ratio, so that the fluctuation in the earnings can be smoothed. Unfortunately, I am not aware of any P/E ratio that is calculated on this smoothing method.
Lesson: Be careful about interpreting the P/E ratio. Try to take the average profit for a few years, so that you are not distored by by extreme results in one year.
Some experts look at the price earning ratio of the stocks. This is the current market price divided by the earnings per share. Historically, a ratio of 15 times looks at a fair level. If the P/E ratio is 25 times, it is considered as expensive. If it is less than 10 times, it is cheap.
At the current level of the ST Index of 3,600 for the Singapore market, the P/E ratio is likely to be about 18 times. Some experts argued that it is not too high. So, it is safe (according to this view).
I remember in 2003, the ST Index was at 1,200. If the current P/E ratio is 18 times (ST of 3,600), surely, it must be only 6 times in 2003 (ST of 1,200)?
This was not the case. In 2003, the profits of the companies were about 25% of today. So, the P/E ratio in 2003 was around 24 times. Many experts argued, on the P/E ratio, that you should sell the stocks.
What is the flaw?
It is wrong to calculate the P/E ratio based on the latest year's profit. It is better to use an average of 3 to 5 years to calcuate the P/E ratio, so that the fluctuation in the earnings can be smoothed. Unfortunately, I am not aware of any P/E ratio that is calculated on this smoothing method.
Lesson: Be careful about interpreting the P/E ratio. Try to take the average profit for a few years, so that you are not distored by by extreme results in one year.
Talk on Financial Planning
I received a request from the recreational club of a government department to give a lunch time talk on financial planning to their members.
I asked the participants to read the FAQs here.
I asked the participants to read the FAQs here.
Visitors to my blog
I was surprised to see an increase in visitors to my blog during the past two days. It exceeded 600 visits a day. Perhaps my regular visitors are doing me a favour in passing the word around to visit my blog. To my promoters, THANK YOU.
Grouses of taxi drivers
Singapore is well known for our complaining taxi drivers. It seems that they are an unhappy lot and have a lot of things to compaint about.
Do taxi drivers in other parts of the world behave like this? Is this an occupational trait?
Not so! I visited Kuala Lumpur on a few occasions during the past two years and spoke to the taxi drivers. They are generally quite happy with their situation. They like their freedom (as taxi drivers) and are happy with their earnings.
Perhaps, our taxi drivers in Singapore find the life to be too stressful?
Do taxi drivers in other parts of the world behave like this? Is this an occupational trait?
Not so! I visited Kuala Lumpur on a few occasions during the past two years and spoke to the taxi drivers. They are generally quite happy with their situation. They like their freedom (as taxi drivers) and are happy with their earnings.
Perhaps, our taxi drivers in Singapore find the life to be too stressful?
Overcrowded Singapore - a comment
COMMENT POSTED IN MY BLOG
The overcrowding will only get worse as our govt is targeting 6.5 million population! I take the MRT daily and I can't see how it can take on additional commuters.
Perhaps our highly paid policy-makers are living in posh neighbourhoods, thus having no clue clue how life is like in the heartland.
I can't help but laugh when our transport minister claimed to check bus-stops and public transports to gauge the situation....although he does NOT take public transport at all.
I would like to tell him that there is a whole world of difference between merely checking as a bystander and actually suffering from overcrowded public transport day-in day-out!!
The overcrowding will only get worse as our govt is targeting 6.5 million population! I take the MRT daily and I can't see how it can take on additional commuters.
Perhaps our highly paid policy-makers are living in posh neighbourhoods, thus having no clue clue how life is like in the heartland.
I can't help but laugh when our transport minister claimed to check bus-stops and public transports to gauge the situation....although he does NOT take public transport at all.
I would like to tell him that there is a whole world of difference between merely checking as a bystander and actually suffering from overcrowded public transport day-in day-out!!
Bad customer service from Telcos
COMMENT POSTED IN MY BLOG
I really hate all the telcos' customer service. Its one of the worst in Singapore. Once you are subscribed, you are finished.
Its one way all through out. I'm subscribed to Singtel Mobile for the last 7 years, and never in these 7 years I can reach the customer service easily. Its a shame on Singtel.
I like NTUC's call centre and I always recommend it to my friends. Why not telcos listen and use NTUC's model.
Govt promotes service, but what these giants doing are something opposite to customer service. Once we are a customer, its like we have to service them.
I lost hope with them.
I really hate all the telcos' customer service. Its one of the worst in Singapore. Once you are subscribed, you are finished.
Its one way all through out. I'm subscribed to Singtel Mobile for the last 7 years, and never in these 7 years I can reach the customer service easily. Its a shame on Singtel.
I like NTUC's call centre and I always recommend it to my friends. Why not telcos listen and use NTUC's model.
Govt promotes service, but what these giants doing are something opposite to customer service. Once we are a customer, its like we have to service them.
I lost hope with them.
Singapore is getting over-crowded
Many of us may not realise it. But the population of Singapore had increased by 60% during the past 16 years. The population in 1990 was 2.7 million. It is now 4.3 million.
This large increase in population is affecting our daily lives in the following ways:
* demand for more hospital beds and doctors
* delayed buses and cramped trains
* congested roads, insufficient parking spaces, too many cars
It looks like the infrastructure has to be expanded considerably to cope with the larger population.
This large increase in population is affecting our daily lives in the following ways:
* demand for more hospital beds and doctors
* delayed buses and cramped trains
* congested roads, insufficient parking spaces, too many cars
It looks like the infrastructure has to be expanded considerably to cope with the larger population.
Best Public Service in the World
Here is the rating of the customer service of various governments, as conducted by Accenture.
Singapore 89%
Canada 88%
USA 79%
Denmark 75%
Sweden 74%
.....
Japan 55% (10th)
Malaysia 44% (14th)
Singapore came out top in the survey.
An important contribution for our high ranking is the work of the Infocomm Development Authority in encouraging the use of e-government services.
Congratulations to IDA.
Singapore 89%
Canada 88%
USA 79%
Denmark 75%
Sweden 74%
.....
Japan 55% (10th)
Malaysia 44% (14th)
Singapore came out top in the survey.
An important contribution for our high ranking is the work of the Infocomm Development Authority in encouraging the use of e-government services.
Congratulations to IDA.
Universal ID for website
I hope, one day, that there is a universal ID and password that can be used for all websites.
At present, we have to provide an ID and password for each website. Here are the problems:
* each website imposes its own non-standard constraints on the ID and password
* some ID cannot be accepted, as it has already been used
* we have to keep a record of all the different IDs and passwords used in the websites.
A few years ago, Microsoft wanted to introduce a "passport" that can solve this problem. This idea did not take off. I hope that Microsoft, Google or Yahoo will try again. Maybe, it will be accepted now.
At present, we have to provide an ID and password for each website. Here are the problems:
* each website imposes its own non-standard constraints on the ID and password
* some ID cannot be accepted, as it has already been used
* we have to keep a record of all the different IDs and passwords used in the websites.
A few years ago, Microsoft wanted to introduce a "passport" that can solve this problem. This idea did not take off. I hope that Microsoft, Google or Yahoo will try again. Maybe, it will be accepted now.
Feedback on the Telcos
COMMENT BY ROGER IN MY BLOG:
Many organisations have used this press button select options system for many years now. NTUC Income under your leadership was the very few organisations left to use real people to answer calls. Kudos to you.
Starhub's hotline is actually more user friendly and you can get to a courteous operator faster than Singtel.
The designers of these centres are usually technical people who are not able to put themselves into the shoes of the laymen. Also many staff nowadays use the automated system to ward off customers calls and put it into an endless loop where a sweet recorded voice kept telling you how important you are to the company and that you will be attended to shortly and it is actually a real test of patience as your phone bill goes up without any real purpose. So the phone companies get to benefit from these too.
There have been recently the hue and cry over Starhub's increase in fees and the contract that prevents people from cancelling their subscriptions.
Singtel also practices these unfair methods by a three year contract which does not reduce in price when a similar broadband service by the same company is now 20 dollars cheaper. Subscribers cannot cancel unless having to pay a hefty penalty fee but has to continue to pay the old higher subscription fees. How is it that when prices are raised then the contract is not binding in price but when prices are reduced it is binding?
We are now living in a society that cares only for more money, whether in cash or in kind, like all these automated answering services in the name of higher productivity but in actual fact just wants to save money by cutting down on the number of real people manning the phones to give real service.
Many organisations have used this press button select options system for many years now. NTUC Income under your leadership was the very few organisations left to use real people to answer calls. Kudos to you.
Starhub's hotline is actually more user friendly and you can get to a courteous operator faster than Singtel.
The designers of these centres are usually technical people who are not able to put themselves into the shoes of the laymen. Also many staff nowadays use the automated system to ward off customers calls and put it into an endless loop where a sweet recorded voice kept telling you how important you are to the company and that you will be attended to shortly and it is actually a real test of patience as your phone bill goes up without any real purpose. So the phone companies get to benefit from these too.
There have been recently the hue and cry over Starhub's increase in fees and the contract that prevents people from cancelling their subscriptions.
Singtel also practices these unfair methods by a three year contract which does not reduce in price when a similar broadband service by the same company is now 20 dollars cheaper. Subscribers cannot cancel unless having to pay a hefty penalty fee but has to continue to pay the old higher subscription fees. How is it that when prices are raised then the contract is not binding in price but when prices are reduced it is binding?
We are now living in a society that cares only for more money, whether in cash or in kind, like all these automated answering services in the name of higher productivity but in actual fact just wants to save money by cutting down on the number of real people manning the phones to give real service.
Call centers of our Telcos
I wanted to apply for a fixed line. I called the call center of SingTel and Starhub. It was a frustrating experience.
They asked me to listen to pass a button select an option, and to go through it many times. The trouble is that I do not understand the various services and options.
I hope that the designers of call center system are considerate. They should understand that the ordinary customer does not understand the complications of your business. Why not get the customer to talk to a person on your careline early?
They asked me to listen to pass a button select an option, and to go through it many times. The trouble is that I do not understand the various services and options.
I hope that the designers of call center system are considerate. They should understand that the ordinary customer does not understand the complications of your business. Why not get the customer to talk to a person on your careline early?
Yield on Money Market Fund
The unit price of the Money Market Fund of NTUC Income increased by 0.2 cents (0.18%) for the past 28 days. This works out to an annualised yield of 2.4%. The yield was 3% previously. It has dropped during the past month.
Dude
Someone described me as a "dude". I searched the internet for a definition. I obtained the following from Wikipedia:
The term "dude" is best known as a widely-used English slang word commonly used to informally address or refer to a person of the male sex. The word may also be used in the same manner when speaking to (or about) a person of the female sex.
In informal social situations, it is not uncommon for young men to use the word "dude" to address one another, for example, "Mike Smith is one cool dude", or "Who did that?", "[The] dude with the red shirt did that". (sis).
The term "dude" is best known as a widely-used English slang word commonly used to informally address or refer to a person of the male sex. The word may also be used in the same manner when speaking to (or about) a person of the female sex.
In informal social situations, it is not uncommon for young men to use the word "dude" to address one another, for example, "Mike Smith is one cool dude", or "Who did that?", "[The] dude with the red shirt did that". (sis).
Monday, June 18, 2007
Visit the financial adviser
When you are sick, you visit a doctor at his clinic. The doctor treat you and charge you for the consultation.
As the doctor sees many patients in a day, the cost of the consultation is relatively low. The doctor makes a good income from the large number of cases treated. This is high productivity.
I hope that insurance can be handled in this manner in the future. If the customer is willing to visit the financial adviser and to pay a fee for the consultation, it will benefit all parties:
* the cost to the consumer will come down, as pay a net price (after removing the commission)
* the adviser can earn a good income by handling many cases each day
* productivity is increased
* the adviser can recommend the right product to serve the best interest of the customer.
Some insurance companies now allow customers to call them directly on the telephone or transact through the internet, and to give a lower cost to the consumer. I hope that this channel will be more popular in the future.
As the doctor sees many patients in a day, the cost of the consultation is relatively low. The doctor makes a good income from the large number of cases treated. This is high productivity.
I hope that insurance can be handled in this manner in the future. If the customer is willing to visit the financial adviser and to pay a fee for the consultation, it will benefit all parties:
* the cost to the consumer will come down, as pay a net price (after removing the commission)
* the adviser can earn a good income by handling many cases each day
* productivity is increased
* the adviser can recommend the right product to serve the best interest of the customer.
Some insurance companies now allow customers to call them directly on the telephone or transact through the internet, and to give a lower cost to the consumer. I hope that this channel will be more popular in the future.
Singapore is 14th most expensive city in the world
Singapore is now the 14th most expensive city to live in the world, according to a report by Mercer Human Resource Consultancy. It has moved 3 rungs from 17th position has year.
This has many disadvantages:
* foreigners will find it unattractive to work in Singapore
* Singaporeans are stuck with higher cost of living, and do not have much choice
According to the same report, Singapore is now more expensive than New York. Considering that wages in Singapore (for most people) are lower than New York, this matter is quite serious.
We need to look for ways to keep our cost of living down. Here are some suggestions:
* Wait for the property prices to come down to a more reasonable level, before you buy it. It will come down. Be patient.
* Take public transport, such as MRT or bus. They are more cheaper, faster and more enjoyable (compared to driving)
* Pay your credit card on time (ie avoid paying interest on credit cards).
* Invest in simple products that gives you a fair rate of return, and low charges. Invest in the money market fund, bond fund or equity fund that have low upfront and annual fees. Avoid complicated financial products.
* Read the FAQs on financial planning.
This has many disadvantages:
* foreigners will find it unattractive to work in Singapore
* Singaporeans are stuck with higher cost of living, and do not have much choice
According to the same report, Singapore is now more expensive than New York. Considering that wages in Singapore (for most people) are lower than New York, this matter is quite serious.
We need to look for ways to keep our cost of living down. Here are some suggestions:
* Wait for the property prices to come down to a more reasonable level, before you buy it. It will come down. Be patient.
* Take public transport, such as MRT or bus. They are more cheaper, faster and more enjoyable (compared to driving)
* Pay your credit card on time (ie avoid paying interest on credit cards).
* Invest in simple products that gives you a fair rate of return, and low charges. Invest in the money market fund, bond fund or equity fund that have low upfront and annual fees. Avoid complicated financial products.
* Read the FAQs on financial planning.
Tan Kin Lian Has A Blog
COMMENT POSTED IN ANOTHER BLOG:
Tan Kin Lian has a blog. The dude is the ex-CEO of NTUC Income, which obviously didn’t exactly endear him to me. I knew he had been blogging for quite awhile, but I simply dismissed it as NTUC propaganda. However I had another look today and realized that there were many unbiased financial planning gems written in his strange simple english style. Very highly recommended.
Tan Kin Lian has a blog. The dude is the ex-CEO of NTUC Income, which obviously didn’t exactly endear him to me. I knew he had been blogging for quite awhile, but I simply dismissed it as NTUC propaganda. However I had another look today and realized that there were many unbiased financial planning gems written in his strange simple english style. Very highly recommended.
Comments on Dr Lee Kum Tatt's blog
Dr. Lee Kum Tatt has received comments to some of his articles in his blog on “research and its management” and “overcoming the fear factor”. Read his blog for the comments and his candid replies.
Save for an early retirement
Dear Mr Tan,
I wish to save now for an early retirement. I am in my late twenties. How much should I save each month? Should I buy a life insurance policy? What is your advice?
--------------------------------------------
REPLY:
Most life insurance policies has a high upfront charge, that is used to pay commission to the insurance agent. After deducing the charges, the policy will give a negative return for 10 years or longer. After that, you may get a modest return, but it is quite low.
Due to the high upfront cost, you are locked into the policy for many years, even if you are unhappy with the low return. You can only get out of the policy by taking a loss.
It is better for you to save and invest in a fund that has the following features:
* low upfront cost (less than 1.5%)
* low annual fees (less than 1.5%)
* flexibility to change your regular savings
* flexibility to change your fund
You can buy your insurance protection separately through a low cost term insurance.
You can read more about it in the FAQ on this webpage.
I wish to save now for an early retirement. I am in my late twenties. How much should I save each month? Should I buy a life insurance policy? What is your advice?
--------------------------------------------
REPLY:
Most life insurance policies has a high upfront charge, that is used to pay commission to the insurance agent. After deducing the charges, the policy will give a negative return for 10 years or longer. After that, you may get a modest return, but it is quite low.
Due to the high upfront cost, you are locked into the policy for many years, even if you are unhappy with the low return. You can only get out of the policy by taking a loss.
It is better for you to save and invest in a fund that has the following features:
* low upfront cost (less than 1.5%)
* low annual fees (less than 1.5%)
* flexibility to change your regular savings
* flexibility to change your fund
You can buy your insurance protection separately through a low cost term insurance.
You can read more about it in the FAQ on this webpage.
Help a friend
Hi Mr Tan
I have just started work. My classmate and a good friend joined a life insurance company. She asked me to take a life insurance policy from her, to help her to meet her sales target. I like to help her, but will this be disadvantageous to me?
---------------------------------------
REPLY:
You should take care of your own financial future and make sure that you are buying the right product, as you will be committed for many years into the future.
You can read the FAQ on Financial Planning for the Young.
Many young people joined the insurance field for a few years, and moved to another job. Their clients are then passed to another agent. You may not be serviced by your friend a few years later.
I have just started work. My classmate and a good friend joined a life insurance company. She asked me to take a life insurance policy from her, to help her to meet her sales target. I like to help her, but will this be disadvantageous to me?
---------------------------------------
REPLY:
You should take care of your own financial future and make sure that you are buying the right product, as you will be committed for many years into the future.
You can read the FAQ on Financial Planning for the Young.
Many young people joined the insurance field for a few years, and moved to another job. Their clients are then passed to another agent. You may not be serviced by your friend a few years later.
Save adequately for your child
Dear Mr Tan,
I have been advised by an agent to save $200,000 for the tertiary education of my child. I find the premium to be too costly. What is your advice?
-----------------------------
REPLY:
You can read my FAQ. It explains the amount that is needed. It should fit into your own financial capacity
I have been advised by an agent to save $200,000 for the tertiary education of my child. I find the premium to be too costly. What is your advice?
-----------------------------
REPLY:
You can read my FAQ. It explains the amount that is needed. It should fit into your own financial capacity
Sunday, June 17, 2007
Sponsored article
Sometimes, a financial or insurance product is covered in a newspaper. It purports to explain the product, and usually highlights its benefits. Most readers may think that the article is written independently by the journalist.
I learned that in some cases, the space for the article is sponsored by the seller of the product. It is really an advertisement (as the seller is paying for the space).
As the sponsor has some say in the way that the article is written, it will usually play down the negative aspects of the product. The consumers may not get a balanced analysis of the product.
In recent years, the frequency of these sponsored articles has increased. The reader should be careful.
I learned that in some cases, the space for the article is sponsored by the seller of the product. It is really an advertisement (as the seller is paying for the space).
As the sponsor has some say in the way that the article is written, it will usually play down the negative aspects of the product. The consumers may not get a balanced analysis of the product.
In recent years, the frequency of these sponsored articles has increased. The reader should be careful.
Rating of assets backing financial products
I saw an advertisement that a specific financial product is backed by CDO (collaterialised debt obligations) with at least a rating of AA.
Normally, a AA rating is considered to be strong, in the case of a rated bond or a corporte entity.
I learned that AA rating for a CDO follows a different set of criteria. The AA rating for a CDO is weaker than for a bond. It does not have the same level of financial strength.
If you read a financial product that is backed by AA rated CDO, you have to be aware that it is of lower quality than a AA rated bond.
Normally, a AA rating is considered to be strong, in the case of a rated bond or a corporte entity.
I learned that AA rating for a CDO follows a different set of criteria. The AA rating for a CDO is weaker than for a bond. It does not have the same level of financial strength.
If you read a financial product that is backed by AA rated CDO, you have to be aware that it is of lower quality than a AA rated bond.
Saturday, June 16, 2007
Government bonds
Dear Mr Tan
You have recommended to invest in government bonds. It now earns less than 3% p.a. and you have to lock it for 5 years or more. I do not find it to be attractive. Is there a better return from other safe investments?
----------------------------
REPLY:
If you wish to have a safe investment, it is better to buy government bonds to earn 3% p.a. for 5 years, or a total of 15%, instead of investing in a financial product that requires you to bet on the outcome of certain stocks.
Many people invested in the financial products during the past years, and obtained a poor return of less than 1% p.a. For example, the Swing fund gave a return of 2% for 5 years, or just 0.4% p.a.
If you do not wish to lock up your money to earn 3% for 5 years, you can invest in a money market fund and earn about 2% p.a. at the current rate. If interest rate goes up, your return will increase, and it changes with the money market.
You have recommended to invest in government bonds. It now earns less than 3% p.a. and you have to lock it for 5 years or more. I do not find it to be attractive. Is there a better return from other safe investments?
----------------------------
REPLY:
If you wish to have a safe investment, it is better to buy government bonds to earn 3% p.a. for 5 years, or a total of 15%, instead of investing in a financial product that requires you to bet on the outcome of certain stocks.
Many people invested in the financial products during the past years, and obtained a poor return of less than 1% p.a. For example, the Swing fund gave a return of 2% for 5 years, or just 0.4% p.a.
If you do not wish to lock up your money to earn 3% for 5 years, you can invest in a money market fund and earn about 2% p.a. at the current rate. If interest rate goes up, your return will increase, and it changes with the money market.
Fund earned 20% during past 8 months
There is an advertisement showing that a unit trust earned 20% since its launch 8 months ago.
Before you invest in this fund, you have to consider the following:
* many other funds also earned a similar or better return
* the upfront cost of investment is 5% (which is high)
* the stockmarket is now at a high level and is risky
If you invest in the stockmarket now, you should be prepared to suffer a correction (ie drop in prices), if it happens.
Do you want to take the risk?
Before you invest in this fund, you have to consider the following:
* many other funds also earned a similar or better return
* the upfront cost of investment is 5% (which is high)
* the stockmarket is now at a high level and is risky
If you invest in the stockmarket now, you should be prepared to suffer a correction (ie drop in prices), if it happens.
Do you want to take the risk?
Cost of betting on a financial product
Dear Mr Tan,
If I invest in a financial product that guarantees a return of my principal, I know that I will not lose out. At least, I will get back my investment. If the stocks meet the target, I will get a good return. What are your views?
-----------------------------
REPLY:
You should look at the opportunity cost. For example, instead of investing your money for 5 years in a financial product, you could have bought government bonds to earn 3% p.a. for 5 years, or 15% in total.
If you invest $20,000 in a financial product, you are actually spending $3,000 on the bet, ie 15% for 5 years.
In thecase of the Swing fund, you got back only 2% after 5 years, or $400. This is a poor bet, compared to the cost of $3,000. Your payback is less than 15% of what you betted (ie $3,000). This is a poor return, considering that the stockmarket performed extremely well during the past 5 years.
Lesson: Do not bet on a financial product, as the odds are designed to your disadvantage.
If I invest in a financial product that guarantees a return of my principal, I know that I will not lose out. At least, I will get back my investment. If the stocks meet the target, I will get a good return. What are your views?
-----------------------------
REPLY:
You should look at the opportunity cost. For example, instead of investing your money for 5 years in a financial product, you could have bought government bonds to earn 3% p.a. for 5 years, or 15% in total.
If you invest $20,000 in a financial product, you are actually spending $3,000 on the bet, ie 15% for 5 years.
In thecase of the Swing fund, you got back only 2% after 5 years, or $400. This is a poor bet, compared to the cost of $3,000. Your payback is less than 15% of what you betted (ie $3,000). This is a poor return, considering that the stockmarket performed extremely well during the past 5 years.
Lesson: Do not bet on a financial product, as the odds are designed to your disadvantage.
Look for Solutions Not Scapegoats
Dr. Lee Kum Tatt is a chemist. Looking at and for solutions has been his profession all his life. Read the article in his blog on how his own quote has given him peace of mind in his life.
Friday, June 15, 2007
Use the call center or e-mail
Dear Mr Tan,
I have an agent. However, can I choose to buy direct from NTUC call centre for travel insurance? Can I get a direct discount without going through her?
I am not happy with the agent (million dollar roundtable member) as she is away often on seminars. I can't contact her sometimes.
But unfortunately, this is the experience I have with previous NTUC agent, so I live with it.
-------------------------
REPLY
For simple matters, such as travel insurance, it is more convenient for you to go through the call center or handle it directly through the internet. NTUC Income offers a very low premium for travel insurance. Most people arrange it directly.
It is best to use the agent for the more complicated product, where you need advice. If the agent is travelling, you can send an e-mail to the agent.
If the agent does not respond to you, you can find another agent who is able to spend more time to take care of your needs.
I have an agent. However, can I choose to buy direct from NTUC call centre for travel insurance? Can I get a direct discount without going through her?
I am not happy with the agent (million dollar roundtable member) as she is away often on seminars. I can't contact her sometimes.
But unfortunately, this is the experience I have with previous NTUC agent, so I live with it.
-------------------------
REPLY
For simple matters, such as travel insurance, it is more convenient for you to go through the call center or handle it directly through the internet. NTUC Income offers a very low premium for travel insurance. Most people arrange it directly.
It is best to use the agent for the more complicated product, where you need advice. If the agent is travelling, you can send an e-mail to the agent.
If the agent does not respond to you, you can find another agent who is able to spend more time to take care of your needs.
Buy a Dell PC through the Dell shop
I bought a Dell Dimension PC through the Dell shop. It got an attractive price (same as buying direct through the internet) and the service of a Dell representative from the shop in Funan Center.
As the Dell representative is familiar with the product and options, it was a great help to me.
The Dell representative uses the information from the Dell website (which is available to customers). As he handles many orders a day, he knows where to go on the site, and what to do.
This is a great business model. It is good for customers. It is efficient and brings down the cost.
I am happy with the Dell PC and the service.
As the Dell representative is familiar with the product and options, it was a great help to me.
The Dell representative uses the information from the Dell website (which is available to customers). As he handles many orders a day, he knows where to go on the site, and what to do.
This is a great business model. It is good for customers. It is efficient and brings down the cost.
I am happy with the Dell PC and the service.
Financial planning tips
Dear Mr Tan,
I enjoy reading your blog. Do you have any advice for my father, who is reaching age 60. I am now 33 years old, with a child. How should I invest my savings?
--------------------------------
REPLY:
You can click on the link "Financial Planning Tips" that appears on the right panel, below my photograph. It will bring you to my website, where there are tips for people at various ages.
You can also click here.
I enjoy reading your blog. Do you have any advice for my father, who is reaching age 60. I am now 33 years old, with a child. How should I invest my savings?
--------------------------------
REPLY:
You can click on the link "Financial Planning Tips" that appears on the right panel, below my photograph. It will bring you to my website, where there are tips for people at various ages.
You can also click here.
Learn about insurance
Dear Mr Tan
I like to learn about insurance. Can you advise me on a suitable website?
------------------------
REPLY:
You can try the following:
www.tankinlian.com
know your insurance
I like to learn about insurance. Can you advise me on a suitable website?
------------------------
REPLY:
You can try the following:
www.tankinlian.com
know your insurance
Invest in Bonds
Hi Mr. Tan,
I'm interested in buying bond but have no knowledge of which bond to buy. Could you recommend same save and low risk bond.
---------------------
REPLY:
I suggest that you consider the following:
* Global Bond or Singapore Bond fund from NTUC Income
* Singapore Government Securities (buy through a stockbroker or from Fundsupermarket or DollarDex.
I'm interested in buying bond but have no knowledge of which bond to buy. Could you recommend same save and low risk bond.
---------------------
REPLY:
I suggest that you consider the following:
* Global Bond or Singapore Bond fund from NTUC Income
* Singapore Government Securities (buy through a stockbroker or from Fundsupermarket or DollarDex.
Four Clever Financial Tools
Larry Haverkamp posted a article entitled "4 clever financial tools" in his blog. It is easy to understand and is useful for the lay investor.
Thursday, June 14, 2007
Social and private Insurance
What is social insurance?
It is an compulsory insurance scheme provided by the state and covers a defined group of people (eg citizens or permanent residents). The cost of the scheme can be fully paid by compulsory contributions or partly funded by general taxation.
What are the risks that can be covered by social insurance?
Here are some examples:
* unemployment
* sickness
* health care
* injuries
* old age pension
In the past, the governments in many countries were active in providing fairly generous benefits under the umbrella of the welfare state. Due to abuse, the governments scaled back these welfare benefits. They prefered to let the citizens take care of these matters on their own, through private insurance.
The disadvantage of private insurance are:
* it is costly
* some groups of people cannot be covered (due to their existing condition)
We should strike a right balance. Some types of benefits should be covered by social insurance, eg catastropic payments for accidents and costly medical treatment, or for living too long. The other payments can be covered by private insurance.
It is an compulsory insurance scheme provided by the state and covers a defined group of people (eg citizens or permanent residents). The cost of the scheme can be fully paid by compulsory contributions or partly funded by general taxation.
What are the risks that can be covered by social insurance?
Here are some examples:
* unemployment
* sickness
* health care
* injuries
* old age pension
In the past, the governments in many countries were active in providing fairly generous benefits under the umbrella of the welfare state. Due to abuse, the governments scaled back these welfare benefits. They prefered to let the citizens take care of these matters on their own, through private insurance.
The disadvantage of private insurance are:
* it is costly
* some groups of people cannot be covered (due to their existing condition)
We should strike a right balance. Some types of benefits should be covered by social insurance, eg catastropic payments for accidents and costly medical treatment, or for living too long. The other payments can be covered by private insurance.
BIGe
Hi Mr Tan,
I've just placed $X of my CPF ordinary account into Aviva's BIGe single premium endowment. It gives a guaranteed interest rate of 3.5% p.a. for 3 months. In your view, how does Aviva's BIGe compares to Income's Flexi-Cash?
----------------------
REPLY
Aviva's Big-e gives a guaranteed return of 3.5%. This is higher than Flexi-Cash in NTUC Income, which earns between 3% and 3.5% (not guaranteed).
If Aviva keeps the interest at 3.5% beyond 3 months, it is attractive. If it drops below 2.5%, then it is not attractive. Between 2.5% and 3.5%, it is marginal.
I've just placed $X of my CPF ordinary account into Aviva's BIGe single premium endowment. It gives a guaranteed interest rate of 3.5% p.a. for 3 months. In your view, how does Aviva's BIGe compares to Income's Flexi-Cash?
----------------------
REPLY
Aviva's Big-e gives a guaranteed return of 3.5%. This is higher than Flexi-Cash in NTUC Income, which earns between 3% and 3.5% (not guaranteed).
If Aviva keeps the interest at 3.5% beyond 3 months, it is attractive. If it drops below 2.5%, then it is not attractive. Between 2.5% and 3.5%, it is marginal.
Invest your CPF ordinary account in BIGe
Dear Mr Tan,
I read your blog everyday without fail. It is so informative and covered a large variety of topics which are very relevant to ordinary retirees like us.
I would like to seek your advice on a product being marketed by Aviva Pte Ltd.
3.5% pa guaranteed for 3 months on your CPF savings. The BIG e is a single endowment plan that offers :
(a) Interest that's always higher than CPF's existing rate of 2.5% pa.
(b) 100% capital sum guaranteed.
(c) No lock-in period.
(d) No sales charges and withdrawal fees.
I have some CPF left and would like to invest in this endowment plan. Would appreciate your advice and comments.
-------------
REPLY:
This is a good plan for a CPF member. If I have money in the CPF ordinary account earning 2.5%, I would probably have opted for the BIGe myself.
To my knowledge, there is nothing adverse about it.
I read your blog everyday without fail. It is so informative and covered a large variety of topics which are very relevant to ordinary retirees like us.
I would like to seek your advice on a product being marketed by Aviva Pte Ltd.
3.5% pa guaranteed for 3 months on your CPF savings. The BIG e is a single endowment plan that offers :
(a) Interest that's always higher than CPF's existing rate of 2.5% pa.
(b) 100% capital sum guaranteed.
(c) No lock-in period.
(d) No sales charges and withdrawal fees.
I have some CPF left and would like to invest in this endowment plan. Would appreciate your advice and comments.
-------------
REPLY:
This is a good plan for a CPF member. If I have money in the CPF ordinary account earning 2.5%, I would probably have opted for the BIGe myself.
To my knowledge, there is nothing adverse about it.
Avoid betting on financial products
Many new financial products are advertised in the daily newspapers. Most of them involve an element of betting. Your return depends on the performance of various shares over the next few years.
You should avoid "investing" in these products. Often, the bet is to the consumer's disadvantage. The regulator does not vet that the risk and reward has been designed fairly for the consumer.
You can read my views of these structured products in my website.
If you wish to take a bet, it is better to go to the casino or to Singapore Pools. You will probably get better odds for the bet.
Lesson: To get a better return on your investments, you should choose an equity fund, bond fund or money market fund. You will get the actual returns from the fund, less the charges. You should find out what the charges are. Make sure that it is not more than 1.5% per annum. Better still, go for charges that are less than 1%.
You should avoid "investing" in these products. Often, the bet is to the consumer's disadvantage. The regulator does not vet that the risk and reward has been designed fairly for the consumer.
You can read my views of these structured products in my website.
If you wish to take a bet, it is better to go to the casino or to Singapore Pools. You will probably get better odds for the bet.
Lesson: To get a better return on your investments, you should choose an equity fund, bond fund or money market fund. You will get the actual returns from the fund, less the charges. You should find out what the charges are. Make sure that it is not more than 1.5% per annum. Better still, go for charges that are less than 1%.
Choice of Workshop
Dear Mr Tan,
NTUC Income advertises a motor insurance plan that gives the choice of workshop to repair the car. Is this a better plan?
-------------------------
REPLY:
You have to pay a higher premium when you select the plan that offers you a choice of workshop. The difference could be 10% to 20% higher.
Most customers prefer the normal plan that charges a lower premium. In most cases, they do not make any claim. If they have an accident, it is better to let NTUC Income handle the repair at their quality workshop. The customer feedback on service and quality of repair has been good.
My suggestion: Go for the normal plan. Enjoy a lower premium (10% to 20% lower). Let NTUC Income handle the repair for you. You can save the hassle.
Exception: If you own a new car (1 or 2 years old) and you are fussy about the repair, then pay 20% more and take the "choice of workshop" plan.
NTUC Income advertises a motor insurance plan that gives the choice of workshop to repair the car. Is this a better plan?
-------------------------
REPLY:
You have to pay a higher premium when you select the plan that offers you a choice of workshop. The difference could be 10% to 20% higher.
Most customers prefer the normal plan that charges a lower premium. In most cases, they do not make any claim. If they have an accident, it is better to let NTUC Income handle the repair at their quality workshop. The customer feedback on service and quality of repair has been good.
My suggestion: Go for the normal plan. Enjoy a lower premium (10% to 20% lower). Let NTUC Income handle the repair for you. You can save the hassle.
Exception: If you own a new car (1 or 2 years old) and you are fussy about the repair, then pay 20% more and take the "choice of workshop" plan.
Business simulation game
Dear Mr Tan,
I read that you are involved in developing a business simulation game. What does it do? What can I learn from this game?
-----------------
REPLY:
The simulation games teaches the participants on how to run a business. Each team (comprising of up to 4 members) will run a company and decide on the price of its products, its marketing expenditure and the production capacity for the following year.
The game comprises of 5 to 7 virtual years and can be completed within 2 hours. The game is more interesteding when there are several teams competing against each other in a market environment.
You can find out more from this game from this webpage.
The game can be organised for students in a class, or colleagues in a workplace. You can choose from a range of scenarios and business sectors, eg insurance, banking, hotel, airline and retail.
I read that you are involved in developing a business simulation game. What does it do? What can I learn from this game?
-----------------
REPLY:
The simulation games teaches the participants on how to run a business. Each team (comprising of up to 4 members) will run a company and decide on the price of its products, its marketing expenditure and the production capacity for the following year.
The game comprises of 5 to 7 virtual years and can be completed within 2 hours. The game is more interesteding when there are several teams competing against each other in a market environment.
You can find out more from this game from this webpage.
The game can be organised for students in a class, or colleagues in a workplace. You can choose from a range of scenarios and business sectors, eg insurance, banking, hotel, airline and retail.
How to invest $40,000 now
Dear Mr Tan,
My wife and I have about $40K (in fixed deposit). We are less than 30 years old.
We are keen to put this money into good investment, as the payout from fixed deposit is really too low. We are not well versed with shares. We like to invest in the financial products from NTUC Income.
Can you advise how best we can invest this 40K?
----------------------
REPLY:
I will ask an insurance adviser to give you some information on how you can invest in the combined fund (growth or balanced) of NTUC Income. I suggest that you invest the lump sum in installments over the next 5 months, to get the effect of averaging of the cost of your investment.
If you are investing for the next 10 to 20 years, it is all right to invest in the combined fund.
My wife and I have about $40K (in fixed deposit). We are less than 30 years old.
We are keen to put this money into good investment, as the payout from fixed deposit is really too low. We are not well versed with shares. We like to invest in the financial products from NTUC Income.
Can you advise how best we can invest this 40K?
----------------------
REPLY:
I will ask an insurance adviser to give you some information on how you can invest in the combined fund (growth or balanced) of NTUC Income. I suggest that you invest the lump sum in installments over the next 5 months, to get the effect of averaging of the cost of your investment.
If you are investing for the next 10 to 20 years, it is all right to invest in the combined fund.
Flexi-cash from NTUC Income
Dear Mr Tan,
You have mentioned that you keep 50% of your investments in the money market. I would be grateful if you can tell me more about the money market. Is fixed deposit part of the money market? What else?
--------------------
REPLY:
My investment is in the money market fund of NTUC Income. It is called Flexi Cash. You can read about it in www.income.com.sg/faq
You have mentioned that you keep 50% of your investments in the money market. I would be grateful if you can tell me more about the money market. Is fixed deposit part of the money market? What else?
--------------------
REPLY:
My investment is in the money market fund of NTUC Income. It is called Flexi Cash. You can read about it in www.income.com.sg/faq
10 year bond yields
Here are the yields on 10 year government securities in various currencies:
Generally, we are in a low interest rate environment across the world (except for Australia and New Zealand).
For every 1% increase in the yield, the bond prices may fall about 8%.
As inflation is expected to increase in many cuntries, it is better to invest in the money market.
Japan JYP 2%
Singapore SGD 3%
Germany DM 4.6%
Hong Kong HKD 5%
US USD 5.25
UK GBP 5.5%
Australia AUD 6.3%
Generally, we are in a low interest rate environment across the world (except for Australia and New Zealand).
For every 1% increase in the yield, the bond prices may fall about 8%.
As inflation is expected to increase in many cuntries, it is better to invest in the money market.
Wednesday, June 13, 2007
Investing in Foreign Currency Deposits
Dear Mr Tan,
What are your views about investing in foreign currency deposits, such as New Zealand dollar?
----------------------
REPLY:
Earlier this year, I wanted to invest in New Zealand deposit, as it offered an attractive interest rate. I spoke to a banker from that part of the world. He told me to be careful, as the NZD had already appreciated a lot.
I decided not to make that investment. Since then, the NZD had appreciated by another 5%. I missed that boat!
Many of the currencies, such as AUD and NZD, are at a historical high level. I have decided to keep my savings in SGD to earn 2.5% to 3%.
What are your views about investing in foreign currency deposits, such as New Zealand dollar?
----------------------
REPLY:
Earlier this year, I wanted to invest in New Zealand deposit, as it offered an attractive interest rate. I spoke to a banker from that part of the world. He told me to be careful, as the NZD had already appreciated a lot.
I decided not to make that investment. Since then, the NZD had appreciated by another 5%. I missed that boat!
Many of the currencies, such as AUD and NZD, are at a historical high level. I have decided to keep my savings in SGD to earn 2.5% to 3%.
Imbalance in Global Trade
I saw an interesting remark:
* China has a huge trade surplus
* They invest the surplus in US Government bonds
* If US forces China to revalue the yuan, China may sell the US Government bonds
* But, who will buy these bonds from China?
This remark reflect the state of the imbalance in global trade. It is not good for the global economy.
* China has a huge trade surplus
* They invest the surplus in US Government bonds
* If US forces China to revalue the yuan, China may sell the US Government bonds
* But, who will buy these bonds from China?
This remark reflect the state of the imbalance in global trade. It is not good for the global economy.
Subprime mortgages in America
Subprime mortgages are mortgages given to borrowers of lower credit standings during the boom days of the property market in America. Due to the downturn in property values, many of these borrowers have defaulted. They also have to suffer large financial losses.
There is a debate in America about the role of the regulator (ie the FED or Federal Reserve Board).
Some of the issues being debated are: should the FED have stepped in earlier to ban these mortgages as the borrowers were not aware about the implications of a rise in interest rate? Were there adequate consumer protection?
I find the debate to be important as it has to balance between:
* the need for free markets
* the need for consumer protection
I hope that these issues will lead to a proper balance between these two requirements. It will be relevant to Singapore.
There is a debate in America about the role of the regulator (ie the FED or Federal Reserve Board).
Some of the issues being debated are: should the FED have stepped in earlier to ban these mortgages as the borrowers were not aware about the implications of a rise in interest rate? Were there adequate consumer protection?
I find the debate to be important as it has to balance between:
* the need for free markets
* the need for consumer protection
I hope that these issues will lead to a proper balance between these two requirements. It will be relevant to Singapore.
American Presidential Election, 2008
I am watching the developments on the 2008 election with great interest. It shows the American system of democracy.
I am fascinated by their system of choosing the best candidates to represent the Republican Party and the Democratic Party.
Many candidates come forward to participate in the "primaries" for their party. To win the primaries, the candidates have to give their views on many major issues over the media, especially television. There is great debate on these issues.
The voters express their choice in the primary elections, which are held at all the states.
This helps to pick the best candidate to represent their party in the national election. The final votes will be decided in November 2008.
I am fascinated by their system of choosing the best candidates to represent the Republican Party and the Democratic Party.
Many candidates come forward to participate in the "primaries" for their party. To win the primaries, the candidates have to give their views on many major issues over the media, especially television. There is great debate on these issues.
The voters express their choice in the primary elections, which are held at all the states.
This helps to pick the best candidate to represent their party in the national election. The final votes will be decided in November 2008.
Leadership - by Rudy Guiliani
Rudy Guiliana was the mayor of New York City for many years. He was credited for turning New York City into a safe and attractive city, by overcoming the crime situation in past years.
He is now a leading candidate for the American Presidential election.
I watched an interview with him on Bloomberg TV. He said (something along these lines), "Leadership is doing the right thing, and educating the public about what is right. Too many politicians (in America) are watching the public opinion polls, instead of providing the leadership".
I agree with his views.
Personal note: I like Rudy Guiliana because his family name is GuiLIANi. It includes my name! Ha Ha!
He is now a leading candidate for the American Presidential election.
I watched an interview with him on Bloomberg TV. He said (something along these lines), "Leadership is doing the right thing, and educating the public about what is right. Too many politicians (in America) are watching the public opinion polls, instead of providing the leadership".
I agree with his views.
Personal note: I like Rudy Guiliana because his family name is GuiLIANi. It includes my name! Ha Ha!
Asset allocation of Absolute Return Fund (Pimco)
I heard a news item on Bloomberg TV. It reported the asset allocation of an absolute return fund managed by Pimco, a well known fund manager. The cash component is about 50%.
Under an absolute return fund, the manager is free to move the investments among the various asset classes, ie equity, bond and cash, to achieve the optimum return, considering risk and reward.
This item caught my attention, because about 50% of my personal investments is in the money market fund (ie similar to cash).
Under an absolute return fund, the manager is free to move the investments among the various asset classes, ie equity, bond and cash, to achieve the optimum return, considering risk and reward.
This item caught my attention, because about 50% of my personal investments is in the money market fund (ie similar to cash).
What Chemistry Can Do For You
Dr. Lee Kum Tatt and his former Chemistry colleagues have organiserd the First National Chemistry Week from 16-24 June 2007.
For more information read the article in his blog.
For more information read the article in his blog.
Overcoming the Fear Factor
Everyone of us have some fears of our own. The fear can be traced to threats to our physical, financial or emotional wellbeing.
Dr. Lee Kum Tatt feels that this has something to do with our mind. If we can control our minds we can get rid of these fears.
Read his article on an experience he had on this subject.
Dr. Lee Kum Tatt feels that this has something to do with our mind. If we can control our minds we can get rid of these fears.
Read his article on an experience he had on this subject.
Sufficient savings for retirement
Hi,
I would also like your thoughts on the CPF Minimum Sum changes, as listed on the website: http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_07Jun2007.htm
quote
This increase is in line with the announcements made in August 03 that the CPF MS will be raised gradually to reach $120,000 (in 2003 dollars) in 2013. The increase in MS, which includes an adjustment for inflation, is to ensure that Singaporeans set aside sufficient savings for their retirement.
unquote
Do you think that 120,000 would be sufficient for retirement in 2013? I assume this amount will increase after 2013 too.
-------------------
REPLY:
The amount of $120,000 is intended to be the minimum sum that is applicable to every CPF member. It is calculated to be sufficient to meet the basic needs of the retiree.
The retiree can have additional savings to top up the minimum sum. You can read about my views in my FAQ on "financial planning for seniors" and "life annuity, which are posted in my website.
I would also like your thoughts on the CPF Minimum Sum changes, as listed on the website: http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_07Jun2007.htm
quote
This increase is in line with the announcements made in August 03 that the CPF MS will be raised gradually to reach $120,000 (in 2003 dollars) in 2013. The increase in MS, which includes an adjustment for inflation, is to ensure that Singaporeans set aside sufficient savings for their retirement.
unquote
Do you think that 120,000 would be sufficient for retirement in 2013? I assume this amount will increase after 2013 too.
-------------------
REPLY:
The amount of $120,000 is intended to be the minimum sum that is applicable to every CPF member. It is calculated to be sufficient to meet the basic needs of the retiree.
The retiree can have additional savings to top up the minimum sum. You can read about my views in my FAQ on "financial planning for seniors" and "life annuity, which are posted in my website.
Tuesday, June 12, 2007
Risk of inflation
Global assets (ie stocks and properties) are now at historically high level. They are fueled by low interest rate. The global economies are booming.
I read a news report that the booming global economies will lead to higher wages. Wage increases of 5% to 10% are projected in several countries.
High wages will lead to inflation. This will be followed by higher interest rate. When this happen, global assets will fall in price quite quickly.
I now keep about 50% of my personal investments in the money market. It earns about 2.5% p.a now. I still have the remainder of my investments in stocks, funds and properties - but most were bought at low prices more than 5 or 10 years ago.
I read a news report that the booming global economies will lead to higher wages. Wage increases of 5% to 10% are projected in several countries.
High wages will lead to inflation. This will be followed by higher interest rate. When this happen, global assets will fall in price quite quickly.
I now keep about 50% of my personal investments in the money market. It earns about 2.5% p.a now. I still have the remainder of my investments in stocks, funds and properties - but most were bought at low prices more than 5 or 10 years ago.
A new way to bet
When you invest in the stockmarket, you are taking a bet (unless you are willing to invest for the long term). You bet that you can sell the stock at a higher price and make a profit. If you are forced to sell out at a lower price, you make a loss.
Here is a new way to take a bet:
* you are given 4 stocks
* you are given 4 observation dates which are 3 months apart
* if, on the observation date, any of the stocks fall below 88% of the launch price,
you may suffer partial or total loss of your investment.
* if, all of the stocks are above 95% of the launch price, you are "knocked out" and you get back your investment with a return
* you have the potential to earn a return of 20%, if all of the stocks stay between 88% and 95% of the launch price for the year
To learn about how much you can earn or loss in this "investment", you have to apply and read the prospectus.
Why is similar to a bet? You are betting on the outcome of the prices of the 4 stocks. You have the chance of losing part or all of your investments, and the potential of earning a return of 20%.
What is the chance of each possible outcome? What is the risk and the reward? I do not know. But I suspect that the designer of this bet can fix the odds in the favour of the issuer. As the investor, you will probably lose out, and pay high charges as well (to cover the cost of marketing and other fees).
Lesson: Do not take this bet. It is better to invest directly in stocks, bonds or the money market.
Here is a new way to take a bet:
* you are given 4 stocks
* you are given 4 observation dates which are 3 months apart
* if, on the observation date, any of the stocks fall below 88% of the launch price,
you may suffer partial or total loss of your investment.
* if, all of the stocks are above 95% of the launch price, you are "knocked out" and you get back your investment with a return
* you have the potential to earn a return of 20%, if all of the stocks stay between 88% and 95% of the launch price for the year
To learn about how much you can earn or loss in this "investment", you have to apply and read the prospectus.
Why is similar to a bet? You are betting on the outcome of the prices of the 4 stocks. You have the chance of losing part or all of your investments, and the potential of earning a return of 20%.
What is the chance of each possible outcome? What is the risk and the reward? I do not know. But I suspect that the designer of this bet can fix the odds in the favour of the issuer. As the investor, you will probably lose out, and pay high charges as well (to cover the cost of marketing and other fees).
Lesson: Do not take this bet. It is better to invest directly in stocks, bonds or the money market.
Why Study Science?
This was a common question that many asked Dr. Lee Kum Tatt when he was chairman of the Singapore Science Council and SISIR after Singapore’s independence. Today this same question is still being asked by many.
Read Dr. Lee’s article on this in his blog and the references he gives as to where to get the answers.
Read Dr. Lee’s article on this in his blog and the references he gives as to where to get the answers.
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