Dear Mr Tan
I like to thank you. Your Blog is always helpful.
I visited the "NTUC Income : Know Your Insurance" website and went through the "Personal Accident" and "Making a Will" sessions.
I contacted the NTUC customer service officer to find me a lawyer to help me in drawing up my Will. She recommended a lawyer who quoted $157.50 for a simple will. This is much cheaper than another law firm that I approached earlier.
Tuesday, July 31, 2007
Starhub Mobile
I subscribed to Starhub Mobile recently. It had the following advantages:
* free incoming calls
* free IDD calls (018) to several countries, including Malaysia, China, Hongkong, Taiwan and USA
As I have to call these countries frequently, the free IDD call was quite useful to me.
* free incoming calls
* free IDD calls (018) to several countries, including Malaysia, China, Hongkong, Taiwan and USA
As I have to call these countries frequently, the free IDD call was quite useful to me.
Surgical operation was not helpful
I know of someone who passed away recently. He was over 70 years. He had been on kidney dialysis for many years. He spent two months in a public hospital but they did not operate on him.
Later, he went to a private hospital to carry out an operation. He passed away from some complication arising from the operation. The medical bill was $60,000.
Lesson: Avoid taking an operation at an old age, unless it is clear that the operation is useful and is not risky. Seek a second opinion before carrying out the surgery.
Later, he went to a private hospital to carry out an operation. He passed away from some complication arising from the operation. The medical bill was $60,000.
Lesson: Avoid taking an operation at an old age, unless it is clear that the operation is useful and is not risky. Seek a second opinion before carrying out the surgery.
Brief History of Science in Early Singapore
As the founder chairmen of Singapore’s Science Council, Singapore Institute of Standards and Industrial Research, Singapore Standards Council and a member of Singapore Polytechnic’s Board of Governors, Dr. Lee Kum Tatt was one of our early pioneers who was in a good position to coordinate the application of science to Singapore’s development.
Pioneers always face uncertainties and dilemmas. Dr. Lee shares with us his personal feelings of those times. Dr. Lee also shares with us what he considers as some of the important factors that made Singapore what it is today. Read about his accounts on this subject in his blog.
Pioneers always face uncertainties and dilemmas. Dr. Lee shares with us his personal feelings of those times. Dr. Lee also shares with us what he considers as some of the important factors that made Singapore what it is today. Read about his accounts on this subject in his blog.
How to apportion the investments?
Dear Mr Tan,
Is it a good time to invest in unit trusts, since the share price have shoot so high? If yes, what type of unit trust will you recommend?
How about placing the extra money in fixed return like policy? Example "Growth" policy from NTUC Income with fixed return for 8 years?
I have about $100,000 saving. How should be investment be apportioned?
REPLY
I suggest that you read this FAQ. Although the points were written three months ago, they are still relevant today.
Is it a good time to invest in unit trusts, since the share price have shoot so high? If yes, what type of unit trust will you recommend?
How about placing the extra money in fixed return like policy? Example "Growth" policy from NTUC Income with fixed return for 8 years?
I have about $100,000 saving. How should be investment be apportioned?
REPLY
I suggest that you read this FAQ. Although the points were written three months ago, they are still relevant today.
Invest in bonds now?
Dear Mr. Tan,
At present, I have stocks worth about S$200,000. As stock prices are high, I am considering to sell them and re-invest my money in another type of investment.
I understand that bonds are a good and safe investment. Do you agree? Is there any good bond investment that you can recommend? I want my money to work harder for me, as I am retired now.
REPLY:
I suggest that you read this FAQ. Although the points were written three months ago, they are still largely relevant today. I hope that you find them useful.
At present, I have stocks worth about S$200,000. As stock prices are high, I am considering to sell them and re-invest my money in another type of investment.
I understand that bonds are a good and safe investment. Do you agree? Is there any good bond investment that you can recommend? I want my money to work harder for me, as I am retired now.
REPLY:
I suggest that you read this FAQ. Although the points were written three months ago, they are still largely relevant today. I hope that you find them useful.
Monday, July 30, 2007
Two currencies system
I first visited China in 1987, i.e. 20 years ago.
The law at that time require tourists to use the "foreign exchange certificate", which is different from the "reminbi" used by the local people.
I have a few foreign exchange certificate kept for 20 years. It is like a currency note, but has the following statement ...
BANK OF CHINA. Foreign Exchange Certificate
The yuan expressed in this certificate is equivalent in value to the Reminbi yuan. This certificate can only be used within China at designated places. No request to register its loss will be accepted by the Bank.
All tourists were required to buy and use the foreign exchange certificate. The conversion rate is higher than the local yuan. This is China's way of making tourists pay a higher price (compared to the local people) for the same goods and services.
In subsequent years, China had developed its economy. It ceased the use of the foreign exchange certificate. Tourists now use the same currency (ie Reminbi yuan) as the local people.
The law at that time require tourists to use the "foreign exchange certificate", which is different from the "reminbi" used by the local people.
I have a few foreign exchange certificate kept for 20 years. It is like a currency note, but has the following statement ...
BANK OF CHINA. Foreign Exchange Certificate
The yuan expressed in this certificate is equivalent in value to the Reminbi yuan. This certificate can only be used within China at designated places. No request to register its loss will be accepted by the Bank.
All tourists were required to buy and use the foreign exchange certificate. The conversion rate is higher than the local yuan. This is China's way of making tourists pay a higher price (compared to the local people) for the same goods and services.
In subsequent years, China had developed its economy. It ceased the use of the foreign exchange certificate. Tourists now use the same currency (ie Reminbi yuan) as the local people.
Financial Planning for the Young (revised FAQ)
I have updated the FAQ on Financial Planning for the Young. It consolidates several FAQs. It should be clearer and more comprehensive.
Invest in single premium ILP
COMMENTS POSTED IN MY BLOG
COMMENT 1:
(Edited) Whole life plans, with or without limited premium paying term, is a gimmick to hoodwink consumers into paying more without much added value. They are sold at the expense of coverage.
Recent survey shows that Singaporeans are grossly under insured. Why? The insurance companies and their agents have been around for so many years and what have they done for the consuming public?
The answer is that insurance agents had never put their clients' interest first. They put thier pocket first. Term insurance don't pay much, wholelife with cash value pays more commission.
No wonder AXA, the world's largest insurer is committed to selling only term plans and ILPs. They strong believe the concept of buy term and invest the rest.
COMMENT 2:
I understand that the ILPs sold by AXA have high charges as well. They charges are as bad as the traditional policies. You can read www.askdrmoney.com to find out their charges. Do not buy the ILP from AXA.
COMMENT 3:
Unless advisers are paid a fee for giving advice, they will always be tempted to sell plans that benefit their pockets more.
Unfortunately, there are still not many people who like the idea of paying advisers a fee. They cannot see the benefits that an a professional adviser can give them.
Some DIY their investments plan but many lacks discipline to carry out for long term and lacks the knowledge to review and rebalance along the way.
Maybe someday, CPF board may allow members to use their CPF monies to pay such advisory fee.
COMMENT 4:
(Edited) Single premium ILPs had 5% sales charge which was higher than Income. Now every SP has 3% and that levels the playing field.
Doctor Money's comparison is for regular ILPs.....
Naturally like traditional plans they carry high charges. You pay for flexibility. You can change them to whatever you want at different stage of your life cycle.
MY ADVICE:
Invest in a single premium ILP to reduce the upfront charge. Some insurance companies offer you a plan that allows recurring single premium to be invested. This is the most cost effective plan.
Read this FAQ.
COMMENT 1:
(Edited) Whole life plans, with or without limited premium paying term, is a gimmick to hoodwink consumers into paying more without much added value. They are sold at the expense of coverage.
Recent survey shows that Singaporeans are grossly under insured. Why? The insurance companies and their agents have been around for so many years and what have they done for the consuming public?
The answer is that insurance agents had never put their clients' interest first. They put thier pocket first. Term insurance don't pay much, wholelife with cash value pays more commission.
No wonder AXA, the world's largest insurer is committed to selling only term plans and ILPs. They strong believe the concept of buy term and invest the rest.
COMMENT 2:
I understand that the ILPs sold by AXA have high charges as well. They charges are as bad as the traditional policies. You can read www.askdrmoney.com to find out their charges. Do not buy the ILP from AXA.
COMMENT 3:
Unless advisers are paid a fee for giving advice, they will always be tempted to sell plans that benefit their pockets more.
Unfortunately, there are still not many people who like the idea of paying advisers a fee. They cannot see the benefits that an a professional adviser can give them.
Some DIY their investments plan but many lacks discipline to carry out for long term and lacks the knowledge to review and rebalance along the way.
Maybe someday, CPF board may allow members to use their CPF monies to pay such advisory fee.
COMMENT 4:
(Edited) Single premium ILPs had 5% sales charge which was higher than Income. Now every SP has 3% and that levels the playing field.
Doctor Money's comparison is for regular ILPs.....
Naturally like traditional plans they carry high charges. You pay for flexibility. You can change them to whatever you want at different stage of your life cycle.
MY ADVICE:
Invest in a single premium ILP to reduce the upfront charge. Some insurance companies offer you a plan that allows recurring single premium to be invested. This is the most cost effective plan.
Read this FAQ.
Investing your CPF and cash savings
I have often been asked, "Is it better to leave the minimum sum with the Central Provident Fund to earn 4% per annum, or to buy a life annuity"?
My reply, "Both options are suitable". The return from a participating life annuity from NTUC Income is more than 4% per annum (if the current rate of bonus is included). The life annuity also play a useful role of spreading the longevity risk.
The return of 4% paid by CPF is very attractive, and it does not carry any risk. For most people, keeping the money in CPF is a good choice.
For your cash savings (ie not the CPF minimum sum), it make sense to invest in a life annuity (as the alternative investment options, which have low risk, offer less than 3% per annum).
My suggestion:
1. Keep your minimum sum in CPF to earn 4%
2. Invest $100,000 of your cash savings to buy a life annuity
3. Invest the balance of your cash savings in a large, well diversified fund
Read this FAQ.
My reply, "Both options are suitable". The return from a participating life annuity from NTUC Income is more than 4% per annum (if the current rate of bonus is included). The life annuity also play a useful role of spreading the longevity risk.
The return of 4% paid by CPF is very attractive, and it does not carry any risk. For most people, keeping the money in CPF is a good choice.
For your cash savings (ie not the CPF minimum sum), it make sense to invest in a life annuity (as the alternative investment options, which have low risk, offer less than 3% per annum).
My suggestion:
1. Keep your minimum sum in CPF to earn 4%
2. Invest $100,000 of your cash savings to buy a life annuity
3. Invest the balance of your cash savings in a large, well diversified fund
Read this FAQ.
Use older workers for their strengths
28 July 2007
Editor
Forum Page
Straits Times
I refer to the letter from Dr Adrian John Kok entitled "Have policy to protect rights of older workers" (Straits Times, 28 July).
Dr Kok suggested that policies should be in place to address discrimination against older workers in the workplace and to recognise the rights of the people who in their prime contributed to the prosperity of their organisations.
The root cause of the problem is the difficulty of older workers in getting meaningful, well paid jobs in a competitive environment brought about by the free market and globalised economy.
I wish to suggest the following approach to address this issue:
* identify the strengths of older workers
* identify the new jobs where their strengths can be put to better use
* encourage businesses to tap the older workers for their strengths
* encourage the older workers to adapt to the changes
The strengths of older workers are their experience, skills in handling people, understanding of the business and willingness to stay in the same job. These strengths are needed in the new economy where a high standard of customer service gives a competitive edge to businesses.
There are jobs that are more suitable for younger people, and other jobs that are more suitable for older people. if we recognise the difference and can create the right environment to use their respective strengths, there will be ample opportunities for both younger and older workers.
Tan Kin Lian
Editor
Forum Page
Straits Times
I refer to the letter from Dr Adrian John Kok entitled "Have policy to protect rights of older workers" (Straits Times, 28 July).
Dr Kok suggested that policies should be in place to address discrimination against older workers in the workplace and to recognise the rights of the people who in their prime contributed to the prosperity of their organisations.
The root cause of the problem is the difficulty of older workers in getting meaningful, well paid jobs in a competitive environment brought about by the free market and globalised economy.
I wish to suggest the following approach to address this issue:
* identify the strengths of older workers
* identify the new jobs where their strengths can be put to better use
* encourage businesses to tap the older workers for their strengths
* encourage the older workers to adapt to the changes
The strengths of older workers are their experience, skills in handling people, understanding of the business and willingness to stay in the same job. These strengths are needed in the new economy where a high standard of customer service gives a competitive edge to businesses.
There are jobs that are more suitable for younger people, and other jobs that are more suitable for older people. if we recognise the difference and can create the right environment to use their respective strengths, there will be ample opportunities for both younger and older workers.
Tan Kin Lian
Strengths of mature workers
I RECEIVED THE FOLLOWING COMMENTS TO MY LETTER.
COMMENT 1:
I agree with your views on the strengths of mature workers. Employers need to recognise these strengths and make use of them.
Some older workers have the skills, experience and patience to work in the sectors that require god customer-service orientations. Many are probably more suitable in backend work not involving direct customer service.
I think older workers are looking for reasonably paid jobs that recognise their strengths and allow them to contribute to the work or organisation.
COMMENT 2.
Studies world wide have shown that older workers are reliable, more mature and better at managing relationship related situations, and have much lower absent rates compared to younger workers.
One issue facing older workers is ageism, where employers feel that older workers have little relevant strengths, believing erroneously that older workers cannot learn new skills, have poor attitude, and are expensive because of high medical expenditure, etc.
I hope that .... can work with employers to identify concrete job opportunities, affordable work adaptation practices as well as ageist prejudices that can be addressed. The .... contribution in this instance will be invaluable!
COMMENT 1:
I agree with your views on the strengths of mature workers. Employers need to recognise these strengths and make use of them.
Some older workers have the skills, experience and patience to work in the sectors that require god customer-service orientations. Many are probably more suitable in backend work not involving direct customer service.
I think older workers are looking for reasonably paid jobs that recognise their strengths and allow them to contribute to the work or organisation.
COMMENT 2.
Studies world wide have shown that older workers are reliable, more mature and better at managing relationship related situations, and have much lower absent rates compared to younger workers.
One issue facing older workers is ageism, where employers feel that older workers have little relevant strengths, believing erroneously that older workers cannot learn new skills, have poor attitude, and are expensive because of high medical expenditure, etc.
I hope that .... can work with employers to identify concrete job opportunities, affordable work adaptation practices as well as ageist prejudices that can be addressed. The .... contribution in this instance will be invaluable!
Saturday, July 28, 2007
Budget Roaming with Sunpage
I found a service provider that offers budget roaming.
http://www.sunpage.com.sg/Default.aspx?tabid=73
WEBPAGE
Save while you roam… with SunPage Budget Roaming
Now you can enjoy Huge Roaming Savings up to 90% with SunPage BUDGET ROAMING, a mobile call diverting service.
All you need is an overseas mobile or fixed line number where you can divert your Singapore mobile number to receive incoming calls.
http://www.sunpage.com.sg/Default.aspx?tabid=73
WEBPAGE
Save while you roam… with SunPage Budget Roaming
Now you can enjoy Huge Roaming Savings up to 90% with SunPage BUDGET ROAMING, a mobile call diverting service.
All you need is an overseas mobile or fixed line number where you can divert your Singapore mobile number to receive incoming calls.
Blue Ocean Strategy
This is a book written by W Chan Kim and Renee Mauborgne.
Some excerpts.
* There are no permanently excellent companies.
* We need to make a positive difference and to replicate it systematically
* We need to create a blue ocean strategy
* Red ocean is bloody competition
* Blue ocean is uncontested market space that makes competition irrelevant
* It grows demand and breaks away from competition
It quotes the example of Cirque du Soleil. Instead of adopting a red ocean strategy to compete with other circus on the same operating model, e.g. use animals, it adopted a blue ocean strategy and created a new type of experience using highly trained gymnasts. It became very successful, and grew the market without having to face any competition.
Some excerpts.
* There are no permanently excellent companies.
* We need to make a positive difference and to replicate it systematically
* We need to create a blue ocean strategy
* Red ocean is bloody competition
* Blue ocean is uncontested market space that makes competition irrelevant
* It grows demand and breaks away from competition
It quotes the example of Cirque du Soleil. Instead of adopting a red ocean strategy to compete with other circus on the same operating model, e.g. use animals, it adopted a blue ocean strategy and created a new type of experience using highly trained gymnasts. It became very successful, and grew the market without having to face any competition.
Wireless@SG
Wireless@SG is a wonderful initiative by the Infocomm Development Authority. It aims to provide wireless connection to personal computers from many hotspots around Singapore. This is provided free to users for the first 2 or 3 years.
However, this initiative faced the following problems:
* many hotels and commercial buildings refused to participate in this intiative
* they want to charge a high rate for access to their hotspots
* the login can be quite complicated as different protocols are adopted by different service providers and hotspots.
I hope that IDA will review this project and find a better way to achieve the original goal.
I suggest a premium service be provided as follows:
* users can pay for their usage
* the rate should be a modest rate (and not a high rate)
* a standard login should be provided (regardless of the hotspot)
Another alternative is to sign to the wireless broadband provided by M1.
However, this initiative faced the following problems:
* many hotels and commercial buildings refused to participate in this intiative
* they want to charge a high rate for access to their hotspots
* the login can be quite complicated as different protocols are adopted by different service providers and hotspots.
I hope that IDA will review this project and find a better way to achieve the original goal.
I suggest a premium service be provided as follows:
* users can pay for their usage
* the rate should be a modest rate (and not a high rate)
* a standard login should be provided (regardless of the hotspot)
Another alternative is to sign to the wireless broadband provided by M1.
A good financial plan - case study
Dear Mr Tan,
I bought $40,000 of NTUC Income shares a few years ago. I am happy with the dividends. Should I keep the shares as my retirement portfolio?
I have been buying unit trusts through monthly regular savings plan. Some of these unit trusts (Asia ex Japan equities and Global equities) were bought since 1999. I have not redeemed any of the units. I plan to keep them for my retirement. The unit trusts have appreciated more than 100%.
Should I reap the profits now and continue investing through regular savings plan in a diversified portfolio comprising core and supplementary funds?
I have transferred my excess funds from my CPF Ordinary Account to the Special Account in the CPF to earn 4% interest. My flat is fully paid for 5 years ago.
REPLY:
You have managed your financial affairs very well and have earned a good return on your investments. Congratulations.
Your experience will be useful for other people. It is a good case study. My views are:
* keep your Income shares, as it gives a good dividend (5 to 7% p.a.)
* keep your unit trust investments (if the funds are large and well diversified)
* check that the expense ratio is less than 1.5% p.a (better, if less than 1%)
* you are astute in transfering the excess funds from orinary to special account in CPF to earn a higher intrest rate.
I bought $40,000 of NTUC Income shares a few years ago. I am happy with the dividends. Should I keep the shares as my retirement portfolio?
I have been buying unit trusts through monthly regular savings plan. Some of these unit trusts (Asia ex Japan equities and Global equities) were bought since 1999. I have not redeemed any of the units. I plan to keep them for my retirement. The unit trusts have appreciated more than 100%.
Should I reap the profits now and continue investing through regular savings plan in a diversified portfolio comprising core and supplementary funds?
I have transferred my excess funds from my CPF Ordinary Account to the Special Account in the CPF to earn 4% interest. My flat is fully paid for 5 years ago.
REPLY:
You have managed your financial affairs very well and have earned a good return on your investments. Congratulations.
Your experience will be useful for other people. It is a good case study. My views are:
* keep your Income shares, as it gives a good dividend (5 to 7% p.a.)
* keep your unit trust investments (if the funds are large and well diversified)
* check that the expense ratio is less than 1.5% p.a (better, if less than 1%)
* you are astute in transfering the excess funds from orinary to special account in CPF to earn a higher intrest rate.
Growth policy: yield of 4.6% p.a.
Mr Tan,
Just to share and seek your view on my following Growth Policy from NTUC Income:
I bought the Growth Policy (10 yr) in 1997 for $3000. It had a guaratneed maturity value of $3,750 and a projected value of $5063.
This policy will mature on 1st Aug 2007. I was told that the finalised amount was $4742.
Should I feel happy that it is more than the guaranteed amount or unhappy that it is less than $300 less than the projected amount?
REPLY
Wow, you got a return of 4.6% per annum for the past 10 years. That is a great return (although it is slightly lower than the original projection).
Many people invested large sums of money in structured products during this period. They obtained a miserable return of 0.2% per year for 5 years. They would be delighted to get a return of 3% (not even 4.6%).
Yes, you can be happy. And send your thanks to the adviser who sold this product to you.
Just to share and seek your view on my following Growth Policy from NTUC Income:
I bought the Growth Policy (10 yr) in 1997 for $3000. It had a guaratneed maturity value of $3,750 and a projected value of $5063.
This policy will mature on 1st Aug 2007. I was told that the finalised amount was $4742.
Should I feel happy that it is more than the guaranteed amount or unhappy that it is less than $300 less than the projected amount?
REPLY
Wow, you got a return of 4.6% per annum for the past 10 years. That is a great return (although it is slightly lower than the original projection).
Many people invested large sums of money in structured products during this period. They obtained a miserable return of 0.2% per year for 5 years. They would be delighted to get a return of 3% (not even 4.6%).
Yes, you can be happy. And send your thanks to the adviser who sold this product to you.
Avoid Roaming Charges
I spoke to someone in the telco business last night. He told me of this service provided by a third party telco:
* you open an account with the third party telco
* when you are overseas, you can get a local SIM card for your mobilephone
* you send a SMS to the telco to give your new "local" number
* they will divert all calls from your Singapore mobilephone to the "local" number
* you pay local call rate for your incoming calls, plus a small charge to the telco
* they also provide an option for you to update the "local" or diverted number through the internet website
This seems to be a good service, and is quite convenient. He will send me the URL of the service provider.
* you open an account with the third party telco
* when you are overseas, you can get a local SIM card for your mobilephone
* you send a SMS to the telco to give your new "local" number
* they will divert all calls from your Singapore mobilephone to the "local" number
* you pay local call rate for your incoming calls, plus a small charge to the telco
* they also provide an option for you to update the "local" or diverted number through the internet website
This seems to be a good service, and is quite convenient. He will send me the URL of the service provider.
Shared Values
Loh Chee Keong wrote in his article "In Search of the Singapore Soul" in Today paper (28 July):
Quote: In 1991, a national committee headed by Lee Hsien Loong, presented five shared values after an extensive study. I doubt many even remember that initiative, let alone what those values were. Unquote.
I searched the internet and found these values to be:
* Nation before community and society before self
* Family as the basic unit of society
* Community support and respect for the individual
* Consensus, not conflict
* Racial and religious harmony
Quote: In 1991, a national committee headed by Lee Hsien Loong, presented five shared values after an extensive study. I doubt many even remember that initiative, let alone what those values were. Unquote.
I searched the internet and found these values to be:
* Nation before community and society before self
* Family as the basic unit of society
* Community support and respect for the individual
* Consensus, not conflict
* Racial and religious harmony
Wireless Broadband
M1 provides a wireless broadband service linked to a notebook or PC. They charge $39 for 5G of data retreival a month. The speed is more than 1.8 M bytes per minute. The cost of 1 M of data is about 1 cent. The cost of retriving 1 M of data is about $3 for the mobilephone.
An alternative is to use Wireless@SG for free internet access. The problem is the limited number of hotspots, complicated login (for some hotspots) and the slow speed.
It is worthwhile to pay for the wireless broadband access, if you are doing work outside of office.
An alternative is to use Wireless@SG for free internet access. The problem is the limited number of hotspots, complicated login (for some hotspots) and the slow speed.
It is worthwhile to pay for the wireless broadband access, if you are doing work outside of office.
Friday, July 27, 2007
Protect consumers from high mobilephone bills
28 July 2007
Editor
Today paper
Many people are not aware about the high cost of using the mobilephone, such as:
* receiving incoming calls when they are away from Singapore (for which they are charged expensive roaming rates)
* chatting for a long time on the mobilephone
* when their phone is used by an unauthorised person
They learn about the high charges only after the bill arrives at the end of the month. By that time, it is too late. These bills can amount to a few hundred dollars, or several thousand dollars.
For low income earners and students, these unexpected bills can be a heavy burden and could lead to bankrupcy.
I suggest that the consumers should be protected from these risks. The authority should make it mandatory for the telephone company to place a reasonable limit of say $200 on the monthly bills. If this limit is exceeded, the telephone company should be required to contact the customer and get his or her specific request to extend the limit. This will ensure that the customer is aware about the charges.
Tan Kin Lian
Editor
Today paper
Many people are not aware about the high cost of using the mobilephone, such as:
* receiving incoming calls when they are away from Singapore (for which they are charged expensive roaming rates)
* chatting for a long time on the mobilephone
* when their phone is used by an unauthorised person
They learn about the high charges only after the bill arrives at the end of the month. By that time, it is too late. These bills can amount to a few hundred dollars, or several thousand dollars.
For low income earners and students, these unexpected bills can be a heavy burden and could lead to bankrupcy.
I suggest that the consumers should be protected from these risks. The authority should make it mandatory for the telephone company to place a reasonable limit of say $200 on the monthly bills. If this limit is exceeded, the telephone company should be required to contact the customer and get his or her specific request to extend the limit. This will ensure that the customer is aware about the charges.
Tan Kin Lian
Share an umbrella
I am involved in a community development council that arranged a job fair for mature workers.
I took the MRT train to attend this job fair. It was raining heavily. I had to cross the road in the heavy rain. I did not have an umbrella.
An elderly person spoke to me, "Are you Mr Tan Kin Lian?". He offered to share his umbrella with me. He was attending the job fair to look for job opportunities.
He told me that he reads my blog regularly. I wish to thank him for his kindness.
I took the MRT train to attend this job fair. It was raining heavily. I had to cross the road in the heavy rain. I did not have an umbrella.
An elderly person spoke to me, "Are you Mr Tan Kin Lian?". He offered to share his umbrella with me. He was attending the job fair to look for job opportunities.
He told me that he reads my blog regularly. I wish to thank him for his kindness.
Build a good work record
An mature worker approached me at a job fair. He asked for my assistance to use my influence to get a certain taxi company to rent the Mercedes taxi for his use. Apparently, this type of taxi is in high demand.
I suggested the following approach:
* rent the ordinary taxi (which is easily available)
* produce a good work record over one or two years
* after that, approach the taxi company to allow him to rent the Mercedes taxi
I hope that people can make progress by building a good work record, rather than to approach people to use their influence.
Frankly, I do not have this type of influence. Even if I had, I will not use it inappropriately.
I suggested the following approach:
* rent the ordinary taxi (which is easily available)
* produce a good work record over one or two years
* after that, approach the taxi company to allow him to rent the Mercedes taxi
I hope that people can make progress by building a good work record, rather than to approach people to use their influence.
Frankly, I do not have this type of influence. Even if I had, I will not use it inappropriately.
Free incoming calls
My mobilephone bill was around $50 a month. Last month, it shot up to $100. Half of this cost is for incoming calls.
I decided to change to a new service provider that offers free incoming calls. They also offer a discount for having my cable, internet and mobilephone on the same account.
I did not subscribe for the data services (for downloading from the internet) of the new provider, as it is quite expensive.
I decided to change to a new service provider that offers free incoming calls. They also offer a discount for having my cable, internet and mobilephone on the same account.
I did not subscribe for the data services (for downloading from the internet) of the new provider, as it is quite expensive.
Thursday, July 26, 2007
Subscribe to a call back service
SUGGESTION POSTED IN MY BLOG:
If you are away in another country, subscribe to a call back service to avoid roaming charges and use the local mobile phone card with free incoming calls. I believe Mediaring's subsidiary and few others operate a service like that.
This is actually a VOIP in between. The other two ends are by telco carriers. The rates are very competitive because the service providers buy bulk airtime at wholesale price.
If you are away leave your mobile number with the service provider. Any incoming calls can be rerouted through a gateway server to your mobile any where in the world. Maybe Skype also provides this.
If you are away in another country, subscribe to a call back service to avoid roaming charges and use the local mobile phone card with free incoming calls. I believe Mediaring's subsidiary and few others operate a service like that.
This is actually a VOIP in between. The other two ends are by telco carriers. The rates are very competitive because the service providers buy bulk airtime at wholesale price.
If you are away leave your mobile number with the service provider. Any incoming calls can be rerouted through a gateway server to your mobile any where in the world. Maybe Skype also provides this.
Expensive way to access the internet
I subscribed to a new mobilephone.
I learned that the charges for the data service (i.e. to access the internet) is 0.3 cents per kilobyte.
A webpage takes about 300k bytes. It will cost nearly $1 to access a webpage.
I decided NOT to take the data service. It is too costly.
I learned that the charges for the data service (i.e. to access the internet) is 0.3 cents per kilobyte.
A webpage takes about 300k bytes. It will cost nearly $1 to access a webpage.
I decided NOT to take the data service. It is too costly.
IDD charges on mobilephone
When I am away from Singapore, I will not take calls on my mobilephone, unless it is from someone that I know.
If I take the call, I will tell them immediately, "I am in (name of country)". This is to tell them to keep the call short, and to the important matters. I want to avoid paying for international IDD roaming charges on my mobilephone.
Many people may not be aware about these charges - until it hits them.
If I take the call, I will tell them immediately, "I am in (name of country)". This is to tell them to keep the call short, and to the important matters. I want to avoid paying for international IDD roaming charges on my mobilephone.
Many people may not be aware about these charges - until it hits them.
Minimum wage increased in America
America has raised its minimum wage to USD 5.85 per hour (SGD 9).
America is a free market economy. Due to its large size, there are a wide range of choices and opportunities. Why is it necessary for America to have a minimum wage policy?
Maybe, the same reasons applies to Singapore?
America is a free market economy. Due to its large size, there are a wide range of choices and opportunities. Why is it necessary for America to have a minimum wage policy?
Maybe, the same reasons applies to Singapore?
Fair treatment of consumers
I find the behaviour of some businesses to be appalling. They want to increase their profits at the expense of the consumers. They impose high charges and unreasonable terms, that are not fair to consumers.
I hope that the Consumer Association can be more active in promoting the interest and fair treatment of consumers.
In America, the legislators are active in looking after the interest of consumers. I hope that our parlimentarians can also be active in this area, so that they can win the respect of the ordinary people.
I hope that the Consumer Association can be more active in promoting the interest and fair treatment of consumers.
In America, the legislators are active in looking after the interest of consumers. I hope that our parlimentarians can also be active in this area, so that they can win the respect of the ordinary people.
High mobilephone bill
An undergraduate went to India for one month of internship. His family and friends contacted him on his mobilephone. He was not aware that the incoming calls will be charged to his mobilephone as an international call, plus roaming charges. When he returned, he found the bill to be more than $1,000.
This is an expensive lesson. While the telephone company can make a lot of profits, I hope that they realise that the profit is made at the expense of poor customers who may not be aware about the charges.
i wish to share this experience, so that parents can tell their children to be careful about these charges.
I consider it a matter of fairness for the telephone company to alert the customer, if the bill exceeds a certain limit for each month. They should not take advantage of the ignorant customers.
This is an expensive lesson. While the telephone company can make a lot of profits, I hope that they realise that the profit is made at the expense of poor customers who may not be aware about the charges.
i wish to share this experience, so that parents can tell their children to be careful about these charges.
I consider it a matter of fairness for the telephone company to alert the customer, if the bill exceeds a certain limit for each month. They should not take advantage of the ignorant customers.
Cancellation of Credit Card
I received a letter from my credit card company with the following announcement, effect from 1 May 2007:
* the late payment fee will be increased from $35 to $45
* the fee for each returned or failed GIRO arrrangement due to insufficient funds will be adjusted from $25 to $50.
I find these fees to be unconscionable. (I was not aware about the fees earlier). I called the credit card company to cancel my card. I also destroyed the card immediately.
The call center of this credit card company was most unfriendly to the customer. I have to hear a lot of irrelevant announcements, and to press many buttons before I could get through. This is another reason to cancel my credit card.
* the late payment fee will be increased from $35 to $45
* the fee for each returned or failed GIRO arrrangement due to insufficient funds will be adjusted from $25 to $50.
I find these fees to be unconscionable. (I was not aware about the fees earlier). I called the credit card company to cancel my card. I also destroyed the card immediately.
The call center of this credit card company was most unfriendly to the customer. I have to hear a lot of irrelevant announcements, and to press many buttons before I could get through. This is another reason to cancel my credit card.
Agent plays a useful role
I use an agent actively to help me handle a transaction. The "agent" in this case, is:
* relationship manager assigned by the bank or my telco
* my stockbroker (remisier)
I have their personal contact number and e-mail address. I send my request to them by e-mail, SMS or a call. As they are familiar with the products and processes in their organisation, they can handle it easily for me.
The relationship manager earns a salary.
The stockbroker earns a modest rate of brokerage, maybe 0.15% of the value of the transaction. He earns a good income by having a high volume of business.
I hope, one day, that the insurance adviser can operate like a relationship manager or a stockbroker. They do not have to look for customers. The customers will contact them, if they need help.
The adviser can serve many customers, improve the productivity, and reduce the cost to the customer.
* relationship manager assigned by the bank or my telco
* my stockbroker (remisier)
I have their personal contact number and e-mail address. I send my request to them by e-mail, SMS or a call. As they are familiar with the products and processes in their organisation, they can handle it easily for me.
The relationship manager earns a salary.
The stockbroker earns a modest rate of brokerage, maybe 0.15% of the value of the transaction. He earns a good income by having a high volume of business.
I hope, one day, that the insurance adviser can operate like a relationship manager or a stockbroker. They do not have to look for customers. The customers will contact them, if they need help.
The adviser can serve many customers, improve the productivity, and reduce the cost to the customer.
Wednesday, July 25, 2007
A better way to reward customers
I find the reward programs operated by many businesses, i.e. banks, telcos, to be wasteful:
* they cost a lot of money to operate
* is quite complicated
* incurs a lot of printing and mailing cost
* give little value to their customers
I prefer that these businesses reward their customers in a simpler way:
* accumulate the amount of credits
* give them a cash rebate, based on the credit, at the end of the year
I hope that they can reduce cost, and give better benefit to their customers.
* they cost a lot of money to operate
* is quite complicated
* incurs a lot of printing and mailing cost
* give little value to their customers
I prefer that these businesses reward their customers in a simpler way:
* accumulate the amount of credits
* give them a cash rebate, based on the credit, at the end of the year
I hope that they can reduce cost, and give better benefit to their customers.
Critical Illness Insurance
There is a news report that it may take several months for the insurance company to decide on a critical illness claim.
If you have to make a claim under different policies taken with several insurance companies, you have to complete a different claim form (with a medical report) for each company. They have not adopted a standard claim form.
Why is this the case?
For most of the 30 critical illnesses covered under the policy, it is quite difficult to define clearly the medical condition that is covered by the policy.
This uncertainly creates the following problems:
* delay in approving a claim
* dispute (if the claim is rejected)
This problem is made worse by the following:
* many people over-insure on the amount of critical illness cover
* the cost of this cover is much higher than life insurance
* insurance agents exaggerate the cost of treating these illness, and the frequency of these events
* the agents tend to over-sell on the amount of this cover (and enjoy a higher commission)
* the claim rate is not clear; so insurers charge a higher premium to cover the uncertainty
With this uncertainty and higher cost, it is not advisable for the policyholder to over-insure on critical illness. In my view, a cover of $50,000 or at most $100,000 is sufficient for most people. The remaining cover should be taken under a term insurance plan.
If you have to make a claim under different policies taken with several insurance companies, you have to complete a different claim form (with a medical report) for each company. They have not adopted a standard claim form.
Why is this the case?
For most of the 30 critical illnesses covered under the policy, it is quite difficult to define clearly the medical condition that is covered by the policy.
This uncertainly creates the following problems:
* delay in approving a claim
* dispute (if the claim is rejected)
This problem is made worse by the following:
* many people over-insure on the amount of critical illness cover
* the cost of this cover is much higher than life insurance
* insurance agents exaggerate the cost of treating these illness, and the frequency of these events
* the agents tend to over-sell on the amount of this cover (and enjoy a higher commission)
* the claim rate is not clear; so insurers charge a higher premium to cover the uncertainty
With this uncertainty and higher cost, it is not advisable for the policyholder to over-insure on critical illness. In my view, a cover of $50,000 or at most $100,000 is sufficient for most people. The remaining cover should be taken under a term insurance plan.
Keep your existing policy
Hi Mr Tan,
I'm 30 years old. I bought my ILP from X in 2002. I'm about to break even in approximately 6 months, if the investment portfolios perform as they are today.
The cost of this policy is very high, but I relized this fact too late. I'm thinking whether to stop this plan after I break even, and switch to a non-ILP life insurance instead. Could you give your opinion on this? Could you suggest other alternatives?
REPLY:
You have already incurred a heavy cost during the past five years. This cost has already been taken away from your policy. Going forward, the cost could be much lower.
I suggest that you talk to your insurance adviser and find out about the future cost. If it is quite small, it may be better for you to continue the existing policy.
Note: It is quite sad that the high charges have deprived you of the opportunity to earn a great return during the past five years. This kind of opportunity comes once in a decade!
For your future purchase, it is better to avoid any insurance policy that has a high cost during the initial years.
I'm 30 years old. I bought my ILP from X in 2002. I'm about to break even in approximately 6 months, if the investment portfolios perform as they are today.
The cost of this policy is very high, but I relized this fact too late. I'm thinking whether to stop this plan after I break even, and switch to a non-ILP life insurance instead. Could you give your opinion on this? Could you suggest other alternatives?
REPLY:
You have already incurred a heavy cost during the past five years. This cost has already been taken away from your policy. Going forward, the cost could be much lower.
I suggest that you talk to your insurance adviser and find out about the future cost. If it is quite small, it may be better for you to continue the existing policy.
Note: It is quite sad that the high charges have deprived you of the opportunity to earn a great return during the past five years. This kind of opportunity comes once in a decade!
For your future purchase, it is better to avoid any insurance policy that has a high cost during the initial years.
Limited premium policy
Many people like the concept of an insurance policy that provides cover for a lifetime, but require the premium to be paid for a limited period (say 20 years).
However, they find the premium to be quite high.
Here is an example of a 20 year limited payment policy that covers $100,000 for a lifetime. This policy earns bonus.
For a male aged 30, the annual premium is $2,948. The projected cash value at the end of 20 years (inclusive of bonus) is $82,510. The projected yield is 3.1%.
This is based on the current rate of bonus. If the bonus rate increases, the yield will be higher. If it reduces, the yield will be lower.
Most insurance companies offer a lower yield than the above example. Their limited payment policies is not attractive.
It is better for the policyholder to buy a term insurance and invest the difference in a low cost, well diversified equity fund. The yield should be much higher.
However, they find the premium to be quite high.
Here is an example of a 20 year limited payment policy that covers $100,000 for a lifetime. This policy earns bonus.
For a male aged 30, the annual premium is $2,948. The projected cash value at the end of 20 years (inclusive of bonus) is $82,510. The projected yield is 3.1%.
This is based on the current rate of bonus. If the bonus rate increases, the yield will be higher. If it reduces, the yield will be lower.
Most insurance companies offer a lower yield than the above example. Their limited payment policies is not attractive.
It is better for the policyholder to buy a term insurance and invest the difference in a low cost, well diversified equity fund. The yield should be much higher.
Tuesday, July 24, 2007
Energy saving bulb
I visited the Philips booth an an community event.
The booth had a demonstration of the energy saving bulb. It save on 80% of energy consumption. A 15 watt energy saving blub gives the same light as a 60 watt incandescant bulb.
An energy saving bulb cost about $7, as compared to 80 cents for an incandescent bulb. The higher cost can be recovered from the saving in electricity bill over 6 months of normal usage.
I was told that among the Asian countries, the highest sale of energy saving bulb was in Indonesia. Surprise!
The reason? Many Indonesia pays cash for their electricity. They feel the impact of the higher electricty bill, and opted for the energy saving bulb.
With the higher charges for electricity, it is worth while to see if it is wise to invest in energy saving bulbs. I have asked the Philips manager to send me the materials to verify the above statements.
The booth had a demonstration of the energy saving bulb. It save on 80% of energy consumption. A 15 watt energy saving blub gives the same light as a 60 watt incandescant bulb.
An energy saving bulb cost about $7, as compared to 80 cents for an incandescent bulb. The higher cost can be recovered from the saving in electricity bill over 6 months of normal usage.
I was told that among the Asian countries, the highest sale of energy saving bulb was in Indonesia. Surprise!
The reason? Many Indonesia pays cash for their electricity. They feel the impact of the higher electricty bill, and opted for the energy saving bulb.
With the higher charges for electricity, it is worth while to see if it is wise to invest in energy saving bulbs. I have asked the Philips manager to send me the materials to verify the above statements.
Survey on Taxi Service
The Land Transport Authority is engaging a private consultant to carry out a survey of the standard of taxi service. This is a good move.
I suggest that the survey should also be extended to get the views of the taxi drivers.
I look forward to get the results of the survey. I hope that this will lead to new ideas on how to improve the taxi service, and to make life better for taxi drivers as well.
I suggest that the survey should also be extended to get the views of the taxi drivers.
I look forward to get the results of the survey. I hope that this will lead to new ideas on how to improve the taxi service, and to make life better for taxi drivers as well.
Work life balance
The civil service has appointed a senior officer in each ministry to be responsible for promoting work life balance. I welcome this move.
Many initiatives have been implemented in the work place in past years. They have achieved limited impact.
I like to suggest the following:
* allow employees to work on a part time basis, to be paid proportionately
* allow employees to work from home, based on the work that has been produced
* allow employees to work closer to their homes
These initiatives require the civil service to be more flexible in arranging their work, and be focused on the work done, rather than the time spent in the workplace.
Being a large organisation, the ministries have the opportunity to deploy their workforce in a more flexible manner. We require a change of mindset and willingness to be bold.
Many initiatives have been implemented in the work place in past years. They have achieved limited impact.
I like to suggest the following:
* allow employees to work on a part time basis, to be paid proportionately
* allow employees to work from home, based on the work that has been produced
* allow employees to work closer to their homes
These initiatives require the civil service to be more flexible in arranging their work, and be focused on the work done, rather than the time spent in the workplace.
Being a large organisation, the ministries have the opportunity to deploy their workforce in a more flexible manner. We require a change of mindset and willingness to be bold.
Monday, July 23, 2007
Limited payment plan
Mr Tan
Is there any need to buy a limited critical illness plan - which the premium is paid for 20 years only but protected for life.
The cost is quite high, as it includes guaranteed bonus. I am not able to buy a plan without the guaranteed bonus.
The agent told me to avoid buying i-term plan, as it does not have any return.
Please advise.
REPLY:
You should compare the following options:
1. critical illness plan to cover a lifetime, with premium payable for 20 years
2. 20 year term (including critical illness), invest the difference in a well diversified fund
You can read this FAQ.
At the end of 20 years, your accumulated savings (under option 2) should be more than sufficient to cover your financial needs (should you suffer a critical illness). You get a better return under this option, as the cost is low (compared to a limited payment plan).
You can talk to an insurance adviser or visit the business center.
Is there any need to buy a limited critical illness plan - which the premium is paid for 20 years only but protected for life.
The cost is quite high, as it includes guaranteed bonus. I am not able to buy a plan without the guaranteed bonus.
The agent told me to avoid buying i-term plan, as it does not have any return.
Please advise.
REPLY:
You should compare the following options:
1. critical illness plan to cover a lifetime, with premium payable for 20 years
2. 20 year term (including critical illness), invest the difference in a well diversified fund
You can read this FAQ.
At the end of 20 years, your accumulated savings (under option 2) should be more than sufficient to cover your financial needs (should you suffer a critical illness). You get a better return under this option, as the cost is low (compared to a limited payment plan).
You can talk to an insurance adviser or visit the business center.
Rider for Hospital Expenses
Mr Tan
I purchased a financial guardian plan, some 17 years ago. It includes a rider to cover the following:
* $65 a day for bed
* $1,200 to cover surgical
* $300 for other expenses
* $20,000 to cover total disability and a few critical illness
These covers extend up to 65 only.
What can I do with it now since it cannot meet present hospital expenses? Should I buy a enhanced Incomeshield and drop the current plan?
REPLY
You should talk to an adviser or visit the business center of NTUC Income.
Your current rider provides cover up to age 65 only. It does not meet your needs beyond age 65. It is better for you to switch to a plan that offers lifetime coverage.
The premium rate for a rider is usually quite high. You may find it to be more affordable to buy a separate policy. But, as your are paying a level premium under the rider, it may be better for you to continue it (depending on the premium rate).
I purchased a financial guardian plan, some 17 years ago. It includes a rider to cover the following:
* $65 a day for bed
* $1,200 to cover surgical
* $300 for other expenses
* $20,000 to cover total disability and a few critical illness
These covers extend up to 65 only.
What can I do with it now since it cannot meet present hospital expenses? Should I buy a enhanced Incomeshield and drop the current plan?
REPLY
You should talk to an adviser or visit the business center of NTUC Income.
Your current rider provides cover up to age 65 only. It does not meet your needs beyond age 65. It is better for you to switch to a plan that offers lifetime coverage.
The premium rate for a rider is usually quite high. You may find it to be more affordable to buy a separate policy. But, as your are paying a level premium under the rider, it may be better for you to continue it (depending on the premium rate).
Quote of the Day
In April Dr. Lee Kum Tatt posted an article in his block on “How to be Creative”.
Someone took out a statement from this article and classified it “Quote of the Day”. The quote is "The greatness of a person can only emerge when he has shown his ability to create, passion to pursue, courage to commit and capability to achieve”.
He also made some comments. Here is Dr. Lee’s reply in his blog.
Someone took out a statement from this article and classified it “Quote of the Day”. The quote is "The greatness of a person can only emerge when he has shown his ability to create, passion to pursue, courage to commit and capability to achieve”.
He also made some comments. Here is Dr. Lee’s reply in his blog.
Tom.com
During the heydays of the dotcom, Li Ka Shing floated a company in Hong Kong called Tom.com.
I always wondered how he chose this name? My guess is that "Tom" is short for "Tomorrow".
I just searched this website. It is in Chinese, and is quite active. It appears to be a portal about China.
I always wondered how he chose this name? My guess is that "Tom" is short for "Tomorrow".
I just searched this website. It is in Chinese, and is quite active. It appears to be a portal about China.
Poor return for 5 years
Dear Mr Tan,
Five years ago I placed $10,000 in the Fix-It Fund. On maturity, I received an interest of $433. I was disapointed.
To date this is the third investment made through a bank. This was the best returns so far. The other 2 funds performed much worse.
REPLY:
You received a return of 4.3% for 5 years on the Fix-It Fund. This is 0.8% per year.
If you have invested in secure government bonds for 5 years, you would have obtained about 15% for 5 years. The Fix-It Fund probably gave a poorer return, due to the high expenses (which are taken away from your return).
The other two funds performed worst, for the same reason.
Five years ago I placed $10,000 in the Fix-It Fund. On maturity, I received an interest of $433. I was disapointed.
To date this is the third investment made through a bank. This was the best returns so far. The other 2 funds performed much worse.
REPLY:
You received a return of 4.3% for 5 years on the Fix-It Fund. This is 0.8% per year.
If you have invested in secure government bonds for 5 years, you would have obtained about 15% for 5 years. The Fix-It Fund probably gave a poorer return, due to the high expenses (which are taken away from your return).
The other two funds performed worst, for the same reason.
Diversify your investments
Dear Mr Tan,
You have always advocated investing in a low cost widely diversified fund. My son and I have invested more than $X of our CPF funds in the Growth Fund and Balanced Fund managed by a local insurance company.
I favour this fund as it provides steady returns. Even if the market dips, I notice it bounces back again. I am of the opinion that it can safely let my money grow over the long term.
I wanted to invest another $X of my cash in these funds. My friend commented that with a new CEO, perhaps it is better to diversify and not "put all my eggs in one basket".
This falls in line with one of Dr Money's comments in his articles on the CPF website. What is your opinion?
REPLY:
It is a good idea to diversify your investment. Perhaps, you can spread your total investments into two or three financial institutions.
In my case, I have more than 50% of my investments with NTUC Income. I will try to diversify the invetments over the next few months.
If you wish to invest more of your savings in the stockmarket, take note that the stockmarket is now at a high level. I have decided to put my new savings in the money market and to wait for a better time to invest in the stockmarket.
You have always advocated investing in a low cost widely diversified fund. My son and I have invested more than $X of our CPF funds in the Growth Fund and Balanced Fund managed by a local insurance company.
I favour this fund as it provides steady returns. Even if the market dips, I notice it bounces back again. I am of the opinion that it can safely let my money grow over the long term.
I wanted to invest another $X of my cash in these funds. My friend commented that with a new CEO, perhaps it is better to diversify and not "put all my eggs in one basket".
This falls in line with one of Dr Money's comments in his articles on the CPF website. What is your opinion?
REPLY:
It is a good idea to diversify your investment. Perhaps, you can spread your total investments into two or three financial institutions.
In my case, I have more than 50% of my investments with NTUC Income. I will try to diversify the invetments over the next few months.
If you wish to invest more of your savings in the stockmarket, take note that the stockmarket is now at a high level. I have decided to put my new savings in the money market and to wait for a better time to invest in the stockmarket.
Saturday, July 21, 2007
Advice on investing in CDO
COMMENT POSTED IN MY BLOG
Here's some advice from Guide to Investment Strategy (Peter Stanyer, The Economist, 2006) page 129-130.
Who should invest in CDOs?
No one needs to invest in CDOs, and no one should invest in any instrument unless they are sure that they, or a trusted adviser, understand and can monitor the risk and potential rewards involved. This means that they need to understand the complex issues involved in pricing CDOs and, in particular, different tranches of a CDO.
... Investors who have used CDO tranches as a means of getting around a prohibition on investing in sub-investment grade assets need to assess the likelihood of such a downgrade, and all investors need to be satisfied that these disappointment risks are sufficiently reflected in the investment return that the CDO tranche offers.
Message: Make sure you or your trusted adviser know the risk, the return, and if the complicated product is priced fairly.
Here's some advice from Guide to Investment Strategy (Peter Stanyer, The Economist, 2006) page 129-130.
Who should invest in CDOs?
No one needs to invest in CDOs, and no one should invest in any instrument unless they are sure that they, or a trusted adviser, understand and can monitor the risk and potential rewards involved. This means that they need to understand the complex issues involved in pricing CDOs and, in particular, different tranches of a CDO.
... Investors who have used CDO tranches as a means of getting around a prohibition on investing in sub-investment grade assets need to assess the likelihood of such a downgrade, and all investors need to be satisfied that these disappointment risks are sufficiently reflected in the investment return that the CDO tranche offers.
Message: Make sure you or your trusted adviser know the risk, the return, and if the complicated product is priced fairly.
Logic9 puzzles
Dear Mr Tan,
I like the Sudoku puzzles in your website. My children also enjoyed doing the puzzles with the flowers and animals.
However, I find that there are only a few puzzles at each level. Do you intend to add more puzzles?
REPLY
There are already quite a number of variations, ie 5 puzzles X 6 levels X 4 sets of symbols. The total is 120 different variations.
I will consider your request. Meanwhile, you can try the 120 variations. Click here to access the puzzles or on the Logic9 at the right panel.
I like the Sudoku puzzles in your website. My children also enjoyed doing the puzzles with the flowers and animals.
However, I find that there are only a few puzzles at each level. Do you intend to add more puzzles?
REPLY
There are already quite a number of variations, ie 5 puzzles X 6 levels X 4 sets of symbols. The total is 120 different variations.
I will consider your request. Meanwhile, you can try the 120 variations. Click here to access the puzzles or on the Logic9 at the right panel.
Diversify your investment
Dear Mr Tan
Recently I invested part of my CPF fund with AVIVA. It pays 3.5% interest.
I am now thinking of investing all of my CPF funds with it. Is it all right to invest my major savings with a single financial institution? Is there a guideline?
REPLY:
It is generally a good idea to diversify your investments. You should spread you investments, so that the chance of any one failure will not cause you any serious financial distress.
The chance of failure of a highly rated insurance company or bank is very small. It is still a good idea to spread your total savings in two or three of these institutions.
Recently I invested part of my CPF fund with AVIVA. It pays 3.5% interest.
I am now thinking of investing all of my CPF funds with it. Is it all right to invest my major savings with a single financial institution? Is there a guideline?
REPLY:
It is generally a good idea to diversify your investments. You should spread you investments, so that the chance of any one failure will not cause you any serious financial distress.
The chance of failure of a highly rated insurance company or bank is very small. It is still a good idea to spread your total savings in two or three of these institutions.
Dependent Protection Scheme
Dear Mr Tan
I am a single, middle age, and live with my parents. Our HDB flat is fully paid and belongs to my parents. I have no plan to buy a flat myself. Do I need to continue the DPS insurance? Is it relevant to me?
REPLY:
The cost of the Dependent Protection Scheme is quite low. It is a term insurance plan. It is useful to provide some cash to your parents, or as a fund for final expenses, in the event of premature death. It also pays on permanent disability. I suggest that you keep this insurance.
I am a single, middle age, and live with my parents. Our HDB flat is fully paid and belongs to my parents. I have no plan to buy a flat myself. Do I need to continue the DPS insurance? Is it relevant to me?
REPLY:
The cost of the Dependent Protection Scheme is quite low. It is a term insurance plan. It is useful to provide some cash to your parents, or as a fund for final expenses, in the event of premature death. It also pays on permanent disability. I suggest that you keep this insurance.
Cars under warranty
When you buy a new car, the distributor provides a 3-year warranty against manufacturing defects. To protect this warranty, you are required to have the car serviced and repaired at the distributor'z workshop.
The distributor charges a high price (compared to independent workshops) for work not covered by the warranty. You have to pay this price, in order to protect the warranty.
In several countries, this is considered to be unfair practice, and against free competition. Consumers are given a free choice of their workshops.
I hope that the consumers in Singapore will take a stand against this practice, which increases the cost of motoring.
The distributor charges a high price (compared to independent workshops) for work not covered by the warranty. You have to pay this price, in order to protect the warranty.
In several countries, this is considered to be unfair practice, and against free competition. Consumers are given a free choice of their workshops.
I hope that the consumers in Singapore will take a stand against this practice, which increases the cost of motoring.
Friday, July 20, 2007
Invest in a low cost fund
If you are investing your money for 10, 20 or more years, you should find a low cost fund. A difference of 1% over 20 years can contribute to an additional 20% (plus) to your retirement funds.
Read about it in this FAQ.
Read about it in this FAQ.
Renewal of motor insurance
Dear Mr Tan,
My motor insurance is due for renewal. Where can I find the best terms and premium?
REPLY:
I suggest that you read this FAQ.
By shopping around, you can get a better rate. The insurance cover is quite standard anyway.
My motor insurance is due for renewal. Where can I find the best terms and premium?
REPLY:
I suggest that you read this FAQ.
By shopping around, you can get a better rate. The insurance cover is quite standard anyway.
A cooperative has to answer to its members
COMMENT POSTED IN MY BLOG
Yes, but being a co-operative can also mean that they answer to nobody, just like what I am experiencing now. Phone call to CEO cannot get him, leave message to make contact, no response. Email to him, no response. Talk to agent, say management told her not to respond to me.
------------------------
REPLY:
I suggest that you raise your issue with the service quality manager. If you still do not get a reply, you can write a complaint to FIDReC.
The CEO of a co-operative has to answer to its board of directors and to its members at its annual meeting. This is similar to a private company.
If you write to the CEO of many large companies, you will not get a reply from them as well. They are busy people. They will normally get a subordinate to reply to you.
Yes, but being a co-operative can also mean that they answer to nobody, just like what I am experiencing now. Phone call to CEO cannot get him, leave message to make contact, no response. Email to him, no response. Talk to agent, say management told her not to respond to me.
------------------------
REPLY:
I suggest that you raise your issue with the service quality manager. If you still do not get a reply, you can write a complaint to FIDReC.
The CEO of a co-operative has to answer to its board of directors and to its members at its annual meeting. This is similar to a private company.
If you write to the CEO of many large companies, you will not get a reply from them as well. They are busy people. They will normally get a subordinate to reply to you.
Underlying assets of structured products
Some structured products are invested in CDOs (collateralised debt obligations). These are described as their "underlying assets".
These underlying assets are NOT the same as the "reference entities" which are used to determine the additional return based on certain complicated formulas involving their share prices.
As the reference entities are large, familiar companies, many investors MISUNDERSTOOD that their money are invested in these entities (which is NOT the case).
CDOs are invested in bonds and mortgages of various quality (including subprime mortgages that are now seeing high default rates in USA). The manager re-packages the assets into various tranches of the CDOs, rated from AAA (least risky) to the equity tranche (most risky).
The rating of CDOs are NOT the same as the rating of corporate bonds. CDOs earn a higher return (up to 2% p.a. more) than corporate bonds, due to the higher risk.
If you buy a structured product that is invested in the CDOs, you may not get the full extent of the higher return (for the higher risk), due to the expenses of the structured product.
Two large funds managed by Bear Stearns have made significant investment in CDOs which were rated AA or AAA. They have recently marked down the value of these highly rated CDOs significantly. The investor in their funds have lost most or all of their money. (This is a worst case scenario).
Lessons:
Avoid investing in CDOs, either directly or through structured products, unless you are familiar with this type of product, and you get a return that commensurate with the risk.
These underlying assets are NOT the same as the "reference entities" which are used to determine the additional return based on certain complicated formulas involving their share prices.
As the reference entities are large, familiar companies, many investors MISUNDERSTOOD that their money are invested in these entities (which is NOT the case).
CDOs are invested in bonds and mortgages of various quality (including subprime mortgages that are now seeing high default rates in USA). The manager re-packages the assets into various tranches of the CDOs, rated from AAA (least risky) to the equity tranche (most risky).
The rating of CDOs are NOT the same as the rating of corporate bonds. CDOs earn a higher return (up to 2% p.a. more) than corporate bonds, due to the higher risk.
If you buy a structured product that is invested in the CDOs, you may not get the full extent of the higher return (for the higher risk), due to the expenses of the structured product.
Two large funds managed by Bear Stearns have made significant investment in CDOs which were rated AA or AAA. They have recently marked down the value of these highly rated CDOs significantly. The investor in their funds have lost most or all of their money. (This is a worst case scenario).
Lessons:
Avoid investing in CDOs, either directly or through structured products, unless you are familiar with this type of product, and you get a return that commensurate with the risk.
Consumer Protection on Mortgages - USA Experience
In his testimony to Congress, chairman Bernarke said that the Federal Reserve Board will implement the following measures to strenghten consumer protection on mortgages:
* improve the disclosure of the terms
* write the disclosures in a form suitable for the layman
* carry out focus group study to check if the layman understand the terms.
* ensure that the terms are fair to the consumers
Lesson: We can learn from the experience of USA. We have to make sure the financial products sold in Singapore meet the above tests.
* improve the disclosure of the terms
* write the disclosures in a form suitable for the layman
* carry out focus group study to check if the layman understand the terms.
* ensure that the terms are fair to the consumers
Lesson: We can learn from the experience of USA. We have to make sure the financial products sold in Singapore meet the above tests.
Thursday, July 19, 2007
Negative aspects of Singapore system
The strengths of the Singapore system are:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
These are also our weaknesses. Here are the negative aspects of these characteristics:
1. Low corruption. Many people are afraid to make decisions. They do not want to be accused of being corrupt. They like to define their area of responsibility clearly and to have clear guidlines. If they are not sure, they like to point to another person to decide. Or, they will give the "no" answer.
2. Meritocracy. To do well, we have to be better than the other person. We have to be top of the class. We look after our self interest and behave selfishly. We are not able to work well with other people in a team.
3. Economic development. There is too much emphasis on economic development, to the detriment of other important aspects of our life - i.e. social, art, culture, leisure.
4. Efficiency. We push efficiency to the extreme, with the aim of making more profits. Often, this is done at the expense of customer service. We compete too hard, and work on inadequate margins. Sometimes, we may adopt shady practices to make more profit.
5. Stable and good government. We leave too much matters to be decided by the government. We are not able to experiment with new ideas on our own.
The areas that make us strong, also contribute to our weakness. Some of the weaknesses of the "Singapore character" can be traced to these factors. This is just my view.
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
These are also our weaknesses. Here are the negative aspects of these characteristics:
1. Low corruption. Many people are afraid to make decisions. They do not want to be accused of being corrupt. They like to define their area of responsibility clearly and to have clear guidlines. If they are not sure, they like to point to another person to decide. Or, they will give the "no" answer.
2. Meritocracy. To do well, we have to be better than the other person. We have to be top of the class. We look after our self interest and behave selfishly. We are not able to work well with other people in a team.
3. Economic development. There is too much emphasis on economic development, to the detriment of other important aspects of our life - i.e. social, art, culture, leisure.
4. Efficiency. We push efficiency to the extreme, with the aim of making more profits. Often, this is done at the expense of customer service. We compete too hard, and work on inadequate margins. Sometimes, we may adopt shady practices to make more profit.
5. Stable and good government. We leave too much matters to be decided by the government. We are not able to experiment with new ideas on our own.
The areas that make us strong, also contribute to our weakness. Some of the weaknesses of the "Singapore character" can be traced to these factors. This is just my view.
The Day When Singapore Panicked
Dr. Lee Kum Tatt is an early pioneer in the application of Science & Technology in many sectors of Singapore’s development.
His definition of a pioneer is a person who has no proper training and experience to do what was expected of him to do and to succeed.
Some lucky guys survived and others did not. Yet many still want to be pioneers but their negative AQ, fear of failure, holds them back.
Read about Dr. Lee’s accounts of some of the projects he was involved in. Read about the uncertainties Dr. Lee faced and the way he handled them. We can derive some encouragement if not inspiration from Dr. Lee’s experience.
His definition of a pioneer is a person who has no proper training and experience to do what was expected of him to do and to succeed.
Some lucky guys survived and others did not. Yet many still want to be pioneers but their negative AQ, fear of failure, holds them back.
Read about Dr. Lee’s accounts of some of the projects he was involved in. Read about the uncertainties Dr. Lee faced and the way he handled them. We can derive some encouragement if not inspiration from Dr. Lee’s experience.
Wednesday, July 18, 2007
Credit card for students?
Dear Mr Tan,
A RADICALLY new type of credit card with no minimum income requirement and just $500 in credit has arrived in Singapore. Is this radical or ridiculous?
The Straits Times cartoon depict something is real and can be quite an issue as students start to live on credit and interest roll over.
Should this be encouraged? Will holding such a credit card be then a trend among the students? Should we start to allow our children to start living on credit at such a young age?
---------------------------------------------------------------
REPLY:
It is convenient to use a credit card for payments. Students need this convenient mode of payment as well. Otherwise, they will have to incur a high cost to pay by cash.
We can educate the student to pay on time, and avoid the interest charges. They should not live on credit.
It is better for the student to apply for a debit card to use the convenience of making payment. It does not involve any credit. The money is deducted immediately from your bank account.
Some banks are willing to waive the annual fee for the debit card for the first 1, 2 or more years (subject to conditions).
A RADICALLY new type of credit card with no minimum income requirement and just $500 in credit has arrived in Singapore. Is this radical or ridiculous?
The Straits Times cartoon depict something is real and can be quite an issue as students start to live on credit and interest roll over.
Should this be encouraged? Will holding such a credit card be then a trend among the students? Should we start to allow our children to start living on credit at such a young age?
---------------------------------------------------------------
REPLY:
It is convenient to use a credit card for payments. Students need this convenient mode of payment as well. Otherwise, they will have to incur a high cost to pay by cash.
We can educate the student to pay on time, and avoid the interest charges. They should not live on credit.
It is better for the student to apply for a debit card to use the convenience of making payment. It does not involve any credit. The money is deducted immediately from your bank account.
Some banks are willing to waive the annual fee for the debit card for the first 1, 2 or more years (subject to conditions).
Singapore Dollar and the Carry Trade
The Japanese Yen has been the funding currency for the carry trade for many years. Due to the low interest rate in Japan, many people borrowed money in Yen to invest in higher returns from overseas assets. The Japanese savers also sent their money to invest overseas.
The carry trade has caused the Japanese Yen to weaken considerably against the other currencies. It weakened by more than 15% against the Euro, Australian and New Zealand currency during the past year.
Apart from the Japanese Yen, another currency used to fund the carry trade was the Taiwan dollar, due to its low interest rate. Recently, the authority increased the interest rate to reduce the outflow of funds.
There is a news report in Bloomberg that some people are now looking at the Singapore dollar as the next funding vehicle for the carry trade. This is due to the low interest rate in Singapore.
The impact of the carry trade has been the weakening of the funding currency. As more people invest overseas to earn a higher interest rate, the funding currency is expected to weakened.
But an expert told me that the impact on the Singapore Dollar is likely to be small, as the bulk of currency flows is due to real trade (like our paying for imports of goods and foreigners paying for exports).
The carry trade has caused the Japanese Yen to weaken considerably against the other currencies. It weakened by more than 15% against the Euro, Australian and New Zealand currency during the past year.
Apart from the Japanese Yen, another currency used to fund the carry trade was the Taiwan dollar, due to its low interest rate. Recently, the authority increased the interest rate to reduce the outflow of funds.
There is a news report in Bloomberg that some people are now looking at the Singapore dollar as the next funding vehicle for the carry trade. This is due to the low interest rate in Singapore.
The impact of the carry trade has been the weakening of the funding currency. As more people invest overseas to earn a higher interest rate, the funding currency is expected to weakened.
But an expert told me that the impact on the Singapore Dollar is likely to be small, as the bulk of currency flows is due to real trade (like our paying for imports of goods and foreigners paying for exports).
Sub-prime mortgages in America
Sub-prime mortgages are sold to people of lower credit standing, or offer additional financing beyond the prudent limit.
Many borrowers are not able to pay the interest on these loans or the principal installments. There is a high default rate.
Many borrowers were not given proper advice on the financial impact of the loans. They were not told about the actual payments that have to be made, and their ability to afford these payments.
The Federal Reserve Board has acknowledged that this problem is within their responsibility. They are taking the following steps:
* set standards for the lenders
* require proper disclose of the terms to the borrowers
* make sure that the terms are in language that the layman can understand.
Lesson: We need a similar approach for the financial service sector in Singapore.
Many borrowers are not able to pay the interest on these loans or the principal installments. There is a high default rate.
Many borrowers were not given proper advice on the financial impact of the loans. They were not told about the actual payments that have to be made, and their ability to afford these payments.
The Federal Reserve Board has acknowledged that this problem is within their responsibility. They are taking the following steps:
* set standards for the lenders
* require proper disclose of the terms to the borrowers
* make sure that the terms are in language that the layman can understand.
Lesson: We need a similar approach for the financial service sector in Singapore.
Good financial products
I wish to identify certain insurance and financial products that give good value to cusomers. They have to meet the following criteria:
* transparent
* easy to understand
* have reasonable charges
* easy to withdraw (with fair charges)
* easy to compare with similar products in the market
If the product issuer can provide the facts, I shall be able to make an assessment and recommend the product in my blog.
I am in favour of the following products:
* exchange traded fund
* low cost, well diversified fund
* government securities
* highly rated corporate bonds
* fixed deposits
* term insurance
Each product should earns a fair return that is commensurate with the risk.
* transparent
* easy to understand
* have reasonable charges
* easy to withdraw (with fair charges)
* easy to compare with similar products in the market
If the product issuer can provide the facts, I shall be able to make an assessment and recommend the product in my blog.
I am in favour of the following products:
* exchange traded fund
* low cost, well diversified fund
* government securities
* highly rated corporate bonds
* fixed deposits
* term insurance
Each product should earns a fair return that is commensurate with the risk.
Structured products in America
I was told that structured products are not sold to retail investors in America.
Why?
I do not know the reason. I suspect that the structured products that are unfair to consumers will probably be challenged by consumer advocates in America.
Individuals who wish to speculate in movements of stocks, currencies and indices can trade in futures and options. The cost of trading is relatively low and the terms are more transparent.
Why?
I do not know the reason. I suspect that the structured products that are unfair to consumers will probably be challenged by consumer advocates in America.
Individuals who wish to speculate in movements of stocks, currencies and indices can trade in futures and options. The cost of trading is relatively low and the terms are more transparent.
Customer-friendly Call Center
What is a customer-friend call center?
It meets the following criteria:
* answers your call immediately
* by a person (not a machine)
* gives you the answer immediately to simple questions (represents the bulk of cases)
* for a complicated matter, get the relevant expert to call you back
The call centers of most large organisations are NOT customer friendly:
* they ask you to press many buttons
* they ask you to navigate through many options
* the customer usually gets lost on the way
* mostly, a frustrating experience.
It meets the following criteria:
* answers your call immediately
* by a person (not a machine)
* gives you the answer immediately to simple questions (represents the bulk of cases)
* for a complicated matter, get the relevant expert to call you back
The call centers of most large organisations are NOT customer friendly:
* they ask you to press many buttons
* they ask you to navigate through many options
* the customer usually gets lost on the way
* mostly, a frustrating experience.
Tuesday, July 17, 2007
Give your full name
I like to ask commenters in my blog to give your full name and vested interest (if any), if you wish to state an honest opinion that appear to be confrontational.
I will delete any comment that represents a personal attack, if it is made in the cloak of anonymity.
I accept opinions that may differ from my opinion, even if anonymous, so long as it is expressed fairly and with honest intent.
I will delete any comment that represents a personal attack, if it is made in the cloak of anonymity.
I accept opinions that may differ from my opinion, even if anonymous, so long as it is expressed fairly and with honest intent.
Logic9 (Sudoku)
Have you seen the Sudoku puzzle in Today paper? Do you know how to play the puzzle? You can read the rule of this puzzle and the tips here.
The puzzles are good for children (i.e. train them in mathematics and logic) and for seniors (keep the mind active). Enjoy.
The puzzles are good for children (i.e. train them in mathematics and logic) and for seniors (keep the mind active). Enjoy.
An efficient public service
COMMENT POSTED IN MY BLOG:
What do you mean - "owned by the people"? If the company is owned by the government, is it the same as being "owned by the people"? Even Income has shareholders. Who owns Income then?
-------------------------
REPLY:
The key distinction should be the mode of operation and not on the type of ownership.
Some activities can be operated as a public service, on a cost-recovery basis, with the aim aim to keep the charges as low as possible. They do not aim to make large profit for shareholders.
Transport, utilities, health care and savings for retirement can be runned as a public service to meet the needs of the general public. They can be operated efficiently, at low cost, and high standard of customer service (without being privatised).
NTUC Income is operated as a cooperative, for the benefit of its policyholders. This is similar to a "public service".
What do you mean - "owned by the people"? If the company is owned by the government, is it the same as being "owned by the people"? Even Income has shareholders. Who owns Income then?
-------------------------
REPLY:
The key distinction should be the mode of operation and not on the type of ownership.
Some activities can be operated as a public service, on a cost-recovery basis, with the aim aim to keep the charges as low as possible. They do not aim to make large profit for shareholders.
Transport, utilities, health care and savings for retirement can be runned as a public service to meet the needs of the general public. They can be operated efficiently, at low cost, and high standard of customer service (without being privatised).
NTUC Income is operated as a cooperative, for the benefit of its policyholders. This is similar to a "public service".
Well rated Bonds
REPORT FROM BLOOMBERG:
Bear Stearns told investors in one of its hedge funds that they won't get any money back after creditors forced it to sell assets at depressed prices.
A second fund still contains `sufficient assets' to cover the $1.4 billion it owes its parent firm, there's very little value left for the investors.
The funds faced `unprecedented declines' in bonds that were rated AAA or AA, the two top investment grades.
Lesson: It is possible for well-rated bonds to face unprecendented declines, and may lead to a 'credit event'.
Bear Stearns told investors in one of its hedge funds that they won't get any money back after creditors forced it to sell assets at depressed prices.
A second fund still contains `sufficient assets' to cover the $1.4 billion it owes its parent firm, there's very little value left for the investors.
The funds faced `unprecedented declines' in bonds that were rated AAA or AA, the two top investment grades.
Lesson: It is possible for well-rated bonds to face unprecendented declines, and may lead to a 'credit event'.
Risk of credit default
Investors in some structured products are taking the risk of credit default. If a "credit event" happens, they may lose a substantial or all of their principal.
What is the risk of this happening?
The issuer said "We have issued similar products in recent years, and none have not defaulted".
I studied a report from a credit rating agency on the default rates in past years:
* For the past two years, the default rate is small. It is at a historical low level, due mainly to the booming global economy.
* Looking at a longer period, the default rate is higher. It is still small, but not that small.
As the structured products are issued for 5 to 6 years, the risk of a global downturn is "not small". This could lead to a higher default rate.
Lesson: Do not take this risk (as you may not be adequately compensated for it). If things turn bad, you may be in for a big surprise. By that time, you cannot reverse your decision.
What is the risk of this happening?
The issuer said "We have issued similar products in recent years, and none have not defaulted".
I studied a report from a credit rating agency on the default rates in past years:
* For the past two years, the default rate is small. It is at a historical low level, due mainly to the booming global economy.
* Looking at a longer period, the default rate is higher. It is still small, but not that small.
As the structured products are issued for 5 to 6 years, the risk of a global downturn is "not small". This could lead to a higher default rate.
Lesson: Do not take this risk (as you may not be adequately compensated for it). If things turn bad, you may be in for a big surprise. By that time, you cannot reverse your decision.
Cash back on a Term Policy
A life insurance company advertised a "cash back" if there is no claim under its term insurance plan.
This is how the plan works:
* the premium for the term insurance plan is, say $X a year
* for the cash back plan, the insurance company will charge $Y, which is probably charge 3 or 4 times of $X
* the difference between $Y and $X is invested to produce the cash back benefit to be paid on the end of the term.
Is this a good plan? You should consider the following:
* what is the return on the premium for the cash back benefit
* do you get a cash value, if you discontinue the plan during the term.
Lesson: Generally, it is better to avoid a "bundled" or "lock-in" product, unless the terms of the product are designed to be fair to the consumer.
This is how the plan works:
* the premium for the term insurance plan is, say $X a year
* for the cash back plan, the insurance company will charge $Y, which is probably charge 3 or 4 times of $X
* the difference between $Y and $X is invested to produce the cash back benefit to be paid on the end of the term.
Is this a good plan? You should consider the following:
* what is the return on the premium for the cash back benefit
* do you get a cash value, if you discontinue the plan during the term.
Lesson: Generally, it is better to avoid a "bundled" or "lock-in" product, unless the terms of the product are designed to be fair to the consumer.
What's bad about the Singapore system?
I posted my views earler about what's good about the Singapore system. They are:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
I will now give my views about what's bad about the Singapore system. They are:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
Yes. They are the same as the "what's good". The same factors that accounted for our success also contributes to our problems. I shall elaborate more about the negative aspects in a few days time.
If we understand both the good and the bad aspects, we may be able to adjust, to increase the "good" and reduce the "bad" impacts.
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
I will now give my views about what's bad about the Singapore system. They are:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
Yes. They are the same as the "what's good". The same factors that accounted for our success also contributes to our problems. I shall elaborate more about the negative aspects in a few days time.
If we understand both the good and the bad aspects, we may be able to adjust, to increase the "good" and reduce the "bad" impacts.
Confusing Message
A friend told me this story.
A direct marketing company carried out a pilot to test the impact of different types of messages sent by mail, and followed up by a telephone call.
Their finding: The message that confuses the customer gives the best response. They decided to adopt that message.
This is why you get a thick prospectus, when you buy a structured product. It is very confusing to the public, but they still decided to buy the product (even though they do not understand how it works).
Lesson: Do not buy any product that you do not understand. Go for the simple products. It is safer.
A direct marketing company carried out a pilot to test the impact of different types of messages sent by mail, and followed up by a telephone call.
Their finding: The message that confuses the customer gives the best response. They decided to adopt that message.
This is why you get a thick prospectus, when you buy a structured product. It is very confusing to the public, but they still decided to buy the product (even though they do not understand how it works).
Lesson: Do not buy any product that you do not understand. Go for the simple products. It is safer.
Branding
Many companies spend millions of dollars on "branding". They want consumers to associate their products or company with certain "qualities".
For a financial service company, the most important qualities are:
* trust
* efficiency
* good value products
These qualities are not created by "branding". They are real qualities that have to be built over time. Branding can only tell people what "you really are".
If you try to tell people "what you are not", the truth will prevail. The consumers will ignore your advertising, as it is not true.
For a financial service company, the most important qualities are:
* trust
* efficiency
* good value products
These qualities are not created by "branding". They are real qualities that have to be built over time. Branding can only tell people what "you really are".
If you try to tell people "what you are not", the truth will prevail. The consumers will ignore your advertising, as it is not true.
Owned by the people
The CEO of a small listed company asked me, "Why was NTUC Income not a listed company? "
I gave this reply, "When I was the CEO, I resisted the listing of NTUC Income. I wanted it to remain a cooperative, so that it can work for the interest of its policyholders".
He gave this insightful reply, "I agree with you. In fact, some of our businesses should be owned by the people, for example, trains, buses and utilities. Right now, these businesses are owned by the shareholders. If the company makes too much profit, 5,000 shareholders are happy, but 2 million people are unhappy".
I gave this reply, "When I was the CEO, I resisted the listing of NTUC Income. I wanted it to remain a cooperative, so that it can work for the interest of its policyholders".
He gave this insightful reply, "I agree with you. In fact, some of our businesses should be owned by the people, for example, trains, buses and utilities. Right now, these businesses are owned by the shareholders. If the company makes too much profit, 5,000 shareholders are happy, but 2 million people are unhappy".
Monday, July 16, 2007
CPF or life annuity
Dear Mr Tan
I am approaching age 55. Should I leave my minimum sum in the CPF to earn 4% per annum, or take it out to buy a life annuity? I am confident that you can give your impartial advice. Thank you.
-----------------------------------
REPLY:
You should take to an insurance adviser from NTUC Income or visit the business center to talk to a salaried adviser. You can compare the difference and make the best decision for yourself.
In my frank view, the life annuity with NTUC Income is likely to earn a long term rate of return of about 4-5% per annum. This should be as good as CPF or slightly better.
However, the life annuity has an element of risk pooling. It guarantees payment of the annuity for as long as you live. You do not have to worry that your money will run out earlier. (In the case of the CPF, the money is expected to run out after 20 years (ie when you reach age 82).
However, if the annuitant dies younger, a part of the principal or interest is left behind in the pool to pay the benefit to those who live longer.
There are also difference in the amount of payment. The life annuity from NTUC Income pays out less during the initial years and increases with bonus. The rate of bonus vary yearly according to the investment yield.
If you are not sure, it is all right to leave the money in the CPF to earn 4% per annum. This is an attractive rate of return.
Do take your time, before you make a decision. Either way, you should be happy with the decision. In both cases, the products give good value to the customer.
I am approaching age 55. Should I leave my minimum sum in the CPF to earn 4% per annum, or take it out to buy a life annuity? I am confident that you can give your impartial advice. Thank you.
-----------------------------------
REPLY:
You should take to an insurance adviser from NTUC Income or visit the business center to talk to a salaried adviser. You can compare the difference and make the best decision for yourself.
In my frank view, the life annuity with NTUC Income is likely to earn a long term rate of return of about 4-5% per annum. This should be as good as CPF or slightly better.
However, the life annuity has an element of risk pooling. It guarantees payment of the annuity for as long as you live. You do not have to worry that your money will run out earlier. (In the case of the CPF, the money is expected to run out after 20 years (ie when you reach age 82).
However, if the annuitant dies younger, a part of the principal or interest is left behind in the pool to pay the benefit to those who live longer.
There are also difference in the amount of payment. The life annuity from NTUC Income pays out less during the initial years and increases with bonus. The rate of bonus vary yearly according to the investment yield.
If you are not sure, it is all right to leave the money in the CPF to earn 4% per annum. This is an attractive rate of return.
Do take your time, before you make a decision. Either way, you should be happy with the decision. In both cases, the products give good value to the customer.
Did you invest in these structured products?
This webpage contains an insightful analysis of the structured products sold in Singapore in recent years, including the MiniBond.
It is quite easy to read.
If you have invested in some of the structured products previously, can you tell me about your actual experience. Did you get a good return from the product?
If the product has still not matured, call the product issuer, and ask what is the current price today, if you redeem it now.
It is quite easy to read.
If you have invested in some of the structured products previously, can you tell me about your actual experience. Did you get a good return from the product?
If the product has still not matured, call the product issuer, and ask what is the current price today, if you redeem it now.
Risks of investing in Structured Products
COMMENT POSTED IN MY BLOG:
The credit default swap is to insure its credit exposure. Therefore in the event of a default, the loss is mitigated. It is like buying future or option to hedge against a downside risk. The fund managers use plenty of these derivatives. If you look at Income's funds quite a substantial amount is spent annually on theses derivatives. Therefore it is no surprise that synthetic fixed income like Minibond uses too.
------------------------------------
REPLY:
Some structured products invest in credit default swaps to enhance their yields. They sell the swaps (i.e. to assume the risk of the credit event, by offering the insurance protection).
In the event of a credit event, the sellers of the swap (i.e. the investors of the structured product) can suffer a big loss. This is why the investors are warned that you may lose part or all of your investments.
Is the risk small? I do not know. I do not have the data to calculate it.
Lesson: Do not invest in any product that you do not fully understand. You may be exposing your investment to large risk. Stay away from complicated structured products!
SIDE NOTE:
NTUC Income invests in swaps to minimise the risk of loss. They have to pay a small cost for this protection.
The structured products invest in credit default swaps to earn an increased yield, but are exposed to the potental of a large loss, when a credit event happens. Is this frightening?
The credit default swap is to insure its credit exposure. Therefore in the event of a default, the loss is mitigated. It is like buying future or option to hedge against a downside risk. The fund managers use plenty of these derivatives. If you look at Income's funds quite a substantial amount is spent annually on theses derivatives. Therefore it is no surprise that synthetic fixed income like Minibond uses too.
------------------------------------
REPLY:
Some structured products invest in credit default swaps to enhance their yields. They sell the swaps (i.e. to assume the risk of the credit event, by offering the insurance protection).
In the event of a credit event, the sellers of the swap (i.e. the investors of the structured product) can suffer a big loss. This is why the investors are warned that you may lose part or all of your investments.
Is the risk small? I do not know. I do not have the data to calculate it.
Lesson: Do not invest in any product that you do not fully understand. You may be exposing your investment to large risk. Stay away from complicated structured products!
SIDE NOTE:
NTUC Income invests in swaps to minimise the risk of loss. They have to pay a small cost for this protection.
The structured products invest in credit default swaps to earn an increased yield, but are exposed to the potental of a large loss, when a credit event happens. Is this frightening?
Credit Default Swaps
The Pinnacle Notes has a "credit event". If any of 5 entities default, the investor has the chance to lose up to 40% of the invested amount.
What is the likelihood of this happening? I checked the internet for "credit defaults".
I found a link to "credit default swaps" or CDS. It appears to me that the Pinnacle Notes have CDS built into the product.
I find it quite complex to understand the CDS, especially to calculate the chance of a "credit event" occuring.
You should read the section on "Criticism". It quotes Warren Buffet.
Lesson: If you are not able to understand a product, do not invest in it. You do not know if you are getting a fair deal.
What is the likelihood of this happening? I checked the internet for "credit defaults".
I found a link to "credit default swaps" or CDS. It appears to me that the Pinnacle Notes have CDS built into the product.
I find it quite complex to understand the CDS, especially to calculate the chance of a "credit event" occuring.
You should read the section on "Criticism". It quotes Warren Buffet.
Lesson: If you are not able to understand a product, do not invest in it. You do not know if you are getting a fair deal.
Sunday, July 15, 2007
Pinnacle Notes - 2 views
COMMENT POSTED IN MY BLOG:
The risk of the (Pinnacle Notes) is pegged to the credit worthiness of some 5 credit references of double A rating. Eg. UOB bank, Standchart and other financial entities of similar rating.
A credit event occurs should any one of the entities default. The recovery rate is about 40%, ie you get back 40% of your capital.
The risk to consider is or ask yourself can anyone of the entities default.? Eg. can UOB default? It would be terrible and it is not impossible. Consider the probability of that event happening. Almost near zero ......
The callablle feature kicks in after 1.5 years depending on the interest rate prevailing at that point in time. If it is called , capital plus some premium will be returned.
-----------------------
REPLY:
The risk of 1 entity defaulting is small. But, when you have any 1 of 5 entitles failing, the risk increases by 5 times. It is still small, but it is not that small.
When it fails, you have to lose up to 40%. What do you get for this risk? Just 1% or 2% more a year? Is it worth the risk?
Most investors will be willing to give up 1% for the chance of gaining 40% (instead of earning an extra 1% for the risk of losing 40%!)
As you do not know the change of the credit event, it is not worth taking the gamble. I am sure that the product issuer knows how to calculate the risk better than the small investor!
The callable feature has a cost to the investor that is not clearly understood. It gives the product issuer an opportunity to make an additional profit (at the expense of the small investor).
When interest rate falls, the value of the underlying investments increased. The product issuer can redeem the structured notes at a fixed price, and keep the additional gains as their profit. The small investor has to re-invest the money at a lower rate of interest.
Tip: It is better to invest in a straight forward government bond or corporate bond, and earn an interest rate according to the level of risk.
The risk of the (Pinnacle Notes) is pegged to the credit worthiness of some 5 credit references of double A rating. Eg. UOB bank, Standchart and other financial entities of similar rating.
A credit event occurs should any one of the entities default. The recovery rate is about 40%, ie you get back 40% of your capital.
The risk to consider is or ask yourself can anyone of the entities default.? Eg. can UOB default? It would be terrible and it is not impossible. Consider the probability of that event happening. Almost near zero ......
The callablle feature kicks in after 1.5 years depending on the interest rate prevailing at that point in time. If it is called , capital plus some premium will be returned.
-----------------------
REPLY:
The risk of 1 entity defaulting is small. But, when you have any 1 of 5 entitles failing, the risk increases by 5 times. It is still small, but it is not that small.
When it fails, you have to lose up to 40%. What do you get for this risk? Just 1% or 2% more a year? Is it worth the risk?
Most investors will be willing to give up 1% for the chance of gaining 40% (instead of earning an extra 1% for the risk of losing 40%!)
As you do not know the change of the credit event, it is not worth taking the gamble. I am sure that the product issuer knows how to calculate the risk better than the small investor!
The callable feature has a cost to the investor that is not clearly understood. It gives the product issuer an opportunity to make an additional profit (at the expense of the small investor).
When interest rate falls, the value of the underlying investments increased. The product issuer can redeem the structured notes at a fixed price, and keep the additional gains as their profit. The small investor has to re-invest the money at a lower rate of interest.
Tip: It is better to invest in a straight forward government bond or corporate bond, and earn an interest rate according to the level of risk.
Pinnacle Notes - do you know the risks?
The Pinnacle Notes offers an interset rate of 5.25% per annum, with the following disclaimer:
The notes are not principal protected. Payment of interest and repalyment of 100% of the principal amount at maturity is dependent upon, amongst other things, the occurence of a Credit Event, a Mandatory Redemption Event or if the issuer exercises its Issuer Call Option.
In such circumstances, you will lose all or substantially all of your investment in the Notes.
Please refer to the Prospectus for more details.
With these types of unclear risks, it is really worth while to invest in the Pinnacle notes? Will you be stuck for the next 6 years with a low return? How much will you lose, if any of the events happen? What is the chance of it happening?
How much commission is earned by the distributing banks? How much does the Arranger earn on the product? Are the small investors getting a fair return for the risk that they are shouldering?
These types of products are too complicated for me. I do not invest in them. I discourage my family members from investing in these products.
The notes are not principal protected. Payment of interest and repalyment of 100% of the principal amount at maturity is dependent upon, amongst other things, the occurence of a Credit Event, a Mandatory Redemption Event or if the issuer exercises its Issuer Call Option.
In such circumstances, you will lose all or substantially all of your investment in the Notes.
Please refer to the Prospectus for more details.
With these types of unclear risks, it is really worth while to invest in the Pinnacle notes? Will you be stuck for the next 6 years with a low return? How much will you lose, if any of the events happen? What is the chance of it happening?
How much commission is earned by the distributing banks? How much does the Arranger earn on the product? Are the small investors getting a fair return for the risk that they are shouldering?
These types of products are too complicated for me. I do not invest in them. I discourage my family members from investing in these products.
Good experience with structured products
THERE WAS NO RESPONSE TO MY PREVIOUS POSTING OF THIS BLOG. I AM RE-POSTING IT TO INVITE CONTRIBUTIONS, ESPECIALLY FROM THE FINANCIAL INSTITUTIONS THAT HAVE MARKETED THIS PRODUCT.
------------------------------------------------------------------
Do you have any good experience with structured products, e.g. promise capital protection and give you a good return?
Send the following details to kinlian@gmail.com:
* amount that you invested
* period of investment
* your total return
* fully capital protected (ie no risk)?
Note: This request is also open to the financial institutions that promoted or marketed the structured products. You can send good experiences to me (if any), so that my blog will be more balanced.
------------------------------------------------------------------
Do you have any good experience with structured products, e.g. promise capital protection and give you a good return?
Send the following details to kinlian@gmail.com:
* amount that you invested
* period of investment
* your total return
* fully capital protected (ie no risk)?
Note: This request is also open to the financial institutions that promoted or marketed the structured products. You can send good experiences to me (if any), so that my blog will be more balanced.
Return from various types of investments
Hi Mr Tan,
The stockmarket is now at a high level. Is it risky to invest in the stockmarket now? Should I reduce my investments? What other types of investment can I make now? I find the interest rate on fixed deposit to be too low.
---------------------------
REPLY:
If you are not familiar with speculating on the stockmarket, it is better to invest with a long term perspective.
You can read this FAQ on the return from various types of investments. This is measured on a long term perspective.
Generally, it is good to invest in equities, but I prefer to enter at a lower price level. There is no point to invest at the peak of the market (but we are not sure when the peak will be reached! )
The stockmarket is now at a high level. Is it risky to invest in the stockmarket now? Should I reduce my investments? What other types of investment can I make now? I find the interest rate on fixed deposit to be too low.
---------------------------
REPLY:
If you are not familiar with speculating on the stockmarket, it is better to invest with a long term perspective.
You can read this FAQ on the return from various types of investments. This is measured on a long term perspective.
Generally, it is good to invest in equities, but I prefer to enter at a lower price level. There is no point to invest at the peak of the market (but we are not sure when the peak will be reached! )
A customer focused organisation
A customer focused organisation has the following characteristics:
* identify the customer before dealing with the issue
* design processes to be convenient for the customer
Here are some common mistakes made by organisations:
* several accounts for the same customer
* have different processes for each type of account
* have different people to deal with each product type
* ask the customer to key in the account number (which is usually not available)
* design process for the convenience of the organisation (eg to save on manpower)
* identify the customer before dealing with the issue
* design processes to be convenient for the customer
Here are some common mistakes made by organisations:
* several accounts for the same customer
* have different processes for each type of account
* have different people to deal with each product type
* ask the customer to key in the account number (which is usually not available)
* design process for the convenience of the organisation (eg to save on manpower)
CASE Website
You can get a lot of useful information from the CASE website.
I find the sample agreements to be useful, eg on home renovation, tenancy. I hope that more sample agreements can be added, eg will, employment, etc.
I find the sample agreements to be useful, eg on home renovation, tenancy. I hope that more sample agreements can be added, eg will, employment, etc.
Use of ATM in other countries
I was told that in Europe, it is easy to withdraw cash in other countries using an ATM card. This is good for travellers.
I hope that, one day, it is possible to use a Singapore-issued ATM card to withdraw cash in Malaysia, Indonesia and other countries.
I believe that it is possible to withdraw cash with a credit card (if you know the PIN number), but the charges are quite high.
I hope that, one day, it is possible to use a Singapore-issued ATM card to withdraw cash in Malaysia, Indonesia and other countries.
I believe that it is possible to withdraw cash with a credit card (if you know the PIN number), but the charges are quite high.
Surgical Schedule
Some medical insurance plans has a surgical schedule that sets out the limit that can be claimed for each type of surgical procedure.
The surgeon may follow this limit and bill the patient for up to this sum. If the surgeon bills a higher sum, the difference has to be borne by the patient. The insurance company pays up to the limit.
This schedule helps to place a cap on the charges. The patient should ask the surgeon for an estimate of the cost, and if possible, to keep within the limit.
The surgeon may follow this limit and bill the patient for up to this sum. If the surgeon bills a higher sum, the difference has to be borne by the patient. The insurance company pays up to the limit.
This schedule helps to place a cap on the charges. The patient should ask the surgeon for an estimate of the cost, and if possible, to keep within the limit.
Saturday, July 14, 2007
A simple medical insurance product
Hi Mr Tan,
I find the calculation of the medical insurance claim to be difficult. Why should there be so many deductions from the hospital bill? Most people pay a premium, and want the insurance company to take care of the entire bill. Is there a simpler insurance plan?
------------------------------------------
REPLY
The simpler plan (which I prefer) is a plan that pays a fixed sum (say $200) for each day of stay in a hospital. This is simple for the customer, and for the insurance company. It is call a "hospital cash" plan.
This plan will pay a substantial part of the hospital bill. It also gives the incentive for the patient to find out the most cost effective treatment (rather than incur a large bill). The patient can consult the insurance company for advice on where to get the cost effective treatment.
This approach is best for all parties - the consumer, the insurance company and the medical provider.
I find the calculation of the medical insurance claim to be difficult. Why should there be so many deductions from the hospital bill? Most people pay a premium, and want the insurance company to take care of the entire bill. Is there a simpler insurance plan?
------------------------------------------
REPLY
The simpler plan (which I prefer) is a plan that pays a fixed sum (say $200) for each day of stay in a hospital. This is simple for the customer, and for the insurance company. It is call a "hospital cash" plan.
This plan will pay a substantial part of the hospital bill. It also gives the incentive for the patient to find out the most cost effective treatment (rather than incur a large bill). The patient can consult the insurance company for advice on where to get the cost effective treatment.
This approach is best for all parties - the consumer, the insurance company and the medical provider.
What product is suitable for my age group?
FIRST POSTED IN FEBUARY, 2007 (EDITED)
Dear Mr Tan,
Read with interest on buying insurance products from the NTUC income portal.
I don't believe that there is an ideal insurance package solution for all.
It really depends on the age, size of family, living standards, of the individual.
What I would like to know is an ideal case of persons aged:
20-30: Just started work, planning on getting married
30-40: Married, steady career, with 1 or 2 kids
40-50: Achieved good mid-income (say $5K-7K/mth), higher educational needs (JC, university, worst case medical school)
50-60: Approaching retirement age, or continue working because of financial commits
60+: ???
What then are the range of insurance products/ investment funds would you recommend for these age groups.
----------------------
REPLY
The best plan is to buy a decreasing term insurance to provide the insurance coverage and to invest your savings (say 10% to 20% of your regular earnings) in a mutual fund or an invesment fund. You can read this FAQ for the young, and for seniors.
You should choose a flexible savings plan, as it gives you the flexibility to change your savings and the investment fund. Normally, you should choose a large, well diversified fund.
Dear Mr Tan,
Read with interest on buying insurance products from the NTUC income portal.
I don't believe that there is an ideal insurance package solution for all.
It really depends on the age, size of family, living standards, of the individual.
What I would like to know is an ideal case of persons aged:
20-30: Just started work, planning on getting married
30-40: Married, steady career, with 1 or 2 kids
40-50: Achieved good mid-income (say $5K-7K/mth), higher educational needs (JC, university, worst case medical school)
50-60: Approaching retirement age, or continue working because of financial commits
60+: ???
What then are the range of insurance products/ investment funds would you recommend for these age groups.
----------------------
REPLY
The best plan is to buy a decreasing term insurance to provide the insurance coverage and to invest your savings (say 10% to 20% of your regular earnings) in a mutual fund or an invesment fund. You can read this FAQ for the young, and for seniors.
You should choose a flexible savings plan, as it gives you the flexibility to change your savings and the investment fund. Normally, you should choose a large, well diversified fund.
How can CPF be improved to give a better return?
FIRST POSTED IN MARCH 2007.
My views about investing CPF savings
1. A Member of Parliament said the Government should aim to help CPF members grow their money by 8 to 10 per cent a year. Do you agree with this target?
Reply: I believe that a reasonable long term target is 5% to 6% per annum. This is higher than the rate of inflation and represents an attractive real rate of return.
2. Should the CPF improve its rate of return?
Reply: The CPF should make it easy for its members to invest in a large, well diversified, low cost fund of global equities and bonds. Although the return may fluctuate from one year to another, the fluctuation should average out over a period of 10 years or longer. The average return can meet the target that I have indicated. I believe that the CPF is actively considering this option, as reported in the newspapers. I agree with this approach.
3. What are the obstacles to raising the rate of returns? How to overcome them?
Reply: They key obstacle is the need to provide a guaranteed rate of return. This forces the CPF to adopt a safe investment strategy which produces a low rate of return. If the member is willing to take the risk and fluctuation in an investment fund, they will be able to get a higher average return over the long term. The risk can be reduced by investing in a large, well diversified, low cost fund.
4. Are Singaporeans ready to bear higher risks that comes with higher returns?
Reply: I believe that Singaporeans will prefer to invest in a large, well diversified, low cost fund. It will actually reduce the risk (through diversification in many investments and over man years) and give a higher return over the long term. A low cost fund charges can charge as low as 0.5% to 1% per annum, giving most of the return back to the investor.
5. Are there any lessons from pension plans in other countries that Singapore can study and learn from?
Reply: We should study the success of the indexed funds and the exchange traded funds in the United States. They are large, well diversified, low cost funds. They offer an attractive return to their investors over a period of 10 years or longer.
6. The Manpower Minister said that CPF now provides risk-free return and safeguards members' savings against interest rate changes and stock market volatility. Its returns are above market rates, when compared against products of similar risk and tenure. Do you agree?
Reply: The guaranteed rate of 4% per annum on the special account is attractive, as it is risk free. CPF members should be given the option of investing in large, well diversified, low cost funds, to get a better return for their ordinary account. Many of the approved funds under the CPF Investment Scheme are too small and their charges are too high. The CPF has recognised this deficiency and have taken steps to get the funds to reduce their charges. It is a good time to introduce the PPP type of funds.
To read more about investing in large, well diversified, low cost funds:
FAQ
My views about investing CPF savings
1. A Member of Parliament said the Government should aim to help CPF members grow their money by 8 to 10 per cent a year. Do you agree with this target?
Reply: I believe that a reasonable long term target is 5% to 6% per annum. This is higher than the rate of inflation and represents an attractive real rate of return.
2. Should the CPF improve its rate of return?
Reply: The CPF should make it easy for its members to invest in a large, well diversified, low cost fund of global equities and bonds. Although the return may fluctuate from one year to another, the fluctuation should average out over a period of 10 years or longer. The average return can meet the target that I have indicated. I believe that the CPF is actively considering this option, as reported in the newspapers. I agree with this approach.
3. What are the obstacles to raising the rate of returns? How to overcome them?
Reply: They key obstacle is the need to provide a guaranteed rate of return. This forces the CPF to adopt a safe investment strategy which produces a low rate of return. If the member is willing to take the risk and fluctuation in an investment fund, they will be able to get a higher average return over the long term. The risk can be reduced by investing in a large, well diversified, low cost fund.
4. Are Singaporeans ready to bear higher risks that comes with higher returns?
Reply: I believe that Singaporeans will prefer to invest in a large, well diversified, low cost fund. It will actually reduce the risk (through diversification in many investments and over man years) and give a higher return over the long term. A low cost fund charges can charge as low as 0.5% to 1% per annum, giving most of the return back to the investor.
5. Are there any lessons from pension plans in other countries that Singapore can study and learn from?
Reply: We should study the success of the indexed funds and the exchange traded funds in the United States. They are large, well diversified, low cost funds. They offer an attractive return to their investors over a period of 10 years or longer.
6. The Manpower Minister said that CPF now provides risk-free return and safeguards members' savings against interest rate changes and stock market volatility. Its returns are above market rates, when compared against products of similar risk and tenure. Do you agree?
Reply: The guaranteed rate of 4% per annum on the special account is attractive, as it is risk free. CPF members should be given the option of investing in large, well diversified, low cost funds, to get a better return for their ordinary account. Many of the approved funds under the CPF Investment Scheme are too small and their charges are too high. The CPF has recognised this deficiency and have taken steps to get the funds to reduce their charges. It is a good time to introduce the PPP type of funds.
To read more about investing in large, well diversified, low cost funds:
FAQ
What's good about Singapore
Here are my views about what is good with the Singapore system:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
Let me elaborate on these points.
Low corruption: Easy to get things done. Criteria and procedures are clear. If we follow the rules, we know that our requests will be approved. We do not have to worry about making "additional payments".
Meritocracy: Everyone can move up the career ladder. The best rewards go to the most able.
Economic development: Our economy has developed well. Many good paying jobs are produced. Asset and property prices have gone up.
Efficiency: Things work. We can rely on efficient transport, utilities and services. We save on time to do many things.
Stable and good government: We have a safe envifonment. We do not have to worry about strikes, crime, financial crisis and other uncertainties.
Now, what's bad about Singapore? I shall discuss them in a few days time.
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
Let me elaborate on these points.
Low corruption: Easy to get things done. Criteria and procedures are clear. If we follow the rules, we know that our requests will be approved. We do not have to worry about making "additional payments".
Meritocracy: Everyone can move up the career ladder. The best rewards go to the most able.
Economic development: Our economy has developed well. Many good paying jobs are produced. Asset and property prices have gone up.
Efficiency: Things work. We can rely on efficient transport, utilities and services. We save on time to do many things.
Stable and good government: We have a safe envifonment. We do not have to worry about strikes, crime, financial crisis and other uncertainties.
Now, what's bad about Singapore? I shall discuss them in a few days time.
National Day - Sudoku (Logic9)
National Day is coming soon.
How about trying to solve a Sudoku puzzle (Logic9) with the letters S,I,N,G,A,P,O,R,E instead of the usual numbers 1 to 9.
Go to this website. Click PLAY. Select the symbols - CHARACTERS. Choose the level (from very easy to complex). Enjoy.
How about trying to solve a Sudoku puzzle (Logic9) with the letters S,I,N,G,A,P,O,R,E instead of the usual numbers 1 to 9.
Go to this website. Click PLAY. Select the symbols - CHARACTERS. Choose the level (from very easy to complex). Enjoy.
Insurance company should set a good example
I had an interesting conversation with an adviser from a large life insurance company. Here are his comments about his company's business practice:
* their top management is measured by head office, mainly on new business
* a significant part of the new business comes from getting their customers to terminate their existing policy, and buy a new policy
* this is bad for the customer, as they lose on the heavy charges
* but it is good for the company's profits and the agent's commission.
The adviser felt bad about this practice and was not willing to take advantage of his customers. He is not active in sales now.
I commend this adviser for his ethical approach. It is important for the insurance company to set a good example, so that the advisers can emulate it.
* their top management is measured by head office, mainly on new business
* a significant part of the new business comes from getting their customers to terminate their existing policy, and buy a new policy
* this is bad for the customer, as they lose on the heavy charges
* but it is good for the company's profits and the agent's commission.
The adviser felt bad about this practice and was not willing to take advantage of his customers. He is not active in sales now.
I commend this adviser for his ethical approach. It is important for the insurance company to set a good example, so that the advisers can emulate it.
Friday, July 13, 2007
Private medical practice
Someone said, " The consumer (patient) goes to the doctor with total trust, submits to the various procedures recommended and seldom questions the fees that are being charged".
As private medical practice is so lucrative, it is difficult to keep good doctors in the public sector.
What is the underlying problem?
* we allow medical practice to be a business
* we leave to the free market
* the consumers are at a disadvantage
* the doctors have a conflict of interest
What is a better solution?
* medicine should be a profession (not a business)
* doctors should operate on a code of ethics (i.e. look after the patient's interest)
* consumers need access to impartial, independent advice
* some suitable body (the government?) should monitor the conduct of doctors
* the interest of consumers should be better protected
My remark applies to many other services, including the marketing of financial services.
As private medical practice is so lucrative, it is difficult to keep good doctors in the public sector.
What is the underlying problem?
* we allow medical practice to be a business
* we leave to the free market
* the consumers are at a disadvantage
* the doctors have a conflict of interest
What is a better solution?
* medicine should be a profession (not a business)
* doctors should operate on a code of ethics (i.e. look after the patient's interest)
* consumers need access to impartial, independent advice
* some suitable body (the government?) should monitor the conduct of doctors
* the interest of consumers should be better protected
My remark applies to many other services, including the marketing of financial services.
Difficult to find a good law minister?
Today paper had an editorial about the difficulty of finding a good law minister in Singapore. The underlying problems, and possible solutions, are explained in detail in the article.
My view?
The root cause is our system of selecting ministers. They have to be selected from among the elected members of parliament. This reduces the pool of potential candidates considerably. (We follow the British system).
What is the alternative?
We can consider the American system. The citizens elect their members of Congress (ie Parliament) and a President.
The President picks his ministers (i.e secretary of the various departments) from the entire population. The nominated perons have to be approved by the Congress.
Many other countries also follow the American system. It gives a wider choice of suitable people.
-
My view?
The root cause is our system of selecting ministers. They have to be selected from among the elected members of parliament. This reduces the pool of potential candidates considerably. (We follow the British system).
What is the alternative?
We can consider the American system. The citizens elect their members of Congress (ie Parliament) and a President.
The President picks his ministers (i.e secretary of the various departments) from the entire population. The nominated perons have to be approved by the Congress.
Many other countries also follow the American system. It gives a wider choice of suitable people.
-
Singapore system - good, bad and ugly
My friend has been invited to speak on several occasions at international conferences. His topic? The Singapore system - good, bad and ugly.
I asked him:
* what is good about the Singapore system?
* what is bad?
He shared his views with me. (But, I do not wish to quote him, without his permission.)
Here are my views about what is good with the Singapore system:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
What is bad about the Singapore system?
I shall share my views in a few days time!
I asked him:
* what is good about the Singapore system?
* what is bad?
He shared his views with me. (But, I do not wish to quote him, without his permission.)
Here are my views about what is good with the Singapore system:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
What is bad about the Singapore system?
I shall share my views in a few days time!
Cycling on pedestrain walks
There is some debate on whether cyclists should be allowed to ride on pedestrain walks.
Let us look at the underlying problems:
* there is insufficient bicycle paths
* cyclists cannot ride on the roads (as it is dangerous)
* so, they ride on pedestrain paths (which is harmful to pedestrains).
Can bicycle be used for local transport?
* it is not practical, due to our weather
* there is a need for storage space at MRT or bus stops
The solution?
* have low cost, feeder service for local transport.
Let us look at the underlying problems:
* there is insufficient bicycle paths
* cyclists cannot ride on the roads (as it is dangerous)
* so, they ride on pedestrain paths (which is harmful to pedestrains).
Can bicycle be used for local transport?
* it is not practical, due to our weather
* there is a need for storage space at MRT or bus stops
The solution?
* have low cost, feeder service for local transport.
Fuel economy
Here is the key points of a survey report of car owners, as reported in the newspaper.
* Only 1% of Singaporeans bother to learn about fuel economy of their car, ie how many kilos can be driven for 1 litre of petrol. This is among the lowest in the countries surveyed.
* Only 25% of Singaporeans bother about the impact of cars on the environment, compared to 60% in the other countries.
Lesson: After paying so much for the upfront cost of owning a car, Singaporeans are more concerned about the convenience of using the car. They do not bother about fuel economy. Maybe it does not make much difference, after paying for the ERP charges?
* Only 1% of Singaporeans bother to learn about fuel economy of their car, ie how many kilos can be driven for 1 litre of petrol. This is among the lowest in the countries surveyed.
* Only 25% of Singaporeans bother about the impact of cars on the environment, compared to 60% in the other countries.
Lesson: After paying so much for the upfront cost of owning a car, Singaporeans are more concerned about the convenience of using the car. They do not bother about fuel economy. Maybe it does not make much difference, after paying for the ERP charges?
Adviser gave misleading information
My friend and I visited an insurance booth at an exhibition. The insurance adviser promoted "buy term and invest the difference" (Good!).
They have good marketing materials. The adviser showed the performance of the different funds, and how they fit into the different risk profile. (Good!)
My friend asked about the cost of the funds. The brochure showed an upfront cost of 3% and an annual fee of slightly less than 1%. (Good!)
My friend asked, "What about the distribution cost?" The adviser pretended to be ignorant, and pointed to the investing cost shown in the brochure (ie 3% and 1%).
I asked, "what percentage of the regular premium is allocated for investment?"
The adviser reluctantly brought up another thick booklet (also nicely printed), turned to a page. It showed that 20% was invested in the first year, and other percentages were invested the next few years. The total deduction is more than 150% for the initial years. It is a costly product.
Lesson: It is quite sad that insurance companies design costly products and train their advisers to hide the fact. Indeed, the adviser give a misleading impression and show only part of the total cost.
Who is the blame? The insurance company? The adviser? The marketing system? The regulators?
They have good marketing materials. The adviser showed the performance of the different funds, and how they fit into the different risk profile. (Good!)
My friend asked about the cost of the funds. The brochure showed an upfront cost of 3% and an annual fee of slightly less than 1%. (Good!)
My friend asked, "What about the distribution cost?" The adviser pretended to be ignorant, and pointed to the investing cost shown in the brochure (ie 3% and 1%).
I asked, "what percentage of the regular premium is allocated for investment?"
The adviser reluctantly brought up another thick booklet (also nicely printed), turned to a page. It showed that 20% was invested in the first year, and other percentages were invested the next few years. The total deduction is more than 150% for the initial years. It is a costly product.
Lesson: It is quite sad that insurance companies design costly products and train their advisers to hide the fact. Indeed, the adviser give a misleading impression and show only part of the total cost.
Who is the blame? The insurance company? The adviser? The marketing system? The regulators?
Consumer information - from Australia
I found the website of the Online magazine produced by the Australian consumer association. It is impressive. Take a look at it.
Reduce offer for Excess and Loss of Use
Hi Mr Tan
I see from your blog that you are answering reader's doubt on insurance issue. I like to get your advice on a case involving our company lorry.
Our lorry was travelling straight along Rochor Road. a car suddenly turn left from the extreme lane and hit our lorry's door.
Both vehicles are insured with X. The own damage claim (before GST) was settled.
There is a claim for loss damages and expenses. X gave us a release form to accept this as a full and final settlement, and we did.
X's lawyer later called for a mediation meeting between the drivers, and offered a lower sum to close the case.
We follow up with X's claims officer and were told when lawyer is involved, we can make a counter offer, but to insist on the full sum may mean incurring expenses to hire our own lawyer.
-----------------------
REPLY:
The items that you are claiming fall under the category of "third party claim". You are making a third party claim against the other party on the basis that they are entirely at fault.
If there is no dispute on the fault, then the insurer should pay for this claim in full, and not try to negotiate a lower sum.
I suggest that you talk to the lawyer and ask for the reason for the reduced offer. You can also approach your insurer for their advice and assistance. They should render this assistance as part of their customer service.
If your insurer does not provide good service, you should look for a new insurer on your next renewal.
You also have the right to make a complaint against your insurer. The body to receive your claimant is the FiDREC (Financial Industry Dispute Resolution Center). Here is their website.
I see from your blog that you are answering reader's doubt on insurance issue. I like to get your advice on a case involving our company lorry.
Our lorry was travelling straight along Rochor Road. a car suddenly turn left from the extreme lane and hit our lorry's door.
Both vehicles are insured with X. The own damage claim (before GST) was settled.
There is a claim for loss damages and expenses. X gave us a release form to accept this as a full and final settlement, and we did.
X's lawyer later called for a mediation meeting between the drivers, and offered a lower sum to close the case.
We follow up with X's claims officer and were told when lawyer is involved, we can make a counter offer, but to insist on the full sum may mean incurring expenses to hire our own lawyer.
-----------------------
REPLY:
The items that you are claiming fall under the category of "third party claim". You are making a third party claim against the other party on the basis that they are entirely at fault.
If there is no dispute on the fault, then the insurer should pay for this claim in full, and not try to negotiate a lower sum.
I suggest that you talk to the lawyer and ask for the reason for the reduced offer. You can also approach your insurer for their advice and assistance. They should render this assistance as part of their customer service.
If your insurer does not provide good service, you should look for a new insurer on your next renewal.
You also have the right to make a complaint against your insurer. The body to receive your claimant is the FiDREC (Financial Industry Dispute Resolution Center). Here is their website.
Profession or business?
Law, medicine and education were the hallmarks of the professions.
The professionals act honestly in the interest of their client, are trusted by them, and receive a good income for their expertise. However, they do not receive the exceptional profits of businesses.
In recent years (especially in the developed countries), many of these professions are being converted into businesses. As a business, they aim to make a big profit - the bigger the better.
Business pressures may force these professionals to cut corners and (in order to survive), they may resort to "cheating" the clients.
I hope that the professions continue to be practised on ethics, fairness and high standards. They should not be turned into businesses.
The professionals act honestly in the interest of their client, are trusted by them, and receive a good income for their expertise. However, they do not receive the exceptional profits of businesses.
In recent years (especially in the developed countries), many of these professions are being converted into businesses. As a business, they aim to make a big profit - the bigger the better.
Business pressures may force these professionals to cut corners and (in order to survive), they may resort to "cheating" the clients.
I hope that the professions continue to be practised on ethics, fairness and high standards. They should not be turned into businesses.
CASE to start a blog?
POSTING IN MY BLOG (BY WILLIAM)
As a consumer, I detest this opt-out scheme and also telemarketers who somehow have your mobile number making sales pitch at you.
Hmm.. Mr Tan, maybe you should consider running for President of CASE. I think you are quite suitable for that position. :) Or maybe CASE should start a blog to communicate with their intended audience, the consumers, on decisions that affect their everyday life.
This is my 1st post here but I must say I have enjoyed reading your posts.
On an unrelated topic, it goes to show that Passion wins over $$. You are not paid to blog but you blog because you want to share your passion of insurance and finance.
Hmmm..Wait.. I think you can even run for President next time round. ;) Jazz up our Presidential election a little.
-------------------------------------------
REPLY:
Thank you for your nice words.
I don't think that I am suitable as President of CASE or President of Singapore. They are too many people who dislike me.
I have been using some materials from the Consumer Magazine (produced by CASE) for my blog. I simplifed the materials, so that the key message comes across. For those who are interested in the magazine, you can pay a subscription to CASE.
As a consumer, I detest this opt-out scheme and also telemarketers who somehow have your mobile number making sales pitch at you.
Hmm.. Mr Tan, maybe you should consider running for President of CASE. I think you are quite suitable for that position. :) Or maybe CASE should start a blog to communicate with their intended audience, the consumers, on decisions that affect their everyday life.
This is my 1st post here but I must say I have enjoyed reading your posts.
On an unrelated topic, it goes to show that Passion wins over $$. You are not paid to blog but you blog because you want to share your passion of insurance and finance.
Hmmm..Wait.. I think you can even run for President next time round. ;) Jazz up our Presidential election a little.
-------------------------------------------
REPLY:
Thank you for your nice words.
I don't think that I am suitable as President of CASE or President of Singapore. They are too many people who dislike me.
I have been using some materials from the Consumer Magazine (produced by CASE) for my blog. I simplifed the materials, so that the key message comes across. For those who are interested in the magazine, you can pay a subscription to CASE.
Thursday, July 12, 2007
Renewal fee on credit cards
Many consumers have several credit cards. We enjoy the waiver of the annual fee on the credit card for the initial few years.
We may not be aware about the expiry of this waiver period. They will renew it automatically and charge an annual fee (which can be quite hefty).
What can we do?
I suggest that you should check the expiry date with the credit card company and put a reminder in your diary or PDA. Prior to the expiry date, you should decide if you wish to renew it. If not, you can tell the bank.
Alternatively, you can write a letter to tell the bank that you do not wish to continue the card on its expiry.
I hope that the authority should require the issuing bank to get specific approval from the customer for introducing an annual fee on the expiry of the initial period. We should encourage fair business practice.
We may not be aware about the expiry of this waiver period. They will renew it automatically and charge an annual fee (which can be quite hefty).
What can we do?
I suggest that you should check the expiry date with the credit card company and put a reminder in your diary or PDA. Prior to the expiry date, you should decide if you wish to renew it. If not, you can tell the bank.
Alternatively, you can write a letter to tell the bank that you do not wish to continue the card on its expiry.
I hope that the authority should require the issuing bank to get specific approval from the customer for introducing an annual fee on the expiry of the initial period. We should encourage fair business practice.
Questionable marketing practice
I read a news report about the following marketing practice:
* the bank sends a letter to offer you a credit line
* if you do not want it, you have to tell the bank
* if you do not opt out, the bank offers it to you
* the charge is waived for the first year
* in subsequent years, the bank automatically add the charge to your account
* it is quite a hassle to remove this unwanted facility
I hope that the authority can act strongly to stop this practice. Here are some of the difficulties faced by the consumer:
* the product brochure sent by the bank is complicated (not easy for consumer to understand)
* the terms may be unfair to the consumer (as it is written on a one-sided basis)
* the consumer may overlook the charge on this statement (for something that is not needed).
I hope that businesses can be runned ethically to serve consumers, and not to make profit at the expense of consumers.
* the bank sends a letter to offer you a credit line
* if you do not want it, you have to tell the bank
* if you do not opt out, the bank offers it to you
* the charge is waived for the first year
* in subsequent years, the bank automatically add the charge to your account
* it is quite a hassle to remove this unwanted facility
I hope that the authority can act strongly to stop this practice. Here are some of the difficulties faced by the consumer:
* the product brochure sent by the bank is complicated (not easy for consumer to understand)
* the terms may be unfair to the consumer (as it is written on a one-sided basis)
* the consumer may overlook the charge on this statement (for something that is not needed).
I hope that businesses can be runned ethically to serve consumers, and not to make profit at the expense of consumers.
Tribute to Dr Goh Keng Swee
THIS WAS FIRST POSTED SIX MONTHS AGO. AS THERE ARE LETTERS IN THE NEWSPAPER ABOUT THE CONTRIBUTION OF DR GOH KENG SEE, I AM RE-POSTING THIS BLOG.
---------------------------------------------------------------------
I wish to pay tribute to one great man, whose vision led to the formation of NTUC Income. He is Dr Goh Keng Swee, finance minister of Singapore in 1970.
After NTUC Income was formed, he served as chairman of the board of trustees for 10 years and provided the strategic direction that led to our success. I met Dr Goh when I joined NTUC Income in 1977 and worked under him for two years.
Dr Goh also served in various capacities in the government, including education minister, defence minister and deputy prime minister. He retired from government service about 15 years ago.
Dr Goh is now over 90 years old. He has not been well for some time. I wish to say a big "thank you" to Dr Goh, on behalf of nearly two million policyholders and their families.
---------------------------------------------------------------------
I wish to pay tribute to one great man, whose vision led to the formation of NTUC Income. He is Dr Goh Keng Swee, finance minister of Singapore in 1970.
After NTUC Income was formed, he served as chairman of the board of trustees for 10 years and provided the strategic direction that led to our success. I met Dr Goh when I joined NTUC Income in 1977 and worked under him for two years.
Dr Goh also served in various capacities in the government, including education minister, defence minister and deputy prime minister. He retired from government service about 15 years ago.
Dr Goh is now over 90 years old. He has not been well for some time. I wish to say a big "thank you" to Dr Goh, on behalf of nearly two million policyholders and their families.
Get good value products from an adviser
A few visitors commented that insurance agents sell products that give them the highest commission. These products many not meet the needs of their clients.
When I was CEO of NTUC Income, I made sure that all the products are designed to meet the following:
* have modest loadings for commission
* offer good value to the customers
The insurance agents (advisers) from NTUC Income are able to recommend suitable products to their clients, with the knowledge that the products give good value and provide a reasonable level of earnings for their sales effort. They earn more, by increasing their sales productivity.
I am happy to recommend the insurance advisers and products from NTUC Income to the general public. I know that the consumers will get a good deal.
If you visit this website, you can compare the front-end load of the endowment and investment-linked products between NTUC Income and the other insurance companies.
A small number of consumers are savvy and can make their investments without the help of an adviser. They do not need to take my advice anyway. My tips are for the general consumers.
When I was CEO of NTUC Income, I made sure that all the products are designed to meet the following:
* have modest loadings for commission
* offer good value to the customers
The insurance agents (advisers) from NTUC Income are able to recommend suitable products to their clients, with the knowledge that the products give good value and provide a reasonable level of earnings for their sales effort. They earn more, by increasing their sales productivity.
I am happy to recommend the insurance advisers and products from NTUC Income to the general public. I know that the consumers will get a good deal.
If you visit this website, you can compare the front-end load of the endowment and investment-linked products between NTUC Income and the other insurance companies.
A small number of consumers are savvy and can make their investments without the help of an adviser. They do not need to take my advice anyway. My tips are for the general consumers.
Wednesday, July 11, 2007
Voiding of warranty on car
COMMENT POSTED IN MY BLOG
I wonder how distributor workshop void warranty if car is not repaired in their workshop after an accident. Can warranty on engine be voided when repair is only on bumper? Wonder if any motorist's warranty has been penalised this way so far.
-------------------------
REPLY:
The distributor state in their warranty, that the warranty is voided if any repair is done by a third party workshop.
I believe that the distributor will not be able to get away with voiding the warranty, when minor repairs are carried out at third party workshop which did not affect the parts of the vehicle that are covered by the warranty.
Although the distributor "threatens" to void the warranty, I believe that they have not done so for minor repairs. They have to act fairly and take care of their customer relations.
I wonder how distributor workshop void warranty if car is not repaired in their workshop after an accident. Can warranty on engine be voided when repair is only on bumper? Wonder if any motorist's warranty has been penalised this way so far.
-------------------------
REPLY:
The distributor state in their warranty, that the warranty is voided if any repair is done by a third party workshop.
I believe that the distributor will not be able to get away with voiding the warranty, when minor repairs are carried out at third party workshop which did not affect the parts of the vehicle that are covered by the warranty.
Although the distributor "threatens" to void the warranty, I believe that they have not done so for minor repairs. They have to act fairly and take care of their customer relations.
Insurance as a mutual arrangement to pool risk
Many people think of insurance as a legal contract. You enter into a contract with an insurance company. You pay a premium under the contract. The insurance company promises to pay you the specified payments under certain defined conditions. As the contract wordings are usually not clear, a dispute could arise quite often.
In the "old days", insurance was usually operated as a mutual arrangement. A large number of people join the pool. They agree to contribute towards the pool to compensate the members who suffered the defined losses. Usually, all the members are covered under the same benefits, which are generally understood through practice over the years.
The mutual arrangement is usually run as a non-profit. There are many advantages of the mutual arrangement (rather than a commercial contract) to take care of pooling of risks.
In some countries, the mutual arrangement is still strong. In most other countries, insurance are now being operated as "for profit" organisations.
In the "old days", insurance was usually operated as a mutual arrangement. A large number of people join the pool. They agree to contribute towards the pool to compensate the members who suffered the defined losses. Usually, all the members are covered under the same benefits, which are generally understood through practice over the years.
The mutual arrangement is usually run as a non-profit. There are many advantages of the mutual arrangement (rather than a commercial contract) to take care of pooling of risks.
In some countries, the mutual arrangement is still strong. In most other countries, insurance are now being operated as "for profit" organisations.
Invest in a low cost fund
When you buy term insurance, you still have to invest the difference in a suitable fund.
Look for a fund with low upfront fees and annual fees.
This website shows you the fees charged by various insurance companies on their investment-linked products. Most of the fees are far too high.
Look for a fund with low upfront fees and annual fees.
This website shows you the fees charged by various insurance companies on their investment-linked products. Most of the fees are far too high.
Ballet Under The Stars
Singapore Dance Theatre
Ballet Under the Stars
20 to 22 July
Fort Canning Green
Gates open from 5.00pm for picnic
Schools Performances from 6.30pm.
Main Performances from 7.30pm.
Renowned as one of Singapore’s most popular outdoor arts event, Ballet Under The Stars (BUTS) enters its 12th year and has attracted a diverse crowd with its casual, outdoor picnic setting. The informal setting has attracted families, gatherings and company outings to BUTS.
With its wide outreach, BUTS offers the perfect grounds to meet SDT’s objective of reaching out to the general public. SDT is offering schools a platform to showcase their works, thus gaining invaluable experience and exposure.
Find out more.
Ballet Under the Stars
20 to 22 July
Fort Canning Green
Gates open from 5.00pm for picnic
Schools Performances from 6.30pm.
Main Performances from 7.30pm.
Renowned as one of Singapore’s most popular outdoor arts event, Ballet Under The Stars (BUTS) enters its 12th year and has attracted a diverse crowd with its casual, outdoor picnic setting. The informal setting has attracted families, gatherings and company outings to BUTS.
With its wide outreach, BUTS offers the perfect grounds to meet SDT’s objective of reaching out to the general public. SDT is offering schools a platform to showcase their works, thus gaining invaluable experience and exposure.
Find out more.
Buy a low cost product
Hi Mr Tan,
Why do you advocate "buy term and invest the difference" and, at the same time, advise people to buy life insurance products? Are you contradicting yourself?
--------------------
REPLY:
There are two separate markets:
1. Those who are financially savvy can "buy term and invest the difference". They know how to select the right fund that have low cost.
2. For most ordinary people, they will find it more convenient to invest in a endowment or whole life policy. I advise them to buy a low cost policy (ie with a low margin for commission), rather than a high cost policy.
Lesson: Buy a low cost product.
Why do you advocate "buy term and invest the difference" and, at the same time, advise people to buy life insurance products? Are you contradicting yourself?
--------------------
REPLY:
There are two separate markets:
1. Those who are financially savvy can "buy term and invest the difference". They know how to select the right fund that have low cost.
2. For most ordinary people, they will find it more convenient to invest in a endowment or whole life policy. I advise them to buy a low cost policy (ie with a low margin for commission), rather than a high cost policy.
Lesson: Buy a low cost product.
Liquidate 50% of your investments
Dear Mr Tan,
I have invested quite a bit in all the funds of Ntuc Income, mostly in Growth and Balanced Fund. All are showing positive gains.
If the market gain another 10%, I plan to liquidate all and wait out for the next down cycle, if it happens.
What is your advice?
------------------------
REPLY:
I suggest that you keep the investment in the Growth fund (as you invested at a low price). If you really wish to realise some cash, perhaps you can liquidate 50% and keep the remaining 50% in Growth Fund. This is what I did for my own investments.
I have invested quite a bit in all the funds of Ntuc Income, mostly in Growth and Balanced Fund. All are showing positive gains.
If the market gain another 10%, I plan to liquidate all and wait out for the next down cycle, if it happens.
What is your advice?
------------------------
REPLY:
I suggest that you keep the investment in the Growth fund (as you invested at a low price). If you really wish to realise some cash, perhaps you can liquidate 50% and keep the remaining 50% in Growth Fund. This is what I did for my own investments.
Tuesday, July 10, 2007
Higher interest rate in the future?
We have gone through several years of low interest rate. This has produced the following:
* high stock prices
* high property prices
* high bond prices
Interest rate is expected to increase globally, due to inflation. When it happens, you can expect the following:
* drop in asset prices (stock, property, bonds)
* higher interest on bank deposits and money market funds
Lesson: do not lock your investments in high asset prices, if possible. Have some money in short term deposits, so that you can benefit from the increase in interest rate (if and when it happens).
* high stock prices
* high property prices
* high bond prices
Interest rate is expected to increase globally, due to inflation. When it happens, you can expect the following:
* drop in asset prices (stock, property, bonds)
* higher interest on bank deposits and money market funds
Lesson: do not lock your investments in high asset prices, if possible. Have some money in short term deposits, so that you can benefit from the increase in interest rate (if and when it happens).
Generic drugs
Extracted from Consumer Magazine
The discover of a new drug is given a patent for 20 years. After expiry, other manufacturers can make the same drug under a different brand name. If you know the generic name of the drug, you can buy the generic brand (instead of the original brand) at a lower cost.
The discover of a new drug is given a patent for 20 years. After expiry, other manufacturers can make the same drug under a different brand name. If you know the generic name of the drug, you can buy the generic brand (instead of the original brand) at a lower cost.
Generic name Proprietary name General use
Paracetamol Panadol pain and fever
Diclofenac sodium Voltaren pain and swelling
Mefenamic acid Ponstan "
Chlorphenamine Piriton runny nose, rashes, itch, allergy
Loratadine Clarityne "
Cetirizine Zyrtec "
Cimetidine Tagamet gastric, heartburn, stomach ulcer
Omeprazole Losec "
Glocosamine Viartril-S joint supplement
Amoxicillin Augmentin antibiotic
Isotretinoin Roaccutane acne
Atenolol Tenormin high blood pressure
Prazosin Minipress "
Nifedipine Adalat LA high blood pressure, angina
Frusemide Lasix diuretic
Simvastatin Zocor cholesterol
Different types of Fat (in food)
Summary of article "The FAT Truth" in Consumer Magazine.
Fat helps the body to absorb vitamin A, D, E and K. Fat provides essential fatty acids to control blood clot and inflammation.
Monounsaturated fats: found in vegetable oils (olive, peanut, avocdo, canola) and nuts (cashew, almond, peanuts). Lower LDL (bad cholesterol).
Polyunsaturated fats: found in vegetable oils (corn, sunflower, soybeans, safflower) and nuts (walnut). Lower LDL (bad cholesterol) and HDL (good cholesterol).
Omega 3 fats: found in fish (salmon,tuna, mackerel, sardine, trout). Reduce blood clotting and lower risk of blockage, heart attack, stroke.
Trans fat: food manufacturers use a process to turn liquid fat into trans fat, to increase the shelf life of food. Increase LDL and lower HDL.
Best type of fat: monounsaturatedm, omega 3.
Worse type: trans fat.
Fat helps the body to absorb vitamin A, D, E and K. Fat provides essential fatty acids to control blood clot and inflammation.
Monounsaturated fats: found in vegetable oils (olive, peanut, avocdo, canola) and nuts (cashew, almond, peanuts). Lower LDL (bad cholesterol).
Polyunsaturated fats: found in vegetable oils (corn, sunflower, soybeans, safflower) and nuts (walnut). Lower LDL (bad cholesterol) and HDL (good cholesterol).
Omega 3 fats: found in fish (salmon,tuna, mackerel, sardine, trout). Reduce blood clotting and lower risk of blockage, heart attack, stroke.
Trans fat: food manufacturers use a process to turn liquid fat into trans fat, to increase the shelf life of food. Increase LDL and lower HDL.
Best type of fat: monounsaturatedm, omega 3.
Worse type: trans fat.
High distribution cost
Larry Haverkamp wrote an article entitled "Not Everyone Needs Life Insurance" in the Consumer Magazine, a publication of the Consumer Association.
He has this joke: "High distribution costs are needed to compensate agents for the difficult job of selling insurance with high distribution costs". (This is a vicious cycle).
My view: It is possible to sell life insurance with lower distribution cost, and reduce the premium for consumers. This will lead to more sales for the agents.
He has this joke: "High distribution costs are needed to compensate agents for the difficult job of selling insurance with high distribution costs". (This is a vicious cycle).
My view: It is possible to sell life insurance with lower distribution cost, and reduce the premium for consumers. This will lead to more sales for the agents.
Structured products in a bear market?
Dear Mr Tan,
I have read your negative comments on structured products. Are these products suitable in a bear market? It offers protection against losses, and the chance to make a gain.
---------------------
REPLY:
If you do not wish to take risk in a bear market, you should invest in government bonds and earn about 3% per year. You can get 15% in 5 years.
If you invest in a structured product, you will get less than 15%, because the expenses to design and market the product can take away about 10% of the capital. This will leave you with a net gain of 5%. As you are speculating on this product, your real gain can be from 0% to perhaps 20% (but the chance of getting a high gain is small).
I am not aware of any situation (including a bear market) where a costly structured product gives value to the investor.
I have read your negative comments on structured products. Are these products suitable in a bear market? It offers protection against losses, and the chance to make a gain.
---------------------
REPLY:
If you do not wish to take risk in a bear market, you should invest in government bonds and earn about 3% per year. You can get 15% in 5 years.
If you invest in a structured product, you will get less than 15%, because the expenses to design and market the product can take away about 10% of the capital. This will leave you with a net gain of 5%. As you are speculating on this product, your real gain can be from 0% to perhaps 20% (but the chance of getting a high gain is small).
I am not aware of any situation (including a bear market) where a costly structured product gives value to the investor.
Computing a claim on a hospital bill
Hi Mr Tan,
What is the deductible under a medical insurance plan? Why are there so many items deducted from my hospital bill? The amount that I can claim is only a part of the full bill?
-----------------------------------------------------
REPLY:
The amount that can be claimed may (depending on your insurance plan), be subject to the following limits:
* limit based on the specific item, such as surgery fees or each day of stay in hospital
* deductible, i.e. the first part of the bill that is paid by you (before you can claim on the difference)
* co-insurance, i.e. the portion of the bill (in excess of the deductible) that you have to bear.
Most Shield plans have a deductible (the amount depends on the class of ward) and a co-insurance of 10% or 15%. These requirements are required by the Ministry of Health and is intended to require the consumer to share in part of the bill (so that they can play a part to minimise the hospital bill).
This is how a hospital bill is calculated, to arrive at the claimable amount.
1. First, the individual items are scrutinised to remove any excess over the specific limit (e.g. for surgery or hospital services) or items that are not covered
2. Next, the deductible is taken away
3. Finally, the co-insurance is taken away from the rest of the bill
Here is an example:
Hospital bill: $6,500
Non claimable items: $500
Deductible: $1,000
Co-insurance: 10%
Claimable amount (before co-insurance) = $6,500 - $500 - $1,000 = $5,000
Claimable amount (after co-insurance) = $5,000 less 10% = $4,500
Many consumers find it the calculation to be too complicated. I agree with this view. It will be better for the claim to be simplified.
What is the deductible under a medical insurance plan? Why are there so many items deducted from my hospital bill? The amount that I can claim is only a part of the full bill?
-----------------------------------------------------
REPLY:
The amount that can be claimed may (depending on your insurance plan), be subject to the following limits:
* limit based on the specific item, such as surgery fees or each day of stay in hospital
* deductible, i.e. the first part of the bill that is paid by you (before you can claim on the difference)
* co-insurance, i.e. the portion of the bill (in excess of the deductible) that you have to bear.
Most Shield plans have a deductible (the amount depends on the class of ward) and a co-insurance of 10% or 15%. These requirements are required by the Ministry of Health and is intended to require the consumer to share in part of the bill (so that they can play a part to minimise the hospital bill).
This is how a hospital bill is calculated, to arrive at the claimable amount.
1. First, the individual items are scrutinised to remove any excess over the specific limit (e.g. for surgery or hospital services) or items that are not covered
2. Next, the deductible is taken away
3. Finally, the co-insurance is taken away from the rest of the bill
Here is an example:
Hospital bill: $6,500
Non claimable items: $500
Deductible: $1,000
Co-insurance: 10%
Claimable amount (before co-insurance) = $6,500 - $500 - $1,000 = $5,000
Claimable amount (after co-insurance) = $5,000 less 10% = $4,500
Many consumers find it the calculation to be too complicated. I agree with this view. It will be better for the claim to be simplified.
Subscribe to:
Posts (Atom)
:.
