Tourists come to Singapore

I returned to Singapore from Jakarta last night.

I was surprised to find Terminal 1 packed. It was the first time that I cannot get a trolley for my bags. There were large groups of young people from Japan and Korea. It must be the school holidays. It is boom time for tourism in Singapore.

I also saw many Singaporean families leaving for their holidays abroad.

Investing in Unit Trusts

Dear Mr. Tan,

Why are the charges from the fund houses so high about 5% for the sales charge whereas fundsupermart only charges at about 2%.

REPLY:

Each fund distributor decides on their level of upfront charge. It depends on the service and time that they adviser has to spend. You have to decide on the channel that works best for you. Do try to seek a low cost channel, so that you do not spend too much in the charges.

Risky Business Venture

Dear Mr. Tan,

Thank you for your guidance and your "matter of fact way" of explaining things.

I stumbled upon oilpod.com recently. Basically you buy the rights to minerals in USA through oilpods.com. Your name gets registered as a mineral owner in the US. Your capital funds the hi tech exploration.They show geographical printouts of mines.

The company is Power Basin, listed in US. The payout is quite interesting:

* 0%: from 1 to 6 months
* 9% per annum: from month 6 to 12
* 30% per annum: year 1 to 3.5

Residue income from 3.5 years to end of economic life of mines abot year 12. This seems to be a great alternative for annuities.

REPLY
I am usually suspicious about investments of this type. I keep away from them, in case it is a scam. (Note: I do not make any judgement of this particular investment).

Pick the right stocks

Dear Mr Tan,

Thanks for your advice previously. The STI really corrected till 3300. I am keen to collect some stocks at this kind of cheap price now.

Can you pick some stocks for your readers to consider at the moment? The trouble is, everything has corrected so much that I cant even recognise most of them.

I know STI-etf will be a safer high-risk investment compared to stocks but I am more keen on bluechips as the returns will be higher.

REPLY:

I am not able to advise you on picking the stocks. You can ask your stockbroker. They have their research team.

Misled into a Dual Currency Investment

Dear Mr. Tan,

When my foreign currency matured recently, the bank consultant got me into dual currency investment. He sounded very logic that US dollars will further depreciate and that he believed that the Australian dollars will appreciate. This is a month tenor. He did not work out the exact loss I would face if the situation is not favourable to me.

After I read your article in you website, I felt terrible. What if I lost when it matures on 14th December. This is my savings for the past 18 years. I had put it in fixed deposits all these years and never thought I could be persuaded into this foolish act of mine.

What is your advice to me if I got the other currency and not the base currency. Should I just put the Australian dollors into a fixed deposit? I want to thank you for enlightening me in many of your articles.

REPLY:

If you do not wish to take any risk, you should keep the money in Singapore dollar fixed deposit and earn 2% interest. You can also invest in a money market fund or in Government bonds.

If you invest in foreign currency, you can take the risk and hope for the best. You will earn a higher interest rate, but this could be offset by the possible depreciation in the foreign currency.

The foreign curreny may appreciate and give you a double benefit. Read this FAQ: http://www.tankinlian.com/faq/foreign.html

I am not able to give specific advice on which currency to invest in.

Insurance for disabled child

Dear Mr. Tan,

My son suffers from an Autism Spectrun Disorder (ASD). My wife and I worry about his insurance needs. We have consulted a few insurance advisers but they are unable to tell us whether their companies are willing to insure our child.

Underwriters are generally unfamilar with ASD. Many have the misconception that ASD people are violent and would do harm to themselves or others.

My son is very mild on the ASD spectrum and he currently attends a mainstream primary school. I would really like to cover him under a Living Policy (for permanent disability or critical illness) and a medical and hospitalisation policy (e.g. Medishield or private Shield).

How do we go about getting him covered? My son has been diagnosed by a few highly qualified psychologists to be very mild on the ASD spectrum. What else would an underwriter require? Would the underwriter recommends their panel doctor to examine my son? Who would pay for the consultation?

I hope you could recommend an agent to help me find the insurance application.

REPLY

I suggest that you approach two insurance companies (e.g. NTUC Income and Aviva) and see if they are willing to insure your son.

If both are unwilling, you have this option:
1. Open an investment account (e.g. unit trust) for your son and make monthly savings into this account.
2. If your son needs medical attention, see if you can send him to a B2 or C ward, where a large part of the cost is subsidised by the government.
3. You can pay for the medical expenses out of the investment account.

Dr Money's articles in The New Paper

Larry Haverkamp (Dr Money) wrote many articles that were published in The New Paper over the past years. Here is a collection of his articles. They are written in a simple style, and quite fun to read.

SIMILAR INGREDIENTS, BUT 'TWIN SPOTS' BAKE UP
Company above board? CHECK HERE
GUARDING AGAINST BIG LOSSES
Investing v Gambling What's the difference?
Make credit cards work for you
How to make your CPF money work HARDER
What CPF changes mean for us
It comes down to cost and benefit
Health insurance and what you need to know
Know what you'll get from your investment
Are you on the 'suckers' list?
All you need is $250 a month
In the end, it's about reducing risk
Do you have a SAFE ANNUITY?
Are we headed for a CRISIS?
Living in risky times
Do you really understand structured products?
The more, the merrier? Not for these equity-linked notes
Use credit card to buy shares?
Don't get carried away by short-term gains
Do your own homework
Time to pull back from hot market?
Home loan tips you'll want to know
BEWARE THE RISKS
What you don't see may hurt you
Can you reap big gains?
Beware agents' glib sales lines
First, learn the rule of 72
Move your money to make more
Hidden expenses of unit trusts and ILPs
$marter to keep your investments $impler
What you SEE may not be what you GET
What's the worst that could happen?
Is it time for you to refinance?
12 tax tips to save you money
Five home loan tips to get you going
Five money myths debunked
Will US home-loan crisis explode?
4 tips to help you pick funds
Are these funds worth your CPF money?
Better to be your own adviser
Secret doors to special deals
It's cheaper to go group than individual
Should you play the game?
That 2% rise may not mean a pay hike
QUIT YOUR DAY JOB?
CPF changes mean your stock porfolio can go up
Think long-term
If you have $3,000, you're rich
5 tips for tax breaks
Take a pause, Santa Claus
Crack the Da Insurance Code
It's a tricky investment
Many happy RETURNS?
INSURANCE PART 3 - Insurance policies fail to give promised returns
INSURANCE PART 3 - Insurance policies fail to give promised returns
Are we paying too much for INSURANCE?
Buying life insurance? Don't wait till you're too old
Should you invest in gold? - Yes
Your money is same when you retire
What you need to know about your insurance policy
But my China shirt's still CHEAPER
Meetings over Woes just beginning
Money well spent
Sell your home, the smart way
Read up (and read this) before buying that home
Before you take that personal loan, read this
Considering an investment-linked plan? Read the fine print first
Where to get $ to start a business
All the gain without the pain
9 things to ask your financial adviser
Want to join these billionaires? Be your own boss
Are you caught in a debt dance?
Finding the best scheme for your idle cash
S'pore, there's still room for improvement
Will raising rates help or hurt?
Caveman economics
Should you pay down?
Trust the way to make money?
Bluff your way to higher rates
Who would get her insurance money?
Investing? Keep it simple
Kids, grow your money
Invest more in your home
Your home is your best investment
Cracking the home loan code
Beat those high home loan rates
Save $$$ on your taxes
Right mix, and dough will rise
A cash crunch is coming!
Watch CPF limits
Should I go with ORDINARY or $PECIAL?
Take closer look at figures
Let sleeping dogs lie
Beware this HOT investment
Beware of structured products
WHO GOT RICH IN 2005?
Presents that make $en$e
Want to buy life insurance?
Are they good investments?

Scope of advice

Dear Mr. Tan,

I came to know your blog from "mypaper". I find that some of the financial/insurance planning info and tips you shared with us been very useful and informative.

I would like to seek your advise on the following question: Does the financial adviser restrict their advice to only investment? Do they give advice on financial planning such as expenditure, restructuring of loans, when requested by their clients?

REPLY

Most of the financial advisers that I am aware of, will help you to buy a financial or investment product. They earn commission by selling the product to you.

As part of their service, they will help to prepare a financial plan for you. But, I am not aware if they are able to help in restructuring loans. I suggest that you ask them directly.

Making a Third Party Claim

Hi,

I met with an accident recently. My vehicle was damaged as I steered it to my right to avoid the collision with the other party. It was obviously the negligence from the other party. The other driver apologized to me. I told her i going to claim from her insurance company and she agreed. We exchanged our particulars and she drove off for her work. There was no written agreement was signed.

I sent my vehicle to Idac center for assessment. I wanted to make a third party claim, but was advised by my workshop to make a own damage claim first, as the other party might go back on her words.

The workshop will try to help me to do a third party claim against the other party for the Excess, NCD and the loss of use. Is this the proper way of claiming insurance?

REPLY

It is all right to let the workshop make the third party claim on your behalf. If they are successful, you can ask your insurance company to allow you to keep the No Claim Discount. I hope that you have contact with the other party and can ask her to keep to her word.

Land Banking

Dear Mr. Tan,

The focus of land banking is to purchase a plot of land in the UK, US or Canada. Returns are projected within 4-6 yrs an estimate of 40-60% return. Investment amount is at least min SGD 15000. Returns are realised at point of an exit where 60% of the investors agree to a sale. Said to be next safest to fixed deposits.

Landbankers claims intensive research has been carried out before making it available to investors. Heard several scams especially in the UK.

In Spore, landbanking seems relatively new. They are not under MAS supervision. The promoters paint land banking as a safe investment very low risk. Share your thoughts?

REPLY:

This type of investment lacks liquidity and transparency and is risky. You can be stuck with an illiquid investment for many years. This is best avoided.

Wealth of information

Dear Mr. Tan,

I recently came upon your website and found an amazing wealth of information. I'm sure I'm not the only one who is very thankful for your efforts: the information is clear and well-explained, and answers a lot of questions that I have at the back of my head.

Very often, it is difficult for me to find answers to these questions because (i) the people I know do not possess holistic knowledge of insurance, investments or (ii) the people who know have a vested interest in giving advice.

Thank you very much for sharing your knowledge!

STI Exchange Traded Fund

Hi Mr Tan,

I'm interest for the low cost fund for STI ETF. However I'm really not sure how to start or choose the fund.

1) Is the STI ETF a secure funds to invest for long term? I understand that the STI is just a "counter"?

Reply: The STI is invested in 30 counters that make part of the Straits Times Index. It is traded on the exchange as a "counter", but the value of this counter is based on the underlying counters.

Read this webpage:
http://www.straitstimes.com/FTSE+ST+Index+Series/FAQ/FAQ.html

2) Is there a website that explain more about STI ETF?

Reply: Read this website
http://www.sgx.com/PSV/securities/etf/ETF_Investing.shtml#Section_3

3) Is the STI ETF considered as one fund or are there many funds under STI ETF? Which of these funds is most profitable?

Reply: The STI is a fund. There are other ETF (exchange traded funds) that can be bought through the Singapore Exchange.

Premium rates for Term Insurance

Dear Mr. Tan,

My insurance agents are not keen to sell Term Insurance. They discourage me from buying term insurance. Their premium rates are not as attractive as those indicated in your FAQ.
Where can I get good term insurance rates?

REPLY

You have to call the insurance company directly.

According to a newspaper survey about a year ago, NTUC Income offers the most attractive premium rates. I am not sure if other insurance companies have since come forward with attractive rates. Perhaps you can try Aviva and AXA as well.

I have set out some indicative premium rates in the FAQ. They are not the actual rates that are being charged by any specific insurance company now. I have calculated them, based on the mortality experience in Singapore and with allowance for expenses.

If you find any insurance company that offers premium rates around the level indicated in my FAQ, you can accept them. Even if the premium rates are slightly higher, you will find that Term Insurance is quite affordable.

http://www.tankinlian.com/faq/term.html

Inflation and Financial Planning

Dear Mr. Tan,

How do I take account of inflation in financial planning? I am afraid that the money that I have saved and invested will be eaten up by inflation over the future years.

REPLY

I shall be posting a FAQ on this matter next week, after I return to Singapore (as I am now in Indonesia).

I will give some simple practical advice on how to deal with this matter.

Evaluate an insurance plan

It is easy for you to evaluate an insurance policy, if you look for a standard cover and ask a few questions.

The standard covers are:

* Term Insurance
* Decreasing Term Insurance
* Motor Insurance
* Home Insurance
* Medical Insurance

Most of the standard policies provide the standard cover. Some insurance companies offer some frills (which are usually unnecessary or unlikely to occur), in order to justify a higher cost. Do not fall into their trip.

Get a few insurance companies to quote their premium rates for the standard covers. Make a comparison and select the policy that gives you the best value. If the cost is within 10%, you should select the insurance company based on the quality of service and their trustworthiness.

Evaluate a loan

Which lender gives you the best terms for a loan? How do you evaluate it?

You can ask a few simple questions, and compare the terms on the same basis. Here is an example showing how to evaluate a study loan.

http://www.tankinlian.com/faq/study.html

Buying a Shield Plan

Are these questions relevant to you?

1. I am provided with medical benefit by my employer. Do I need to buy a Shield plan?
2. What type of plan should I buy? Medishield (from CPF) or a private Shield?
3. Should I buy the rider to cover the Deductible and Co-insurance?
4. Should I buy a “as charged” plan?
5. Should I buy a plan with a high lifetime limit of $5 million.
6. How do I convert from Medishield to a private Shield plan?
7. Can I cover my parent under a Shield plan?
8. Can I pay a level premium for my Shield plan?
9. How much of the hospital bill is paid by the Shield plan?
10. How can I avoid double insurance?
11. Should I use my Medisave or pay by cash?
12. Can the insurance company refuse to renew my medical insurance, if I make a few claims?

You can find the answers in this FAQ:
http://www.tankinlian.com/faq/shield.html

Flexi-Link is a better choice

I have been recommending the Ideal plan (ID7) from NTUC Income, as it allows 100% of the monthly savings to be invested. The policy fee is $4 a month. It is available from the Business Center.

Someone told me that the Flexi-Link (a single premium ILP plan) is actually better than ID7. It has the following features:

1> Inital deposit should be at least $5,000.
2> Allows recurring top up: $250 quarterly, $500 half-yearly and $1000 annually
3> Allows ad hoc top up: $1,000 per single premium top up
4> No policy fee after account cash value reached $15,000.

If you have an initial sum of $5,000 to invest, it is better to choose Flexi-Link instead of Ideal (ID7).

Investing in a property

How much should you invest in a property?

I suggest that the value of the property should be 5 to 7 years of your annual income. If your income is $50,000, your property should not exceed $350,000 (i.e. 7 years). You can add the combined income, if both spouses are working.

If you take a 30 year loan at 2.6% interest, the annual repayment will be $16,900 or 34% of the income. If interest rate increases to 4%, the annual repayment will increase to $20,240, or 40% of income.

It is all right to commit 34% of your income to your property. At 40%, you are stretching your cash flow.

The burden will reduce in the future, with increases in your income. However, you have to consider the impact of increases in interest rate or a possible reduction in income due to unemployment or change of job.

If you wish to be prudent, you should buy a property that cost 5 times of your combined annual income. At 2.6% interest, the repayment is 24% of income. At 4% interest, it increases to 29%.

Tips on insurance

Do not spend more than 3% of your monthly earnings on life and medical insurance for yourself and your family.

Read this FAQ:
http://www.tankinlian.com/faq/choice.html

If you have already invested more than 3%, you have probably bought some insurance products that provide some savings. You can keep these products, as you have already incurred the upfront charges.

For your future purchases, you should buy low cost protection products and invest the additional savings in a low cost investment fund.

Decreasing term insurance

Hi Mr Tan,

I wanted to buy term insurance, but the insurance agent recommended against it. She said that the term insurance will stop the cover at the end of the term, and I need life insurance beyond that. She recommended that I buy a whole life policy and pay premium for only 20 years. I am confused.

REPLY

I recommend that you buy a decreasing term insurance to stop at age 65. You can insure for 5 to 10 years of your earnings. If you annual earning is $40,000, you can insure $200,000 and pay a premium of about $40 (assuming that you are about 30 years old).

If you save $4,000 a year in a low cost investment fund to earn 5% per annum, you will get about $260,000 at the end of 30 years. This is more than your sum assured of $200,000. If you have this amount of accumulated savings, you do not need life insurance beyond 30 years.

A decreasing term insurance covers you the full sum assured during the first year and reduces the cover each year by a small amount, until it runs out completely at the end of the term. The yearly reduction in the sum assured will be offset by your additional savings in each year.

You can ask an insurance broker to get you the best premium rate for a decreasing term insurance. They can source from a few companies. You can also call the insurance companies directly and ask for their quote.

Just tell them the following: I am a male/female, (x) years old. I want $(y) of decreasing term insurance for (z) years. How much is the annual premium?

Read this FAQ
http://www.tankinlian.com/faq/choice.html

Talk on CPF Changes

The Society of Financial Services Professionals will be holding a
Free Public Forum

CPF Changes : Implications for Financial Planning
Getting, Keeping and Growing Your Money

Saturday, 1 December 2007
2 pm to 5 pm
NTUC Income Centre, Auditorium 7^th Storey, Bras Basah Road

(nearest MRT : City Hall)

No registration required, just turn up

Reduction in Yield

Hi Mr. Tan,

I have been reducing the policy illustration given to me by the insurance agent. It contain many pages of confusing figures.

I saw an item called "reduction in yield" of 1.5% plus. Is this acceptable?

REPLY

The reduction in yield shows the impact of the various charges that you have to bear, for the commission, life insurance cover and other expenses.

A reduction of 1.5% is high. In most cases, the reduction should be around 1%, The impact of a higher reduction can be quite significant for a policy that is taken for 20 to 30 years.

Read this FAQ:
http://www.tankinlian.com/faq/yield.html

Pinnacle Notes

Dear Mr. Tan,

I saw the advertisement on the Pinnacle Notes. It offers a higher return, compared to fixed deposit. Is this a safe investment?

REPLY
The Pinnacle Notes belong to the class of "structured investment products". Read this FAQ:
http://www.tankinlian.com/faq/sinvest.html

I have written previously on the risk of this product. You can search my blog for "Pinnacle".

Insurance for a child

Dear Mr. Tan,

An insurance agent advises me to buy life insurance for my child, so that she can enjoy a lower premium. The premium will increase when she takes up insurance at an older age. Is this correct?

REPLY

It is better for you to invest the additional savings in a low cost equity fund, as it can provide a much higher return than a life insurance policy.

When your child starts to work, she can buy decreasing term insurance, which is very low in cost. It is probably cheaper than the premium that you have to pay for her now.

Read these FAQ:
http://www.tankinlian.com/faq/child.html
http://www.tankinlian.com/faq/choice.html

Medical insurance by Level Premium

Dear Mr. Tan,

Why do the insurance company change increases its premium each year, as I grow older. Why can't they charge the same premium throughout my life, like a life insurance policy?

REPLY

There are two big factors affecting the cost of medical care:

a) Age. As you grow older, you need more medical care
b) Escalation. As the years goes by, the cost of medical care increases due to technology, more demand and other factors.

It may be possible to charge a level premium to take care of age, but it still does not take care of the escalation of medical charges. Hence, it is not possible to fix a level premium.

Read this FAQ:
http://www.tankinlian.com/faq/shield.html

Pinnacle Notes Series 9 & 10

Dear Mr. Tan

What is your view about the Pinnacles Notes Series 9 & 10 that was advertised recently? It allows the investor to earn 5% p.a. plus a potentail bonus of up to 4% p.a. Is it a good investment?

REPLY

Here are some points stated in small print in the advertisement:

1. The Notes are secured by US dollar demoninated CDO securities that are rated at least AA at the time of issue.
2. The Notes are not principal guaranteed. Upon the occurence of a Credit Event (and a few other circumstances), you could lose all or substantially all of your investment.
3. You are asked to read the details in the Prospectus and supporting documents (which I understand is about 100 pages long), before you invest.

Have you heard about the sub-prime problem in USA? Many of these mortgages are repackaged into CDOs and sold overseas. The CDOs referred to in the Pinnacle Notes may comprise of these mortgages.

There are a lot of uncertainty and unclarity. Do you really want to make this investment?

You can read my general comments about structured products in this FAQ:
http://www.tankinlian.com/faq/structuredi.html

If you wish to know more specifically about the earlier series of Pinnacle Notes, you can read Dr Money's website:

http://www.askdrmoney.com/Analysis_Structured_Explained.htm.

Save for a child

Dear Kin Lian,

It has been very enlightening to read your blog and gain valuable insights about financial matters.

I bought a Prudential ILP for my son four years old. I now understand better about financial policies. I realize that much of the initial allocation of premiums in the 1st 3 years did not go into the funds purchase, but more of the distribution cost.

I have a one-year old daughter. What type of insurance I should choose for her?

REPLY

I suggest that you cover her under a Medishield plan (to take care of expensive medical treatment).

You can set aside some personal savings for her in a low cost equity fund. If you wish, it can be a separate investment account specifically for her.

Alternatively, you can make the savings in your own acount and transfer the money to her when she needs it at a later date.

Read this FAQ:
http://www.tankinlian.com/faq/child.html

Existing Life Policies

Dear Mr Tan,

I visit your blog almost every day. I'm a GREAT FANS of yours. You have helped to educated many people and I have learned alot from your blog!

Unfortunately, I have already bought two life insurance policies more than 10 years ago, an investment linked and a Financial guardian.

After reading your blog, I understand that it's better to take up term insurance. Please advise me what can I do to reduce my insurance cost so that I can put my money into investments. Should I keep them or terminate my existing policies?

I would like to take this opportunity to Thank You once again for your effort in helping us understand more about insurance and so many other things.

REPLY

To make this decision, you need to get the following facts from each insurance company:
1. What is the cash value now, if you terminate the policy
2. What is the premium that you have to pay for the next 5 years
3. What is the projected cash value at the end of 5 years? What portion of this projected value is not guaranteed?
4. What are the assumptions in calculating the projected value.

I will be able to help you to make a decision after you have obtained the above information.

Interview with Warren Buffett

There was a one hour interview on CNBC with Warren Buffet, the second richest man who has donated $31 billion to charity. Here are some very interesting aspects of his life:

1. He bought his first share at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same small 3-bedroom house in mid-town Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
4. He drives his own car everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world's largest private jet company.
6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO's only two rules.
Rule number 1: do not lose any of your share holder's money.
Rule number 2: Do not forget rule number 1.
7. He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch Television.
8. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But??when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a cell phone, nor has a computer on ?his desk.

His advice to young people: "Stay away from credit cards and invest in yourself and Remember:
A. Money doesn't create man; it is the man who created money.
B. Live your life as simple as you are.
C. Don't do what others say, just listen to them, but do what you feel good.
D. Don't go for brand name; just wear those things in which u feel comfortable.
E. Don't waste your money on unnecessary things; just spend on those who really are in need.
F. After all it's your life so why give chance to others to rule your life?

How to buy Low Cost Funds

Mr. Tan,

I wonder if you have any plan to set up a company where people can buy products at steep discount on producing a 'financial prescription". This prescription will bear the name of company or the adviser to authenticate its origin and to verify also the bearer has undergone a financial health check and the products recommended are the result of it.

In this way the unethical insurance salesmen can be weeded out. This will create a safe environment for customers. Like the medical professions customers can go to seek advice or consultation without worrying of getting a salesman but practitioner with the right qualification and ethics. The practitioner or the adviser is regulated and license to operate will be renewable on the yearly basis.

REPLY

I am considering to work with a financial advisory firm to offer a few low cost investment funds to the public. There will be separate funds invested in equities, bonds and money market. The expense ratio should be kept within 0.7% per annum for equities and lower for the other funds.

The investor can read my FAQ and decide on their own financial plan. They can also attend an educational seminar. If they wish to see a financial adviser, they can pay a modest fee of (say) $100 per hour.

Do you like this idea?

Expense ratio of unit trusts

Dear Mr. Tan,

I have check that the upfront charge is 1% on POEMS and 2% on fundsupermart which is both lower than NTUC income fund. However, the annual expense ratio is normally around 1.5%, slightly higher than NTUC income.

These funds are not well diversified. They focused on certain sectors. Is it a good idea for me to buy according to the percentage allocation of NTUC combined fund, as it can reduce my upfront charge significantly.

Is the Annual Management Charge equivalent to expense ratio?

REPLY:

I suggest that you pay the higher sales charge and invest in the Combined Fund from NTUC Income. It is well managed.

Although the initial charge is higher, the impact is quite small if you spread it over an investment period of 10 years or more.

The expense ratio is higher than the annual management charge. There are other expenses added to the expense ratio. Dr Money has written about this matter in his website:

www.askdrmoney.com

Simple and useful

Dear Mr. Tan,

I want to thank you for writing your blog. I visit it almost everyday.

You explain financial matters in simple language and make it easy to understand. I like your real life cases, although you have removed the personal details.

You say things that are so obvious, yet many people (including me) overlook it. What is said is really common sense and useful.

Please continue to write your blog.

REPLY:

Please help to publicise my blog. Get your friends to visit it.

Experience in buying insurance

Hi, Mr. Tan,

This is a true story from my personal experience. I like to share with everyone visiting your blog.

My motivation of buying insurance came from a friend from X who told me how important insurance is. Since X's charge is quite high, I did not consider it at that time.

Later, I approached company Y. The advisor introduced to me the Limited Premium Living Policy and also the Life policy. He gave me a printed copy showing the cash value and sum assured. The Limited Premium policy gave me the option to stop paying premium after 20 years and enjoy whole life protection.

A friend mentioned Term insurance to me. I asked the advisor. He recommend against it, saying that coverage would only be up to 65 years and that I needed protection most after that. If I bought Term insurance and changed to a Life policy later, I would have to pay a higher cost. He made a calculation showing that term insurance was sunk cost, while Limited premium have a cash value and will breakeven after a few years. I almost decided to buy the Limited Premium policy.

One day I read WoBao, and learned about Mr. Tan's blog. Mr. Tan recommended the concept of "Buy term, invest the rest". It was really a new concept for me.

I emailed Mr. Tan and showed him the calculation made by the advisor. He replied within a few minutes. (Even a customer service officer would not be able to reply so fast to customer's enquiry. I did not expect the ex-CEO would be replying my email so fast.)

Mr. Tan told me the sum assured recommended by the advisor was too high and took away too much of my savings. I read his FAQ and learned how much more I could get by investing in an investment fund. Most importantly, I would have the flexiblity in investing my money.

Mr. Tan suggested that I should contact a few more agents to gain more insight. Considering this is a long term commitment, I started to call back some agents introduced by my friends, think that they would be more trustful.

The agents were only interested to sell Investment linked or Life policy. None of them talked about Term unless I asked about it. They all recommend against Term. If I had not read Mr. Tan's blog, I would have lose interest in Term.

I should thank Mr. Tan for your great blog. Later, I decided to go straight into Term. After this experience, I learnt that:
1> Do your comparison between different companies based on the same product. (e.g. it is easy to compare Term). Ask the agents lots of question since this is the money you will be locked for long time.
2> Once you have made up your mind, go to that product immediately. Do not waste your time listening to unrelated stuff.
3> Learn to search online. Read the forum to read comments from other people. Many comments showed that insurance product do not give their projected cash value after 20 years, and the customer's money has been locked up and depreciated.

I hope that this is useful to visitors of Mr. Tan's blog.

Keep in the Special Account

Hi Mr. Tan,

I was told that CPF Special Account will be 'locked' with effect from 1st Jan 2008. No more investment will be allowed from this account.

I like to make invest $12,000 from this account now to earn a higher return. What is your advice? Where can I get a better return?

REPLY

My advice is: Keep your money in the Special Account to earn 4% plus 1%, free of risk. This is the best investment available now.

Insurance for medical and dental treatment

Dear Mr. Tan,
Can I buy insurance to cover medical and dental consultation at private clinics in Singapore?

REPLY
It is better to pay for the cost of these expenditure out of pocket, rather than through insurance.
Insurance does not add value and is costly for this type of expenditure. The additional cost comes from marketing expense, administration cost and the profit margin of the insurance company. It is further aggravated by lack of claims control over this type of claims.

Generally, it does not make sense to buy insurance to cover small expenditures that may occur a few times in a year.

STI Exchange Traded Fund

Dear Mr. Tan,

Can you kindly explain the difference between investing in Singapore equity and STI ETF?

REPLY

The STI ETF (exchange traded fund) is invested in about 40 Singapore shares that comprise the STI market banchmark. It has an annual expense ratio of 0.3%

There are many funds that are invested in Singapore equity. The actual shares that are invested in the fund are selected by the fund manager. The annual expense ratio vary from 1% to 2.5%, depending on the fund.

I prefer to invest in the STI ETF.

Einstein Intelligence Quiz - Solution

You can learn the technique to solve this quiz from this webpage: http://www.tankinlian.com/quiz/index.html

Budget your monthly expenses

An important part of financial planning is to have a budget for your monthly expenses. Find out the following facts:

1. What is your monthly earnings?
2. What are your monthly expenses for:
* mortgage loan
* tax
* utilities
* food
* telephone
* transport
* insurance
3. Are you able to reduce any of the expenses, i.e. be more frugal?
4. Do not spend more than 3% on life and medical insurance for your whole family
5. What is the balance of your earnings?
6. Set aside 10% to 15% as savings for the future
7. Use the balance for entertainment, holiday, car, splurging
8. If you have year end bonus, you can add 1/12th of it to your monthly income
9. Most important! Avoid rollover on credit card. The interest charge is too high.

If you have already committed more than 3% on insurance, you should not add more to it. Keep what you have. Invest most of your future savings in a low cost investment fund.

Read this FAQ
http://www.tankinlian.com/faq/savings.html

Einstein's Intelligence Quiz

Einstein's Intelligence Quiz
http://www.business.uiuc.edu/broker/iq.htm

Einstein wrote this quiz last century. He said that 98% of the people in the world cannot solve the quiz.

There are 5 houses in 5 different colors
In each house lives a person with a different nationality
These 5 owners drink a certain type of beverage, smoke a certain brand of cigar, and keep a certain pet
No owners have the same pet, smoke the same brand of cigar or drink the same drink.
Here's the question: Who owns the fish?

1. The Brit lives in a red house
2. The Swede keeps dogs as pets
3. The Dane drinks tea
4. The green house is on the left of the white house
5. The green house owner drinks coffee
6. The person who smokes Pall Mall rears birds
7. The owner of the yellow house smokes Dunhill
8. The man living in the house right in the middle drinks milk
9. The Norwegian lives in the first house
10. The man who smokes Blend lives next door to the one who keeps cats.
11. The man who keeps horses lives next door to the man who smokes Dunhill
12. The owner who smokes Blue Master drinks beer
13. The German smokes Prince
14. The Norwegian lives next to the blue house
15. The man who smokes Blend has a neighbor who drinks water

With these 15 clues the problem is solvable.
Here's the question: Who owns the fish?

You can read the technique to solve this quiz (within 10 minutes) from this webpage: http://www.tankinlian.com/quiz/index.html

Investment horizon

Hi,

I have some saving to invest. I am undecided about investing in shares or putting them in foreign fixed deposit. Which can give a better return for an investment of at least one year?

REPLY

If you are investing for 10 years or more, it is better to invest in a low cost, large, well diversified equity fund.

Read this FAQ:
http://www.tankinlian.com/faq/returns.html

If you are investing for the short term and is not familiar with the investment market, it is bettter to put your money in a fixed deposit in local currency to earn 2% or to buy government bonds to earn slightly more than 2%.

If you wish to invest in fixed deposit in foreign currency, read this FAQ
http://www.tankinlian.com/faq/foreign.html

Insurance to cover working years

Hi Mr. Tan

I read through your FAQ and understand why it is better to buy insurance and investment seperately.

What happens if I am not covered by insurance after age 65 and is hit by a critical illness? Will it be better to buy an ILP which covers me throughout my life?

REPLY:

If you have accumulated sufficient savings at the time of your retirement (say, at age 65), you do not need to be insured for critical illness beyond that age.

A medical insurance plan, such as Medishield or private Shield, is likely to cover you for most of the cost of treatment. If you are insured under Medishield, you can be treated in a subsidised B2 ward.

If you have to work beyond age 65 to accumulate sufficient savings for your retirement, you can have a decreasing term insurance to cover you up to the that later age.

Buy Term and Invest the Difference

Dear Mr. Tan,

Why does a life insurance policy give a poor return to the policyholder? Is it due to the cost of insurance protection?

REPLY

The return to the policyholder (i.e. the person who buys the insurance policy) will eventually work out to be:

a) The return earned by the insurance fund from investing the premiums, less
b) The deductions from these returns to cover the expenses, mortality and profit margin.

If the investment fund earns an average of 5% per annum, the return to the policyholder is likely to be reduced by the following:

a) Cost of selling insurance: 1.2%
b) Mortality (i.e. to provide the insurance protection): 0.3%
c) Profit margin to insurance company: 0.5%

The return to the policyholder will, in this case, work out to an average of 3%

If you "buy term and invest the difference", you are likely to get a return of about 4.7% (i.e. after deducting the cost of the life insurance protection).

If you save $300 a month, the difference in payout at the end of 20 years is:

Return of 4.7% p.a. $115,000
Return of 3% p.a. $ 97,000
Difference $ 18,000 or 18% more than $95,000

By separating insurance from investment, you will earn 18% more (in this case), over a period of 20 years.

The difference comes mainly from the selling cost and profit margin of the insurance company.

Buy term first

Hi Mr Tan,

I am enquiring about term or life insurance. I saw your article on "Take a term insurance and invest the rest". How should I be going about it then?

I am a non-risk taker, and want to policy which provide comprehensive cover. What is your recommendation?

REPLY:

I suggest that you buy term insurance first. You can save your money in the bank and invest it at a later date. I shall be recommending some low cost investment funds in a few month's time.

You can get the indicative cost for the term insurance from this FAQ:
http://www.tankinlian.com/faq/choice.html

Investment fund with no front end charge

Hi Mr Tan

I am 22 years old. I wish to start a investment plan. You had advised to set aside 10% to 20% of my salary for investing, and to invest in unit trust or insurance funds.

You said that insurance products does not provide a satisfactory return, compared to an investment fund.

What kind of insurance funds should I invest in. I wish to have a plan that have a low front end charge, so that I can see breakeven earlier?

REPLY

I suggest that you invest in the Combined Fund through the Ideal Plan (ID7) from NTUC Income. You can buy this plan directly from the Business Center.

It allows you to invest 100% of your monthly savings. You can buy a decreasing term insurance to give life insurance protection.

Read this FAQ:http://www.tankinlian.com/faq/fptips.html

Here is the info on the business center:
http://www.income.com.sg/businesscentre/

ILP - single or regular premium?

Hi, Mr. Tan,

Is it better to buy a single premium ideal plan or regular premium one? It seems for regular premium ideal plan, I need to pay $4/mth policy fee for whole life. But for single premium, they only charge one time $50 for opening account.

But the advisor stated that regular premium, though charge more, can be less risky.

REPLY:

If you have a lump sum, it is better to invest in a single premium, as the charge is lower.

If you do not wish to take the risk of investing a large sum at one time, you can break into three tranches and invest them over a few months (as recurring single premium).

The regular premium plan is intended for you to save a monthly sum over 10, 20 or more years.

Buy life annuity at 62

Dear Mr. Tan,

The current 4% interest for retirement account is only for the next 2 year. Is it better to look for an annuity product that can give better return, or to leave the money with CPF?

REPLY

I suggest that you wait and see if the interest rate for the retirement account is maintained at 4% or more, beyond two years. I think that it may go higher.

You can wait until 62 to decide on buying a life annuity. You do not need to decide before that.

Liquidity of STI Exchange Traded Funds

Hi Mr. Tan,

You recommended investing in the STI exchange traded fund. But, I find the volume to be small. Just 1 or 2 lots a day. How can I accumulate a large volume in this thin market?

REPLY

If you wish to buy a large quantity of ETF, the fund manager (i.e. State Streets) will sell the ETF units to you and create new units by buying the underlying shares from the market.

Similarly, if you wish to sell a large quantity of ETF, the fund manager will buy the ETF units from you and redeem the units by selling the underlying shares to the market.

In actual fact, the fund manager makes the market. They will do it at the fair price of the ETF shares (which should reflect the value of the underlying shares). There is no lack of liquidity.

Have a budget

You must have a budget. Allocate your earnings in the order or priority to the mandatory expenses, such as taxes, repayment of your housing loan and the necessary expenditure for transport, food, utilities, telephone. Be frugal.

Set aside not more than 3% on your insurance and 10% to 15% as savings for the future. If you still have money left, you can use it for entertainment, holidays and splurging,

Personal savings for your retirement

Most people need personal savings to supplement the CPF savings. You should set aside at least 10% of your earnings as savings for the future. If possible, the saving rate should be increased to 15%.

A saving rate of 15% over a working career of 40 years can provide income of about 40% of the pre-retirement income, with some regular adjustment to compensate for inflation. This will be sufficient to give a comfortable standard of living to the retiree.

Look for an attractive rate of return on your personal savings. Many insurance and investment products that are currently provided in the market do not give an attractive return.

CPF as a source of savings for retirement

Many Singaporeans rely on the Central Provident Fund as their main source of savings for retirement.

In recent years, many found their CPF savings to be inadequate for retirement. In 1999, only one-third of people reaching age 55 had sufficient savings to meet the Minimum Sum of $60,000. The Minimum Sum has since been raised to $99,600 for people who reached age 55 in 2007.

The Minimum Sum is just sufficient to meet the very basic cost of living in Singapore. For a more comfortable standard of living, you need at least two times of this Minimum Sum.

Many people over-invest on a property. They buy the most expensive property that can be financed by their CPF savings and their spare income. It should be avoided

As a rule of thumb, you should buy a property based on five to seven years of your family income.

Do not make excessive withdrawals for your medical expenses or medical insurance premiums. Try to leave the savings in the CPF as it can earn interest at 5% on the Medisave and Special accounts.

Quotes from Einstein

Source: http://www.quoteworld.org/category/intelligence/author/albert-einstein

"My life is a simple thing that would interest no one. It is a known fact that I was born and that is all that is necessary."

"Intellectuals solve problems; geniuses prevent them."

"If the facts don't fit the theory, change the facts."

"Great spirits have always found violent opposition from mediocre minds. The latter cannot understand it when a man does not thoughtlessly submit to hereditary prejudices but honestly and courageously uses his intelligence and fulfills the duty to express the results of his thoughts in clear form."

"The grand aim of all science is to cover the greatest number of empirical facts by logical deduction from the smallest number of hypotheses or axioms."

"Intellectual growth should commence at birth and cease only at death."

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction."

"My pacifism is an instinctive feeling, a feeling that possesses me because the murder of men is disgusting. My attitude is not derived from any intellectual theory but is based on my deepest antipathy to every kind of cruelty and hatred."

"It is not the fruits of scientific research that elevate man and enrich his nature. but the urge to understand, the intellectual work, creative or receptive."

"It's not that I'm so smart, it's just that I stay with problems longer."

Singapore Market is now approaching 3,300

Dear Mr. Tan,

I want to thank you for your advice to wait until the Singapore market comes down to 3,300 index. I held back my investment and can now buy it at a cheaper price. The index is now approaching this level.

Is it save to invest now? Is there still a risk of a recession in America? Will there be a bigger crash?

REPLY

At the current level, the Singapore stockmarket has fallen 15% below its recent peak. In my view, this is a good level for a long term investor.

There is always a risk (but it is uncertain) of a crash. This happened in 1987, 1997 and 2002. Something may happen to trigger a crash. However, looking at the past experience, you find that the market will eventually recover.

I suggest that you adopt the following approach:

1. Identify the amount that you wish to invest for the long term (10 years or more)
2. Invest one third of this amount now
3. Invest the remaining two thirds over the next two months

If there is a crash, you can invest at a lower price to average down the cost of your investments. If the market moves up, it is good to invest in a recovering market.

Note: I intend to adopt this method for my personal savings (for which a large portion is still in cash). I will invest in the STI Exchange Traded Fund in the stockmarket.

NTUC Income Business Center

Hi, Mr. Tan,

I met up with a consultant at the NTUC Income Business Center. I invested in the balanced fund through the IDEAL plan by investing $300 each month. It is great that they don't charge 45% advisory fee.

When I met five insurance agents earlier. I was confused with their recommendation. This time, I have made up my mind that I want to buy term insurance and to invest my savings in an investment fund. I do now wish to hear about the Limited Premium plan or the Revosave.

I told him directly what I want to buy and how much I want to assure. (I found it is really hard for an advisor to direct you straight to term policy.

The procedure was made very fast and I signed off for the term insurance. Afterwards, I signed the IDEAL plan and chose the Balanced Fund which I think is really will be suitable for me. I felt that my hard work paid off, I bought the IDEAL plan which I truely feel is ideal and the term policy which I felt enough for me.

Thanks again for your great blog and great advice.

REPLY:

I am glad that you have now found the solution to your financial plan. I will post your story to encourage other people to visit the NTUC Income Business Center.

Logic Puzzles

Hi Mr. Tan,

I enjoy the Einstein Intelligence Test. Do you have more logic puzzles of this type?

REPLY

I have seen similar puzzles before, in some magazines and books. But I am not able to locate them now.

If other readers know of similar puzzles, please send an e-mail to me at kinlian@gmail.com.

In the meantime, I suggest that you try the Logic9 puzzles:

http://project.bestsimulation.sg/logic9v4/

Avoid credit card rollovers

Someone told me that many young people now take a holiday to be paid through by rollovers in their credit card. They are not aware about the additional cost.

Here is my calculation.

If you charge $5,000 to your credit card and pays by rollover over 24 months at an interest rate of 2% per month, your additional interest cost is $1,200 (i.e. 24% of $5,000).

If you save first and take a holiday later, you will pay $1,200 less for your holiday.

Budget for insurance

Dear Mr. Tan,

I earn $3,000 a month. An insurance agent recommended a life insurance policy plan for $350. When I asked for term insurance (after reading your blog), I was given a combination that cost $150. Is this too much?

REPLY

I suggest that you set aside 2% of your monthly income (i.e. $60) for your insurance coverage (i.e term and medical insurance) and save 10% to 15% of your monthly income in a low cost investment fund.

If you save $300 a month and invest it over 30 years to earn 5% per annum, you will get $240,000. (If you save $300 + $60 in a life insurance policy, you are likely to get less than $200,000 at the end of 30 years).

You should tell the insurance agent that your budget is $60 a month for the insurance coverage. Ask them to recommend the best combination of term and medical insurance for this monthly budget. You can ask three agents to give you their recommendation.

As the agent does not earn much by selling you the low cost coverage, you should not expect them to see you at your home. Give them a call and ask them to send their recommendation to you through an e-mail. You can discuss with them over the telephone.

Minimum income for retirement

What is the monthly income that is needed for a couple to live on during retirement?

I discussed this question with several people above age 50 from the low income sector. We arrived at a sum of $700 a month, comprising of.

Food ($15 a day): $450
Utilities: $70
Medical: $50
Transport: $50
Telephone: $30
Miscellaneous: $50
Total: $700

A female needs a capital sum of $160,000 at age 65 to buy a life annuity that pays $700 a month. A male needs $150,000.

Most of the participants did not have this capital sum. They cannot afford to retire and will have to continue to work beyond 65 years.

CPF provides a good return

Hi, Mr Tan,

I have been reading your blog. Thanks for your time in sharing with all the readers your views & observations.

I have a question regards to CPF. I had made a CPF transfer from OA to SA this year. My money in the CPF exceed the $40k that qualifies for 1% extra.

I am thinking of taking out the excess in the SA to invest in NTUC Prime fund as it has one of the lowest cost. Do you think that is a good choice ? Or should I diversify to others ?

REPLY:

In my personal view, it is better to keep in the special account as it pays 4% interest and is free of risk.

The return from the Prime Fund is uncertain. As the stockmarket is now at a high level, and there is still much uncertainty in the global economy, it is better to keep your money in risk free investment for the time being.

You can review the situation next year.

Investing in shares

Hi Mr Tan,

Can I ask you when buy a share at price $3+ hold on to the share until it reach $9 or sell it in between and buy it again when the price goes down. Please enlighten me.

Must I monitor the shares through out the day. By the way, now market is down any good shares can I buy?

REPLY

I suggest that you do not try to buy shares on your own. It requires people who are knowledgeable about the market.

It is better for you to invest in a large, well diversified, low cost fund.

Read this FAQ:
http://www.tankinlian.com/faq/returns.html

Experience in talking to insurance agents

Hi, Mr. Tan,

I would like to share my experience with you.

I met five different agents. I am not able to identify the difference in their advice. Three agents strongly promotes Investment Linked Insurance by illustrating to me the working of dollar cost averaging. I already knew it, after being eduated by your blog.

I asked them about term insurance, but they did not want to talk about it. Instead, they try to get me to buy traditional life insurance, saying that term has strong disadvantage since it doesn't cover crisis after the age of 65.

Two other agents told me that term covering $150,000 is not enough. They recommended $350,000. They showed some calculation to me, but I don't really understand. They recommended a combination of term and other insurance that take away $139 a month.

I do believe that all insurance agent does have the professionalism to advise to their client. And it is true since the advice they gave are all so similar, "BUY as many as you can". After talking to the agents, I find that noobody would like to make a deal with low commission.

I do believe there are some insurance agents in this world would really take care of us by considering our real situation and be responsible for us and our money. But I don't think I will be the lucky one to meet them, so I decide to give up.

Some years later, after saving enough money, I will probably take a master degree on finance or related field. If we cannot trust anyone, the only thing we can do is to equip ourselves with financial knowledge so that we won't be easily fooled.

I do sincerely wish that Mr. Tan and your family happy for ever since you are the only one in the insurance industry I know would like to taking care of the general public in Singpore by educating them. Thanks again for educating all singaporean and foreigners by writing your blog.

Save $840 a year

Dear Mr Tan,

My wife and I are unemployed presently. I have been paying premium for the following two policies for past few years. Are we having double coverage?

1. Enhanced Incomeshield with Plus Rider

2. Group Medical Insurance from my former employer. Annual premium is $840. Max coverage per year is $6000 and max per lifetime is $50,000. No co-payment or deductible but there is sub-limits on all benefit items.

Do we need the Group Medical Insurance?

REPLY:

The Enhanced Incomeshield WITH Plus Rider is sufficient for you and your wife. Both of you do not the Group Medical Insurance plan, as it is double coverage. You can save $840 a year.

How to clear off a credit card debt

Dear Mr. Tan,

I am desperate to find ways to clear my debt. I need your advice.

I earn a monthly salary, after CPF, of $2,600. After paying my credit cards, loans, tax, insurance, Pub & phone bills, I have only $500 for my expenses. I use my credit card to pay additional expenses and the amount owing keeps increasing due to the interest charges. My total debt has now increased to $34,000.

I am not able to cope. Should I declare bankruptcy or is there a better way to clear my debt?

REPLY

You can get advice from this organisation:

Credit Counselling Singapore
http://www.ccs.org.sg/ccs.html

The can find an adviser who can help you to find a solution to clear your debt.

Singapore Polytechnic

The Singapore Polytechnic played an important role in the production of the S & T and technical manpower required for Singapore’s development. Many people were involved. They went through some difficult times.

Dr. Lee Kum Tatt has spent a great part of his life in building the S & T and technical manpower and institutions in Singapore. He now shares with us some of his experiences with some inside information of what happened in the earlier days of Singapore’s development. This will form the next topic of his Blog.

www.leekumtatt.blogspot.com

Selling a put option

When you invest in a Dual Currency Investment, you are selling a Put option. How does it work?

1. You place your money in fixed deposit in the foreign currency at an interest rate of x%
2. You give a put option to the bank to pass them the appreciation in the foreign currency for y%.
3. You take the risk of a fall in the foreign currency.

You get a total return of x% + y% from the investment. This is higher than the interest (x%) on the deposit in foreign currency.

Are you getting the correct price (y%) for the put option? Quite likely, you are getting much less than the true price for the option.

For example, if the value of the put option is 2% (i.e. to compensate you for the risk), you may be offered only 0.5%. The remainder (i.e 1.5%) goes towards the expenses and profit of the bank.

As you are not familiar with the correct price of the put option, it is best that you avoid this type of investment completely.

Car Pooling

We need to promote car pooling.

Many of the guests attending an event usually come on their own, in a separate car. The road to the venue is usually congested. There is inadequate parking spaces. After the event, there is a long wait to move out of the car park.

If there is an efficient way to organise the guests, perhaps the number of cars coming to the event can be reduced by half.

Dual Currency investment

Dear Mr. Tan,

My bank offered me a high rate of interest on a dual currency deposit. Is it safe to invest in this type of deposit?

REPLY

A Dual Currency Investment is not a deposit. It is an investment product. You are given a higher interest rate, but you face the risk of suffering the loss on the original investment, if the currency rate goes against you.

The principal sum and interest are repayable on maturity in the base currency (i.e in which the investment is made) or the linked currency, whichever is the lower.

If the linked currency goes up, you will only get the fixed return. If it goes down, you will have to suffer a loss. Your loss can be quite substantial.

Usually, the bank does not offer an interest rate that is sufficient to compensate you for the risk.

If you are willing to take the currency risk, it is better to invest in the foreign currency directly. If the currency appreciates, you will get the gain from the currency and the interest rate (which is likely to be higher than in Singapore dollars). The total gain is likely to be better than the interest rate paid on the Dual Currency Investment.

Read this FAQ:
http://www.tankinlian.com/faq/duali.html

Low cost investment funds

A few people have written to ask for my advice on the low cost funds that they can invest in. Here are some options.

1. STI ETF. You can invest in a minimum of 100 units of this fund. At the current price, the investment is about $3,500. You can accumulate your savings and buy the ETF every few months. Alternatively, you can open an online account with a stockbroker which allows you to purchase odd shares of the ETF under a special plan. (Check with Philipps Securities).

2. Unit Trust. There are some low cost unit trust that accept monthly savings. I am looking for a financial adviser who is keen to promote these funds.

3. Ideal plan. You can buy the Ideal plan directly from the business center of NTUC Income and have 100% of the monthly savings to be invested in the combined fund.

Read these FAQs:
http://www.tankinlian.com/faq/fptips.html
http://www.tankinlian.com/faq/choice.html

Foreign Currency Fixed Deposit

Should you invest in a foreign currency fixed deposit to earn a higher rate of interest? What are the risks? How can they be managed?

Read this FAQ:
http://www.tankinlian.com/faq/foreign.html

Dual Currency Investment

Should you invest in a Dual Currency Investment?

I have summarised the various postings in this updated FAQ:

http://www.tankinlian.com/faq/duali.html

I hope that you find it comprehensive and clear.

Buying a Shield plan

Which Shield plan should you buy to cover your medical expenses?

I have summarised the various postings on this topic in an updated FAQ:
http://www.tankinlian.com/faq/shield.html

I hope that you find it to be comprehensive and clear.

Talk to Three Advisers

I received an e-mail from someone seeking my advice. She saw an insurance adviser who offered three plans.

The recommendations were skewed to get her to move away from term insurance and to buy a limited premium product.

I advised her to adopt the following approach:

1. Talk to three advisers (from the same or different companies)
2. Buy from the adviser who gives you a recommendation in your best interest
3. Do not buy from the adviser who tries to convince you to buy an expensive product
4. Trust your common sense; do not allow the adviser to confuse you.

Lucky to be in Singapore

COMMENT POSTED IN MY BLOG.

I agree that packed trains has a few inconveniences. But I would like to highlight that compared with other countries, we are much much better. Have you tried rush hour in Japan, China, New York or Hong Kong? Too bad for women and people sensitive to body odours because this is the lifestyle of the urban city - the people who complained may be too spoilt and expected everything to be perfect.

One reader mentioned about food. I think it's not too bad - just get the food court/stall uncle/aunty to add more rice for you - you usually get it free or add $0.30 more.

Again, compared this with other countries which has been hit by bad weather or poor economy - please know that they have no food to eat.

Before complaining about Singapore traffic system or inflation, look at the bright side, we are much better off than many countries in the world.

1. It is logical that it costs more to fill up petrol tank. It is a worldwide phenomenon due to rise in old price - supply and due and rising of need for oil in developing countries.

2. It is logical to expect ERP increase as this is due to too many people wanting to use the same stretch of road at peak hours. There are other roads that you can take with using the roads with ERP gantry - the time is longer but you avoid the ERP. I always try to leave home before 7 am and leave work after 10pm to avoid ERP.

3. It is logical parking charges are expensive because lack of parking lot and therefore due to supply and demand, the price goes up. Park and ride system is a good idea too.

Think another way: using our roads cost more means progress for the nation. Who wants to go back to old days of uneven kampung roads with potholes, longkang and no traffic lights?

This progress is the result of years of good governance and the support that the people gave to the efficient and forward-looking government.

The fact that you can see and write on this blog showed that you are better than the other 80% of the world where they don't even have easily assessable broadband, free speech and computers.

The next time you complain about modern conveniences that Singapore has, think Myammer, Thailand, Africa, Nepal, Timbuktu and you will realise how lucky and wonderful we are in this blessed country.

Fostering Neighbourliness

I asked my friend to attend an event with me. He was not able to do so, as he has to look after his children, as his wife is not at home.

I suggested to him to consider the following arrangement in the future:

1. Make friends with your neighbours
2. Leave your children with them, if the parents have to go out for an event
3. Volunteer to take care of their children, when they face a similar situation
4. This will encourage neighbourliness and give more freedom to the parents.

I understand that this practice was quite popular in other countries. We have to develop a similar habit in Singapore.

Low cost Investment Funds

A few people have written to ask for my advice on the low cost funds that they can invest in.

I am working out the following options:

1. STI ETF. I am asking my stockbroker about the minimum monthly sum that they can invest in. The monthly savings can be credited into an account and be used to invest in the STI ETF when it reaches the minimum sum. You can purchase odd shares through POEMS Share Builders Plan. Check with Philips Securities.

2. Unit Trust. I am checking for a low cost unit trust that accept monthly savings. I will also look for an financial adviser who is willing to provide this service.

3. Ideal plan. There is a Ideal plan from NTUC Income which allows 100% of the monthly savings to be invested in the combined fund. I am looking for an insurance adviser who is willing to promote this plan, even though they earn a lower rate of commission.

I shall be posting some of these options, when they are finalised. I hope to be above to offer these low cost options to the people who visit my blog and are educated about the merits of this type of investment.

Read this FAQs:

http://www.tankinlian.com/faq/fptips.html
http://www.tankinlian.com/faq/choice.html

Live near your place of work

In most countries, it is common for a person to move house and live near the place of work, especially if they take up a new job in another town. This will help to reduce the need for commuting a long distance.

We have to encourage this new kind of lifestyle. If you live in Woodlands and take a new job in Changi, you should consider moving your house to Tampines or Pasir Ris.

There is a financial obstacle. The cost of selling your house or flat and buying a similar type of house is quite high. You have to pay about 5% to the housing agent, lawyer and in stamp duty.

We have to find a way to reduce this high cost. I hope that the stamp duty can be waived and that the other fees can be reducd considerably. Perhaps the total cost should be reduced to 0.5% of the value of the new home.

If more people can be encouraged to move and live near their place of work, there will be reduced need for commuting and congestion on the roads. The public transport will be less crowded.

Tips on solving Sudoku puzzles

I am giving a talk on "Tips to solve Sudoku puzzle" at 2 p.m at the Active Aging Carnival, held outside Singapore Plaza (Dhoby Ghaut MRT station).

My tips involve using the left and right brain. Many people think that active use of the brain will help to reduce the risk of Alzheimer's disease. I do not know if this can be scientifically proven.

Here is an explanation about Alzheimer's disease from the Yahoo health website.

Alzheimer's disease is a progressive condition that affects areas of the brain involved in memory, intelligence, judgment, language, and behavior. It is the most common form of mental decline, or dementia, in older adults.

Alzheimer's disease is more severe than the mild memory loss that many people experience as they grow older. Alzheimer's disease also affects behavior, personality, the ability to think clearly, and the ability to carry out daily activities. Close family members usually notice symptoms first, although the person affected also may realize that something is wrong.

What causes Alzheimer's disease?
It is not clear why these changes in the brain occur, but research to discover the cause of Alzheimer's disease is ongoing. Although most people who develop Alzheimer's disease do not have a family history of the condition, you are at increased risk for the condition if a member of your family has it.

Sneaker

My friend told me that he is importing sneakers to be used for line dancing. It is a special shoe that can bend backwards, and is good for dancing.

What is a sneaker? I found the definition from Wikipedia:

An athletic shoe is a generic name for a shoe designed for sporting and physical activities, and is different in style and build than a dress shoe.

Originally known as sporting apparel, today they are known as casual footwear. Athletic shoes, depending on the location and the actual type of footwear, can also go by the name trainers (British English), sandshoes (Australian English) running shoes or runners (Canadian English, Australian English, Hiberno-English), sneakers (North American English, Australian English), sport shoes, gym shoes, tennis shoes, tennies, sneaks, takkies (South African English).

High cost of motoring

My friend told me that the cost of motoring has shot up significantly.

1. It now cost more than $100 to fill up a petrol tank.
2. ERP charges have increased
3. Parking charges are very expensive.

I advised him to use public transport, i.e. MRT and buses and to carry a public transport guide (available for $6 from a bookstore). It is convenient and cheaper and avoid the stress of driving along congested roads.

He agreed to consider my suggestion.

Invest in the Singapore market

Dear Mr. Tan

I read your posting where you said that a 10% correction in the Singapore stockmarket will bring the index down to 3,500 but you prefer to wait for a level of 3,300 to invest.

The index is now at 3,440. Should I wait for 3,300? Will it go lower?

REPLY

Honestly, I do not know. It is difficult to catch the bottom of the market.

If you are investing a small sum monthly, it does not matter when you enter the market as you will be averaging the cost of your investment.

If you are investing a large sum, perhaps you can break it down into three installments and invest them over the next three months? The current level has already shown a correction of more than 10%.

Invest in Singapore equities

Hi Mr. Tan,

Currently, I have some money sitting in POSB savings account which I do not need it for the next few years.

I am thinking of parking some of this money in the NTUC Income Trust fund. I understand from the company website that the fund's average performance since its inception in 1994 is 9% per annum.

What is your opinion of this fund since it was started during your tenure as its CEO? Best

REPLY

This fund is largely invested in Singapore stocks and bonds, and have a fairly modest expense ratio. It is all right to invest in this fund, if you are happy with the current level of the Singapore stockmarket.

My preference is to invest in the STI Exchange Traded Fund, which has a similar risk profile, lower expense ratio and is probably more flexible.

If you have a stockbroker, you can ask them about this fund. If you do not have a stockbroker, then you can invest in the Trust Fund.

The Trust Fund performed well in recent years due to the strong stockmarket. You will find that the STI EFT performed much better. However, past performance should not be taken as an indication of future performance.

As a general rule, you should expect a return of 6% to 8% on equities over a long period in the future and a lower return on bonds.

Household Income Disparity

Someone told me that Singapore has a high Gini coefficient, which indicates a wide disparity of income. I searched Google and found the following information from Wikipedia.

The disparity in household income had widened in 2000, reflecting the faster income growth for the higher-income households.

The Gini coefficient, a measure of income inequality, rose from 0.446 in 1998 to 0.481 in 2000. Other measures of income inequality also indicated similar trend of increasing disparity in household income.

In the United Nations Development Programme Report 2004, Singapore's Gini coefficient based on income is 0.425 in 1998, which is ranked 78 among 127 countries in income equality. Here is the ranking of countries:

Rank
1 Azerbaijan
2 Denmark
3 Japan
4 Sweden
14 Germany
26 South Korea
28 India
31 France
40 Indonesia
52 United Kingdom
73 United States
79 Singapore
83 Hong Kong
89 China
96 Malaysia
123 Mexico

The income disparity in Singapore is worse than UK and USA, but is better than Hong Kong, China and Malaysia.

Exchange Rates

I wanted the exchange rate between New Zealand dollar and Singapore dollar for the past three years.

I searched Google and provided the keywords SGD and NZD. It showed a list of websites. I chose the yahoo.com finance website and clicked on Exchange Rates.

http://sg.finance.yahoo.com/currency/convert?amt=1&from=NZD&to=SGD&submit=Convert

By selecting the two currency codes, I was able to get the exchange rate for up to 5 years. It was very helpful.

I am discovering each day, the wonders of the Internet.