Alternative investments are hedge funds, managed futures and managed currency funds. The proponent of this asset class argues that it is not correlated to the traditional asset classes, for example, they can move in the opposite direction to equities.
This is suitable for short term investors, including professional fund managers, who are required to avoid showing a portfolio loss during a year.
For a long term investor, it is better to take the volatility and benefit from the average higher return over the long term. There is no point in investing in equities and than offsetting them by alternative investments. This strategy incurs high costs and reduces the return to the long term investor. It gives good fees to the professionals (i.e. fund managers).
If the investor wish to avoid volatility, it is better to invest in fixed income bonds, and accept a lower long term return. Do not invest in complicated structured products (including alternative investments) that gives you an even lower return.
Monday, March 31, 2008
Benefit, insight, honesty
Dear Mr Tan,
I have been reading the articles on your site and found them to be of great benefit, insight and honesty. I wish to commend you on your efforts which many of us could certainly benefit from.
I have been reading the articles on your site and found them to be of great benefit, insight and honesty. I wish to commend you on your efforts which many of us could certainly benefit from.
Sunday, March 30, 2008
Amazing Numbers
Try this puzzle:
http://www.tankinlian.com/amazing/index.html
Do you want to know the secret behind the Amazing Numbers? Send an e-mail to me. If you know the secret, you can make the cards (using the numbers from my website) and amaze your friends!
http://www.tankinlian.com/amazing/index.html
Do you want to know the secret behind the Amazing Numbers? Send an e-mail to me. If you know the secret, you can make the cards (using the numbers from my website) and amaze your friends!
Walk half of the distance
You are in a large hall. There is a pretty girl at the other end of the hall. You are old that it takes 10 seconds to walk half of the distance to the girl, another 10 seconds to walk half of the remaining distance, another 10 seconds to walk half of the remaining distance, and so on. How long will it take you to reach the girl?
Most people will say that you will never reach the girl. No matter where you are, it will take 10 seconds to walk half of the remaining distance.
What is the practical answer?
Most people will say that you will never reach the girl. No matter where you are, it will take 10 seconds to walk half of the remaining distance.
What is the practical answer?
Asset Allocation
Dear Mr. Tan,
I read a comment in the blog from someone who said that a long term investor should look at asset allocation, which accounts for most of the yield. Can you explain this concept?
REPLY
Asset allocation means choosing the class of assets to invest in. The main classes are:
a) Equity
b) Bonds
c) Property
d) Cash
Within each class, there are sub-classes to choose from, e.g. different markets or sectors.
If you are focusing on asset allocation, you are giving less emphasis on stock selection, i.e. choosing the specific shares or bonds within the sub-class. You can invest in a fund that is invested in many shares or bonds within the sub-class. This is called diversification.
For a long term investor, the yield on equity is higher than bonds. I advice long term investors to invest in equities and ride out the volatility, i.e. average out the good and bad years.
Read this FAQ to get some information about the long term yield on various asset classes:
http://www.tankinlian.com/faq/savings.html
For my long term investments, I prefer to invest in Singapore equities, e.g STI ETF or in global equities, e.g. S&P 500. The S&P 500 are the largest US companies, which have global operations. I prefer indexed funds, as they have low charges.
I read a comment in the blog from someone who said that a long term investor should look at asset allocation, which accounts for most of the yield. Can you explain this concept?
REPLY
Asset allocation means choosing the class of assets to invest in. The main classes are:
a) Equity
b) Bonds
c) Property
d) Cash
Within each class, there are sub-classes to choose from, e.g. different markets or sectors.
If you are focusing on asset allocation, you are giving less emphasis on stock selection, i.e. choosing the specific shares or bonds within the sub-class. You can invest in a fund that is invested in many shares or bonds within the sub-class. This is called diversification.
For a long term investor, the yield on equity is higher than bonds. I advice long term investors to invest in equities and ride out the volatility, i.e. average out the good and bad years.
Read this FAQ to get some information about the long term yield on various asset classes:
http://www.tankinlian.com/faq/savings.html
For my long term investments, I prefer to invest in Singapore equities, e.g STI ETF or in global equities, e.g. S&P 500. The S&P 500 are the largest US companies, which have global operations. I prefer indexed funds, as they have low charges.
Investing at a low level
Hi Mr. Tan,
I read your comment about two weeks ago, when someone asked you if it is all safe to invest in the stockmarket. You said that for a long term investor, the market represents good value as it is 30% below its recent peak.
I decided to take the plunge and invest my cash at that level over a few days. My investments have shown an appreciation of over 5%. Thank you for your good advice.
REPLY
Congratulations on making a good investment decision. The market is still quite uncertain and volatile, so you should be prepared in case there are some negative surprises over the next few weeks.
Do not be worried about the volatility, provided that you are well diversified. I hope that you have invested in a low cost, diversified fund, such as the STI ETF. If you are investing for the long term, you will ride over the current downturn.
I read your comment about two weeks ago, when someone asked you if it is all safe to invest in the stockmarket. You said that for a long term investor, the market represents good value as it is 30% below its recent peak.
I decided to take the plunge and invest my cash at that level over a few days. My investments have shown an appreciation of over 5%. Thank you for your good advice.
REPLY
Congratulations on making a good investment decision. The market is still quite uncertain and volatile, so you should be prepared in case there are some negative surprises over the next few weeks.
Do not be worried about the volatility, provided that you are well diversified. I hope that you have invested in a low cost, diversified fund, such as the STI ETF. If you are investing for the long term, you will ride over the current downturn.
Saturday, March 29, 2008
Invest in a diversified fund for the long term
Dear Mr. Tan,
I have just opened an investment account with fund supermart. I wish to begin my first investment in unit trust. I am an moderate aggressive player and high returns are important to me. I am willing to take higher risks for significantly higher returns over time (above 10% p.a.). I am willing to take the risk of downside around 20% in 1 year. Can you please provide me with some suggestion on what fund to invest in the year 2008?
REPLY
My advise is to invest in low cost, diversified funds. You can aim for a more modest target of 6% to 8% p.a. for the long term. You have to deduct about 1% to cover the expenses.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I have just opened an investment account with fund supermart. I wish to begin my first investment in unit trust. I am an moderate aggressive player and high returns are important to me. I am willing to take higher risks for significantly higher returns over time (above 10% p.a.). I am willing to take the risk of downside around 20% in 1 year. Can you please provide me with some suggestion on what fund to invest in the year 2008?
REPLY
My advise is to invest in low cost, diversified funds. You can aim for a more modest target of 6% to 8% p.a. for the long term. You have to deduct about 1% to cover the expenses.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Diplomat and the lady
This story is told by a diplomat.
If you ask a favour from a diplomat and he says "yes", he means "maybe". If he says "maybe", he means "no". If he says "no", he is not a diplomat.
If you ask a favour from a lady and she says "no", she means "maybe". If she says "maybe", she means "yes". If she says "yes", she is not a lady.
If you ask a favour from a diplomat and he says "yes", he means "maybe". If he says "maybe", he means "no". If he says "no", he is not a diplomat.
If you ask a favour from a lady and she says "no", she means "maybe". If she says "maybe", she means "yes". If she says "yes", she is not a lady.
Quotes on History
George Bernard Shaw:
We learn from history that we learn nothing from history.
George Bernard Shaw:
We are made wise not by the recollection of our past, but by the responsibility for our future.
George Santayana:
Those who cannot learn from history are doomed to repeat it.
George Wilhelm Hegel:
What experience and history teach is this -- that people and governments never have learned anything from history, or acted on principles.
Gerda Lerner:
We can learn from history how past generations thought and acted, how they responded to the demands of their time and how they solved their problems. We can learn by analogy, not by example, for our circumstances will always be different than theirs were. The main thing history can teach us is that human actions have consequences and that certain choices, once made, cannot be undone. They foreclose the possibility of making other choices and thus they determine future events.
Karl Marx:
It is not "history" which uses men as a means of achieving -- as if it were an individual person -- its own ends. History is nothing but the activity of men in pursuit of their ends.
Kurt Vonnegut:
History is merely a list of surprises. It can only prepare us to be surprised yet again.
Mark Twain:
To arrive at a just estimate of a renowned man's character one must judge it by the standards of his time, not ours.
Oscar Wilde:
Anybody can make history. Only a great man can write it.
Pearl S. Buck:
One faces the future with one's past.
Percy Bysshe Shelley:
Fear not for the future, weep not for the past.
Ralph Waldo Emerson:
All history becomes subjective; in other words there is properly no history, only biography.
Winston Churchill:
History will be kind to me for I intend to write it.
We learn from history that we learn nothing from history.
George Bernard Shaw:
We are made wise not by the recollection of our past, but by the responsibility for our future.
George Santayana:
Those who cannot learn from history are doomed to repeat it.
George Wilhelm Hegel:
What experience and history teach is this -- that people and governments never have learned anything from history, or acted on principles.
Gerda Lerner:
We can learn from history how past generations thought and acted, how they responded to the demands of their time and how they solved their problems. We can learn by analogy, not by example, for our circumstances will always be different than theirs were. The main thing history can teach us is that human actions have consequences and that certain choices, once made, cannot be undone. They foreclose the possibility of making other choices and thus they determine future events.
Karl Marx:
It is not "history" which uses men as a means of achieving -- as if it were an individual person -- its own ends. History is nothing but the activity of men in pursuit of their ends.
Kurt Vonnegut:
History is merely a list of surprises. It can only prepare us to be surprised yet again.
Mark Twain:
To arrive at a just estimate of a renowned man's character one must judge it by the standards of his time, not ours.
Oscar Wilde:
Anybody can make history. Only a great man can write it.
Pearl S. Buck:
One faces the future with one's past.
Percy Bysshe Shelley:
Fear not for the future, weep not for the past.
Ralph Waldo Emerson:
All history becomes subjective; in other words there is properly no history, only biography.
Winston Churchill:
History will be kind to me for I intend to write it.
Medical insurance and large bills
An insurance agent said that a good medical insurance policy will cover the large bill of $150,000.
This may not be the case. Some of the expensive treatments exceed the limits in the policy or are excluded from the policy.
Before you incur expensive treatment, it is necessary to consult your insurance company and check on the items that are covered. This is to avoid the shock of being landed with a bill that you cannot afford.
I have come across many cases of unhappy customers who find that only a small part of the bill is covered by insurance, in spite of what they were told by the insurance agent!
Most importantly, you should spend your money wisely. Do what is best for your loved one, but do not waste money on expensive treatment with a slim chance of recovery.
This may not be the case. Some of the expensive treatments exceed the limits in the policy or are excluded from the policy.
Before you incur expensive treatment, it is necessary to consult your insurance company and check on the items that are covered. This is to avoid the shock of being landed with a bill that you cannot afford.
I have come across many cases of unhappy customers who find that only a small part of the bill is covered by insurance, in spite of what they were told by the insurance agent!
Most importantly, you should spend your money wisely. Do what is best for your loved one, but do not waste money on expensive treatment with a slim chance of recovery.
Escalation of medical bills
Someone asked the question, "Why was the original estimate of $50,000 allowed to escalate to a bill of $150,000?
This is the real, commercial world. This is how some private sector doctors can make millions of dollars in income.
I have high respect for many doctors who earn a modest income and practice medicine in the best interest of their patients.
This is the real, commercial world. This is how some private sector doctors can make millions of dollars in income.
I have high respect for many doctors who earn a modest income and practice medicine in the best interest of their patients.
Evaluate your options
Someone asked me what I would do, if I were in my friend's situation and expensive medical treatment is needed for a loved one.
Here is my approach:
a) I will evaluate various alternatives, from various doctors
b) I seek advice from independent and knowledgeable people
c) I will not depend on the advice of an adviser (doctor) who has a conflict of interest
I wish to share this story.
A few years ago, Dr. Ee Peng Liang, the "father of charity" in Singapore, told me, "Kin Lian, my doctor told me that I had stomach cancer. But I have decided not to be treated as I am already over 80 years. I will leave this matter in the hands of God". Dr. Ee passed away peacefully after a year or two.
There are many ways to "do the best" for a loved one. Spending money on expensive medical treatment, with a slim chance of recovery, is only one way.
Here is my approach:
a) I will evaluate various alternatives, from various doctors
b) I seek advice from independent and knowledgeable people
c) I will not depend on the advice of an adviser (doctor) who has a conflict of interest
I wish to share this story.
A few years ago, Dr. Ee Peng Liang, the "father of charity" in Singapore, told me, "Kin Lian, my doctor told me that I had stomach cancer. But I have decided not to be treated as I am already over 80 years. I will leave this matter in the hands of God". Dr. Ee passed away peacefully after a year or two.
There are many ways to "do the best" for a loved one. Spending money on expensive medical treatment, with a slim chance of recovery, is only one way.
Expensive medical treatment
My friend's wife passed away recently from cancer. She was in her early 50s.
This was the third cancer attack over the past 15 years. My friend appointed a private cancer specialist to treat her. The initial estimate was $50,000. The total medical bill increased to $150,000.
My friend knew that the chance of recovery was very slim. When the initial estimate was exceeded, he found it difficult to decline the suggestion of further treatment. He had to spend so much money, when there was virtually no hope. He earned a modest income, so the medical bill represented many years of his earnings.
He had made an insurance claim on an earlier cancer treatment. The latest episode was not covered by insurance.
Lesson: There is no point in spending so much money for treatment, when there was virtually no chance of recovery. He should have obtained independent, objective advice from another specialist (other than the specialist that treated his wife).
This was the third cancer attack over the past 15 years. My friend appointed a private cancer specialist to treat her. The initial estimate was $50,000. The total medical bill increased to $150,000.
My friend knew that the chance of recovery was very slim. When the initial estimate was exceeded, he found it difficult to decline the suggestion of further treatment. He had to spend so much money, when there was virtually no hope. He earned a modest income, so the medical bill represented many years of his earnings.
He had made an insurance claim on an earlier cancer treatment. The latest episode was not covered by insurance.
Lesson: There is no point in spending so much money for treatment, when there was virtually no chance of recovery. He should have obtained independent, objective advice from another specialist (other than the specialist that treated his wife).
Learn about property derivatives
Dear Mr. Tan,
I would like to ask about property derivatives. How are they used (examples) and valued? Could you explain them in detail? Please recommend some journals which could help me to find the answers of the questions above. Your efforts will be greatly appreciated. With many thanks.
REPLY
You are probably referring to the asset back securities and collaterilised debt obligations (CDO) in the USA. I suggest that you search Google for these items, and read the writings from the experts. All the best.
I would like to ask about property derivatives. How are they used (examples) and valued? Could you explain them in detail? Please recommend some journals which could help me to find the answers of the questions above. Your efforts will be greatly appreciated. With many thanks.
REPLY
You are probably referring to the asset back securities and collaterilised debt obligations (CDO) in the USA. I suggest that you search Google for these items, and read the writings from the experts. All the best.
Government Bonds
Dear Mr. Tan
I am interested to buy Singapore Government Bonds for investment. Can you please tell me more about it as to where, how can when should I buy the Bonds.
REPLY
You can approach a bank or a stockbroker.
I am interested to buy Singapore Government Bonds for investment. Can you please tell me more about it as to where, how can when should I buy the Bonds.
REPLY
You can approach a bank or a stockbroker.
Invest your SRS
Dear Mr. Tan,
I am 47 yrs old and have been contributing regularly in cash to my SRS account so as to lower my income tax. I have been using the money to buy NTUC Income Growth policies for 15 to 17 years' term. The projected return is about 4 %. Do you think I am making a wise investment decision? Are there better ways to invest the cash in my SRS account?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I am 47 yrs old and have been contributing regularly in cash to my SRS account so as to lower my income tax. I have been using the money to buy NTUC Income Growth policies for 15 to 17 years' term. The projected return is about 4 %. Do you think I am making a wise investment decision? Are there better ways to invest the cash in my SRS account?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Poor value from USD policies
Dear Mr. Tan,
I have been a regular reader of your blog since recent months. and found it is very informative and helpful. Thank you so much for your invaluable sharing.
I understand more about how insurance works, but start to struggle about the policies bought for my families now. We bought the whole life plan for my husband and myself since 2004. The coverage is US $50,000. The premiums total USD 2000 for both policies. The breakeven is 12 years in USD, but we are also losing on the depreciation of USD.
What will be your advice on these policies? Stop? Reduce the coverages? I know the current value of them should be very poor.
REPLY
I am sorry that I do not have the time to give specific advice of this kind.
I suggest that you read the FAQ in my blog and see if you can get any answers from there.
www.tankinlian.com/faq
I have been a regular reader of your blog since recent months. and found it is very informative and helpful. Thank you so much for your invaluable sharing.
I understand more about how insurance works, but start to struggle about the policies bought for my families now. We bought the whole life plan for my husband and myself since 2004. The coverage is US $50,000. The premiums total USD 2000 for both policies. The breakeven is 12 years in USD, but we are also losing on the depreciation of USD.
What will be your advice on these policies? Stop? Reduce the coverages? I know the current value of them should be very poor.
REPLY
I am sorry that I do not have the time to give specific advice of this kind.
I suggest that you read the FAQ in my blog and see if you can get any answers from there.
www.tankinlian.com/faq
Set a realistic goal
Dear Mr. Tan
What ETF should I be looking at if I would like to achieve a return of 10-15% p.a. Thanks.
REPLY
I am not able to advice on any product that can offer 10% to 15% p.a. I only aim for 5% to 6% p.a. for my personal investments.
Read this FAQ about investing for the long term:
http://www.tankinlian.com/faq/savings.html
If you wish to invest in the STI ETF, you have to approach a stockbroker.
Wish you all the best.
What ETF should I be looking at if I would like to achieve a return of 10-15% p.a. Thanks.
REPLY
I am not able to advice on any product that can offer 10% to 15% p.a. I only aim for 5% to 6% p.a. for my personal investments.
Read this FAQ about investing for the long term:
http://www.tankinlian.com/faq/savings.html
If you wish to invest in the STI ETF, you have to approach a stockbroker.
Wish you all the best.
Defamatory comments
I have blocked defamatory comments posted by visitors. These defamatory comments are directed at specific persons or organisations. They attack a person's character.
I allow comments that are fair and substantiated by facts.
I allow comments that are fair and substantiated by facts.
Friday, March 28, 2008
Honesty is the best policy
Dear Mr. Tan,
I would like to extend my warm thanks for your honest insights into the insurance sector. Your advice correlates with what I have personally experienced and discovered through readings.
I'm afraid that while many agents state that they have the interests of the consumer at heart, in reality, they're more concerned about the commission.
I'll be recommending your blog to all of my friends. I hope more insurance agents will realise that "honesty is the best policy".
Thank you for your honesty. It is much appreciated in present times.
I would like to extend my warm thanks for your honest insights into the insurance sector. Your advice correlates with what I have personally experienced and discovered through readings.
I'm afraid that while many agents state that they have the interests of the consumer at heart, in reality, they're more concerned about the commission.
I'll be recommending your blog to all of my friends. I hope more insurance agents will realise that "honesty is the best policy".
Thank you for your honesty. It is much appreciated in present times.
Stamp duty on purchase of property
I hope that the government will remove the stamp duty on purchase of property. The removal of this cost will encourage some people to change their homes to be closer to their place of work. This will reduce the number of people that have to commute long distance to work and reduce the congestion on the road.
If there is a loss of revenue, it can be compensated by an adjustment to the property tax. (In my opinion, this is not necessary).
The government has removed estate duty. It is time to take the next step, in the interest of reducing road congestion and travelling time and cost.
If there is a loss of revenue, it can be compensated by an adjustment to the property tax. (In my opinion, this is not necessary).
The government has removed estate duty. It is time to take the next step, in the interest of reducing road congestion and travelling time and cost.
Mall of Asia, Manila
I visited the SM Mall of Asia in Manila. My host said that it is the largest mall in Asia.
It has an ice skating rink, cinemas, entertainment outlets, many stores, restaurants, a large department store and a hypermart.
Although the mall is large, it is easy to move around. The signage are excellent. In contrast, I often get lost in many of the smaller shopping malls in Singapore.
The mall is across a park and beach at the side of Manila bay. Here is a picture of sunset at the bay.
Thursday, March 27, 2008
Role of agents
Dear Mr. Tan,
Is there a role for agents to sell low cost insurance and investment funds?
REPLY
The customer can buy from the following channels:
a) call center
b) internet
c) agent
As the agent earns a low commission, the customer has to contact the agent by telephone or visit the agent's office to complete the transaction.
Read this FAQ:
http://www.tankinlian.com/faq/lower.html
Is there a role for agents to sell low cost insurance and investment funds?
REPLY
The customer can buy from the following channels:
a) call center
b) internet
c) agent
As the agent earns a low commission, the customer has to contact the agent by telephone or visit the agent's office to complete the transaction.
Read this FAQ:
http://www.tankinlian.com/faq/lower.html
Cost of insurance
Dear Tan Kin Lian
My agent said that my ILP covers are personal accident, medical card, 36 disease and permanent disability. If I want to buy a separate policy to cover the above, I have to pay a higher premium. Is this true?
REPLY
You can compare the cost of the insurance covers under your ILP with the benchmark premium mentioned in this FAQ:
http://www.tankinlian.com/faq/benchmark.html
You can use the term insurance rates to compare with the death benefit, including permanent disability. The premium to cover 36 critical illness is 1.5 times of the term insurance rates (as a rough guide).
The ILP will probably charge you a rate that increases each year. The benchmark premium shows the level premium for the period. You can add the total premium for the period (say 20 years) to make a comparison.
My agent said that my ILP covers are personal accident, medical card, 36 disease and permanent disability. If I want to buy a separate policy to cover the above, I have to pay a higher premium. Is this true?
REPLY
You can compare the cost of the insurance covers under your ILP with the benchmark premium mentioned in this FAQ:
http://www.tankinlian.com/faq/benchmark.html
You can use the term insurance rates to compare with the death benefit, including permanent disability. The premium to cover 36 critical illness is 1.5 times of the term insurance rates (as a rough guide).
The ILP will probably charge you a rate that increases each year. The benchmark premium shows the level premium for the period. You can add the total premium for the period (say 20 years) to make a comparison.
Best insurance plan for your child
As a parent, you will probably ask the following questions:
a) What insurance protection should I buy for my child?
b) How can I save for my child's education fund?
An insurance agent will usually sell an endowment or critical illness to you to cover your child. The agent can earn commission of one or two years of your premium. The plan will give a low return to you.
Read this FAQ for an alternative approach:
http://www.tankinlian.com/faq/childlife.html
a) What insurance protection should I buy for my child?
b) How can I save for my child's education fund?
An insurance agent will usually sell an endowment or critical illness to you to cover your child. The agent can earn commission of one or two years of your premium. The plan will give a low return to you.
Read this FAQ for an alternative approach:
http://www.tankinlian.com/faq/childlife.html
Earn a return of 6% to 24% per annum?
How can you earn this high rate of return?
By lending to yourself. Read this FAQ:
http://www.tankinlian.com/faq/return.html
By lending to yourself. Read this FAQ:
http://www.tankinlian.com/faq/return.html
Fuel consumption for your car
Here is a method to calculate the fuel consumption for your car:
a) Each time you top up the tank, record the mileage meter and litres of petrol filled
b) Find the distance travelled between two top-ups, and the litres of petrol used
c) Calculate the number of kilometers travelled for each liter of petrol
If you know the fuel consumption of your car (i.e. the number of kilometers travelled per litre of petrol), you can work out the cost per kilometer based on the current price of petrol.
Record the results for your car in the comment below.
a) Each time you top up the tank, record the mileage meter and litres of petrol filled
b) Find the distance travelled between two top-ups, and the litres of petrol used
c) Calculate the number of kilometers travelled for each liter of petrol
If you know the fuel consumption of your car (i.e. the number of kilometers travelled per litre of petrol), you can work out the cost per kilometer based on the current price of petrol.
Record the results for your car in the comment below.
Sunset at Manila Bay
Here is a picture of the sunset at Manila Bay, taken from a yacht.
Later, when the yacht was out in the bay and the night has fallen, there was a 4 string quartet playing nostalgic songs on the yacht. It was nice to feel the breeze as the yacht sailed slowly in the bay and hear the captivating sounds of the violins.
This experience reminds me of the song... You belong to my heart, now and forever .... And our love has its start, not long ago ... We were gathering stars while a million guitars played our love song ... When I said I love you, every beat of my heart said it too ....
Good advice from an uncle
Dear Tan Kin Lian,
I purchase the investment link policy(ILP) for 1 year. My uncle told me that ILP is not worth to buy. The insurance company and agent earn more commission. His advise is:
1) Don't join investment and insurance together, will definitely not benefit the policy holder.
2) For insurance, buy term life insurance which is cheaper and coverage higher.
3) For investment, buy mutual funds by our own.
Then I consult my agent and told him what my uncle told me.
My agent said that:
1) Term life policy do not cover the 36 diseases and medical card.
2) ILP coverage are Personal Accident(PA), Medical Card, 36 disease, Permanent Disability.
3) If I want to buy a policy which cover up all the above without investment, the premium pay is even more higher than ILP.
4) He will get higher commission if I buy all those policy separately.
Is that true? Hope can receive your valuable advise.
REPLY
I agree with your uncle. The agent does not give you the best advice.
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
I purchase the investment link policy(ILP) for 1 year. My uncle told me that ILP is not worth to buy. The insurance company and agent earn more commission. His advise is:
1) Don't join investment and insurance together, will definitely not benefit the policy holder.
2) For insurance, buy term life insurance which is cheaper and coverage higher.
3) For investment, buy mutual funds by our own.
Then I consult my agent and told him what my uncle told me.
My agent said that:
1) Term life policy do not cover the 36 diseases and medical card.
2) ILP coverage are Personal Accident(PA), Medical Card, 36 disease, Permanent Disability.
3) If I want to buy a policy which cover up all the above without investment, the premium pay is even more higher than ILP.
4) He will get higher commission if I buy all those policy separately.
Is that true? Hope can receive your valuable advise.
REPLY
I agree with your uncle. The agent does not give you the best advice.
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
Wednesday, March 26, 2008
1,027 visits on Mar 26, 2008
There were 1,027 visitors to my blog yesterday. It is the highest over the past year. I seem to get a lot of visitors each time that I am overseas. (I am now in Manila, Philippines).
Universal Life - look at the charges
Dear Mr. Tan,
What is your opinion on the use of "universal life insurance" as a retirement tool. It is highly recommended if the objectives of retirement is to be able to maintain a comfortable lifestyle during retirement and to also preserve wealth to pass it on. Let me have your comments. Thanks
REPLY
Universal life in a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges. A universal life policy is likely to have charges similar to an investment-lined plan.
You can read about the charges on investment-linked plan (ILP) from this FAQ
http://www.tankinlian.com/faq/ilp.html
What is your opinion on the use of "universal life insurance" as a retirement tool. It is highly recommended if the objectives of retirement is to be able to maintain a comfortable lifestyle during retirement and to also preserve wealth to pass it on. Let me have your comments. Thanks
REPLY
Universal life in a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges. A universal life policy is likely to have charges similar to an investment-lined plan.
You can read about the charges on investment-linked plan (ILP) from this FAQ
http://www.tankinlian.com/faq/ilp.html
Tuesday, March 25, 2008
Simpler way to mail a letter
I sent a letter addressed to:
Tan Kin Lian
Singapore 809744.
10 days have passed. It never arrived!
Singapore Post must have decided that this address is incomplete and thrown the letter away!
Tan Kin Lian
Singapore 809744.
10 days have passed. It never arrived!
Singapore Post must have decided that this address is incomplete and thrown the letter away!
Low cost products
I wish to give an idea of the type of products that give good value to consumers. I hope that these products will be available through a new life insurance company later this year.
This company will offer the products through the internet and call center, making it easy for consumers to buy the products.
LOW COST INSURANCE
1) Term insurance
Pays the sum assured in the event of premature death during the insurance period The sum assured is level during the period. Example: insure $200,000 for 20 years.
2) Reducing Term Insurance
Pays the reducing sum assured in the event of premature death during the insurance period. The sum assured starts at a higher amount and reduces each year during the period. Example: insure $400,000 reducing by $20,000 yearly over 20 years.
3) Family Income Benefit
Pays a monthly income in the event of premature death during the insurance period. The income is payable for the remainder of the period. Example: insure $2,000 payable monthly for the remainder of 20 years.
4) Family Protector
Combines a term insurance and a family income benefit. Example: insures $50,000 plus $2,000 a month for 20 years.
LOW COST DIVERSIFIED FUND
5) Wealth Accumulator
Allows you to invest in a diversified investment fund (i.e. equity, bond or treasuries) to earn the market rate of return. Reduces the risk by diversifying over a large number of quality investments. You can invest for the long term to average out the good and bad years. There is no front-end load. The expense ratio is probably the lowest in the market (e.g. 0.6% for an equity fund).
This company will offer the products through the internet and call center, making it easy for consumers to buy the products.
LOW COST INSURANCE
1) Term insurance
Pays the sum assured in the event of premature death during the insurance period The sum assured is level during the period. Example: insure $200,000 for 20 years.
2) Reducing Term Insurance
Pays the reducing sum assured in the event of premature death during the insurance period. The sum assured starts at a higher amount and reduces each year during the period. Example: insure $400,000 reducing by $20,000 yearly over 20 years.
3) Family Income Benefit
Pays a monthly income in the event of premature death during the insurance period. The income is payable for the remainder of the period. Example: insure $2,000 payable monthly for the remainder of 20 years.
4) Family Protector
Combines a term insurance and a family income benefit. Example: insures $50,000 plus $2,000 a month for 20 years.
LOW COST DIVERSIFIED FUND
5) Wealth Accumulator
Allows you to invest in a diversified investment fund (i.e. equity, bond or treasuries) to earn the market rate of return. Reduces the risk by diversifying over a large number of quality investments. You can invest for the long term to average out the good and bad years. There is no front-end load. The expense ratio is probably the lowest in the market (e.g. 0.6% for an equity fund).
Financial planning can be confusing
Hi, Mr. Tan,
I spent two hours with an insurance agent to do a financial planning exercise. We went through many projections using different rates of inflation and insurance products. I find the projections to be quite confusing as they produce different results.
To meet my target of retiring at age 60 with a monthly income of $x (adjusted for inflation), I have to save $y (about 30% of my salary) each month. I cannot afford to save this amount. If I save a smaller sum, I need to invest my savings more agressively to earn 10% per year. Is this realistic? Can you advice?
REPLY
I find this approach to be quite speculative. The results differ according to the assumptions on:
a) inflation
b) investment return
c) period of investment (or retirement age)
Here are my general tips:
a) Save 10% to 15% of your monthly salary, if your budget is tight
b) Save more, if your regular expenses take a smaller share of your salary (for singles and high earners)
c) Invest your savings in a low cost, diversified fund
d) Buy low cost insurance, to provide a payment in event of premature death
e) Retire at an age when your accumulated savings (with yield) is sufficient to meet your future lifetime expenses
f) Be flexible on your retirement age and the amount of retirement income (i.e. live within your means)
Using my guidelines, you will be able to retire quite comfortably at the age of 65 years. You can retire earlier, if you are prepared to accept a more frugal lifestyle.
Read this FAQ:
http://www.tankinlian.com/faq/fptips.html
I spent two hours with an insurance agent to do a financial planning exercise. We went through many projections using different rates of inflation and insurance products. I find the projections to be quite confusing as they produce different results.
To meet my target of retiring at age 60 with a monthly income of $x (adjusted for inflation), I have to save $y (about 30% of my salary) each month. I cannot afford to save this amount. If I save a smaller sum, I need to invest my savings more agressively to earn 10% per year. Is this realistic? Can you advice?
REPLY
I find this approach to be quite speculative. The results differ according to the assumptions on:
a) inflation
b) investment return
c) period of investment (or retirement age)
Here are my general tips:
a) Save 10% to 15% of your monthly salary, if your budget is tight
b) Save more, if your regular expenses take a smaller share of your salary (for singles and high earners)
c) Invest your savings in a low cost, diversified fund
d) Buy low cost insurance, to provide a payment in event of premature death
e) Retire at an age when your accumulated savings (with yield) is sufficient to meet your future lifetime expenses
f) Be flexible on your retirement age and the amount of retirement income (i.e. live within your means)
Using my guidelines, you will be able to retire quite comfortably at the age of 65 years. You can retire earlier, if you are prepared to accept a more frugal lifestyle.
Read this FAQ:
http://www.tankinlian.com/faq/fptips.html
Petrol cost per kilometer travelled
With the increase in petrol price, do you know what is the petrol cost per kilometer for your car?
Here is a simple way to calculate this cost factor:
a) When you next top up to full tank, record the kilometer reading.
b) On the following top up to full tank, record the kilometer reading and the amount paid
c) Subtract the difference between the reading to get the kilometer travelled
d) Divide the petrol bill by the kilometer reading to get the cost per kilometer travelled.
If you have done this calculation, please post a comment showing the following: your model of car, petrol cost per kilometer travelled.
Here is a simple way to calculate this cost factor:
a) When you next top up to full tank, record the kilometer reading.
b) On the following top up to full tank, record the kilometer reading and the amount paid
c) Subtract the difference between the reading to get the kilometer travelled
d) Divide the petrol bill by the kilometer reading to get the cost per kilometer travelled.
If you have done this calculation, please post a comment showing the following: your model of car, petrol cost per kilometer travelled.
Travel to Manila, Philippines
I will be in Manila for the next four days. I shall present a paper to a meeting organised by the regional office of the International Cooperative Alliance. During this period, I shall be updating my blog less regularly.
Switching into the Wealth Accumulator plan
Dear Mr. Tan,
I am interested in your Wealth Accumulator plan, which is to be introduced later this year. I am now invested in the Combined Fund of NTUC. Should I switch to this new plan?
REPLY
The expense ratio of the low cost funds that can be purchased under the Wealth Accumulator plan is likely to be 0.3% lower than the Combined Fund. There is a small advantage in making this switch, but it is a recurring annual saving.
For new investments, the Wealth Accumulator plan has no front end charge (except for a small transaction fee). New investments into the Combined Fund attract a front end charge of 3% (invested through Flexi-Link) or 18.5% for the first three years and 3.5% for subsequent years (invested through the Ideal plan).
It is better to switch to the Wealth Accumulator plan, if you expect to make new investments. There is no penalty on withdrawal from the Combined Fund.
A similar advantage applies to switching form the ILP funds of other insurance companies.
Note: The Wealth Accumulator plan is not available at this time. Please wait for it to be available and details to be confirmed, before you make your decision.
I am interested in your Wealth Accumulator plan, which is to be introduced later this year. I am now invested in the Combined Fund of NTUC. Should I switch to this new plan?
REPLY
The expense ratio of the low cost funds that can be purchased under the Wealth Accumulator plan is likely to be 0.3% lower than the Combined Fund. There is a small advantage in making this switch, but it is a recurring annual saving.
For new investments, the Wealth Accumulator plan has no front end charge (except for a small transaction fee). New investments into the Combined Fund attract a front end charge of 3% (invested through Flexi-Link) or 18.5% for the first three years and 3.5% for subsequent years (invested through the Ideal plan).
It is better to switch to the Wealth Accumulator plan, if you expect to make new investments. There is no penalty on withdrawal from the Combined Fund.
A similar advantage applies to switching form the ILP funds of other insurance companies.
Note: The Wealth Accumulator plan is not available at this time. Please wait for it to be available and details to be confirmed, before you make your decision.
Investing in REITS
Dear Mr. Tan,
Thank you for maintaining your blog. I have learned a lot from your experience, observation and answers to other people's questions..
May I know your views on Real Estate Investment Trusts (REIT) for long term investment as compare to STI ETF?
There are 20 REITs listed on SGX
http://stquote.sgx.com/live/st/STREIT.asp.
At the current price, their average return is about 6.8% p.a
http://www.reitdata.blogspot.com/
REIT would meet some of your criterias for long-term investment:
a) A diversified fund
b) Blue chip investments, i.e. non-speculative
c) Low cost, i..e. less than 1% per annum
d) Low upfront fee, less than 1%
REPLY
REITS are invested in properties. This is an asset class separate from equities.
Properties are also suitable for long term investments. You can have some of your long term savings in REITS. A suitable proportion is 25% in REITS and 75% in equities and bonds.
You are right that REITS offer an attractive yield. Part of the yield represents a return of your invested capital, as the properties are a depreciating assets.
After allowing for this factor, the yield is still attractive. I have invested part of my savings in REITS. If you search my blog and look for REITS, you will get a few postings.
Thank you for maintaining your blog. I have learned a lot from your experience, observation and answers to other people's questions..
May I know your views on Real Estate Investment Trusts (REIT) for long term investment as compare to STI ETF?
There are 20 REITs listed on SGX
http://stquote.sgx.com/live/st/STREIT.asp.
At the current price, their average return is about 6.8% p.a
http://www.reitdata.blogspot.com/
REIT would meet some of your criterias for long-term investment:
a) A diversified fund
b) Blue chip investments, i.e. non-speculative
c) Low cost, i..e. less than 1% per annum
d) Low upfront fee, less than 1%
REPLY
REITS are invested in properties. This is an asset class separate from equities.
Properties are also suitable for long term investments. You can have some of your long term savings in REITS. A suitable proportion is 25% in REITS and 75% in equities and bonds.
You are right that REITS offer an attractive yield. Part of the yield represents a return of your invested capital, as the properties are a depreciating assets.
After allowing for this factor, the yield is still attractive. I have invested part of my savings in REITS. If you search my blog and look for REITS, you will get a few postings.
Quality of a Good Leader in Science
Mrs Lee Kum Tatt has dug up some scripts of her husband which she wants to share with us. It will be interesting to find out how some of the values which Dr. Lee selected have affected his life and work.
This is meant to encourage, if not inspire, those who are pursuing a Science profession and career to be courageous to pursue their ideals and dreams. If handled properly it is a small prize to pay to be a good scientist.
www.leekumtatt.blogspot.com
This is meant to encourage, if not inspire, those who are pursuing a Science profession and career to be courageous to pursue their ideals and dreams. If handled properly it is a small prize to pay to be a good scientist.
www.leekumtatt.blogspot.com
Monday, March 24, 2008
Price subsidy for essential products
A newspaper report explained the difficulty faced in Malaysia about handling price control for fuel and essential products. It appears that price control distorts the distribution of the products and cause artificial shortages.
Is there any other way to provide relief to ordinary people from high prices, apart from price controls?
During war time, the distribution of essential products were done through coupons. This is the rationing system. People can buy the products only through coupons. This system also has its problems. A black market is created for the sale of these coupons.
In today's world, there is a better system to handle this problem. It involves the use of low-cost technology.
Anyone like to suggest what is a workable system?
Is there any other way to provide relief to ordinary people from high prices, apart from price controls?
During war time, the distribution of essential products were done through coupons. This is the rationing system. People can buy the products only through coupons. This system also has its problems. A black market is created for the sale of these coupons.
In today's world, there is a better system to handle this problem. It involves the use of low-cost technology.
Anyone like to suggest what is a workable system?
Life insurance products
There are three main types of life insurance products:
a) Term insurance - pays the sum assured on death during the period of insurance. The policy ceases at the end of the period. There is no savings in this policy.
b) Whole life insurance - pays the sum assured on death. The policy can be continued for a lifetime. The policyholder has the option to terminate the policy and receive a cash value.
c) Endowment insurance - pays the sum assured on premature death or on the maturty date (i.e. at the end of the period of insurance). This policy combines the term insurance together with a savings element that accumulates the benefit payable on maturity.
The premium paid under whole life or endowment insurance is higher than term insurance. The excess premium, less charges, is accumulated to produce the cash value or maturity benefit. Due to the high charges, the yield on this savings portion is generally poor.
If you buy a participating or with-profits policy (i.e. whole life or endowment policy), your policy will earn an annual bonus that depends on the profits of the insurance company. This bonus is added to the policy. The yield on a participating policy is marginally higher, but is still low compared with other financial products.
It is better to pay a separate premium for the term insurance, and invest the remaining savings in a low cost investment fund, which can produce a higher yield on the investments.
The annuity is a different product. I shall explain its features separately.
a) Term insurance - pays the sum assured on death during the period of insurance. The policy ceases at the end of the period. There is no savings in this policy.
b) Whole life insurance - pays the sum assured on death. The policy can be continued for a lifetime. The policyholder has the option to terminate the policy and receive a cash value.
c) Endowment insurance - pays the sum assured on premature death or on the maturty date (i.e. at the end of the period of insurance). This policy combines the term insurance together with a savings element that accumulates the benefit payable on maturity.
The premium paid under whole life or endowment insurance is higher than term insurance. The excess premium, less charges, is accumulated to produce the cash value or maturity benefit. Due to the high charges, the yield on this savings portion is generally poor.
If you buy a participating or with-profits policy (i.e. whole life or endowment policy), your policy will earn an annual bonus that depends on the profits of the insurance company. This bonus is added to the policy. The yield on a participating policy is marginally higher, but is still low compared with other financial products.
It is better to pay a separate premium for the term insurance, and invest the remaining savings in a low cost investment fund, which can produce a higher yield on the investments.
The annuity is a different product. I shall explain its features separately.
Know What's Ethical
Minister for Health Khaw Boon Wan said,
"Doctors should be aware that they should not prescribe procedures of dubious benefits to their patients, exposing them to unnecessary risk or financial cost. If they do so, they will be considered unethical."
I hope that MAS Chairman Goh Chok Tong will say the following:
"Financial advisers should be aware that they should not prescribe financial and insurance products of dubious benefits to their clients, exposing them to unnecessary risk or financial cost. If they do so, they will be considered unethical."
This message, coming from the highest level in MAS, will address the marketing abuses in the financial services market.
"Doctors should be aware that they should not prescribe procedures of dubious benefits to their patients, exposing them to unnecessary risk or financial cost. If they do so, they will be considered unethical."
I hope that MAS Chairman Goh Chok Tong will say the following:
"Financial advisers should be aware that they should not prescribe financial and insurance products of dubious benefits to their clients, exposing them to unnecessary risk or financial cost. If they do so, they will be considered unethical."
This message, coming from the highest level in MAS, will address the marketing abuses in the financial services market.
Take the risk and get a higher return
A whole life or endowment policy will lock you into a low yield, for the following reasons:
a) the insurance company has to invest 70% of the money in low yielding bonds (to provide the guarantee), and only 30% in equity or property (which gives a higher yield)
b) up to two years of the premium is used to pay commission and marketing expenses.
Here are the yields that you can get on your savings (excluding the portion used to pay for the insurance cover):
3% - from an insurance product, after deducting marketing expenses
4% - from a no-load investment fund, invested with the same mix
6% - from a no-load investment fund, invested 100% in equity.
Here is the amount that you can get by investing $6,000 a year
An investment fund has risk, but it can be reduced by diversification and investing for the long term.
Question: Do you want a "safe" investment, that gives you $294,000 when a "no-guarantee" investment can give you much more, say $503,000?
Lesson: Take the risk and enjoy a higher return. Avoid paying high front end charges.
a) the insurance company has to invest 70% of the money in low yielding bonds (to provide the guarantee), and only 30% in equity or property (which gives a higher yield)
b) up to two years of the premium is used to pay commission and marketing expenses.
Here are the yields that you can get on your savings (excluding the portion used to pay for the insurance cover):
3% - from an insurance product, after deducting marketing expenses
4% - from a no-load investment fund, invested with the same mix
6% - from a no-load investment fund, invested 100% in equity.
Here is the amount that you can get by investing $6,000 a year
Duration 3% pa 4% pa 6% pa
10 years $70,800 $74,900 $83,800
20 years $166,000 $186,000 $234,000
30 years $294,000 $359,000 $503,000
An investment fund has risk, but it can be reduced by diversification and investing for the long term.
Question: Do you want a "safe" investment, that gives you $294,000 when a "no-guarantee" investment can give you much more, say $503,000?
Lesson: Take the risk and enjoy a higher return. Avoid paying high front end charges.
Creaming off the customer
Dear Mr. Tan,
Is an insurance product that offers a return of less than 2% over 20 years considered as "creaming off" the policyholder?
REPLY
Over a 20 year period, the expected return should be 5% per annum, considering the current rate of inflation and other factors.
If the product offers less than 2%, then the difference of 3% is taken away for the following:
a) cost of insurance protection
b) commission to the sales agents
c) advertising expenses
d) high salaries and other expenses.
The cost of insurance protection should taken away only 0.5%. The remaining 2.5% is large wasted on the marketing and other expenses.
The product is usually marketed with "gimmicks" that hide the real cost. This can be considered as "creaming of" the customer.
Is an insurance product that offers a return of less than 2% over 20 years considered as "creaming off" the policyholder?
REPLY
Over a 20 year period, the expected return should be 5% per annum, considering the current rate of inflation and other factors.
If the product offers less than 2%, then the difference of 3% is taken away for the following:
a) cost of insurance protection
b) commission to the sales agents
c) advertising expenses
d) high salaries and other expenses.
The cost of insurance protection should taken away only 0.5%. The remaining 2.5% is large wasted on the marketing and other expenses.
The product is usually marketed with "gimmicks" that hide the real cost. This can be considered as "creaming of" the customer.
Planning for financial security of family
Dear Mr Tan,
Your blog have been most invaluable in helping me with my current review of all the policies bought by my family.
1) You mentioned so frequently about the monthly income benefit but I realised this product is not common among the insurers. From what I gather, only Aviva, GE and TM Asia (together a term or whole life policy) have it. The cheapest I found was fom GE: $3000 monthly income benefit till age 60yrs old, with waiting period of 90 days for $630 p.a. Is this a reasonable price to pay? Why isn't there more of this product in the market since it is quite essential to a person with family?
Reply:
The GE product appears to be a disability income product. It pays the monthly income during disabilty for a certain period and ceases on death.
You need a family income product, which pays a monthly income to the family on the death of the policyholder. The income is payable for the remainder of the period of insurance.
2) Also in your past entries where you mentioned we should aim for coverage of about 5x our annual income. Should we also include the coverage given by our employers in this case?
Reply:
You can include the coverage provided by your employer to make the target of 5 years. It is all right to insure for a higher sum, say up to 8 years of your income.
3) Is there any difference when insurers say Terminal Illness and Critical Illness?
Reply
The definitions of critical illness and terminal illness are different. Many people can claim for critical illness earlier, before they can claim for terminal illness.
Your blog have been most invaluable in helping me with my current review of all the policies bought by my family.
1) You mentioned so frequently about the monthly income benefit but I realised this product is not common among the insurers. From what I gather, only Aviva, GE and TM Asia (together a term or whole life policy) have it. The cheapest I found was fom GE: $3000 monthly income benefit till age 60yrs old, with waiting period of 90 days for $630 p.a. Is this a reasonable price to pay? Why isn't there more of this product in the market since it is quite essential to a person with family?
Reply:
The GE product appears to be a disability income product. It pays the monthly income during disabilty for a certain period and ceases on death.
You need a family income product, which pays a monthly income to the family on the death of the policyholder. The income is payable for the remainder of the period of insurance.
2) Also in your past entries where you mentioned we should aim for coverage of about 5x our annual income. Should we also include the coverage given by our employers in this case?
Reply:
You can include the coverage provided by your employer to make the target of 5 years. It is all right to insure for a higher sum, say up to 8 years of your income.
3) Is there any difference when insurers say Terminal Illness and Critical Illness?
Reply
The definitions of critical illness and terminal illness are different. Many people can claim for critical illness earlier, before they can claim for terminal illness.
Sunday, March 23, 2008
Can you trust your insurance company?
Can you trust your insurance company on the following:
a) give you a fair deal?
b) keep your cost low?
c) handle your insurance claims fairly?
d) give you the best possible return?
Your insurance company can be trusted only if:
a) it operates efficiently
b) keeps its cost low
c) gives a fair deal to customers
d) communicates openly with you
e) makes it convenient for you to reach the right people
f) does not lock you up in a long term contract with termination penalty
The trustworthy insurance company can still make a fair profit for its shareholders, but this is done by giving good value to its customers (and not by "creaming off" the customers).
a) give you a fair deal?
b) keep your cost low?
c) handle your insurance claims fairly?
d) give you the best possible return?
Your insurance company can be trusted only if:
a) it operates efficiently
b) keeps its cost low
c) gives a fair deal to customers
d) communicates openly with you
e) makes it convenient for you to reach the right people
f) does not lock you up in a long term contract with termination penalty
The trustworthy insurance company can still make a fair profit for its shareholders, but this is done by giving good value to its customers (and not by "creaming off" the customers).
Invest for the long term
Hi Mr. Tan,
As current market was already so volatile, some says that this time around may be the bottom, and even predicted that stock market will surge, like in this article: http://www.reuters.com/article/hotStocksNews/idUSN0732951420080323.
What is your opinion about this?
REPLY
If you are investing for the long term, the current level is a good time to make the investment. It is now 30% below the previous peak.
As current market was already so volatile, some says that this time around may be the bottom, and even predicted that stock market will surge, like in this article: http://www.reuters.com/article/hotStocksNews/idUSN0732951420080323.
What is your opinion about this?
REPLY
If you are investing for the long term, the current level is a good time to make the investment. It is now 30% below the previous peak.
Saturday, March 22, 2008
Disability income and family income
There is a difference between disability income benefit and family income benefit.
A disability income benefit pays a monthly benefit during the period of disabilty and ceases on death or for a specified benefit period, e.g. 60 months. The extent of the disability is defined in the policy. The payment starts after a waiting period, e.g. 90 days.
A family income benefit pays a monthly benefit to the family following the death of the policyholder, and is payable for the remainder of the insurance period. If the insurance is for 30 years and death occurs at the end of 20 years, the monthly benefit is payable for 10 years.
A disability income benefit pays a monthly benefit during the period of disabilty and ceases on death or for a specified benefit period, e.g. 60 months. The extent of the disability is defined in the policy. The payment starts after a waiting period, e.g. 90 days.
A family income benefit pays a monthly benefit to the family following the death of the policyholder, and is payable for the remainder of the insurance period. If the insurance is for 30 years and death occurs at the end of 20 years, the monthly benefit is payable for 10 years.
Submit income tax return by e-filing
I submitted my income tax return by e-filing. This is the first time that I filed my income tax return way ahead of the deadline.
My previous employer made a mistake with my income statement. The e-filing does not allow me to correct the figure. It was quite troublesome for me. I hope that people who design website think about the customer, and not about their own convenience.
My previous employer made a mistake with my income statement. The e-filing does not allow me to correct the figure. It was quite troublesome for me. I hope that people who design website think about the customer, and not about their own convenience.
Term insurance with income benefit
If you have young children, you can provide low cost, adequate financial security to your family by buying a term insurance policy combined with a monthly income benefit.
Here are some examples:
Entry age 30
Period of insurance: 25 years
Lump sum benefit: $50,000
Monthly income benefit: $2,000 payable for remainder of term
Initial coverage = $50,000 + $2,000 X 12 X 25 = $650,000
Annual premium: $303 X 2 = $606 (male).
Annual premium: $184 X 2 = $368 (female).
Entry age 35
Period of insurance: 20 years
Lump sum benefit: $50,000
Monthly income benefit: $2,000 payable for remainder of term
Initial coverage: $50,000 + $2,000 X 12 X 20 = $530,000
Annual premium: $331 X 2 = $662 (male).
Annual premium: $187 X 2 = $374 (female).
If your children are older, you need insurance for a shorter period.
These benchmark rates are calculated based on the current mortality rates, and a fair loading for expense and profit margin. It may not be the actual rates now charged in the market.
See this FAQ:
http://www.tankinlian.com/faq/termassurance.html
Here are some examples:
Entry age 30
Period of insurance: 25 years
Lump sum benefit: $50,000
Monthly income benefit: $2,000 payable for remainder of term
Initial coverage = $50,000 + $2,000 X 12 X 25 = $650,000
Annual premium: $303 X 2 = $606 (male).
Annual premium: $184 X 2 = $368 (female).
Entry age 35
Period of insurance: 20 years
Lump sum benefit: $50,000
Monthly income benefit: $2,000 payable for remainder of term
Initial coverage: $50,000 + $2,000 X 12 X 20 = $530,000
Annual premium: $331 X 2 = $662 (male).
Annual premium: $187 X 2 = $374 (female).
If your children are older, you need insurance for a shorter period.
These benchmark rates are calculated based on the current mortality rates, and a fair loading for expense and profit margin. It may not be the actual rates now charged in the market.
See this FAQ:
http://www.tankinlian.com/faq/termassurance.html
Estate duty in Singapore
Hi,
I missed out the news on Estate Duty of Death Tax. Can someone fill me up with more information?
REPLY
Estate duty has been abolished on 15 Feb 2008. This was announced by the M of Finance in the recent budget speech.
Here are the announcements:
http://www.simplywills.com.sg/node/25
http://www.prlog.org/10051481-singapore-abolished-estate-duty-tax-with-immediate-effects.html
I missed out the news on Estate Duty of Death Tax. Can someone fill me up with more information?
REPLY
Estate duty has been abolished on 15 Feb 2008. This was announced by the M of Finance in the recent budget speech.
Here are the announcements:
http://www.simplywills.com.sg/node/25
http://www.prlog.org/10051481-singapore-abolished-estate-duty-tax-with-immediate-effects.html
Low cost insurance
Dear Sir,
I would like to register my interest for insurance planning. Over time, I have bought some policies mainly from insurers. I have also obtained assessment from independent advisor such as Provident.
However, I still would like to look around some cheap term insurance to further strengthen my coverage. If I have understood your message correctly, you are in the middle of setting an insurance operation. How could I proceed to learn more about your products?
REPLY
If you want low cost insurance, you can contact the companies listed below:
http://www.tankinlian.com/faq/termd.html
Some future products, which I hope will be available in Singapore soon, are shown in:
http://www.tankinlian.com/faq/btid.html
http://www.tankinlian.com/faq/termassurance.html
I would like to register my interest for insurance planning. Over time, I have bought some policies mainly from insurers. I have also obtained assessment from independent advisor such as Provident.
However, I still would like to look around some cheap term insurance to further strengthen my coverage. If I have understood your message correctly, you are in the middle of setting an insurance operation. How could I proceed to learn more about your products?
REPLY
If you want low cost insurance, you can contact the companies listed below:
http://www.tankinlian.com/faq/termd.html
Some future products, which I hope will be available in Singapore soon, are shown in:
http://www.tankinlian.com/faq/btid.html
http://www.tankinlian.com/faq/termassurance.html
Keep your money in CPF
Hi, Mr. Tan
I need your advice. I have just signed up for a $30,000 Growth policy using my OA. The insurance agent told me that I must sign up before 1 April to beat the deadline. It offers a projected return slightly more than 4%.
My friend told me that this policy locks me up for the period of 20 years. If I need the money to buy a property or to contribute towards the monthly payment (in case I lose my job), I will have to suffer a loss. Is this correct? Can I withdraw from my policy now?
REPLY
Most people uses the ordinary account to pay the down payment for a property and to service the monthly repayments.
If you invest in the Growth policy, it is locked up for the period of 20 years. If you decide to terminate the policy (e.g. to use the funds for a property), you will have to suffer a loss, as part of your investment is used to pay commission to the insurance agent.
If you keep the money in the ordinary account, you will earn 3.5% (i2. 2.5% plus 1% bonus on $20,000). If you invest in the Growth policy, you will get a return between 2% to 4% (plus) depending on the future rate of bonus. If interest rate remains at a low level (as it has been during the recent years), the return on the Growth policy is likely to be lower than projected.
In my view, it is better to keep your money liquid, rather than be locked up in a long term contract that offers only a marginal increase in yield. If you decide to cancel the policy, you can do it within the 14 day cooling off period, and get a full refund.
I need your advice. I have just signed up for a $30,000 Growth policy using my OA. The insurance agent told me that I must sign up before 1 April to beat the deadline. It offers a projected return slightly more than 4%.
My friend told me that this policy locks me up for the period of 20 years. If I need the money to buy a property or to contribute towards the monthly payment (in case I lose my job), I will have to suffer a loss. Is this correct? Can I withdraw from my policy now?
REPLY
Most people uses the ordinary account to pay the down payment for a property and to service the monthly repayments.
If you invest in the Growth policy, it is locked up for the period of 20 years. If you decide to terminate the policy (e.g. to use the funds for a property), you will have to suffer a loss, as part of your investment is used to pay commission to the insurance agent.
If you keep the money in the ordinary account, you will earn 3.5% (i2. 2.5% plus 1% bonus on $20,000). If you invest in the Growth policy, you will get a return between 2% to 4% (plus) depending on the future rate of bonus. If interest rate remains at a low level (as it has been during the recent years), the return on the Growth policy is likely to be lower than projected.
In my view, it is better to keep your money liquid, rather than be locked up in a long term contract that offers only a marginal increase in yield. If you decide to cancel the policy, you can do it within the 14 day cooling off period, and get a full refund.
More options for low cost funds
Hi Mr. Tan,
I refer to your earlier post on no load financial products. In addition to such products, I think local investors also have an extremely poor choice when it comes to low-cost index funds or ETFs in mid and small cap companies, or in growth and value companies, unlike in the US.
Currently, we only have the STI-ETF which includes big-cap companies and where 40% of the index is already made up by the big 3 local banks.
As you're aware, a good and effective asset allocation plan, involving various asset sub-classes such as big, medium and small companies will help greatly in reducing volatility and increasing an investor's returns. And traditionally, of course, value and growth companies also offer higher returns than big-cap companies, albeit with higher risks.
I hope these products, including also a REIT-index-based product, will be introduced in the market soon, maybe by you? Thanks.
REPLY
Thank you. I hope that there will be more options for low-cost funds for the public in the near future.-
I refer to your earlier post on no load financial products. In addition to such products, I think local investors also have an extremely poor choice when it comes to low-cost index funds or ETFs in mid and small cap companies, or in growth and value companies, unlike in the US.
Currently, we only have the STI-ETF which includes big-cap companies and where 40% of the index is already made up by the big 3 local banks.
As you're aware, a good and effective asset allocation plan, involving various asset sub-classes such as big, medium and small companies will help greatly in reducing volatility and increasing an investor's returns. And traditionally, of course, value and growth companies also offer higher returns than big-cap companies, albeit with higher risks.
I hope these products, including also a REIT-index-based product, will be introduced in the market soon, maybe by you? Thanks.
REPLY
Thank you. I hope that there will be more options for low-cost funds for the public in the near future.-
Friday, March 21, 2008
Immigration Card - Malaysia
Visitors to Malaysia are not required to complete an immigration card. Entry into Malaysia is hassle free. Congratulations to the Malaysian Government for taking this simple and practical step.
I hope that Singapore will adopt this new practice. Do away with the immigration card. There is no need for this card, as the particulars in the passport are scanned into the computer system.
There is also no need to collect tourist statistics. So many people travel today, that the statistics have become meaningless.
I hope that Indonesia will also adopt this new method. Get rid of the immigration card and customs forms. They are a big waste of time, and hassle to the visitors.
I hope that Singapore will adopt this new practice. Do away with the immigration card. There is no need for this card, as the particulars in the passport are scanned into the computer system.
There is also no need to collect tourist statistics. So many people travel today, that the statistics have become meaningless.
I hope that Indonesia will also adopt this new method. Get rid of the immigration card and customs forms. They are a big waste of time, and hassle to the visitors.
When is a good time to enter the market?
Dear Mr. Tan,
I am thinking of investing in the STI ETF. As a beginner to investment, how would I gauge when is a good time to enter the market?
REPLY
Nobody knows when is a good time.
My guess is that this is now a good time, as the market has corrected and the financial crisis is likely to stablise now. If you are a long term investor, it should be quite safe to invest now.
Wish you all the best.
I am thinking of investing in the STI ETF. As a beginner to investment, how would I gauge when is a good time to enter the market?
REPLY
Nobody knows when is a good time.
My guess is that this is now a good time, as the market has corrected and the financial crisis is likely to stablise now. If you are a long term investor, it should be quite safe to invest now.
Wish you all the best.
Bernanke's plan is working
Here is a brief description of the current problem in the US financial system.
a. It started with the subprime mortgages, which saw high default rates
b. The value of the "asset backed securites" and the "collaterialised debt obligations" linked to these mortgages dropped significantly
c. The problem spread to the other sectors. Many "special investment vehicles" and hedge funds had been set up to use borrowed money, i.e. "leveraging", to invest in higher risk assets to earn a margin. These SIV and hedge funds could not refinance their borrowings, as the lenders got scared.
d. Investors starting to withdraw their money from hedge funds, SIV and the investment banks.
This led to the collapse of Bear Stearns. There was fear that they have to sell their illiquid assets at depressed prices, causing a collapse of the entire global financial system.
The US Fed, under the chairman Bernanke, came out with a plan to provide up a 6 months facility for investment banks to allow them to borrow from its "discount window" i.e. at the Fed discount rate, by pledging their illiquid assets.
Some experts believe that this plan is working and that the markets will stabilise and recover from now. This is expected to solve the "liquidity crunch". Let us hope that they are right!
a. It started with the subprime mortgages, which saw high default rates
b. The value of the "asset backed securites" and the "collaterialised debt obligations" linked to these mortgages dropped significantly
c. The problem spread to the other sectors. Many "special investment vehicles" and hedge funds had been set up to use borrowed money, i.e. "leveraging", to invest in higher risk assets to earn a margin. These SIV and hedge funds could not refinance their borrowings, as the lenders got scared.
d. Investors starting to withdraw their money from hedge funds, SIV and the investment banks.
This led to the collapse of Bear Stearns. There was fear that they have to sell their illiquid assets at depressed prices, causing a collapse of the entire global financial system.
The US Fed, under the chairman Bernanke, came out with a plan to provide up a 6 months facility for investment banks to allow them to borrow from its "discount window" i.e. at the Fed discount rate, by pledging their illiquid assets.
Some experts believe that this plan is working and that the markets will stabilise and recover from now. This is expected to solve the "liquidity crunch". Let us hope that they are right!
Estate planning
Hi Mr.Tan,
Can you share with me your views on Estate Planning and its implications with the removal of Death Taxes? Is Estate Planning still relevant in Singapore?
I'm just trying to understand how much is left in Estate Planning after the removal of Death Taxes. The text books talk about Estate Preservation, Estate Distribution and Estate Creation in view of succession planning.
While this is all academic, I was hoping you could share some insights into some percularities or blind-sided areas on a more practical front.
REPLY
The important components of estate planning are:
a. Identify the assets in your estate
b. Buy insurance to provide funds to pay the estate duty (not required now)
c. Decide how the estate is to be distributed on your death (this is done through a will)
d. Appoint the people to manage the estate.
If you estate is substantial, it is better to transfer your assets into a separate trust now, and appoint trustees to manage the trust. You can be one of the trustees. This trust becomes part of the estate on your death.
I will invite my blog readers to share other perspective of estate planning.
Can you share with me your views on Estate Planning and its implications with the removal of Death Taxes? Is Estate Planning still relevant in Singapore?
I'm just trying to understand how much is left in Estate Planning after the removal of Death Taxes. The text books talk about Estate Preservation, Estate Distribution and Estate Creation in view of succession planning.
While this is all academic, I was hoping you could share some insights into some percularities or blind-sided areas on a more practical front.
REPLY
The important components of estate planning are:
a. Identify the assets in your estate
b. Buy insurance to provide funds to pay the estate duty (not required now)
c. Decide how the estate is to be distributed on your death (this is done through a will)
d. Appoint the people to manage the estate.
If you estate is substantial, it is better to transfer your assets into a separate trust now, and appoint trustees to manage the trust. You can be one of the trustees. This trust becomes part of the estate on your death.
I will invite my blog readers to share other perspective of estate planning.
Projected return of 4.16%
Hi Mr. Tan,
Recently, I am looking to invest a small sum of money in a low risk product for my children's education. After discussing with my agents, I am thinking of investing the money in a 15 year NTUC's Growth plan policy which provides a projected return of about 4.16% with a guaranteed return of about 2%. I am not looking to invest in a mutual fund because I would like to keep the risk to an acceptable level.
1) What is your view of this product?
2) Do you think my decision is wise?
3) Is there any other product that I should be looking at?
REPLY
This product is fairly satisfactory. I have also invested my SRS funds in the Growth policy to get the same modest return in the past.
My preference today is to invest in a mutual fund to get a higher return over the future years. Read this FAQ:http://www.tankinlian.com/faq/savings.html
Perhaps you can invest in 5,000 shares of the STI ETF. I believe that it should give a better return over the next 15 years.
Recently, I am looking to invest a small sum of money in a low risk product for my children's education. After discussing with my agents, I am thinking of investing the money in a 15 year NTUC's Growth plan policy which provides a projected return of about 4.16% with a guaranteed return of about 2%. I am not looking to invest in a mutual fund because I would like to keep the risk to an acceptable level.
1) What is your view of this product?
2) Do you think my decision is wise?
3) Is there any other product that I should be looking at?
REPLY
This product is fairly satisfactory. I have also invested my SRS funds in the Growth policy to get the same modest return in the past.
My preference today is to invest in a mutual fund to get a higher return over the future years. Read this FAQ:http://www.tankinlian.com/faq/savings.html
Perhaps you can invest in 5,000 shares of the STI ETF. I believe that it should give a better return over the next 15 years.
Blue chip stocks
Dear Mr. Tan,
I read from your blog there we can invest some blue-chips shares for long term. What are the blue chips shares can you lists some? Is F&N consider blue-chip? I think of investing for my children as they are around 13-15 years. Do you think is good? Please kindly give me opinions of what to do. Now the fixed deposit very is very low.
REPLY
I consider the 30 components stocks of the STI index as blue chips. These component stocks are listed in:
http://www.straitstimes.com//STI/STIMEDIA/sp/ftse08/Constituents1.pdf
F&N is a component of the index.
I read from your blog there we can invest some blue-chips shares for long term. What are the blue chips shares can you lists some? Is F&N consider blue-chip? I think of investing for my children as they are around 13-15 years. Do you think is good? Please kindly give me opinions of what to do. Now the fixed deposit very is very low.
REPLY
I consider the 30 components stocks of the STI index as blue chips. These component stocks are listed in:
http://www.straitstimes.com//STI/STIMEDIA/sp/ftse08/Constituents1.pdf
F&N is a component of the index.
Confidence in US financial firms
FROM BLOOMBERG.COM
Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke
By Pham-Duy Nguyen
March 21 (Bloomberg) -- The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.
The Standard & Poor's 500 Index posted its first weekly gain in a month, and the dollar leapt from its lowest level since 1973 after the Fed stepped in March 16 to rescue Bear Stearns Cos., the fifth-largest U.S. securities firm, and expanded its role as lender of last resort to embrace the biggest dealers in Treasury notes.
Investors who had poured money into gold, oil and corn, seeking a hedge against inflation and a weak dollar, sold commodities to raise cash or buy stocks. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29.
"Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''
Concern that the central bank would let inflation get out of control eased after the Fed cut its key interest rate by 0.75 percentage point on March 18, less than the reduction of at least 1 point that investors had expected.
"Clearly they've gotten some stability,'' said Keith Hembre, a former Fed researcher and chief economist at FAF Advisors Inc. in Minneapolis, which oversees more than $107 billion in assets.
"You have to stand back and say, for the time being, it looks to be a pretty successful combination of moves that have worked.''
Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke
By Pham-Duy Nguyen
March 21 (Bloomberg) -- The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.
The Standard & Poor's 500 Index posted its first weekly gain in a month, and the dollar leapt from its lowest level since 1973 after the Fed stepped in March 16 to rescue Bear Stearns Cos., the fifth-largest U.S. securities firm, and expanded its role as lender of last resort to embrace the biggest dealers in Treasury notes.
Investors who had poured money into gold, oil and corn, seeking a hedge against inflation and a weak dollar, sold commodities to raise cash or buy stocks. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29.
"Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''
Concern that the central bank would let inflation get out of control eased after the Fed cut its key interest rate by 0.75 percentage point on March 18, less than the reduction of at least 1 point that investors had expected.
"Clearly they've gotten some stability,'' said Keith Hembre, a former Fed researcher and chief economist at FAF Advisors Inc. in Minneapolis, which oversees more than $107 billion in assets.
"You have to stand back and say, for the time being, it looks to be a pretty successful combination of moves that have worked.''
Investing the CPF ordinary account
Hi Mr. Tan
Due to some personal reasons, my friend would like to divert all her CPF money to other investment, instead of leaving it in her ordinary account. She is not a person good at managing her finances. What are the options available to her?
She just want to make sure the sum of around 30k will be relatively safe and generate a moderate amount of interest or at least same as what CPF board is offering. When the minimum sum kicks in on 1st April 08, is it true that she can't invest all the 30k?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Due to some personal reasons, my friend would like to divert all her CPF money to other investment, instead of leaving it in her ordinary account. She is not a person good at managing her finances. What are the options available to her?
She just want to make sure the sum of around 30k will be relatively safe and generate a moderate amount of interest or at least same as what CPF board is offering. When the minimum sum kicks in on 1st April 08, is it true that she can't invest all the 30k?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Risk of forex trading
Hi Mr. Tan,
Thank You for your valuable info in your blog. It enriched my financial knowledge.
Now, economy is under unstable condition. My friend recommended me to invest in forex trading. Kindly advise on the risk involved and other factors. I am still quite clueless on it.
REPLY
Do not engage in forex trading. It is risky. You are likely to lose a lot of money.
It is better to invest for the long term in a low cost, diversified investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Thank You for your valuable info in your blog. It enriched my financial knowledge.
Now, economy is under unstable condition. My friend recommended me to invest in forex trading. Kindly advise on the risk involved and other factors. I am still quite clueless on it.
REPLY
Do not engage in forex trading. It is risky. You are likely to lose a lot of money.
It is better to invest for the long term in a low cost, diversified investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Thursday, March 20, 2008
Online enquiry form
A friendly online enquiry form ask for only 3 essential information
a) Your name
b) Your e-mail or contact number
c) A text box for you to type your enquiry
Most large organisations have an enquiry form that ask for non-essential information (many of which are mandatory) and ask the customer to select the type of enquiry from a long drop down list. They seem to enjoy making life difficult for their customers.
Of course, they want to collect customer data, but do they have to alienate their customers?
a) Your name
b) Your e-mail or contact number
c) A text box for you to type your enquiry
Most large organisations have an enquiry form that ask for non-essential information (many of which are mandatory) and ask the customer to select the type of enquiry from a long drop down list. They seem to enjoy making life difficult for their customers.
Of course, they want to collect customer data, but do they have to alienate their customers?
Risk based capital
A financial institution, such as a bank or insurance company, is required by the Monetary Authority of Singapore to have a share capital (i.e. risk-based capital) that reflects its risk profile. The risk profile comes from its invested assets and from its contractual liabilities to its customers.
A financial institition that takes more risk (i.e. asset and liability risk) is required to have more share capital. One that takes less risk is required to have lower share capital.
If the financial instition has more capital, it may appear to be "safer" and "better" for their customers. But this is only one side of the story.
A financial institution with more share capital has to make more profits to satisfy their shareholders. The expected return for shareholder is usually 10% to 15% on their investments. The higher profits is usually taken away from their customers, through excessive charges and other devices to "cream off" the customer.
It may be better for customers to transact with a financial institution that take lower risks and require lower share capital from the shareholders.
When you invest in a low cost, diversified investment fund, you are taking the investment risk. The fund manager does not take the risk, and does not require to have a high capital to provide the guarantee. They are able to give you a higher return.
Read this FAQ on how you can reduce your own risk, and still enjoy the high return:
http://www.tankinlian.com/faq/savings.html
A financial institition that takes more risk (i.e. asset and liability risk) is required to have more share capital. One that takes less risk is required to have lower share capital.
If the financial instition has more capital, it may appear to be "safer" and "better" for their customers. But this is only one side of the story.
A financial institution with more share capital has to make more profits to satisfy their shareholders. The expected return for shareholder is usually 10% to 15% on their investments. The higher profits is usually taken away from their customers, through excessive charges and other devices to "cream off" the customer.
It may be better for customers to transact with a financial institution that take lower risks and require lower share capital from the shareholders.
When you invest in a low cost, diversified investment fund, you are taking the investment risk. The fund manager does not take the risk, and does not require to have a high capital to provide the guarantee. They are able to give you a higher return.
Read this FAQ on how you can reduce your own risk, and still enjoy the high return:
http://www.tankinlian.com/faq/savings.html
Risk and return
Is it better to invest in higher risk assets (e.g. equities) or lower risk assets (e.g. bonds)?
Here is my answer:
a) If you wish to get a higher return, you should invest in equity
b) Over the long term, equity gives an annual return of 2% to 4% higher than bonds
You can reduce your risk of investing in equity as follows:
a) Invest in a diversified fund
b) The fund should be invested in only shares of blue chip companies, i.e. the largest companies in the market
c) Choose a low cost fund (i.e. expense ratio less than 1% per annum)
d) Invest for the long term (i.e. 10 years or more), so that you can average out the good and bad years.
Be ready to take "diversified" risk and get a better return. There is no need to invest in highly speculative asssets, such as emerging markets or highly priced commodities, to get a higher return.
Here is my answer:
a) If you wish to get a higher return, you should invest in equity
b) Over the long term, equity gives an annual return of 2% to 4% higher than bonds
You can reduce your risk of investing in equity as follows:
a) Invest in a diversified fund
b) The fund should be invested in only shares of blue chip companies, i.e. the largest companies in the market
c) Choose a low cost fund (i.e. expense ratio less than 1% per annum)
d) Invest for the long term (i.e. 10 years or more), so that you can average out the good and bad years.
Be ready to take "diversified" risk and get a better return. There is no need to invest in highly speculative asssets, such as emerging markets or highly priced commodities, to get a higher return.
No load financial product
I wish to introduce the concept of a "no load" financial product.
Examples of "no load" products are:
a) bank account
b) shares and bonds bought through the stock exchange
Some "no load" products require you to pay a transaction fee (e.g. brokerage) but they are usually less than 0.5% of the invested sum.
Examples of "high load" products are:
a) Life insurance and investment linked policies
b) Structured financial products
c) Time-share properties
d) Land banking products
The "high load" products have high front end charges that may take more than one year of your savings or more than 5% of your invested lump sum. They are used to pay high commission to marketeers to "push" the products to consumers. After paying the high marketing costs, the consumers get a poor deal.
Go for "no load" products.
Examples of "no load" products are:
a) bank account
b) shares and bonds bought through the stock exchange
Some "no load" products require you to pay a transaction fee (e.g. brokerage) but they are usually less than 0.5% of the invested sum.
Examples of "high load" products are:
a) Life insurance and investment linked policies
b) Structured financial products
c) Time-share properties
d) Land banking products
The "high load" products have high front end charges that may take more than one year of your savings or more than 5% of your invested lump sum. They are used to pay high commission to marketeers to "push" the products to consumers. After paying the high marketing costs, the consumers get a poor deal.
Go for "no load" products.
Websites of large companies
The website of many large companies are a maze. It takes a long time to navigate through the website to find the relevant information.
Quite often, you will need an experience guide (from the helpdesk of the company) to take you through the website.
I wish to ask your your participation. Can you tell me which company has a good website that is easy to navigate?
Quite often, you will need an experience guide (from the helpdesk of the company) to take you through the website.
I wish to ask your your participation. Can you tell me which company has a good website that is easy to navigate?
A complicated feedback form
The express bus company sent me an online feedback form. It contained more than 50 questions for me to complete. I sent this reply by e-mail:
QUOTE
If you wish to ask for my feedback, you have to be considerate and send me a simpler form. Do think about the customer. Do not just think about your own convenience.
UNQUOTE
Like most other companies, this company is interested only to compile statistics. I do not think that they are genuinely interested to listen to the customer.
I hope that people will think more about the customer.
QUOTE
If you wish to ask for my feedback, you have to be considerate and send me a simpler form. Do think about the customer. Do not just think about your own convenience.
UNQUOTE
Like most other companies, this company is interested only to compile statistics. I do not think that they are genuinely interested to listen to the customer.
I hope that people will think more about the customer.
Poll: measures to cope with cost of living in Singapore
What measures will help most to cope with the cost of living in Singapore? (20 replies, multiple choices are allowed):
75% lower cost of transportation and reduced commuting time
40% higher wages for low income workers
30% higher return on financial products
20% better protection of consumers
75% lower cost of transportation and reduced commuting time
40% higher wages for low income workers
30% higher return on financial products
20% better protection of consumers
Insuring against poverty
Many people buy a large critical illness policy to insure against the risk of 30 critical illness. The chance of it happening during their working life is less than 5%.
There is a bigger risk that they overlook. It is insuring against poverty. The chance of this event is 95%.
There is a bigger risk that they overlook. It is insuring against poverty. The chance of this event is 95%.
Here is a good way to insure against poverty:
a) Save 10% to 15% of your monthly salary
b) Invest in a low cost, diversified fund to earn a good return over the future
Many advisers do not recommend this approach. They introduce high cost products to consumers, as these products provide an attractive commission to the adviser. The consumer gets a poor return. They face a conflict of interest
I hope that more advisers will come forward to give the proper advice that are good for consumers. They can earn a fair rate of commission, but at least they know that they are acting fairly and honestly.
Orderly transition in five state governments in Malaysia
A reader wrote to the Star paper in Malaysia. He congratulated Prime Minister Abdullah Badawi for the peaceful and orderly transfer of power to the new governments in five states in Malaysia. He described the Prime Minister as a gentlemen.
He mentioned about the experience in several other countries, where the opposition party faced obstacles in the election and after being elected.
He mentioned about the experience in several other countries, where the opposition party faced obstacles in the election and after being elected.
Travelling to Kuala Lumpur by bus
I took an express bus from Singapore to Kuala Lumpur. It is the first time that I took a bus to visit Kuala Lumpur. Previously, I have always taken the plane.
The journey took 5 hours. It was comfortable. I arrived in Petaling Jaya at 1 pm. If I have taken the plane, the journey would have taken the same travelling time.
I was able to have a nice discussion with another traveller on the journey. I could also do some work on the bus. I shall be travelling on this mode more often in the future.
The journey took 5 hours. It was comfortable. I arrived in Petaling Jaya at 1 pm. If I have taken the plane, the journey would have taken the same travelling time.
I was able to have a nice discussion with another traveller on the journey. I could also do some work on the bus. I shall be travelling on this mode more often in the future.
1,004 visitors to my blog
1,004 people visited my blog on Wednesday 19 March 2008. This is the first time that it exceeded 1,000 visitors.
Wednesday, March 19, 2008
Impact of new CPF rule on dollar cost averaging
Dear Mr. Tan,
From April 1, 2008, CPF requires a member to keep a minimum of $20,000 in the ordinary account. I am surprised to find out that this applies also to existing policies with regular recurring premiums using CPFOA.
Now we have 2 choices:
1. Keep the minimum in OA and use the excess to fund our investments
2. Terminate plans to avoid agent bank charges
I invested my CPF savings by recurring regular premium on dollar cost averging. With the market down, I am now forced to terminate my plan. I have to stop investing even if I am making losses now.
Is this a fair practice to investors? Who regulates CPF Board? Can MAS look into this matter?
What is your opinion?
REPLY
I believe that this is decided at the highest level of Government. There are good reasons for the Government to implement this requirement to keep a minimum of $20,000 in OA.
I agree that the timing is unfortunate, as it deprive you of the chance to average down on your investment. I hope that you can have some other savings to do this averaging down (and not depend on the CPF savings). Wish you all the best.
From April 1, 2008, CPF requires a member to keep a minimum of $20,000 in the ordinary account. I am surprised to find out that this applies also to existing policies with regular recurring premiums using CPFOA.
Now we have 2 choices:
1. Keep the minimum in OA and use the excess to fund our investments
2. Terminate plans to avoid agent bank charges
I invested my CPF savings by recurring regular premium on dollar cost averging. With the market down, I am now forced to terminate my plan. I have to stop investing even if I am making losses now.
Is this a fair practice to investors? Who regulates CPF Board? Can MAS look into this matter?
What is your opinion?
REPLY
I believe that this is decided at the highest level of Government. There are good reasons for the Government to implement this requirement to keep a minimum of $20,000 in OA.
I agree that the timing is unfortunate, as it deprive you of the chance to average down on your investment. I hope that you can have some other savings to do this averaging down (and not depend on the CPF savings). Wish you all the best.
Low cost insurance and funds
Hi Mr. Tan,
I read from your blog that there are a few NTUC Income advisers who have agreed to offer only the low cost insurance and funds. I would like to get the email addresses and contact nos. of them.
REPLY
If you wish to buy low cost insurace, I suggest that you contact NTUC Income's business center
http://www.income.com.sg/businesscentre/
I read from your blog that there are a few NTUC Income advisers who have agreed to offer only the low cost insurance and funds. I would like to get the email addresses and contact nos. of them.
REPLY
If you wish to buy low cost insurace, I suggest that you contact NTUC Income's business center
http://www.income.com.sg/businesscentre/
Lyxor ETFs
Dear Mr. Tan,
I want so seek your advice on Lyxor ETF. It seems to track the index in several Asian countries. Can I buy it directly through stock broker like purchasing of STI ETF?
REPLY
I am not familiar with the Lyxor ETFs but I guess that they should be quite well diversified and low cost. You buy them through a stockbroker, like a share. (Note: my earlier comment about buying through an internet platform was wrong).
I want so seek your advice on Lyxor ETF. It seems to track the index in several Asian countries. Can I buy it directly through stock broker like purchasing of STI ETF?
REPLY
I am not familiar with the Lyxor ETFs but I guess that they should be quite well diversified and low cost. You buy them through a stockbroker, like a share. (Note: my earlier comment about buying through an internet platform was wrong).
The world will learn from the financial crisis in USA
Dear Mr. Tan,
With the Global uncertainties in finance, is it risky to invest in STI ETF now? It seems America is in a hot soup in managaing their monetary assets. What precautions you could advise our singaporeans, young and old not to fall into this mess in the next 5 or 10 years? Where should I go to invest the 1000 shares with STI ETF?
Pardon me, I am learning more about investments from your blog. I want to thank you that I truly enjoy reading your blog daily because I believe theory without practical approach is of no value.
REPLY
You buy the ETF through a stockbroker, just like you buy a share. If you are investing for the next 10 years, it is all right to invest in the ETF, as the financial mess will be cleared up by that time.
I believe that America will learn the lesson from this financial mess, and will sort them out to avoid similar problems in the future. The rest of the world, including Singapore, will learn from it as well. In the future, the world will be much less leveraged on debts.
--
With the Global uncertainties in finance, is it risky to invest in STI ETF now? It seems America is in a hot soup in managaing their monetary assets. What precautions you could advise our singaporeans, young and old not to fall into this mess in the next 5 or 10 years? Where should I go to invest the 1000 shares with STI ETF?
Pardon me, I am learning more about investments from your blog. I want to thank you that I truly enjoy reading your blog daily because I believe theory without practical approach is of no value.
REPLY
You buy the ETF through a stockbroker, just like you buy a share. If you are investing for the next 10 years, it is all right to invest in the ETF, as the financial mess will be cleared up by that time.
I believe that America will learn the lesson from this financial mess, and will sort them out to avoid similar problems in the future. The rest of the world, including Singapore, will learn from it as well. In the future, the world will be much less leveraged on debts.
--
Cost of Living: Lessons from the Malaysian election
FIRST POSTED ON 10 MARCH 2008
The election result in Malaysia is a big surprise, not only to the ruling Barisan National but to the opposition parties and the voters as well.
A key issue appears to be the high cost of living. It is not sufficient for a Government to say that they are due to external factors. The people expect the Government to find effective ways to deal with this challenge. This is what they elect the Government to do.
This election result has lessons for Singapore. What can the Government do about the high cost of living in Singapore?
Contributors
I wish to identify factors that make it difficult for many people to cope with the cost of living in Singapore:
1. Financial Products. Many people earn a low rate of interest on bank deposits. It is insufficient to cover the rate of inflation. If they invest in other financial products, they have to pay high charges and get a poor yield. They buy unnecessary and high cost insurance. They pay high interest charges on their borrowing. Financial institutions and intermediaries make good profits and earnings at the expense of consumers.
2. Transportation. They pay high cost for their transportation due to inefficiency of the system. One obvious example is our taxi service.
3. Commuting. Many people take one hour or more to get to their place of work and incur quite high travellng cost. The journey is uncomfortable and over-crowded.
4. High Government charges, such as ERP, GST, etc.
5. Business tie-ups. There are many tie-ups that work to the disadvantage of consumers. An example is the tie-up between motor dealers, banks and insurance companies on the purchase of a car.
Suggestions
Here are my suggestions on how to reduce the wastage, improve efficiency and help people to cope with the cost of living in Singapore.
1. Financial Products. We have to give people a fair return on their investments. Financial and insurance products that have excessive charges and offer unfair terms to consumers should be disallowed. They should not be allowed to design complex products that skim off the consumers. Financial institutions can compete to provide products to consumers on the basis of their efficiency and quality of service.
2. Transportation. We should bring down the cost of public transportation. They are a necessity for daily living, similar to fresh air. People do not consumer transportation unnecessary. The transportation cost can be reduced to the marginal operating cost. ERP charges, road tax and other levies on public transport can be waived.
3. Commuting. We should reduce the need for commuting. People should be encouraged to find work near their homes, or to move their homes to their place of work. Students should attend a school near their homes. Apart from reducing the transportation cost, it saves travelling time and improves the quality of life. This can be achieved by reducing the transaction cost in selling and buying a property to live in. Stamp duty can be abolished. Lawyers and broker fees can be reduced by simplifying the work and creating a more efficient system.
4. Consumer Education. We need a more active body to educate the consumers and protect their interest. This body should be given a stronger voice. It is necessary to balance the interest of consumers with the interest of business. We have to strike a fair balance. This body should also acti vigilently against tie-ups between businesses that restrict the choice and fair dealing for consumers.
5. Adequate wages. Workers in the lower income groups need adequate wages to meet the cost of living and save for their retirement. The current wages are depressed due to the available supply of foreign workers from low cost countries. If it is not possible to raise the wages of the local workers earning below the adequate level, they should be given a supplement through an adequate top-up to their CPF accounts.
Conclusion
There are already many existing measures taken to address these issues. We need to simplify the existing measures and make them more impactful to help the people.
We have to consider additional measures to help people to cope with the cost of living in Singapore.
Tan Kin Lian
The election result in Malaysia is a big surprise, not only to the ruling Barisan National but to the opposition parties and the voters as well.
A key issue appears to be the high cost of living. It is not sufficient for a Government to say that they are due to external factors. The people expect the Government to find effective ways to deal with this challenge. This is what they elect the Government to do.
This election result has lessons for Singapore. What can the Government do about the high cost of living in Singapore?
Contributors
I wish to identify factors that make it difficult for many people to cope with the cost of living in Singapore:
1. Financial Products. Many people earn a low rate of interest on bank deposits. It is insufficient to cover the rate of inflation. If they invest in other financial products, they have to pay high charges and get a poor yield. They buy unnecessary and high cost insurance. They pay high interest charges on their borrowing. Financial institutions and intermediaries make good profits and earnings at the expense of consumers.
2. Transportation. They pay high cost for their transportation due to inefficiency of the system. One obvious example is our taxi service.
3. Commuting. Many people take one hour or more to get to their place of work and incur quite high travellng cost. The journey is uncomfortable and over-crowded.
4. High Government charges, such as ERP, GST, etc.
5. Business tie-ups. There are many tie-ups that work to the disadvantage of consumers. An example is the tie-up between motor dealers, banks and insurance companies on the purchase of a car.
Suggestions
Here are my suggestions on how to reduce the wastage, improve efficiency and help people to cope with the cost of living in Singapore.
1. Financial Products. We have to give people a fair return on their investments. Financial and insurance products that have excessive charges and offer unfair terms to consumers should be disallowed. They should not be allowed to design complex products that skim off the consumers. Financial institutions can compete to provide products to consumers on the basis of their efficiency and quality of service.
2. Transportation. We should bring down the cost of public transportation. They are a necessity for daily living, similar to fresh air. People do not consumer transportation unnecessary. The transportation cost can be reduced to the marginal operating cost. ERP charges, road tax and other levies on public transport can be waived.
3. Commuting. We should reduce the need for commuting. People should be encouraged to find work near their homes, or to move their homes to their place of work. Students should attend a school near their homes. Apart from reducing the transportation cost, it saves travelling time and improves the quality of life. This can be achieved by reducing the transaction cost in selling and buying a property to live in. Stamp duty can be abolished. Lawyers and broker fees can be reduced by simplifying the work and creating a more efficient system.
4. Consumer Education. We need a more active body to educate the consumers and protect their interest. This body should be given a stronger voice. It is necessary to balance the interest of consumers with the interest of business. We have to strike a fair balance. This body should also acti vigilently against tie-ups between businesses that restrict the choice and fair dealing for consumers.
5. Adequate wages. Workers in the lower income groups need adequate wages to meet the cost of living and save for their retirement. The current wages are depressed due to the available supply of foreign workers from low cost countries. If it is not possible to raise the wages of the local workers earning below the adequate level, they should be given a supplement through an adequate top-up to their CPF accounts.
Conclusion
There are already many existing measures taken to address these issues. We need to simplify the existing measures and make them more impactful to help the people.
We have to consider additional measures to help people to cope with the cost of living in Singapore.
Tan Kin Lian
Mid Valley Mall in Malaysia
I am now staying in a hotel in Mid Valley, outside of Kuala Lumpur in Malaysia. It has a large shopping mall and several hotels in the complex. I shall be updating my blog less frequently for the next three days.
Tuesday, March 18, 2008
Invest to earn more than 2.6%
Dear Mr. Tan,
I currently have a housing loan with HDB. Is it a good idea to pay off as much of the loan as early as possible? I have heard different views regarding this issue. Some people say it's better to use the money in the ordinary account to invest and earn more returns. Others say paying the loan earlier will help to reduce the interest amount. What is your advice?
REPLY
Interest charge on the HDB loan is 2.6%. You should be able to earn a better return over the long term from a low cost investment fund.
If you are willing to take some risk and invest for the long term, it is better to keep the loan and invest your savings. Read the following:
http://www.tankinlian.com/faq/savings.html
I currently have a housing loan with HDB. Is it a good idea to pay off as much of the loan as early as possible? I have heard different views regarding this issue. Some people say it's better to use the money in the ordinary account to invest and earn more returns. Others say paying the loan earlier will help to reduce the interest amount. What is your advice?
REPLY
Interest charge on the HDB loan is 2.6%. You should be able to earn a better return over the long term from a low cost investment fund.
If you are willing to take some risk and invest for the long term, it is better to keep the loan and invest your savings. Read the following:
http://www.tankinlian.com/faq/savings.html
Difference: Singapore EQuity fund and STI ETF
Dear Mr. Tan,
What is the different of buying STI EFT and investing in Singapore Equity form NTUC?
REPLY
Both funds are invested mainly in equities.
The difference is in the upfront charges:
NTUC fund 3.5%
STI ETF 0.3%
The annual fee is also different:
NTUC fund - 0.65%
STI ETF 0.3%
You need $3,200 to buy 1,000 shares of STI ETF. You can buy the Singapore Equity fund for $100.
Trials & Tribulations of A Science Career
Our own home grown scientist Dr. Lee Kum Tatt has shared with us on many occasions the fun and glory of a science and research career.
The question that is sometimes asked “ Hasn’t he got some bad times doing science and what did he do about them”? His wife, Mrs. Engeline Lee has persuaded him to share with us some of the trials and tribulations of a science career and research worker’s life.
You can read about his comments in his blog www.leekumtattblogspot.com
The question that is sometimes asked “ Hasn’t he got some bad times doing science and what did he do about them”? His wife, Mrs. Engeline Lee has persuaded him to share with us some of the trials and tribulations of a science career and research worker’s life.
You can read about his comments in his blog www.leekumtattblogspot.com
Poll: LRT in CBD
Is it useful to have a LRT system within the Central Business District? (25 replies)
28% strongly support
44% can consider
4% neutral
24% not feasible
Strange. The results are exactly the same as poll on retirement housing!!
28% strongly support
44% can consider
4% neutral
24% not feasible
Strange. The results are exactly the same as poll on retirement housing!!
Travelling within the Central Business District
There is unhappiness over the new LTA rules that require taxis to pick up and drop passengers at designated stops. The LTA will make some changes to address these complaints.
Over the longer term, we need to improve the transport system within the Central Business District.
I suggest that an overhead light rail transport (LRT) be build. This will run along the major roads. It allows passengers to travel within the CBD or to connect to the MRT stations. Travel within the CBD can usually be done on one train or one change of train. Many buildings can have walkways to connect to the nearby LRT station.
We now have a LRT system in three towns in Singapore. The usage of the trains is low, due to the small population catchment and other factors. I expect that the LRT within the CBD will be more successful.
If more passengers uses the LRT to travel within the CBD, there will be less need for taxis.
Over the longer term, we need to improve the transport system within the Central Business District.
I suggest that an overhead light rail transport (LRT) be build. This will run along the major roads. It allows passengers to travel within the CBD or to connect to the MRT stations. Travel within the CBD can usually be done on one train or one change of train. Many buildings can have walkways to connect to the nearby LRT station.
We now have a LRT system in three towns in Singapore. The usage of the trains is low, due to the small population catchment and other factors. I expect that the LRT within the CBD will be more successful.
If more passengers uses the LRT to travel within the CBD, there will be less need for taxis.
Life assurance policies give poor return
Dear Mr. Tan
I have the following life insurance policies:
Plan: Life Plus
Sum Assured $100,000
Yearly premium $1,282
Insured for last 10 years
Cash value now: $10,300
Plan: Dynamic Prolife
Sum Assured: $50,000
Yearly Premium 1,519
Insured for last 10 years
Cash value now: $12,000
Should I keep the insurance or should I switch to low cost fund and term insurance? Based on my calculation, if I keep the cash value and subsequent premium in low cost fund, I can get a better return. If I keep the policies, I will have to wait for another 6 to 9 years for my cash value to breakeven. Pls advise.
REPLY
Please read this FAQ:
http://www.tankinlian.com/faq/existinglife.html
I hope that you find it useful for your decision.
I have the following life insurance policies:
Plan: Life Plus
Sum Assured $100,000
Yearly premium $1,282
Insured for last 10 years
Cash value now: $10,300
Plan: Dynamic Prolife
Sum Assured: $50,000
Yearly Premium 1,519
Insured for last 10 years
Cash value now: $12,000
Should I keep the insurance or should I switch to low cost fund and term insurance? Based on my calculation, if I keep the cash value and subsequent premium in low cost fund, I can get a better return. If I keep the policies, I will have to wait for another 6 to 9 years for my cash value to breakeven. Pls advise.
REPLY
Please read this FAQ:
http://www.tankinlian.com/faq/existinglife.html
I hope that you find it useful for your decision.
Simpler way to address a letter?
I have to send a letter to CPF. They asked me to mail it to the following address:
CPF Minimum Sum Topping-up Scheme (Retirement Services Dept)
CPF Board
79 Robinson Road
CPF Building
Singapore 068897
Here is a shorter way to address the letter:
CPF Retirement Services Dept
Singapore 068897
I wonder if my letter will arrive there?
I shall try to post a letter to myself as follows:
Tan Kin Lian
Singapore 809744
CPF Minimum Sum Topping-up Scheme (Retirement Services Dept)
CPF Board
79 Robinson Road
CPF Building
Singapore 068897
Here is a shorter way to address the letter:
CPF Retirement Services Dept
Singapore 068897
I wonder if my letter will arrive there?
I shall try to post a letter to myself as follows:
Tan Kin Lian
Singapore 809744
Poll: Retirement Housing in Singapre
Do you like the concept of retirement housing in Singapore, as described in my blog? (25 replies)
24% strongly support
44% worth considering
4% neutral
28% not feasible
24% strongly support
44% worth considering
4% neutral
28% not feasible
Retirement Housing in Singapore
1. Someone wrote to the Straits Times Forum proposing the development of retirement housing in nearby countries, where the cost of land is lower.
2. It is economically feasible to build the retirement housing in Singapore. The cost of land can be reduced by better utilisation of land. Here is my concept of a future retirement town to be build in Singapore.
a) Located in a corner of Singapore, say in Lim Chu Kang.
b) Comprise of 100 blocks of 100 units, i.e. total of 10,000 units
c) All internal transport by light rail transport (LRT) and personal automated transport (PAT)
d) LRT to connect to a nearby MRT station
e) Large car parks to be located outside of the town, for use by residentials and visitors
f) Medical facilities operated by private clinics to serve the residetials
g) Housing units to be owned by a residential REIT and rented to residents
g) Residents can invest their retirement savings in the residential REIT
g) Covered walkways to connect to parks, sports facilities, social clubs and food outlets
h) Easy for children to visit the elderly from other parts of Singapore and vice versa
i) Some blocks to be rented to foreigners interested in this lifestyle
j) Employment opportunities for the residents
h) The residential units and public areas are designed to be friendly to the elderly.
3. Employment opportunities. The residents can work in the social clubs, food outlets, care centers, call centers and remote work offices in the town to earn a supplementary income.
4. Residential REIT. The residents can invest a large part of their retirement savings in the residential REIT. The dividends from the REIT can be used to offset their rental payments, and leave a balance for their living expenses. They can also encash their units in the REIT gradually, during their lifetime, to provide a supplementary income.
5. The residents are encouraged to join a social club to meet friends, take part in social activities and also have their meals. This is similar to the lifestyle of the posh social club in London, but can be operated at low cost.
6. I hope that this idea will be taken up by the Government or a private consortium of sector sector developers.
2. It is economically feasible to build the retirement housing in Singapore. The cost of land can be reduced by better utilisation of land. Here is my concept of a future retirement town to be build in Singapore.
a) Located in a corner of Singapore, say in Lim Chu Kang.
b) Comprise of 100 blocks of 100 units, i.e. total of 10,000 units
c) All internal transport by light rail transport (LRT) and personal automated transport (PAT)
d) LRT to connect to a nearby MRT station
e) Large car parks to be located outside of the town, for use by residentials and visitors
f) Medical facilities operated by private clinics to serve the residetials
g) Housing units to be owned by a residential REIT and rented to residents
g) Residents can invest their retirement savings in the residential REIT
g) Covered walkways to connect to parks, sports facilities, social clubs and food outlets
h) Easy for children to visit the elderly from other parts of Singapore and vice versa
i) Some blocks to be rented to foreigners interested in this lifestyle
j) Employment opportunities for the residents
h) The residential units and public areas are designed to be friendly to the elderly.
3. Employment opportunities. The residents can work in the social clubs, food outlets, care centers, call centers and remote work offices in the town to earn a supplementary income.
4. Residential REIT. The residents can invest a large part of their retirement savings in the residential REIT. The dividends from the REIT can be used to offset their rental payments, and leave a balance for their living expenses. They can also encash their units in the REIT gradually, during their lifetime, to provide a supplementary income.
5. The residents are encouraged to join a social club to meet friends, take part in social activities and also have their meals. This is similar to the lifestyle of the posh social club in London, but can be operated at low cost.
6. I hope that this idea will be taken up by the Government or a private consortium of sector sector developers.
Monday, March 17, 2008
Advice to young people
If you have recently started work, here are a few tips:
a) Set aside 15% to 20% of your monthly income as your savings
b) The balance is to be used to meet your personal expenses, including contribution to your parents
c) Avoid buying a car, as it is too expensive and take away too much of your income
d) Do not borrow on credit card
e) Let your savings accumulate in your savings account to earn 1% interest
f) Later, Invest your savings in a low cost investment fund or the STI exchange traded fund.
g) Do not buy a high cost life insurance policy (as it gives a poor return).
h) Buy low cost term or accident insurance to cover your income.
Your savings will accumulate to a large sum over 5, 10 or more years. You may need it for your major financial commitments, e.g. wedding, buying a home, education and retirement. If you do not take a loan, you can save on the interest payments!
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/benchmark.html
a) Set aside 15% to 20% of your monthly income as your savings
b) The balance is to be used to meet your personal expenses, including contribution to your parents
c) Avoid buying a car, as it is too expensive and take away too much of your income
d) Do not borrow on credit card
e) Let your savings accumulate in your savings account to earn 1% interest
f) Later, Invest your savings in a low cost investment fund or the STI exchange traded fund.
g) Do not buy a high cost life insurance policy (as it gives a poor return).
h) Buy low cost term or accident insurance to cover your income.
Your savings will accumulate to a large sum over 5, 10 or more years. You may need it for your major financial commitments, e.g. wedding, buying a home, education and retirement. If you do not take a loan, you can save on the interest payments!
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/benchmark.html
Insurance premium for off-peak car
A blog reader called several insurance companies and obtained the following quote for his motor insurance:
Type: Off-peak car, after 20% NCD and excess $500:
India International: $599
Income: $618
China Insurance: $647
AIG: $889
AXA: $948
Call direct:
http://www.tankinlian.com/faq/motord.html
Type: Off-peak car, after 20% NCD and excess $500:
India International: $599
Income: $618
China Insurance: $647
AIG: $889
AXA: $948
Call direct:
http://www.tankinlian.com/faq/motord.html
Residential REIT
I wish to explain the concept of investing and living in a residential REIT:
a) As you investor, you own investment units in the residential REIT
b) You receive an annual dividend based on the net income of the REIT
c) You pay a rental for the use of a housing unit in the REIT
If you stay in the same size of housing unit as your invested sum, the net income should be slightly smaller than the rental, as there is a management charge of (say) 5%. You will benefit from the following:
a) It gives you the flexibility to rent a smaller housing unit (relative to your investment) and keep the excess income
b) You have the choice to sell off some investment units monthly to meet your living expenses. This is similar to a draw down annuity or reverse mortgage.
c) You can decide to live elsewhere and enjoy the full dividend from your investment units.
This concept is similar to timeshare, but avoids the high marketing cost, and most of the investors are likely to live in the property. I hope that this idea can be developed by a private sector developer.
a) As you investor, you own investment units in the residential REIT
b) You receive an annual dividend based on the net income of the REIT
c) You pay a rental for the use of a housing unit in the REIT
If you stay in the same size of housing unit as your invested sum, the net income should be slightly smaller than the rental, as there is a management charge of (say) 5%. You will benefit from the following:
a) It gives you the flexibility to rent a smaller housing unit (relative to your investment) and keep the excess income
b) You have the choice to sell off some investment units monthly to meet your living expenses. This is similar to a draw down annuity or reverse mortgage.
c) You can decide to live elsewhere and enjoy the full dividend from your investment units.
This concept is similar to timeshare, but avoids the high marketing cost, and most of the investors are likely to live in the property. I hope that this idea can be developed by a private sector developer.
Sunday, March 16, 2008
Low cost funds
It is important to choose a low cost fund for your investment. If you invest in equities for the long term, you should be able to get an average yield of 3% to 4% above Government bonds. This should give a gross yield of about 6% to 7%.
If the expense ratio of the fund is 2.5% (which is quite typical), you will get a net yield of only 4% (after charges). If the expense ratio is 1%, you get a net yield of 5.5%.
The difference of 1.5% in the yield can amount to more than 15% over 10 years. It is important to invest in a low cost fund, so that you can keep most of the yield.
The experience of most investors is that the speculative funds incur high charges and do not produce a better yield over the long term. In fact, many speculative funds lost money for the investors.
If the expense ratio of the fund is 2.5% (which is quite typical), you will get a net yield of only 4% (after charges). If the expense ratio is 1%, you get a net yield of 5.5%.
The difference of 1.5% in the yield can amount to more than 15% over 10 years. It is important to invest in a low cost fund, so that you can keep most of the yield.
The experience of most investors is that the speculative funds incur high charges and do not produce a better yield over the long term. In fact, many speculative funds lost money for the investors.
Low cost insurance
Mr. Tan
I am reaching 30. Currently, I have a insurance ijfe plan of the insured amount of about $70,000. I am insured under the Health Shield and get the rider like the Pink Of Health.
I am now paying a premium of about 3% of my monthly income. I am thinking of getting additional cover of critical illness and term plan. What are the options of the insurance that I can choose from?
REPLY
You can read the FAQs in my website
www.tankinlian.com/faq
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/benchmark.html
I am reaching 30. Currently, I have a insurance ijfe plan of the insured amount of about $70,000. I am insured under the Health Shield and get the rider like the Pink Of Health.
I am now paying a premium of about 3% of my monthly income. I am thinking of getting additional cover of critical illness and term plan. What are the options of the insurance that I can choose from?
REPLY
You can read the FAQs in my website
www.tankinlian.com/faq
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/benchmark.html
High charges under ILP policy
Dear Mr. Tan,
I am insured for a sum assured of $100k and critical illness for 180k under a ILP since 2006. The cash value is about $300 now although I have a total premium of $3,600. Is this a good policy?
REPLY
The cash value is too low, compared to the premium that you have paid. The charges under the ILP policy is excessive and has taken away most of your savings. Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
As you have already incurred most of the upfront charge, it is probably better for you to continue the ILP policy. After the second year, the charges should be quite low.
If you have to increase your savings in the future, do not buy a high cost ILP policy.
You can buy a term insurance policy to cover your protection needs. It is low cost and offers a large coverage. Read this FAQ:
http://www.tankinlian.com/faq/benchmark.html
I am insured for a sum assured of $100k and critical illness for 180k under a ILP since 2006. The cash value is about $300 now although I have a total premium of $3,600. Is this a good policy?
REPLY
The cash value is too low, compared to the premium that you have paid. The charges under the ILP policy is excessive and has taken away most of your savings. Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
As you have already incurred most of the upfront charge, it is probably better for you to continue the ILP policy. After the second year, the charges should be quite low.
If you have to increase your savings in the future, do not buy a high cost ILP policy.
You can buy a term insurance policy to cover your protection needs. It is low cost and offers a large coverage. Read this FAQ:
http://www.tankinlian.com/faq/benchmark.html
Negative return from unit trusts
Hi Mr. Tan,
Your website is very useful to improve our financial awareness, especially for people living in Singapore. I visit your blog every day.
I read your article about Investing for the Long Term. I look forward to a Unit Trust that offers quite similar feature as ETF.
Currently, I have invested more than 60% of my savings into several unit trusts since mid 2006. (Details of funds removed). So far, my investment showed a loss of 20%. I consider my investment to be for the long term, and have not made any withdrawal.
Do you have any recommendation what I should do in the midst of current credit mess? Should I invest through a personal advisor from financial institution? I have been approached by an adviser who offers advice for an annual cost wrap of about 1%. Is it worth while?
REPLY
What are the upfront and annual charges of these funds? If you invest in 2006, you should have a period where you made a big gain (i.e. last year) and it should have broken even now, even with the market downturn.
I am surprised that you you have lost 20% of your investment. Perhaps you have invested in the more speculative funds, or the fund charges are too high?-
Your website is very useful to improve our financial awareness, especially for people living in Singapore. I visit your blog every day.
I read your article about Investing for the Long Term. I look forward to a Unit Trust that offers quite similar feature as ETF.
Currently, I have invested more than 60% of my savings into several unit trusts since mid 2006. (Details of funds removed). So far, my investment showed a loss of 20%. I consider my investment to be for the long term, and have not made any withdrawal.
Do you have any recommendation what I should do in the midst of current credit mess? Should I invest through a personal advisor from financial institution? I have been approached by an adviser who offers advice for an annual cost wrap of about 1%. Is it worth while?
REPLY
What are the upfront and annual charges of these funds? If you invest in 2006, you should have a period where you made a big gain (i.e. last year) and it should have broken even now, even with the market downturn.
I am surprised that you you have lost 20% of your investment. Perhaps you have invested in the more speculative funds, or the fund charges are too high?-
Motor insurance increase by 20%
Hi, Mr. Tan
I have insured my motor car with NTUC for the past many years, when you were CEO. I just received the renewal notice for my car insurance. Guess what! The premium increased by more than 20%.
I did not make any claim and have been enjoying 50% discount. Why should the premium increase by so much? Should I stay with NTUC?
REPLY
I recall that the motor insurance has lost money during the past year. But I agree that an increase of 20% is excessive, especially as you did not make any claim last year.
Perhaps you should call a few insurance companies and check their premium for your car. The telephone numbers are shown here:
http://www.tankinlian.com/faq/motord.html
Let me know the results of your survey.
I have insured my motor car with NTUC for the past many years, when you were CEO. I just received the renewal notice for my car insurance. Guess what! The premium increased by more than 20%.
I did not make any claim and have been enjoying 50% discount. Why should the premium increase by so much? Should I stay with NTUC?
REPLY
I recall that the motor insurance has lost money during the past year. But I agree that an increase of 20% is excessive, especially as you did not make any claim last year.
Perhaps you should call a few insurance companies and check their premium for your car. The telephone numbers are shown here:
http://www.tankinlian.com/faq/motord.html
Let me know the results of your survey.
Oil product
Dear Mr. Tan,
Is it safe to invest in oil product? It has a ROI of more than 8%.
www.oilpods.com
http://www.oilestates.com/faq.html
REPLY
I am not familiar with investing in this product. I advise you to avoid investing in a product that you are not familiar with.
Is it safe to invest in oil product? It has a ROI of more than 8%.
www.oilpods.com
http://www.oilestates.com/faq.html
REPLY
I am not familiar with investing in this product. I advise you to avoid investing in a product that you are not familiar with.
Keep the money in CPF retirement account
Dear Sir,
I am asking this on behalf of my mother. She has $60K in her retirement account. She is thinking of transfering the entire sum to the NTUC annuity. Is it wise?
REPLY
It is better to keep the money in the CPF retirement account and earn an return of 4%plus 1% bonus (on $40,000).
Your mother should buy the life annuity with savings that are outside of CPF.
I am asking this on behalf of my mother. She has $60K in her retirement account. She is thinking of transfering the entire sum to the NTUC annuity. Is it wise?
REPLY
It is better to keep the money in the CPF retirement account and earn an return of 4%plus 1% bonus (on $40,000).
Your mother should buy the life annuity with savings that are outside of CPF.
UK Traded Endowments
ORIGNALLY POSTED IN DECEMBER 2007
Dear Mr. Tan,
Recently, I was engaged in an online discussion about UK Traded Endowments. The other party suggested investing in UK Traded Endowments, which was able to give a better return than money market fund.
Are you familiar with this type of investment? What is your opinion?
REPLY
The fund manager buys the endowment policies from the customers and pay the premiums till maturity to collect the proceeds. You have to rely on the ability of the fund manager to manage the situation.
I do not know what charges are being taken away by the fund manager as their fees and expenses, and whether the remainder is a fair rate of return to the investor for the risk.
You have to study the following:
1. What is the underlying rate of return to the investor from the traded endowments?
2. What are the factors that could impact on the underlying return, e.g. reduction in bonus rates?
3. What are the fees taken away by the fund manager?
4. What is the net return to the investor?
5. What is the financial standing of the fund manager?
Dear Mr. Tan,
Recently, I was engaged in an online discussion about UK Traded Endowments. The other party suggested investing in UK Traded Endowments, which was able to give a better return than money market fund.
Are you familiar with this type of investment? What is your opinion?
REPLY
The fund manager buys the endowment policies from the customers and pay the premiums till maturity to collect the proceeds. You have to rely on the ability of the fund manager to manage the situation.
I do not know what charges are being taken away by the fund manager as their fees and expenses, and whether the remainder is a fair rate of return to the investor for the risk.
You have to study the following:
1. What is the underlying rate of return to the investor from the traded endowments?
2. What are the factors that could impact on the underlying return, e.g. reduction in bonus rates?
3. What are the fees taken away by the fund manager?
4. What is the net return to the investor?
5. What is the financial standing of the fund manager?
Exchange Traded Endowments
Dear Mr. Tan,
I've never heard you mention about Traded Endowment Policies (TEP). Well, I might have overlooked your articles. Is it true that TEPs are safe even when the market's down because they claim that one can still get average returns of 6-8% during times of uncertainty.
Here's the link.http://www.tradedendowment.com/index.php?option=com_content&task=view&id=29&Itemid=40
Your thoughts please
REPLY
I have written about traded endowment policies in my blog. You can search my blog for my articles.
I advise against investing in these products as the intermediary, who arranges the investment, takes a fee (which is usually not transparent). As the investor, you carry the risk.
I've never heard you mention about Traded Endowment Policies (TEP). Well, I might have overlooked your articles. Is it true that TEPs are safe even when the market's down because they claim that one can still get average returns of 6-8% during times of uncertainty.
Here's the link.http://www.tradedendowment.com/index.php?option=com_content&task=view&id=29&Itemid=40
Your thoughts please
REPLY
I have written about traded endowment policies in my blog. You can search my blog for my articles.
I advise against investing in these products as the intermediary, who arranges the investment, takes a fee (which is usually not transparent). As the investor, you carry the risk.
Bear Stearns
Dear Mr. Tan,
Did the Singapore Government invest in Bear Stearns?
REPLY
I recall that GIC and Temasek invested in UBS, Citigroup and Merrill Lynch. I do not recall that they invested in Bear Stearns.
Did the Singapore Government invest in Bear Stearns?
REPLY
I recall that GIC and Temasek invested in UBS, Citigroup and Merrill Lynch. I do not recall that they invested in Bear Stearns.
Saturday, March 15, 2008
Hedge Funds
Hedge funds take money from investors and make risky investments. They magnify the risk by borrowing short term funds. Some hedge funds borrow 20 times of their capital. This high leveraging is dangerous.
When their risky investments turn bad, they lost most of their investor's capital. They are not able to refinance the borrowings and had to repay them at short notice. They are required to liquidate their assets at depressed prices.
A few hedge funds had failed in this manner in recent months. This has caused the turmoil in the markets. It has become a financial crisis.
Lesson: Expect some regulatory controls over the use of leveraging by hedge funds in the future. In the meantime, expect the market to go through a lot of further turmoil, until the liquidity crisis is sorted out.
When their risky investments turn bad, they lost most of their investor's capital. They are not able to refinance the borrowings and had to repay them at short notice. They are required to liquidate their assets at depressed prices.
A few hedge funds had failed in this manner in recent months. This has caused the turmoil in the markets. It has become a financial crisis.
Lesson: Expect some regulatory controls over the use of leveraging by hedge funds in the future. In the meantime, expect the market to go through a lot of further turmoil, until the liquidity crisis is sorted out.
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