Living Healthy, Staying Wealthy

When To Start Saving For Retirement?

2012-01-31T15:42:00.001+08:00

Retirement carries a different meaning at different ages.

For the young adult starting to work in their 20s, retirement is something that probably does not carry much meaning. Something their parents are transiting into and has nothing to do with them. First and foremost on their minds will be landing that dream career, falling in love, getting married, purchasing all the "wants" with their first year paycheck, etc.

Next stage is the 30s, life has moved on for most from singlehood to setting up a family unit. Focus will be to stop job hopping, stablize a career to support the mortgages and plan for the first child. Even those single usually start taking care of their parents who have started making retirement plans.

Moving on to the age 40s, those with children start fussing over primary school entry or the dreaded PSLE. Some planning for the child's future tertiary education would also start buying some endowments for them. For those single, they will probably start worrying that they will need to take care of their parents and themselves moving forward.

Finally, reaching the 50s, life seems to have passed by in a flash and retirement is in the horizon. A quick check on the retirement plan, which is usually the CPF balance, shows it has been all been used for servicing the mortgage and children education. By now, most would have been jolted awake and awareness to plan for retirement begins.

This is a common scenario and it will be too late as less than 10 years is left to build that retirement nest egg.

So, back to the topic, when to start planning?

The cliche answer most commission based financial planners would say is "as soon as possible, start young for a longer time horizon." Start this ILP or 20 year endowment plan, start saving for the long term when you are still young in your 20s/30s. However, this is not very practical as because one is young, the demand for funds is more immediate. First, a liquid emergency fund savings needs to be established, wedding banquet cost/honeymoon, downpayment/COV for a residential property/renovation/furnishings, etc.

My opinion is planning with retirement in mind should begin as soon as possible but practical action will probably begin around 40 years old.

What I mean by planning is that retirement age must be taken into consideration early, i.e. when taking up that home mortgage, lifestyle expectations with spouse, family commitments, age to have children, investment strategies, etc. However, actual savings towards the retirement goal will probably start at about 40, to have about 20 years to save and grow those funds.

So, what are you going to do with that Ang Pao money?

Roar Of The Dragon Babies!

2012-01-27T17:05:00.001+08:00

The Chinese zodiac dragon year is here once every 12 years. The birth rate this year has a significant impact to the whole country in the years to come. For example, primary school intake has to be expended to accommodate the larger intake, right up to secondary school, National Service and post secondary education. The competition among the children born this year will be most intense.

Well, for financial planners, the opportunities are going to be amazing. With parents nowadays so focus on their children, many even take the proactive approach to get at least an education plan for them the day after the child is born. Foresee that the insurance industry will carry on to boom with this market segment.

For property segment, the supply of new homes, seller stamp duties and the buyer stamp duties is going to halt the rate of price increase. Do note that it is the rate and not a price decrease. With no major crisis in the foreseeable future, interest rates carry on to be near zero, there is little incentive to dump properties before a price reduction occurs. Demand may be less but so is supply as most can choose to hold.

Just a short post to wish everyone a Blessed New Year!

Xing Nian Kuai Le, Wan Shi Ru Yi, Shen Ti Jian Kang, Gong Xi Fa Cai!
Happy New Year, Best Wishes for Health and Wealth!

CapitaMalls Asia Bonds On Offer

2012-01-04T09:50:00.001+08:00

CapitaMalls Asia is offering up to S$400 million of 10-year callable step-up bonds. DBS is the sole bookrunner and lead manager.

The issue has an initial offering of S$100 million for retail investors and S$100 million under a placement for institutional investors. Another S$200 million may be issued in event of excess demand.

The bonds are callable at par by the issuer after 5 years, i.e. 2017 through 2021 yearly on Jan 12.

They will bear a 3.8 per cent coupon for the first five years of their tenor and 4.5 per cent thereafter.

It looks like this is going to be another hot issue. 3.8 per cent is nothing to shout for, but it is better than zero point zero, something per cent. After 5 years if the interest rate environment is still low, they will call the bonds, however, if rates have increased, they can maintain it and pay the 4.5 per cent.

Happy New Year

2011-12-29T22:29:00.000+08:00

It is nearing the end of the year. December has always been my most favorite month of the year. It is the month people seem to be a lot happier, kinder, more generous and overall nicer. Even the taxi fare hikes, MRT train breakdowns and recurrence of flooding, are finding it hard to dampen the mood.

Reflecting back on 2011, I was wondering what I have done right and what I could have done better. I think this will serve as an important feedback on how to make 2012 an even better year.

In particular, in reference to this blog:

Most read articles for 2011
to pay or not to pay
why your salary is not enough
being penny wise pound foolish

Least read articles for 2011
interest rates
learning through reflecting
pre-paid packages

In conclusion, it seems articles related to property finance attract more attention than random updates like this one. :)

In that case, moving forward for 2012, I will focus on injecting more interesting articles along those lines.

Thank you for your continuous support and wishing everyone a healthy & prosperous new year!

Retirement Woes

2011-12-21T16:08:00.001+08:00

According to a recent survey by Aviva, the Consumer Attitudes to Savings (CAS) study, it showed an increasing concern over prospects for retirement.

About half felt that they will not have enough money when they retire to provide for an adequate standard of living and will have to work beyond the normal retirement age to fund their retirement.

I believe this is mainly due to an awareness of the importance of planning for retirement.

Previously, many would think that retirement is taken care of by having children and their CPF. However, now, the cost of living has been increasing exponentially with inflation stubbornly high. They are starting to fear that in addition to trying to provide for themselves, they may even need to provide for their children to give them some head start in life. This has been termed, the sandwich generation. They are worried and rightly so. To make matters worse, the expectations for the standard of living has also gradually went up over the years. Retirement brings vision of traveling, having your own transport, a maid perhaps and many more things that used to be considered “luxurious”.

The next question is really to ask, what action has the individual taken to address those worries? Call up an insurance agent to plan for them?

Well, there are very little avenues to learn how to address the retirement concern and that adds on to the stress.

A lot of uncertainty is in the investment markets and "safe" investments are giving near zero yields (nothing near inflation levels). It seems like the people taking advantage of the situation now are the gurus promising passive income, low risk high returns and retire rich.

It is nearing the New Year. It is time to set resolutions to plan for retirement so as not to worry about it.

Wishing all a happy festive year end and an even better year 2012!

This Is Home, Singapore

2011-12-09T13:52:00.002+08:00

Back to Singapore after a 2 week break and it seems that a lot has changed in such a short time!

Increase in Comfort taxi fares
Comment: Not that I am blaming the fare increase, inflation is so high, I think it is only fair. However, the way it is implemented those not make sense. Extending the peak period to throughout (6pm to midnight) gives no incentive to space out the peak situation. Instead of usually delaying the trip to avoid the surcharge, there is no point now and it will cause frustration for the true peak period. As everyone now rushes for the same timing.

Singapore ranking as most costly city jumped up
Comment: Guess our kiasu culture as influenced even trying to be the number one most expensive place to live! If it is due to the strong SGD dollar, it is not exactly working. Although the effect is supposed to reduce inflation increase domestically, inflation continues to remain stubbornly high.

New buyer stamp duty tax
Comment: 10% is quite a significant amount that will deter foreigners and companies from speculating in the property market. However, that will also mean those with the holding power will reconsider selling the property, as their next purchase will be "punished" with the tax, further decreasing the resale market supply and keeping prices constant. As there is no immediate decline in economic fundamentals, there is no push factor for mad selling. No doubt demand side will slide down, but supply will decrease as well, allowing price to be remain constant (at the current high prices) in the immediate future, instead of the predicted drop, which will most likely only arrive late 2012/early 2013 when supply floods the market and potentially increase in interest rates in US.

DBS/Aviva to launch renminbi insurance plan
Comment: Dragon Renminbi Plan, offering a 115% return after 5 years. That is 2.85% per annum, "capital guaranteed". Main risk is that it will be denominated in RMB, if SGD strengthens significantly more than the yuan currency, the profits would be eroded if converted back. However, vice versa, if RMB strengthens, that is potentially more profits.

Learning Through Reflecting

2011-11-30T15:22:00.001+08:00

Was reading a book one day and this statement took me completely off guard, "you do not learn by going through an experience, you learn from reflecting on the experience!"

I felt that this was very meaningful as we can go through many experiences every day but we will learn little if we do not take some time to debrief and reflect on what we went through.

The debrief process also needs to be effective. So, objective questions need to be addressed:
1. What happened?
2. What worked, and why?
3. What did not work, and why?
4. What could have been done differently?

Firstly, it is to recall what happened.
Secondly, focus on how to recreate the success.
Thirdly, the mistakes to avoid.
Lastly, how to avoid those mistakes.

The process may seem very logical and simple. Many may even be thinking, "Like that only, who don't know"?!

Exactly, it is precisely so simple, yet few make the effort to do it, consciously. When going into the first and every subsequent investment, it is important to reflect when the transaction is over. Regardless if there was a profit or a loss, those same questions should be asked so that mistakes will not be repeated and positive strengths uncovered.

After many rounds, a whole set of best practices and the ability to be consistent develops. Many times, advice stops at, "If you fail, try again." However, that is also incomplete, according to Einstein who defines insanity as "Doing the same thing over and over again but expecting different results." Simple trying again is insane, unless one tries again, differently. I feel like when I was younger and did not do well in exams, parents will encourage and say "study harder". Doing more in the wrong way is not going to produce better results; rather the method of studying needs to be revisited.

Similar to "Practice makes perfect". Practice actually makes permanent, like a habit. But if it is the wrong habit, it is not going to be perfection. The practice requires refinement to improve each time to reach perfection. The spiral of the improvement cycle is only complete with the last feedback arrow.

Well, this has left me a lot of food for thought and I hope it has for you as well.

"When you stop learning, stop listening, stop looking and stop asking questions, then it is time to die."

The Best Interest Rate This Xmas

2011-11-25T11:29:00.001+08:00

Walked past a HSBC roadshow recently, and they were offering 0.9% p.a. interest on a SGD 3 month time deposit. That is way higher than most banks for such a short duration fixed deposit (FD). In addition, they are giving a limited edition HSBC NETS CashCard pre-loaded with up to $500.

Just a side track question, what in this world is not "limited edition"? Once something stops production, it is also "limited edition", what realistically lasts forever in the physical world? Will this NETS CashCard be worth more in future?

Anyway, let's get back to talk about the tangibles, like reading the * Important note and "up to".

Well, I do not qualify for the Premier class, so I'll stick to review the Advance class. It offers a 0.8% p.a. rate for the same SGD 3 month FD. It gives a $28 CashCard (reasonable to equate to cash) for fresh funds of $25,000.

Therefore, using PV = 25,000 - 28 = 24,972 ; FV = 25,000 * ( 1 + 0.8% / 4 ) = 25,050 ; PMT = 0 ; RATE = 1.25% p.a.!

Now that is indeed a sweet rate for placing my liquid, emergency cash. Definitely more T&Cs to look out for, like this statement in especially small font: "In the event that the HSBC Advance account is closed within 12 months from 31 December 2011, the Bank reserves the right to impose a fee equivalent to value of the Gift issued."

All things considered, it is not a bad deal to me. In case I need the funds, I just lose the interest, if after 3 months, I just lose the $28 as a penalty and still enjoy the 0.8% interest.

Anyone have any better suggestions?

Gambling Trust

2011-11-18T14:41:00.001+08:00

I read with amusement the recent news about the lady, who has a vegetarian hawker stall in Geylang, denied of her jackpot winnings at Marina Bay Sands (MBS). Two things aroused my interest.

One, MBS as a renowned casino operator did not want to pay! In an industry based on gambling trust, that is going to severely affect their business. Excuses given of faulty machines only made matters worse. In my opinion, it raises further questions, when was it detected and why were the machines still allowed to operate? They are in fact cheating customers to place bets that may never win! In addition to paying the lady her rightful winnings, they should refund every single customer who placed bets during that period of "machine fault". It is no different from saying that if you lose, it is working correctly; if you win, something is wrong and we will not pay.

Two, the publicity has made her famous, but may be attracting the wrong attention. Now, unless you are living in a cave (if there are even caves in Singapore), everyone knows she has $400k extra to spare and know where to find her. I believe relatives and friends which has lost contact since eons ago suddenly remembers her, and would like to interest her in lending (aka giving) them money, investing, selling or simply have some luck (aka "benefit") to rub off on them. I suppose that is why she is declaring that she will be donating her winnings.

Firstly, this is very similar to all investments, trust is of paramount importance. The investment platform and structure needs to be robust and regulated. Hence, do not jump into investments that do not establish such trust. Such as unregulated land banking, doggy overseas properties, mysterious gold, etc. There is sufficient amount of good quality products available to invest in for all risk profiles and portfolio construction.

Secondly, that is why, the truly successful remain humble and do not wish to attract unnecessary attention.

I have yet to step into either of the Singapore casinos to give lady luck a shot, but I guess my choice of which to go is clear.

Best Card To Use

2011-11-14T14:42:00.001+08:00

I am a strong supporter of the Standchart XtraSaver account. I have been using it for years.
- It gives cashback for NETs purchases
- It gives the cashback in the form of cash every single month with no minimum spend requirement
- It gives a high cashback on MasterCard rebate of 2% (if no petrol purchases and $6k average account balance)
- First cheque book free
- No yearly fee
- No income requirement

1. I do not know of any other card that has rewards/cash for NETs purchases.
2. No complicated reward points system and pages upon pages of t&c-s.
3. Some other cards may give 3% or higher but too many complicated requirements to fulfill.
4. I do not use a lot of cheques so I am fine, some banks charge $2 every month just to open cheques.
5. An annual fee seems to be newly introduced, hope it can be waived continuously.
6. It is a debit card, so no credit facility, but I do not wish to live on credit anyway.

I was saddened to find out that the cap for the NETs cashback is being reduced from $50 to $15 from 1 Oct 2011!
Why the sudden cut and why there is no proper notification sent to customers...

Anyone else on XtraSaver too?
I am now tempted to search for better card promotions. Any suggestions?

Trading Psychology

2011-11-04T23:46:00.000+08:00

This article may seem philosophical as I was listening to an interview with a successful trader recently and the topic was about trading the markets.

Naturally, the first question was how did he get so successful trading the markets?
In light humor fashion, he cheekily responded the question with a question, "Do you think it is because I am a financial guru that thoroughly understands the market inside out? What factors affects and influence at the macro and micro perspective?"

"Well, if you are expecting such a typical textbook answer, I must be is BS-ing you!"

He went on to explain that the only predictable thing about the market is that it is unpredictable. What is important is to focus on your interaction to this unpredictable animal, i.e. how do you perceive and react to the markets. Everything in this world is relative to the most important central element in your perspective, YOU!

Therefore, first and foremost, most importantly, you need to understand yourself. What is your trading psychology?

The market movement is all relative to you. The same market change of moving from an example value of 10 to 11 will mean different things to different people. Someone with a target of 10 and below will be in disbelief, whereas someone with a target of 11 and above will feel that it makes sense. It is that simple, the change is relative to the expectations.

There will be theories upon theories as to WHY the market moved from a 10 to an 11 but it does not change the fact that the movement has indeed occurred already. And more often than not, the movement has little to do with those theories.

Now observe your psychology towards this change, did you get stressed up, complain and get angry with the market when you were wrong; or did you get over excited, built your ego and set yourself to stick your neck out further when you were right; or did you calmly accept the fact regardless of the outcome, re-access the situation and focus on the next trade opportunity.

Trading is very different from investing, and psychology plays an enormous role for trading. It is really crucial to recognize and acknowledge the difference. Some say they invest but trade their holdings very often, some trade frequently but with the mentality of analyzing for investing.

Psychology is a diverse field that penetrates many different niches. http://www.psychologydegree.net/ is a directory consistently updated to keep up with important news, breakthroughs, and noteworthy studies made in the exciting field of psychology.

Watch Out For That Car Loan

2011-10-31T17:23:00.001+08:00

A recent article showed that the average car loan size has risen to $85,000. And I am pretty sure property loan sizes are also on the rise due to higher prices. Not surprising, loan tenures are also increasing to the maximum allowable length. This represents that affordability is being stretched to the maximum. Though some may argue that it is due to low interest rates that it makes economical sense to maximize the loan, but there is good debt and there is bad debt. This loan is on a depreciating asset, it falls in the bad debt category.

When times are good, everything is rosy, it is easy to get complacent and take on debt bigger than one can chew just for that instant gratification. However, this is going to be a huge concern when a down turn occurs. Most will experience serious cash flow problems as these loans are not going to disappear when one loses their income. Selling the car off may result in further financial problems when prices are depressed and being penalised for early repayment, a lump sum top up settlement will be required. Conversely, to carry on using the car will be subject to increasing cost of ownership like ballooning insurance premiums, higher road tax, costly petrol and expensive parking charges.

I believe this is a terrible time to be purchasing a car with soaring COE premiums. Anyway, the circle line has fully opened and public transportation is increasingly becoming convienent. Now, with the aid of the bus arrival timing app, combined with distance based fare, bus lane, buses give way box, planning the least waiting time bus route is possible. In fact, recently, with the constant heavy rains, traffic on roads seem to reach a crawl frequently. Flooding has also become a real risk in Singapore.

Stay safe and take care.

Results And Beliefs

2011-10-24T14:09:00.001+08:00

Recently was speaking to a top sales consultant and his views completely blew me away.

One main point that he explained was about results and belief. He said that too much emphasis is placed on past results. Our beliefs are often formed from results we have seen and experience. In sales, if we have been achieving an income of 2k monthly, we will think that we can only achieve incremental performance and not 20k next month. But look at Apple, it was never in the handphone business. It was taking on established giants like nokia and motorola who took 10 years, hundreds of phone models and refining phone features to build their positions. Apple wanted to do it in half the time, with only 1 phone model and a phone that has only 1 button! It would have been assumed to be insane then but look where they are today. Even when driving, it is important to look behind but majority of the time we should be looking in front. Results should not form wrong beliefs, the right beliefs should drive results instead!

Much emphasis has been placed on looking at fund performance history. Technical analysis is looking at the past as well. To make the huge difference is to look at companies with an exceptional vision and the capability to deliver to have that quantum leap.

On a side note, I personally feel that the Singapore government is lacking in this area now. When Singapore gained independence. It was also assumed to be madness to be able to survive. LKY was a visionary to model Singapore after successful countries and made it what it is today. A flourishing place with the most millionaires, taking her from third world to first in 30 years. However, today, Singapore is at the forefront. She cannot be learning from more backward countries. She should be setting the standard. Recent parliamentary debate focused on housing, transport and healthcare cost. However, no concrete proposals were discussed, just promises yet to be seen. We require bold leaders to think out of the box, do things that others haven't, set the new bar. Housing, how about skyward downward seaward, instead of simply building more on limited land. Transport, how about sea or even sky means, instead of planning more mrt tracks. For healthcare maybe even having it free with compulsory insurance. Well, I am no scholar and can only come up with this within 5 mins. How about full time million dollar salaried ministers with a wealth of experience and education?

Hot New Product Launched

2011-10-13T09:41:00.001+08:00

Seems I am pretty backward when it comes to insurance products.

I was recently introduced to a new ILP plan from Company X. Some hype about it includes:
- 100% premium allocation (Most ILPs suffer allocation charge for first 3 years)
- No Bid-Offer spread (Normally a 5% spread which is like a sales charge)
- Wide range of fund available (Usually restricted to within company funds only)
- Bonus units of 10% on 1st year and more every 5 years
- Unlimited free fund switch
- Guaranteed issuance
- Death benefit of 105%
- Available to private high networth clients only

Does it sound too good to be true?

A quick Google found similar products already available since 2008, from Company Z and Company F.

How can the company pay for agent commission, give 100% allocation, no bid-offer spread, short tenure of 10 years and even give bonus units! So, what is the catch?

As expected, the devil is in the details. The usual terms are stated clearly upfront, things that regulators require to be declared are made to sound positive. However, charges are layered in such a mind bending way that the unprepared public can never comprehend fully. For starters, premiums are allocated to two different accounts, some charges levied on one of them, some more charges levied on the other and additional charges on both! Talk about triple tier cost, simply put, it is like having the food's delicious photo and exact price on the menu but later slapping GST, service charge and VAT charge. Further, although withdrawals are allowed, early surrender charges are practically 100% of premiums throughout the policy term.

Whoever came up with this product is amazingly creative. It managed to beat the system and in fact took advantage of the system to highlight the required aspects to their benefit. The charges are exceptionally higher, yet the plan sounds more attractive.

Brings application to - if you cannot convince, confuse.

CCL Fully Opens

2011-10-11T09:01:00.001+08:00

8 Oct 2011 marks the day the Circle Line rail network reaches full operational status.

It also the first day of higher fares on buses and trains, on the average it is an additional 2 cents more per ride. From a usual 71 cents ride to 73 cents, an increase of 2.8%.

It also serves as a reminder that the line took 10 years to complete. It was initially target to open from 2006 and fully operational in 2010. However, the Nicoll Highway collapsed on 20 April 2004, which claimed 4 lives, caused the construction to be delayed. Their sacrifice contributed to the progress we now enjoy.

It also means properties within walking distance of the newly opened mrt stations enjoy immediate property appreciation. Congrats to those who boldly invested or held on since the announcement of the mrt construction plans. Although it has been factored in the pricing and should not have an abrupt increase, nothing beats truly enjoying the convenience today.

Let's look forward to the opening of the downtown line, thomson line and eastern region line.

Meantime, looks like the transport companies will see revenue moving up by about 2.8%, so picking SMRT and SBS Transit shares may not be such a bad idea. Property hunting along the new mrt lines, especially at the interchange stations, can uncover some value for those with the holding power to wait till the opening of the lines projected to be about year 2020.

Drive Cautiously

2011-10-07T15:06:00.001+08:00

Recently, I had a couple of friends involved in chain collison on the expressway on separate occasions. Within minutes, tow trucks from repair workshops who "happen to be in the neighborhood" appeared to offer their services, assisted to collect driver details and assured all claims will be processed according with eye witnesses.

This is not the first time hearing of such things happening and I believe there are some sharings of similar incidents online. These all seem very suspicious to me. How did these kind souls appear so instanteously to such a random event (random location and time) without any notification necessary.

It is a scary thought that unscruplous workshops suffering from a lack of business are so free that they start driving around to cause accidents to drum up business. After all, the payment (and hence profits) is done by inflating the claim through insurance.

What is extremely terrible, is that there is no way to prevent it from happening. One can be an extra cautious driver by keeping a safe following distance but we cannot control others actions from kissing our cars or jamming brake for no apparant reason, resulting in others knocking into us, especially on expressways.

What are authorities doing to help stop the rise of such practise? Or are they more focus on giving summons to minor traffic offences and harmless illegal parkings in the middle of nowhere. Or debating where best to maximize revenue for the next ERP gantry, start evening/Sunday/all day ERP operations and the ideal justification for its price. Or how to raise more revenue through higher price COEs and perhaps overhaul the whole system to one that generates even more income. Or how much profit is sufficient for SBS Transit & SMRT when increasing public transport fares by 1% instead of the allowable 2.8%.

In the meantime, stay alert and drive safe.

Interest Rates

2011-10-05T14:33:00.001+08:00

The CPF Board has announced that the minimum floor rate of 4% in the Special, Medisave and Retirement Account (SMRA) will be extended by another year to Dec 2012.

From 2008, the SMRA rate was announced to be pegged to the 12-month average yield of the 10-year Singapore
Government Securities (10YSGS) plus 1%, subject to a floor rate of 2.5% per annum.

However, the government had kept a floor rate of 4% till the end of 2009 in order to help people cope with the transition. Subsequently, the government extended the 4% floor rate for year 2010 and once more for this year, 2011.

This time round will be the third extension for year 2012.

If they had not kept the extension for the 4th year running, the average yield of the 10YSGS plus 1%, from 1
September 2010 to 31 August 2011, works out to be 3.30%, which is lower than 4%.

I suppose it will keep extending till the yield of 10YSGS plus 1% is close to, if not higher than 4%. This is of course great news, as with the additional 1% bonus interest, $60k in the CPF is enjoying government guaranteed
"risk-free" 5% returns.

On the flip side, a piece of bad news is DBS Group, Southeast Asia's largest lender, said it would cut interest rates for Singapore dollar deposit accounts from Oct 14.

From an insignificant 0.1% for most deposits, the decimal place will be shifted to become 0.05%. Percentage change wise, it is a stunning 50% cut! Those who are so risk adverse and still leave huge amounts in savings account, it is time to reassess the situation. This is a definite erosion of value with inflation stubbornly high and a clear signal that rates are not going to recover to near 1% levels any time soon.

Those aged 50 - 62 can consider transferring excess savings to CPF.

Overwhelming Demand For HDB Units

2011-10-03T09:13:00.001+08:00

I read reports about the overwhelming demand for sale of "leftover" HDB units with amusement.

The statistics is 18,428 applied for 2847 units, which is 6.5 times over subscribed. And of course as with all statistics, the results may be bias. Some clean up of studio and 2-room flats need to be removed to better reflect the numbers as these units are only available to the minority who fit the criteria to apply. Then it will be 17,355 applying for 2264, which is 7.7 times over subscribed. Certain hot locations 5 room units can see demand exceeding 20 times over subscription.

This over shadows the 9476 applications for the 5415 units for the concurrent Built To Order (BTO) project, which is less than 2 times over subscription. With the anticipated drop out rate, I believe all the applicants for this project can get a unit even if they are so unlucky as to draw the last number.

What amused me was the way the reports were written. Most mentioned that it was surprising that the side show (leftover units) has overwhelmed the main show (BTO). Further, the reports mention that the demand is astonishing as these balance units are significantly priced higher than BTO units.

If policy makers share the same opinions, I think the housing problems in Singapore will be further compounded.

It is pretty obvious that leftover units will have more demand:
1. Better locations.
2. Shorter waiting time for completion, if not already completed.
3. Price is relative to the anticipated capital appreciation that can be realised earlier.
4. Competition from existing resale home owners who have not used their "first timer" Singaporean right.

The system needs to be revamped.

BTO fails in only giving a small penalty to those who got a number but did not take up a unit even though there were still available ones. This results in a try and complain environment with sincere applicants frustrated.
Many will try and if they do not get their ideal unit, complain. Then try at selected developments again. Rolling over the demand and the cycle continues. After all, it is just $10 for this "4D ticket".

How about:
1. Giving a permanent black mark (maybe a 3 year ban or allow them to only compete among the 5% of units released, etc) for applying as a first timer and not taking up a unit even though it is made available to them. (Prevent the insincere complainers)
2. Automatic compulsory free roll over of unsuccessful applicants to next BTO with double the number of chances and doubling it further each time. (Prevent anti selection for choice projects only and assuring sincere applicants that they stand an exponentially increasing better chance)
3. Build ahead of demand to shorten waiting time. What is wrong with having a small amount of over supply of new homes?

Sale of balance units should allow for market forces to play. Artificially releasing the units at predetermined depressed prices compared to surrounding units creates enormous demand, particularly from "insincere" Singaporeans who have not used their "first timer" rights. And I do not blame them, it makes perfect economical sense to do it, I'll do it as well if I could.

Instead of a lucky draw, how about auctioning the units? To sell these houses in a form of lucky draw is extremely unfair. The winner is almost certain to make profits in the 6 figure range, equivalent to striking TOTO. In an auction, firstly, results are not based entirely on luck; secondly, it should fetch a more reasonable price and do justice to state owned assets; thirdly, it will silence the unlucky complainers like me who grow jealous looking at others strike lottery out of public housing.

And since the topic is about HDB, I feel another policy for the HDB loan is contradicting the CPF extra 1% bonus interest objectives. When a HDB loan is taken, the CPF-OA account is emptied, however, CPF is giving an extra 1% bonus interest on the $20k balance in the CPF-OA (T&C apply, mainly due to CPF-SA & CPF-MA balances). I feel an option should be provided by HDB to allow a $20k balance to remain in the CPF-OA to enjoy the higher interest as well as a rainy day to service the mortgage installment without additional cash in the event of job/contribution loss. After all, a 3.5% rate of return beats a 2.6% loan interest rate, no argument there.

Commissions And Cost Of Insurance

2011-09-29T09:16:00.001+08:00

Some things I picked up to share while reading through the insurance benefit illustration and product summary:

"- Total Distribution Cost
This shows the total costs the company may expect to incur. These costs include cash payments in the form of commission, cost of benefits and services paid to the distribution channel."

Extracted word for word, this shows the commission paid to the agent.
A look at the information provided works out to be about 80% of the first year premium and 20% for the remainder of the plan. Essentially, about 1 year premium is lost to commission. (Ok, noted, I can save 1 whole year of premium if I cut out the agent's commission)

"- Effect of Deduction
This is the accumulated value of the deductions for the cost of insurance and expenses."

Basically, this is the company's revenue!
From the table, it is roughly 100% of premiums for the first 2 years.
Subsequently, it totals about 30% of the total premiums for my endowment plans @ 5.25% returns.
And I almost fell off my chair when I saw my ILP plans are about 50% @ 9% returns.
But logically, it makes sense, 5.25% and 9% will roughly have 30% and 50% lost respectively. "Lost" means the fixed base, ignoring projected returns, to the company in the form of its revenue, is largely similar for either plans.

Conclusion of analysis

1. Total Distribution Cost (Lost to agent commission, now I know how much they earn! For agents, time to wake up if you are not receiving an amount close to this, you have been short changed) is a subset of Effect of Deduction (Total Lost, Including lost to insurer).

2. 5.25% and 9% is a theoretical projection that can be unrealistic. MAS should enforce to do away with all projections and state clearly what is the "Total Lost" without the "Effect of Deduction" that includes projected returns. Alternatively, include projections at -9% (In this case, the plan may stay perpetually negative!), -5% and 0% for Investment Linked. If there are too many columns, then how about -5%, 0, 5% to be realistic. Most interesting will be 0% returns where alarm bells should ring that at 0% growth rate, the plan returns less than half throughout.

3. Now I am curious to do an insurer to insurer comparison of Effect of Deduction. The one with a smaller value here should be a more cost efficient company.

"Are you ready?" Checklist

2011-09-26T11:57:00.001+08:00

This article is written specially as a contribution to the CPF initiative “Are You Ready?”. The main aim of this year’s initiative is in 4 areas, namely Healthcare, Housing, Retirement and General Cash Flow Management.

In my opinion, Healthcare, financially is straightforward, having a suitable shield plan, minimally the compulsory opt-out CPF schemes of Medisave, MediShield and ElderShield provides reasonable coverage. More in-depth will be discussing the integrated Shield plan with the co-insurance/deductible cash riders, Power of Attorney and Advanced Medical Directive. On another hand, prevention is better than cure, maintaining a healthy lifestyle, balanced eating with regular exercise is still paramount to prevent incurring medical cost in the first place.

For Housing, Retirement and Cash Flow Management, I feel that Housing is a major factor directly impacting the other two. Why? Mortgage loan duration will affect when one can retire debt free and loan installments will form a huge regular expense of cash flow management. Therefore, by managing Housing Financial Planning, it will also manage areas of Retirement and Cash Flow. Further, I feel it is an often neglected topic as “Financial Planners” often only talk about insurance and “Property Directors” usually discuss property prices only.

The CPF campaign has provided a useful Checklist to avoid potential pitfalls and to buy a house within one’s means.

Checklist item 1: Have you saved enough?

Buying a property would most likely be the single most expensive purchase most Singaporeans will make it their life time. However, the irony is that they would have bought at quite an early stage in their careers when they have not even built up much wealth yet. In addition, it would also be at the same point in time they splurge on their once in a lifetime wedding and honeymoon.

How much is enough? Well, depending if it is a HDB or private property, new or resale, there is the down payment which can be partially off set with available CPF-OA. Then there are the stamp duties, legal fees and cash over valuation (COV) if necessary. After receiving the keys, there are renovation, furnishings, appliances, decorations, household necessities, etc. So, how much really depends on the quality and luxury of your lifestyle expectation. Although that said, minimally, it is expected to be in the five figure range.

This is of course over and above the emergency fund of at least 3 to 6 months of your income that you will have to first establish. It will now also have to be more due to the unforeseen events of household emergency maintenance and repairs.

Checklist item 2: Am I able to service my debt?

Cash Flow Management dictates, as a guide, the installment should be below 35% of one’s income. However, you must really break down to individual expenses to ensure the installment is comfortable to live within your means. No point locking away 35% of your income only to compromise on lifestyle and taking on other forms of credit card debt eventually. Neither is it wise to keep it below 35% if you earn more than sufficient to cover expenses and waste the excess savings in negligible return fixed deposits.

Most importantly, work with a budget percentage that is most comfortable and will not result in compromising the payment or taking on more debt in future to sustain your lifestyle. As the Chinese saying goes, do not wear a hat that is bigger than your head, it is better to moderate your expectations to a property that is more affordable rather than be a slave to servicing the loan. Perhaps consider HDB 3 rooms or 4 rooms instead of insisting on 5 rooms, Jumbo, EA, EM, EC, or maybe cheaper locations compared to higher priced centrally located units.

Interest rate environment is low at the moment and if you are taking a floating rate mortgage loan, you need to prepare sufficient buffer for the increase in future. Even if yours is a fixed package from HDB, it is now guaranteed at 2.6%, but it is pegged to CPF rate of 2.5% + 0.1% which could increase once the government allows it to float based on government bond rates.

Checklist item 3&4: How long should my loan duration be?

It depends on when you wish to retire debt free and your comfort level of debt servicing. If you are using CPF to pay for the loan, then 55 would be a good alignment not to stretch it any further. Retiring does not necessarily mean stop working, it means to have a choice to retire if you wish too as you are debt free and have sufficient funds to live on. The property can also be pledged for achieving the CPF Minimum Sum Scheme, so more reason that it would be best to work within age 55 for the loan duration.

In addition, if you are using CPF, the contribution rates vary has you get older, so the mortgage installment being a constant amount may require cash top up in later years. There are also imposed restrictions on the withdrawal limits for housing, which may result in the remaining amount of the loan having to be serviced in cash.

Checklist item 5: Is insurance necessary?

If you have loved ones under the same roof, would you want them to take over your portion of the property debt burden if you are no longer around?

For HDB financed using CPF, the Home Protection Scheme (HPS) is compulsory. However, this only covers the mortgage, it is also ideal to add on and insure the house and its contents for a reasonable insurance premium.

In fact, this scheme and most other mortgage insurance cover only upon death or total permanent disability (TPD). It is not a living insurance, which means that if one contracts critical illness (CI) or disability, one may not be able to work but the installment is still required to be paid. So, do consider other types of insurance like CI or disability income plans to compliment the mortgage loan coverage.

In summary, all these items are the bare essentials that will apply in general to prepare to be ready. It provides a good head start as a checklist on issues you have to look out for but may have left out. For more in-depth analysis, it includes understanding those items in detail and other areas like:
- Various HDB schemes, BTO, DBSS, EC, HUDC, resale
- Private properties that are freehold, leasehold 999 years, 99 years
- Mortgage loan packages, bank or HDB, SIBOR or SOR rates, fixed or floating, interest offset, etc
- Maximum or minimum loan with maximum or minimum duration
- When to buy the property
- Estate planning of properties

*** ***
Are You Ready? is a new proactive outreach initiative by CPF Board which aims to educate Singaporeans on how to make key financial decisions in their lives. This year, we will be focusing on 4 key areas, namely Healthcare, Housing, Retirement and General Cash Flow Management.

To help users along, a checklist is devised for each key area as a quick guide to check how ready they are in making this decision. The checklist will be made available on both online and hard copy version.

Visit www.areyouready.com.sg for more financial planning information!

How To Make Extra Cash

2011-09-22T14:46:00.001+08:00

Came across an article on asiaone on how to make extra cash. It listed 10 ways:
1) Sell your unwanted stuff
2) Rent out your spare room
3) Get a part-time job
4) Get paid to do surveys
5) Become a mystery shopper
6) Sell your skills
7) Make money out of your hobby
8) Show off your problem-solving skills
9) Get paid to baby-sit
10) Sell advertising space on your website

Basically, most of them required an exchange of time for money, more specifically Item 1, 3, 4, 5, 6, 7, 8, 9. This is no different from your current job. In fact, it should be weighed vis-a-vis the per hour rate of return. If it does not, I would prefer to focus on improving my value add to the organisation to move up or be in demand from external. It is not practical for full time employees who require a minimum amount of work-life balance, unless one is a full time home maker.

Some per hour rate job that stands a higher possibility of return in my opinion would be tuition, photographer, property agent, insurance agent, but may require the specific skill or clientele base. So, bottom line is, the alternative needs to be practical, else the suggestions can be endless, like petrol pump attendant, coffeeshop assistant, 7-11/Cheers cashier, car wash cleaner, janitor, security guard.. I believe you get my point.

Item 2 is only possible but most are uncomfortable with a stranger living together. It is indeed a serious alternative to consider as it does not involve time to be exchanged for money directly. However, not everyone has a spare room to begin with.

Item 10 is also good possibility as it again does not require direct effort. However, the revenue generated could be quite insignificant for the majority. Unless your site is a real success like those celebrity bloggers.

Well, I am not just critisizing alone, but I believe it is important that the suggestions should not involve time to be directly exchanged for money. That is why we find a job in the first place, then it is just finding a second job. Everything will crash when we fall ill or due to unforeseen circumstances.

My personal 5 suggestions (which everyone is free to critisize as well, appreciate if they were constructive though) would be:
1) Rent out. Why not go all the way and rent out the whole unit, stay in one room instead. Obtain another property and gain more rental income, touching on point 5 now.
2) Sell advertising space on website
3) Write and publish a book on any topic of interest (Cooking, Where to Eat, Gaming, Investments, anything)
4) Build a business (MLM, Property Agency, Insurance Agency, Tuition Agency, Franchising, Consultancy, Faciltating, anything)
5) Invest for passive income and capital appreciation (Property, REITs, stocks, UT..)

Well, no one said it would be easy.

Review of Book by TKL

2011-09-19T13:51:00.001+08:00

The 2011 Singapore presidential candidate has published a book "Get Value From Your Life Insurance". Being the previous CEO of NTUC Income for over 30 years, I hope that it would prove to be a very insightful read. A book review recently mentioned several points which discouraged me to pick it up.

The author, Mr Tan Kin Lian, became the general manager (subsequently re-designated as CEO) of NTUC Income Insurance Co-Operative in 1977 at the age of 29 and remained in the same position for 30 years.
- I wish someone would teach me how to qualify to be a CEO of a major company at age 29.

In the book review, the author mentioned that deductions from premiums should not be more than 20%.
- A quick check with some companies is that no such product exists and there is no suggestion as to where this is available. Quite difficult for a layman to get his hands on all available products in the market.
- You pay peanuts, you get monkeys. Some would like to pay more for the better service, efficient claim processing, branding, etc. That is why some eat at hawker centers, while others pay 10x more for the same thing at posh restaurants.

Buy term and invest the rest YOURSELF
- This is general advice but some may be uncomfortable with term.
- Anyway, investing yourself requires some wisdom. Some may prefer to leave it to the subject matter expert who can monitor as well. Trying to invest yourself may be equivalent to gambling without the proper knowledge, skill and time.

Know the Half Truths That Insurance Agents Are Trained to Tell
- This is brushing the whole industry which he led for 30 years one color because of the black sheep which did come about overnight.
- I do agree that the number of these black sheep is quite substanial, but it takes two to clap. Clients also tend to already have a negative mindset, unreasonable expectations and unwilling to take a geniune interest in financial planning. They also give half truths of their financial status.

Agents have a conflict of interest
- It is a industry practise, name one insurer that sells insurance products not through commission? NTUC Income previously?
- Think we are all well aware of the fact. But what does the general public like myself need to do to avoid this conflict?

Do Your Own Analysis and Focus on the Guaranteed Portion
- This seems to contradict "buy term and invest the rest yourself".
- Anyway, by focusing on the guaranteed portion only, it is normally equal or less than the total premiums paid. Then how? Why are these products even approved to be sold?

Overall, it provides mainly to the layman information only, no solution. However, I believe the general public would not be interested in such a book. Whereas for those practioners, it is simply stating what is generally known already.

Unnecessary Insurance

2011-09-16T09:20:00.002+08:00

Risk management is the basis of insurance. Fear of the uncertain future creates the need for financial protection against a catastrophe. However, I recently stumbled on an article that provides reasons why some insurance are unnecessary. I kind of agree on the some of the points made:

1. Mortgage Insurance
Instead of focusing on just paying off the mortgage, wholistic coverage should be considered. In addition, most companys provide large sum discounts. There are term plans that mirror the mortgage insurance coverage, providing reducing coverage without needing you to submit mortgage documents and revising everything when you change residence.

2. Comprehensive Motor Insurance
Most drivers opt for low excess and a comprehensive plan instead of third party plan with higher excess. With the raising cost of motor insurance premiums, it is to your benefit to do some calculation if it is worth paying both an arm and a leg for the maximum coverage. When considering excess, consider the amount you are comfortable to fork out, keeping in mind that once a claim is submitted, your premiums will sky rocket the following year. For example, if you chose $500 excess and a claim for $1000 is submitted, your next premium may be $1500 more and may lose your No Claim Discount (NCD), so does it make sense to claim or pay yourself? In that case, why not adjust your excess higher and pay less premium.

3. Child Insurance
Insurance is mainly designed as a safety net for your dependents. As children do not have dependents to worry about and are, technically speaking, a "liability", the main concern is saving for their future exponentially increasing living expenses. Most important of course is to have an adequate hospitalisation expense plan in place and to review the parents coverage with the addition of this new dependent first.

4. Credit Card Insurance
Purchasing coverage to pay the bill in the event you cannot, is purely an additional expense that could have gone to paying down the bill in the first place. You will save on the premiums as well as the debt interest. Do not even have the debt by paying off your bills on time will be the most prudent approach.

5. Critical Illness Insurance
Instead of trying to cover all the possible illnesses in the world and possibly new illness not even known yet, a comprehensive hospitalisation plan for treatment cost and disability income insurance as income replacement should be emphasized first. Further, nowadays, early stage plans are also gaining popularity, the premiums can be quite significant, so are they indeed worth it?

When choosing Insurance, there are so many policies to chose from, and they all cost money. No point wasting good money on less critical additions when the fundamental basics are not adequately addressed. Are you aware of all the available policies or are you relying on your insurance salesman to recommend you only those high commission products?

Pre Paid Packages

2011-09-14T09:13:00.000+08:00

With the saga of True Spa being brought to light again recently, it has brought to question the business structure of pre-paid packages. I am sure, they are not the first company to have such problems, neither will they be the last. When buying into a package that potentially last for years, you are practically investing in that company. You must trust in the financial management of the company as it can be very risky what the company does with the funds.

For example, by collecting the full payment of the packages up front, it would seem that the business is very profitable on a cash flow analysis basis. For accural basis, that will be very subjective. Further, it is unknown what the business owners will do with the sudden "profits".

A. They could declare it has high salaries to the "inner circle" of employees who are themselves and relations.
By so doing, when the company goes bankrupt, this expenses cannot be demanded back. It has already been considered spent as company expenses. Creditors can only persue the private limited company for what ever is remaining of company funds and liquidate assets.

B. They could use it to expand their businesses beyond their capability, taking on exceptionally high rental unnecessarily and driving business cost up within too short a time. If new customer growth does not yield the expected returns, the company will show signs of cracking and fold very soon.

C. They could invest the funds and this incurrs additional risk. Are they capable of prudently investing when it is not their key business to do so. They could engage external financial experts, but that will incurr more cost again. Leaving the funds just lying there is also not logical as the opportunity cost is too great.

In my opinion, pre-paid business structure is only beneficial to the company. It is not directly in the interest of the customer. Although the company provides steep discounts for pre-paid packages, it is because, the original pricing was grossly overpriced to begin with. If the discounts were geniune, it would be even more risky to take up the package as the company is suffering a loss.

Well, I am not a huge user of spa facilities but I do not think it is wise to pump thousands of dollars up front and slowly using up the package, subject to the company's "availability". Perhaps the industry could consider alternative methods to secure loyality. I am not an expert but maybe membership, loyality points or how about plain old fashion good service.

Critical Illness Coverage Review

2011-09-11T20:31:00.000+08:00

After a discussion with a fellow blogger about Critical Illness (CI) coverage, I started to notice that many people (financial advisers included, though I am not sure if it is a genuine misunderstanding or deliberate misrepresentation), have a misconception about the 3 main types of CI coverage CLAIMs.

All 3 types have the same coverage, i.e. they cover the 30 types of CI whose definition has been standardized by the Life Insurance Association (LIA) of Singapore. It must be certified by a medical professional that it falls within the contractual definition. BUT the difference is in the claim amount paid out upon diagnosis.

First type of claim is CI waiver. If diagnosed with CI, the claim will be to waive the premiums of the plan. If the plan is for a death coverage sum assured of $100k and premium monthly is $50, it means that you do not need to pay the $50 every month BUT you do not receive the $100k until a death claim. Therefore, the claim is for the premiums and not the sum assured.

Second type of claim is CI (Accelerator). If diagnosed with CI, the claim will be the sum assured. However, this results in a reduction of the death coverage sum assured. So for a plan with death coverage sum assured of $100k. If CI (Acc) coverage is $80k, you receive $80k and another $20k left for death claims, which you still have to pay premiums for! If CI (Acc) coverage is $100k, you receive $100k and the plan terminates.

Third type of claim is CI (Additional). If diagnosed with CI, the claim will be the sum assured, independent of the death coverage sum assured. So for a plan with death coverage sum assured of $100k. If CI (Add) coverage is $130k, you receive $130k and the death coverage of $100k is untouched, fully available for claim, though you still have to carry on servicing the premiums for that unless you add another CI waiver rider separately. However, if you were to pass away without contracting any CI, only the $100k is paid and not with the additional $130k.

CI (Add) coverage can be more than the main plan, but CI (Acc) is always less or equal to the main plan.

As can be seen, the 3 types of plans provides vastly different amount of pay out. CI waiver would be the cheapest in terms of premiums, followed by CI (Acc) and most expensive will be CI (Add).

Some agents are marketing CI waiver that it provides coverage for 30 CI (full stop). Without explaining that the claim is only on the premiums. Clients often mistakenly assume that they will receive the full sum assured if diagnosed with CI.

Although clients would like the CI (Acc) or (Add) coverage, they are often taken aback that it could more than double their premiums with no returns. Further, CI premiums increase exponentially with entry age.

Maybe it is time to review your CI coverage if it is in line with what you understand now.

Phantom Property Agents

2011-09-08T15:17:00.001+08:00

It has recently been brought to light that there are phantom property agents who are not licensed but still carry out sales like they do. They close the deal but submit the transaction through a licensed agent to claim the commission.

A few things puzzle me. My assumptions are, you can close a property deal on your own, i.e. it is not mandatory to go through an agent. Commission is paid separately, i.e. it is not factored into the price to be remunerated. Please correct me if I am wrong.

Firstly, sellers who Do-It-Yourself (DIY) are no different from unlicensed agents, which is allowed. Therefore, a phantom agent can act like a close "friend" to the seller and assist the property transaction. Is an unlicensed DIY seller asking advice and help from a friend illegal?

Secondly, why do you need to pay the commission to the company. Instead of asking the client to make the cheque out to the company, tell him/her to make it out to the phantom agent directly. Do not even involve the company that requires only licensed agents to go through them and even take a percentage of the commission, leaving the poor phantom agent with a miserly portion even after doing all the work. In addition, established big companies even charge GST. If the justification is to ensure the client pays the commission, then it could not be further from the truth. If nothing is signed in black and white, the client can decide not to pay the commission and there is nothing the company will do to help.

Unless my assumptions are wrong, this structure allows for unlicensed agents to carry on to work and even get paid in full. So, why are they so silly to earn less by going through licensed companies and even risk getting caught?

The MDRT Experience

2011-09-06T19:54:00.000+08:00

I was amused reading through the comments following an article of a Million Dollar Round Table (MDRT) agent processing a insurance claim of $20k for the death of the breadwinner of a family of 3. The article added that she was even proud to deliver the $20k cheque and boasted about the prompt claim process.

The comments included:
- "$20k where got enough?"
- "If proper Fact Find is done, this would not have happened."
- "Difference in commission results in whole life sold instead of term insurance"
- "Who can achieve MDRT by selling term insurance only?"

Seems third parties hiding behind computer screens gives one the power to judge others actions when they could be doing the same thing.

The amount of $20k being sufficient or not, can only be determined with a proper fact find. Perhaps the family had a huge inheritance or has a source of passive income to sustain their lifestyle and $20k is the client's wish to use it to take care of final expenses or charity only. Either way, using your own frame of reference to judge the appropriateness of the amount is falling into the same trap of not conducting a proper fact find.

Doing a proper fact find would prevent this? I beg to differ. Carrying out a needs analysis is purely academic, calculating a shortfall based on client input. The key issue is still not addressed, advice on the need for proper cash flow management and recommendation for choice of product. Firstly, client's provide the budget which may be insufficient to meet the shortfall, proper education of cash flow management is crucial to balance the amount committed to risk management. Secondly, it is at the sole discretion of the agent to recommend the product, designing a financial road map is more of an art than a science. There is no scale of judgement on the type and quality of product recommended.

Sometimes it is even the client's choice that they would like returns. They are uncomfortable to keep paying with nothing in return, whereas their friends & family get back their premiums at maturity. The mindset of insurance in general is that there are plans that give you back your premiums at the end of the plan, so why go for plans that have nothing in return. Agents may also agree with this concept and purchase such plans themselves. Ethically, both parties are in perfect agreement and the conscience is clear.

I am a believer of term insurance. But the mindset is not something that can be changed over one brief appointment. Some coverage is better than no coverage. If you do not sell me what I want (whole life/ilps), I will buy from someone else who will. Moreover, no one can be against earning more money since such plans pay more commission.

The MDRT is a hallmark of good sales. Normally, performance in sales comes at a compromise of time spent on good financial planning. Further, it is determined by commission earned on new sales, so MDRT is actually an achievement in consistently selling to a lot of new people, a lot of high commission products. Unless the criteria is changed, it is a fact. It would be interesting to know if there are any MDRT agents who sell only term plans or are purely fee-based and can cope with good service to all their new and existing clients.

I hope I am not defending the agent or adding fuel to the fire as I am in no way related to the incident but would like to voice my opinions only.

Bank Tour

2011-09-03T12:24:00.000+08:00

With the numerous complaints of the tactics used by banks to do “financial planning”, I thought it would be good knowledge when advising customers, to experience these bank advanced selling techniques first hand myself. So, I decided to pay a “mystery shopping” visit with a close layman friend who was indeed keen to take up a savings or investment plan, depending on what they had to offer. I sat quietly beside without interjecting my opinion, or affecting the sales process.

Bank A

The staff seemed pretty new as he was unfamiliar with the forms and was disorganized in the sales process. He did go through the risk profiling and after determining that my friend was “Balanced”, he recommended a Unit Trust. He was quick to highlight that there is a promotion of free gifts for investment amount of $50k and higher for a riskier fund that was recently launched.

He emphasized a lot on the dividend payouts and past performance. He also provided a lot of opinions about the bullish outlook of the fund, recommending a holding time frame of 3 years for good returns.

When queried about the sales charge, he stated that it is an industry norm of 5% up front. He was evasive when asked further if other funds were cheaper or the difference of purchasing online.

Overall, my friend did not have confidence in him and felt oversold on the assurance of performance.

Bank B

It was an amazingly brief session here. The staff immediately asked my friend if she was risk adverse or keen on investing. My friend replied that she was quite risk adverse but keen to invest. So the staff explained that if she was risk adverse, he will recommend a savings plan with guaranteed returns but if she was keen in investing, he will recommend unit trusts.

My friend decided on investing and was next asked the investment amount. Upon hearing a low five figure, the staff became distracted in his presentation and was constantly looking out for new customers.

My friends was extremely displeased and decided to leave after a while.

Bank C

The staff was friendly and complimented my friend that she looked so young. Then after breaking ice, it slowly led to the punch line that disciplined saving is important when she is young.

Without my friend providing any information at all yet, the staff proceeded to draw a savings plan of $500 per month for 5 years. That is $6k a year, $30k after 5 years. In normal savings deposits, it is 0.125% interest that is $37 only. However, if you save through our promotional plan, you will enjoy 5.25% interest, giving you a total return of about $1,500, compared to just $37.

When asked if the returns were guaranteed, the staff proceeded to generate the Benefit Illustration, and assured my friend not to worry as the figures are all stated in black and white by the bank.

Then my friend asked if this was an insurance plan. The staff complimented that she was very sharp and explained that this savings plan has an additional benefit that gives your loved ones the targeted savings amount immediately if anything were to happen to her during the 5 years while she was saving, unlike bank deposits where you will only get what you have already saved.

Next, my friend asked if there were any risk. The staff tactfully side stepped the question by saying that this is not risky like stocks or unit trust where the price fluctuates daily. The staff then proceeded to do the fact find forms by assuring my friend that he will place her risk profile as risk adverse and the bank does not allow unsuitably risky products that do not match customer’s risk profile to be sold.

I was dumb folded when my friend started to sign papers and took up the plan. I remained silent and carried on to observe till everything was completed, with majority of the forms filled in by the staff without asking much.

After leaving, I sat my friend down and gave her the whole honest truth of the plan details. She was shocked that the 5.25% was non-guaranteed and even if the plan did achieve it, the figures only add up to a 2% pa return. Further, I did some cash flow management calculation with her, taking into consideration her wedding goals in 2-3 years time. She could ill afford the plan for the next 5 years and if she was to surrender the plan in 3 years time, she would lose most of her savings. Fortunately, I shared with her that she has a 14 day free look period (which she was not told as well).

In conclusion, I do understand that this is a double edged sword. Practitioners can actually pick up techniques from here to innovate and upgrade their sales skills. But I hope rather that more consumers will be aware, learning from other people’s experiences and not making the same mistakes.

What Is Sold?

2011-08-26T21:54:00.002+08:00

There are mainly 2 types of business, one, the sale of a product and two, the provision of service.

Selling of a product is quite straightforward, one pays money in exchange for a physical asset or product. When we buy a mobile phone, we pay the price and we receive the goods.

For service, it is paying for the provision of an action or advice. When we pay for a mobile service, the teleco provides the network service for you to make calls/sms/internet, no physical goods was provided.

However, most of the time, the line is not very clear. For example, purchasing a pair of shoes from a shoe shop. Although the end result is receiving a pair of shoes, a service staff is around to assist finding the pair that fits and promoting the product for sale.

So, sometimes, it boils down to the expectation. Some go to hawker stalls and expect 5 star service, when you are paying more for just the product, your meal. Whereas, you are paying a huge premium for fine dining in expectation of excellent service and well prepared food.

When it comes to financial planning, what is the expectation? I polled insurance agents and the general public (ok, I admit, it does not meet the minimum standard of a survey), most were of the view, agents themselves included, that it was sale of a product. Well, sadly, that is the impression the commission structure has created of the industry.

I would like to compare it to a professional, a doctor. A doctor performs a medical diagnosis, gives you advice of the analysis and finally sells you medicine. Would you think that a doctor is a salesman selling medicine? You got to admit, in the end, that is the end product. However, he provided the more important part of advice and you pay consultation separately from medicine. I would say that a doctor provides both, a one stop solution, you pay for service and get his medical opinion of your illness as well as the cure. You indeed pay for the right medicine as a product, which you can alternatively, free to go to a pharmacy or buy online yourself, since ultimately, it is the product manufacturer who earns.

A financial planner should see oneself as such. A professional who performs a financial diagnosis, gives advice of the results before selling any product. Hence, he should be compensated separately. The client is free to purchase the financial product from someone else or himself online. After all, the one who earns from the financial product, is the financial institution (i.e. the bank, insurer, investment company, etc).

This demarcation of fees is more important than focusing on adding layers and layers of paperwork, hindering customers from making a simple purchase, like a shield plan or term insurance. To make matters worse, MAS has recently introduced customers to take a test before purchasing. This is really getting out of hand. In such cases, I would like to propose to MAS, customers who pass the test to be competent should be allowed to make their own purchases without an agents help, filling in less forms and cutting out the agents commission.

Let's look at the spirit of the law, rather than the letter of the law. Address the root of the problem rather than creating new ones. Industry practitioners are amazingly innovative, adding more layers are not making things better for the customers, it is in fact benefiting the sales agents. One may have the knowledge of personal financial planning but has no clue how to navigate through all the jargon and paperwork introduced that they simply give up and rely on cunning sales people.

What is so complicated about a simple term insurance? You pay a premium for the sum assured in the event you pass away. No cash value, some simple exclusions like war, suicide needs to be noted, but how complicated is that? It is simple, but what is complicated is that you have to fill a ton of FNA, take a test, assess your risk profile, read & sign every page of a BI, product summary, have a guide to insurance, proposal forms and some have even more like KYC, product highlight sheet, important notes, etc. Listing them out is tiring enough, I think I rather pay some else to do them for me.

Are "financial planners" selling a product or a service?

Singapore Property Prediction

2011-08-20T15:49:00.000+08:00

There seems to be a lot of volatility in the global equity market, and of course, Singapore included. This has resulted in billions wiped out over the past 2 weeks since National Day.

A piece of interesting news is the Swap Offer Rate (SOR) went into negative territory. The SOR which is highly correlated to the US interest rate and exchange rate, has just got an unprecedented guaranteed from US Fed Chairman, Ben Bernanke, that it will not go up for the next 2 years! This is truly risk free investing if you know how to take advantage of it. Well, one way I can think of is to refinance your mortgage to a floating SOR rate with 2 year lock it, reviewing the global situation to repackage if necessary 2 years later.

Another piece of news that grabbed the headlines is the downgrade of US debt by S&P. This has resulted in Singapore which is one of the remaining few AAA rated government debts to be thrown in the limelight as a safe haven during these turbulent times. I would think that Singapore is facing the threat of appreciating the SGD dollar too much and affecting its exports, currently it is trading close to a never seen before 1.2 vs the USD. The upside is it is combating inflation since Singapore is a major importer, but the downside is deposit rates will remain low and investing overseas will be challenging, so more savvy investors will be turning to local property, perhaps even commercial properties, as compared to the volatile equity market.

Taking these 2 factors into consideration, coupled with the stamp duty penalty of 16% 1st year, 12% second year, 8% third year, recent buyers are enjoying a rising property market. They unlikely would sell in the next 2 to 3 years, A: because hit with stamp duty penalty, B: low interest rates, using leverage to maximize profits without any opportunity cost, C: there is less uncertainty for the next 2 years, D: SGD is appreciating, overseas investment opportunities are difficult, property will remain attractive as it is less volatile than equities, E: Demand still exceeds supply, and demand is increasing as foreign investors are eying this market as well.

Therefore, my analysis is that Singapore property will carry on to climb even higher for the next 2 years at least but it potentially will come crashing down after if interest rates start increasing, today's buyers start off loading due to lower stamp duty penalty and a gradually increasing over supply.

A Is For Apple

2011-08-13T15:26:00.000+08:00

Apple has overthrown Exxon to be crowned the most valuable public company in the world.

The amazing thing is that Apple was close to bankruptcy 14 years ago, and despite the financial turmoil that has been plaguing the world this past 3 years, Apple shares have continued to defy gravity. I remembered that there was even a report that Apple holds more reserves that the US government.

What has made Apple so successful that we could learn from this awesome company?

Apple's blast off point was the highly acclaimed hit of the iPod. They marketed it as a status symbol, it became a "must have", it was cool and it is the clear choice when picking a mp3 player. There were dozens of players in the market already, but Apple somehow was able to capture the imagination and created so much buzz about its players. Some say is the quality of music, others the sleek design and user interface. Whatever it was, it took over the whole market.

Riding on its success, it tried to break into the mobile phone market with the iPhone. There was already so many heavy weights in that industry: Motorola, Nokia, Sony Ericsson, Samsung, HTC, just to name a few. Who would even dare to stand up against these big boys without any sufficient arsenal. Apple innovated, they created a platform rather than a phone in particular. It allowed users to write their own Apps, and like Wikipedia, the world responded and flooded the market with all types of Apps that only the imagination is the limit. Apple is a classic example of "Blue Ocean Strategy", it is a book about innovating and finding new markets that never existed.

To further transform, they developed the iPad. It was a tablet PC. It was not the first in the market, but many others launched unsuccessfully. So what made the difference? Apple dreamed of uses for it, areas which the initial few never thought about. Now, those who have one, swear by it and cannot live without it, they cannot recall what life was like before they had one. Apple also enjoy so much free advertisements. Whenever a company develops an App on the Apple platform, the company boasts about it, release print ads, feature it and everyone will have to get an Apple to use that App.

With Steve Jobs, the man who once even accepted $1 as salary for being CEO, at the helm, it is only predictable that he will dream of another unpredictable device to tap into a new or existing market and revolutionize it.

Apple has indeed set a precedence. The top company has traditionally been built on brick and mortar physical assets like land, steel, oil, etc. Apple has relied on none of these except for ideas and a winning marketing strategy. Innovation has become the new economy and it is not bound by physical constrains.

What Do You Think About ILPs?

2011-08-06T01:39:00.003+08:00

I believe people who are reading financial blogs and articles are mostly the financial practitioners. And many have voiced strong opinions that Investment Linked Plans (ILPs) are absolute junk. Well, I used to have a herd mentality that this was true, but now after some thought, I wish to challenge that.

First and foremost, whether something is bad or not must be compared in context relative to something else. Therefore, apples should not be compared to oranges. It is meaningless to compare insurance with fixed deposits and similarly ILPs with normal Regular Savings Plans (RSPs) or Buy Term Invest the Rest.

Comparing it against whole life (WL) and term insurance plans would not be absolutely appropriate as the objectives are not aligned. ILPs are generally a savings plan with an embedded yearly renewable term plan. So, unlike WL and term where protection is primary, ILPs' protection is secondary. Hence, I would like to compare it with traditional endowments. Of course some assumptions for the ILP are: returns are reasonable, same age, sum assured and time frame of holding the plan.

1. Surrender Value. Although we all know all plans are long term commitments and should not terminate prematurely, but we assume in a worst case scenario that if it happens, which loses less. Endowments generally return zero on the first year, negligible amount on second and third year if any at all, and throughout is normally less than premiums paid even including the non guaranteed portions. ILP front end load plans still do give some minimal amount even during the first year and probably more overall compared to endowments throughout the plan, assuming a realistic rate of return. ILP back end load plans may give less in initial years but are made up for in remaining years. Therefore, ILPs win this category. Investment return is distinguished and will be compared in a separate category.

2. Protection Value. As I mention earlier, this should not be the focus of the plan. Most endowment plans mostly cover a nominal amount and premiums do not vary a lot with age. Whereas ILPs' mortality charges increases with age, less charges are incurred for younger lives. Therefore, this category is a draw, depending on age, ILP win for younger lives and Endowment win for older lives, though this is still very subjective as it is plan and company dependent.

3. Returns. Endowments generally have a guaranteed and non guaranteed amount, hence one normally receives back the full amount of premiums plus the bonuses declared on an annual basis. ILPs have no guaranteed portion at all, so one could potentially lose everything! However, ILPs invests in a diversified portfolio of unit trusts, how often does a unit trust lose so badly that it loses its entire principal? Can the STI really drop to zero? Let's be realistic here, any well balanced portfolio held on a dollar cost averaging basis for 10-25 years (same time frame for comparision remember) should give a return higher than any endowment plan. Therefore, ILPs win this category.

4. Flexibility. Endowments are totally inflexible in any way. ILPs can vary premiums, premium holiday without interest, duration can be extended or shorten depending on achieved returns, investment portfolio can be reviewed and controlled, ability to even top up or withdraw, addition of riders, etc. No dispute here (let's not get into an argument of intangibles like instilling discipline), ILPs win.

Image: jscreationzs / FreeDigitalPhotos.net

Those are about the main categories and ILP is the overall winner.

Apart from mis-selling the plan as short term, high returns, high protection, an apple to apple comparison with traditional endowments yields a good alternative worth considering.

I hope this triggers constructive discussion with experts who think ILPs are total toxic junk, yet advocate endowments.

Impact Of Media On Property

2011-08-01T22:52:00.000+08:00

Property prices seem to be the talk of the town with heavy media attention on high Cash Over Valuation (COV) of resale flats, DBSS prices hitting a new high and even the Minister commenting on the issues through facebook being broadcast in the press.

However, what percentage of the population is really affected by property prices? No doubt, home ownership is very high in Singapore but it is only paper profit to most as although owning the property, it is the only residence. Only a minority are directly affected, those considering to purchase and those investing.

Reporters are also drawn to headline grabbing articles. Hence, record COVs are publicized widely, like the $100k plus COV for a Tampines flat and the possible $300k plus COV for a Pasir Ris flat. This has created an impression that the sky is the limited for asking COVs, however, is this a norm that can be applied to all other flats? In my opinion, this are outliers and are the exception rather than a true reflection of the general market.

Similarly DBSS hitting a new high launch price has seen wide spread coverage of its initial $880k price tag which even cause all future DBSS to be halted. This has resulted in neighboring flat owners expecting higher prices. The $880k price tag is for the most expensive unit and not to be applied for all units, anyway, the price has been revised down but that did not get as much attention from the media.

To make things worse, reporters often interview industry "experts". So who are these experts? They are usually the corporate public relations of big real estate agencies. What is the main business of real estate agencies? Their main source of income is from property transactions, no transaction means no business. Hence, analyzing for market situation would be more secondary and would be more beneficial to create more hype to "buy now before it is too late".

Although stories about the cheapest unit sold and realistic transactions do not create as much of a frenzy, it would be responsible to give a more holistic and balanced view rather than a subjective one that focuses solely on pushing property prices higher.

Well, we should take media reporting with a pinch of salt and form our own opinions based on facts of the whole picture.

Do You Hate Debts?

2011-07-22T15:24:00.001+08:00

With so much market talk about the Greek Debt Crisis, what exactly happened to cause such a huge impact on global markets?

A quick summary in my own opinion was that Greece being a developed country with a strong currency, they enjoyed a good credit rating, so they could borrow money cheaply (at low interest rates). However, the government over spent this cheap money and borrows more to repay the installment of the previous loans. So it seems like a ponzi scheme. Everything works fine until you are borrowing too much and get charge a higher interest rate on new loans. So, you have to borrow more to repay the higher interest, borrowing more means even higher interest rates and a vicious cycle starts.

Imagine borrowing from another loan shark an even bigger loan that charges a higher interest rate to repay an earlier loan taken up with a loan shark and carry on doing it.

The solution now is: A) go into default, but the repercussions are people will lose confidence in other developed countries, especially in the European Union (EU) and they can no longer borrow cheaply. B) derive real income to pay back instead on relying to borrow more (increase taxes, cut government spending, etc). C) be allowed to borrow more at low interest rates to carry on the scheme, but eventually reverts back to option A or B.

Well, so far, EU is approving option C while hoping and delaying for option B to be the end state. But option B is unpopular with the citizens in Greece.

It sounds like a disaster and probably why most financial experts advise that debt is a bad thing and you should hate it. But should that be the case.

Comparing with other developed countries who could manage their budgets better, the cheap financing allowed their governments to build more infrastructure, improve the standard of living and enhanced the country economy. Resulting in the rich getting richer, it all boils down to balancing the budget and achieving a rate of return higher than the loan interest rates.

Similar to the biggest loan most of us will ever take up, our mortgage loan. There is good debt and there is bad debt, it is a double edged sword. Bad debt is over leveraging, buying a property that results in loaning excessively, where day to day expenses are compromised to service the loan. A good debt gives a healthy cash flow where one can enjoy a better standard of living.

Do not fear and hate debt, manage it. Although it can be your enemy, it can also be your friend. To manage your mortgage debt, you can refer to my earlier post.
http://anifaview.blogspot.com/2011/06/to-pay-or-not-to-pay.html

Being Penny Wise Pound Foolish

2011-07-16T20:37:00.002+08:00

In SGD terms, Cents Wise Dollar Foolish.

Just my luck that I was sending a friend home and went up to his apartment for a short 20 mins drink. As Murphy would have told me, Anything that can go wrong, will go wrong. Saving the trouble of tearing a 50 cent coupon cost me a $30 parking fine.

*Gentle reminder: these highly trained ninjas catch you when you least expect it.

Well, enough of my sad story, this actually led me to think about the 2 couples in their late 50s that I recently met.

Couple A, typical hard core savers. They worked hard their whole lives diligently, paid off their HDB mortgage (which isn't very much since they bought their flat 20 years ago) and received a fair amount of CPF at age 55. They do have some cash savings since they have set aside their income consistently, accumulating in fixed deposits as they do not wish to take any risk at all. However, they are afraid that the amount saved right now might not be enough to last as their children need their help for a head start in tertiary education, wedding and housing. Hence, even though they are retired, they are still worried as interest rates are so low and they are still working odd jobs just in case.

Image from http://www.financialfreedomtrail.com

Couple B, have children too and not "earning" as much. They too worked their whole lives and cleared their 20 year ago purchased HDB flat. For CPF, when the government announced many years ago that it can be used to purchase property, they immediately both jumped on the bandwagon and emptied their CPF into 2 private properties. At age 55, though they will not have much CPF to withdraw, they have 2 fully paid assets that have more than doubled in value. In addition, they do not have any worry about income as they have been receiving a steady stream of rental from the 2 properties.

Image from http://www.financialfreedomtrail.com

"Earning" is in terms of salary paid as an employee. However, inclusive of the rental income, they will have overall more income.

Surprisingly, couple A is much more educated and salary about twice that of couple B. No doubt investing does carry risk, however, it is important to see the big picture. Scrimping and saving on day to day expenses but neglecting to properly manage your overall savings will cost dearly in future. What couple B did was not very complicated and risky but it allowed them to be financially free.

Disclaimer, I am not saying that property is the best investment and it is the way to financially freedom. In fact, this may not prove feasible today with the high property prices, high COV vis-a-vis affordability. Just felt like sharing their stories and instead of being constantly tied down with everyday decisions on small expenses, some serious thought must be put into seeking a suitable path to financial freedom in the long run.

Lessons From Capital Plus

2011-07-14T17:34:00.000+08:00

NTUC Income rolled out Capital Plus on 11 July and has closed the subscription on 13 July, 5pm.

The plan is a simple 2 year single premium endowment that gives a fixed 2.82% absolute interest (or 1.4% annual compounding). Down side is that withdrawal any time within the 2 years suffers a definite loss.

As can be seen, funds are still available in the market. People are hungry for short term plans that are relatively safe and give a fixed return higher than fixed deposits.

I believe this is a win-win-win situation that insurers can learn from.

First WIN, customers. People are happy with the plan. It is simple, straight forward and no hidden funny business. Returns may not be fantastic, but it is a risk-reward that people find acceptable given the current interest rate environment and duration of the plan. The plan also would not fall into the toxic category of products.

Second WIN, salesman. Agents still receive their commissions. It is of course not equivalent to milking from single premium ILPs, but it gives them an opportunity to catch up with clients and recommend them something that may be of interest to them. Well, bottom line is, some comm is better than nothing at all. Furthermore, it is only 2 years. The agents can go back to clients when the plan matures to follow up and earn more comm.

Third WIN, insurers. They still make profits. Rather than losing business to banks with fixed deposits, structured deposits and unit trusts, they can tap into this market to enhance their business.

From the response of the demand, it puzzles me why insurers are not designing products to supply to this demand. Perhaps they feel that funds into such plans is an opportunity cost from ILPs that can reap significantly higher profits.

Why Invest In Structured Deposits?

2011-07-08T18:48:00.000+08:00

It seems that the bad memories of the Lehman Brother Mini Bond Saga has been gradually forgotten and life has moved on. Structured Deposits (SDs) are taking a shot at the low interest rate environment to lure conservative investors into parting with their money for slightly higher returns than Fixed Deposits before rates potentially start creeping up.

However, do you know what you are actually buying into?

Generally, SDs are capital protected and give a small fixed return with a potentially higher return if certain criteria are met. It may sound good but how is this achieved?

To simplify, here is an example.
90% of the capital is used to buy a double A rated bond that gives a return of 3% pa for 5 years.
10% is used to buy an option on STI index hitting 4,000 points within the 5 years and will pay out 1.5 times if it occurs.
Ignoring all other costs for simplicity.

Scenario 1 (Happy):
The bond pays out regularly and matures, STI hits 4,000 and total return is 90% x ( 1 + 3% x 5 ) + 10% x 1.5 = 103.5% + 15% = 118.5%

Scenario 2 (Not so happy):
The bond pays out regularly and matures, STI does not hit 4,000 and total return is 103.5%.
10% in the option is a total lost.

Scenario 3 (Extremely unhappy):
The bond issuer goes bankrupt and is not able to repay the debts. If STI hits 4,000 maybe the investor gets back 15%, if it does not, the investor gets 0%. Either way, the investor is not going to be satisfied.

Why are people still investing in such a product?
In my opinion, the risk - reward is not attractive at all. It is risking a potential lost of 100% for a miniscule return.

For bonds, a unit trust that invest into a diversified portfolio of government bonds and currency hedged with a long performance history would offer a better alternative compared to a single bond purchased by the offering bank with no track record. It would be like purchasing into a black box and being locked in for 5 years as compared to being able to sell off as a whole or in portions any time if necessary. Due to diversification, it would be unthinkable that the whole unit trust portfolio of bonds goes bankrupt at the same time to lose the whole amount of capital. Alternatively, a local government bond ETF might also be better.

For options, if you were to invest on your own, you can choose the triggering event or even spread across multiple events of your own liking.

Ultimately, much of the SD returns goes towards marketing, commissions, transactional, profits, maintenance, servicing, etc.

Anyway, for those who still wish to purchase SDs due to the convenience of letting the bank do everything. Do look out for the following:

Image from SIAS website

1. Understand all the key features of the product. Mainly, what is the worst- case scenario and what is the possibility of it happening. Do differentiate fact from opinion of what the banker tells you, it is your money, not his/hers, you might not be able to hold them responsible for your bad investment decisions.

2. Think about your future cash flow needs and opportunity cost as you must hold the product to maturity else you will most definitely suffer losses for early redemption.

3. Structured deposits are generally not covered by deposit insurance. Furthermore, capital protection is not the same as capital guaranteed, you may lose everything if the carrying bank goes bankrupt.

Lastly, SDs can be very complex instruments, so do not put your money in what you do not understand!

Are You An Expert Or Specialist?

2011-07-02T18:49:00.003+08:00

From 1st August, property agents can no longer call themselves “Property Expert” and “Property Specialist”. The Council for Estate Agencies (CEA) issued two Practice Guidelines to promote ethical advertising in the real estate agency industry. These titles are supposed to be misleading?

Image: jscreationzs / FreeDigitalPhotos.net

I suppose we are quite used to such terms being thrown around already. Furthermore, I think the property industry is a far cry from an already regulated industry: the financial planning industry. This industry has financial planners, financial consultants, private wealth managers, investment specialists, insurance specialist, mortgage specialist, relationship managers, personal finance managers, MDRTs and even fake PhDs, just to name a few.

In addition, there is a parallel industry that is totally unregulated: the "financial" education industry. This one has absolutely the best names, Forex Masters, Property Black Belt, Options Guru, Award Winner Commodity Trader, Best Selling Author, Sun Tze Strategist, Warren Buffett Expert, as featured on CNA/CNBC/CNN, and whatever marketing magic that works.

In fact, most company also create fancy titles for their company structure, everyone seems to be a business director, president or minimally manager nowadays.

Well, so what is your title?

Agree To Disagree

2011-06-24T16:51:00.001+08:00

After reading The Little Boy And The Dollar Notes From La Papillion, I noticed a lot of ideas and comments shared.

It just reminded me of situations where everyone has a view and everyone thinks they are correct or have the best answer. Ultimately, maybe only one side is correct. But does it make the other side incorrect?

Yes and No. Yes, they are incorrect because the results proved them to be so in the end. However, No, because, based on the information both sides had prior to the results, they both made valid points and none were the wiser at that point in time. The final results could boil down right to the luck of the draw eventually.

Sometimes it is important to step back and consider other people's point of view. Step into their shoes and take their frame of reference rather than a face off and arguing. You can still disagree with them, but there is no need to put down their view, just be willing to Agree To Disagree.

This happens in a transparent and open market like the stock market. Everyone is constantly agreeing to disagree. Why do I say that?

For every transaction, there is a buyer and there is a seller. The buyer thinks that the current price is cheap and the seller thinks that the price is expensive. They agree to disagree and the transaction is settled. The buyer has his point of view, markets are oversold, good valuations, recovery, TA signals "BUY", analysts recommendations, etc. Similarly, the sellers also have their set of reasons, markets overheated, overbought, recessionary forces, bearish indicators, TA signals "SELL", analysts with SELL calls, etc. Recently, I read on the same page of a newspaper, the headlines of two separate articles: (1) Markets Sell Off Due to Greek Debt Crisis; (2) Oil Prices Ease Due to Impending Greek Debt Resolution.

As defined from what I once read: Price is defined as the amount the next greater fool is willing to pay.

Similar to my posting on the $880k HDB, everyone has their point of property prices. The sellers feel the market will enter a correction. The buyers feel that the sky's the limit. What if the correction never comes and the sellers will be cursing themselves. What if a reversal occurs and the buyers have overpaid. Time will tell, but right now, I agree to disagree.

$880k HDB?!

2011-06-20T10:08:00.000+08:00

Are my eyes playing tricks on me? The latest launch at Tampines for the DBSS has hit a new high of $880k for a new HDB. Are such prices affordable to be considered for public housing?

However, from this, I also recalled that some years ago, many were also shocked at the prices of The Duxton, DBSS at Boon Keng and various other developments that were setting new high prices.

Looking back these sky high prices for HDB are becoming the norm and these applicants are mostly in profit even though they purchased it at the then considered high prices. So who are we to judge that the $880k price tag is too high? Who knows what kind of prices they will fetch 8 years (3 years to build plus Minimum Occupation Period of 5 years) from now.

Anyway, I would like to take a different perspective on this issue compared to the general lashing of the social media. If I was an investor of Sim Lian, I would totally agree with what they have done. Disregard the 99% who are complaining, so long as that 1% is willing to purchase the expensive units, you have done justice to the shareholders. It is a supply and demand thing. As a purchaser, you feel prices are too high, you have the choice to walk away.

I try to draw a similarity in Starbucks. Why are they selling coffee at $8 a cup? 3 in 1 sachets are $0.50. Coffee shops are also increasing prices to $1 for a cup nowadays. If you do not want to pay for it, boycott Starbucks or the coffee shop or don't even drink kopi! What do you have to complain? Ask government to step in and subsidize coffee? Close down Starbucks for setting ridiculous prices?

No one is putting knife to your throat. The social media has been a great avenue for people to vent frustrations at everything the government does. Most I believe, are not even looking for a home and just joining the crowd to voice out their discontent. If the government were to step in, they are not supporting the private sector and the way they do business.

They must have their own formula or based on survey that that is the price people are willing to pay. Alternatively, if the price was too "cheap", it will form a long overnight queue and people may not get their choice units and the complaining continues. To reiterate, it is a supply and demand thing, there may be genuine buyers who can accept the price and appreciate not having to queue overnight to get their choice unit.

Everyone is entitled to their opinion about the price of HDB, but the constant falling back to whine at the government irks me. I suppose the government is supposed to give everyone their choice unit in a mature estate at a cheap price immediately. And anything less like a low floor unit in Jurong West/Sengkang at an affordable price 3 years later is unacceptable..

Not Actioning Is Also An Action

2011-06-13T23:47:00.000+08:00

I was reading a fellow blogger mention that Singapore markets are pretty unexciting at the moment with unattractive bond yields, sideways equity markets and peaky property prices, therefore, there is nothing much to blog about financially.

Following that chain of thought, I wondered how reporters work when they lack articles to write about. Do they make stories up? Or just play up anything that is hot at the moment?

So, are fund managers doing the same thing? Do they trade unnecessarily and target stocks that have high analyst coverage at the moment? Investors funds cannot be left idle, everyone is aiming for returns. However, sometimes, not taking action is also an action. It is a deliberate decision not to take any action. Unlike fund managers the retail investor does have the luxury of this inaction.

Imagine not buying that 4D ticket and it did not open. You are betting that it will not open and you won, you saved yourself from losing that amount.

The market outlook seems to be getting more uncertain. There used to be much reports about the remote possibility of a double dip, however, the US market has corrected for many weeks now and economic fundamentals do not seem to have improved (there is even talks of QE3).

On the Singapore front, the stock market has indeed been range bound for some time now, inflation is creeping higher, property prices look out of reach, bond returns are negligible and there is great uncertainty how long this will last. I suppose it may be wiser not to take any action right now.

Benefit Illustrations

2011-06-09T16:26:00.000+08:00

I was Google-ing something when a sponsored link from Company P appeared at the top. Well, curious, I followed the link to the Company website advertising a Super Growth plan. Wondering what was so Super about it, I scrolled down and checked out the illustration. I couldn't believe what I saw, a single premium of about $100k would become close to $700k by age 62. It attracted me enough to do a little math.

Indeed a Super return. So I decided to punch some numbers and $100k compounded at 9% for 27 years (62 - 35) is actually $1mil! Where did $300k (30%) "disappear" to? And for $100k to become $700k it is only a 7.47% pa return.

Anyway, I also wondered if 9% compounded returns for 27 years is really achievable by unit trusts. So I did a quick search on FSM for funds that have achieved above 9% average returns for more than 10 years. Of the about 400 UT available, 114 have data for more than 10 years, out of which, 26 have achieved above 9% pa returns. Using 5 years data didn't yield any better results. And do note that for 10 year results there is a survivor ship bias, funds that did not do well enough to survive the 10 years have been closed off, and there is still no guaranteed these 26 will carry on to achieved 9% returns going forward for the next 17 years.

Naturally it brings me to the point, why is MAS allowing projections that are not reflective of the general market. What was the original rationale of selecting 5% and 9% as the projection values? In addition, are funds in profit all the time?

Actually, I suggest to not even bother to project anything at all and state in bold, ALL RETURNS ARE NON GUARANTEED, plain and simple without jargon, tables and impossible to understand effects of deduction, all assisting the salesman to confuse and complicate matters. Even if any projections are required, it should be at -3% and 3% which is more balanced and reflective. It at least gives an idea of Value At Risk (VaR) to have a negative projection as well.

To Pay Or Not To Pay

2011-06-06T10:56:00.001+08:00

Much discussion has been going on about paying off the housing mortgage or to take the maximum loan. Well, I would like to put forth my views.

Firstly, it depends if the loan is paid using CPF or cash. If using CPF, the constrains are obvious: (1) interest rate of 2.5%; (2) Cannot use the funds till 55/62; (3) Even if invested, there are bank charges and any current income derived goes back to being locked up. If using cash, it is a sacrifice of liquidity and possible opportunity cost.

Secondly, it depends if the loan is from HDB or the bank. If using HDB loan, the constrains are again known: (1) interest rate of 2.6%; (2) Inflexibility of loan terms; (3) Not allowed to refinance internally. If it is a bank loan, rates are generally floating, loan terms like tenor and amount can be varied.

So back to the question, to pay or not? Assumption of course is affordability is not an issue here, as this is out of the question if one cannot even pay off the loan to begin with.

For HDB loan using CPF, unless you are intending to invest your idle CPF funds and are confident of a rate of return higher than 2.6% compounded consistently, I would pay off the HDB loan.

For HDB loan using cash, switch to a bank loan.

For bank loan using CPF, I will take the maximum loan amount, but the shortest tenor. Bank fixed rates are lower than 2% at least for 3 years or some up to 5 years, since CPF cannot be withdrawn and earning 2.5%, it will maximize the returns. At the same time, if rates were to increase above 2.5% then pay off the entire loan, if not carry on to refinance after the fixed rate lock in is over at the new fixed rate lock in below 2.5%.

For bank loan using cash, this one is a little tricky. It all depends on the rate of return you feel you can achieve and how long you can carry on to achieve them. If the expected returns are consistent and above the floating rate, I will take maximum loan with maximum tenor. If rates float above my expected return, I'll pay down the loan or place in an interest offset plan and refinance in future when rates fall below my expected return.

Well, in conclusion, it all boils down to the expected rate of returns for the alternative use of the funds. If you are going to leave it in fixed deposits, then it would make more sense to pay the loan off or use an interest offset plan. Of course assuming due diligence of emergency funds, etc are already done.

Would love to hear alternative views or counter arguments. Thanks.

Find Out More About This New Money Making Opportunity

2011-05-06T21:29:00.000+08:00

Achieve Financial Independence.
Enjoy Financial Freedom.
Create a source of Passive Income.
Earn $10,000 per month.
Discover Millionaire Secrets.

Have I interest you yet?

Ok, next, how?

Profit from the Stock Market, Ride FOREX Trends, Own Multiple Properties, Make Money Online.

Excited?

Many have fallen prey to these buzz words. It is human nature and greed overcomes our rationale mind in a hope that all this is possible without hard work.

Profits from the stock market can be made by just listening to stock tips, doing some technical analysis and using some fancy software with all the colorful indicators?
Forex is an exciting 24/5 market that can make you big bucks by trading only minutes a day?
Purchasing multiple properties with little or no money?
Making money online by starting a marketing site, mailing list that does not need to even sell anything?

Well, I guess all it takes is for you to calm down and start thinking rationally, I believe the answers will come to you naturally that this new money making opportunity is not all this.

It is to face reality, take charge of your finances, focus on what you can achieve. Do not be deceived by innovative marketing strategies, providing all the fancy testimonials, and making it so convincing that it is that easy.

Hot Issues Of GE2011

2011-05-02T14:20:00.000+08:00

These are purely my opinions of the issues raised during this Singapore General Election 2011.

1. Rising Cost Of Living
I suppose this affects the bread and butter of all Singaporeans and will naturally be an issue in any country's election. The government has no control over the rise in the price of commodities, this is a global issue, oil prices are high which will have a direct impact on all goods. The government has already strengthen the Sing dollar to curb inflation at the expense of the export industry. In fact, this issue is mainly due to the increasing affluence of a growing number of Singaporeans who have experienced an improved lifestyle brought about by the ruling party and this has manifested as a higher expectation.

No doubt there is room for improvement like doing more than a Grow & Share package, but I have yet to hear any significant ways from the opposition to address this either.

2. Availability & Affordability Of Public Housing
As I am one who is applying for BTO projects as well, this is indeed a first hand experience. The BTO scheme implemented some years ago resulted in a low supply of public housing and currently, this supply is still insufficient as can be seen by the overwhelming over subscription of current BTO projects. As it is obvious, availability is definitely a problem, I think the government should address the issue, instead of releasing a bumper amount of supply during election only.

Whereas for affordability, it is really relative. With the numerous figures thrown to justify, the loan tenor keeps striking me as shocking. It is frequently referenced to a 30 year loan. Assuming most couples try for years unsuccessfully for a BTO place until they are age 30, they will have to service the loan till they are 60 years old, year after year, without losing their jobs and practically nothing left in their CPF-OA for retirement. If prices move higher, will they be proposing a 40/45/50 year loan tenor to justify?

In addition, this links to the next issue.

3. Foreigners
Singapore has a population of 5 million people of which 3.2 million are citizens and about 0.5 million PRs. As citizens, how does one unlock the value of their HDB asset? One has to sell it, but that does not make sense, where will one stay after selling? Buying a another one does not make sense as one is selling high and buying high. Whereas PRs are different, they buy the HDB low, sell high later and move back to their home country, withdrawing all their CPF with them. This is really only a feel good paper profit that simply cannot be realized, except if you are not going to remain a citizen, or maybe move to an old folks home in Malaysia.

As the world becomes increasing mobile and connected, foreigners are going to be part and parcel of life. Even ourselves have the choice of seeking opportunities overseas and become foreigners there. However, will we be accorded the same benefits and advantages there that foreigners/PRs enjoy at the expense of citizens here?

Well, guess I am just caught up in all the emotions linked to the GE.
Vote wisely.
Cheers!

Why A Lack Of Retirement Funds

2011-04-26T21:14:00.000+08:00

Many have dreams about their retirement, picturing it to be perfect: Traveling around the world, playing golf, watching the sunset lazying at the beach. Whatever it may be, so long as it does not involve working hard. However, most of those dreams do not materialize and you find yourself having to carrying on working without a choice?

1. Starting Too Late
Planning for the this phase normally does not take priority until it is too late. After all, there is no hard and fast rule that one has to retire at 62 and MUST start planning at age 45. Although most "financial planners" advise to start early to allow for compounding returns, it may also be impractical as the idea of retirement would be too far fetched for those who started working and are in the midst of just starting a family. Short term needs will out weigh their commitment to save long term. However, keep procrastinating too long and time will be to your disadvantage.

2. Investing Too Conservatively
Being too risk adverse, and worrying about the big "what if I urgently need the funds?", most Singaporean style is to save in Fixed Deposits and let the banks rip them off by giving a miserable return that does not even overcome inflation. Just for the comfort to know that their funds can be withdrawn without any lost of capital when needed, which most often, never came and the sum kept rolling year on year with negligible returns. Funds for emergency needs to be sat aside in FDs, agreed, but the majority of the remainder needs to be invested to at least beat inflation or its value will be eroded. Risk is part and parcel of life, face it, manage it.

3. Relying On Government
Having CPF save on the behalf is comforting and let's leave the planning to the government, they know best. However, most CPF funds are being channeled to service HDB mortgage loans that are 30 years or even longer. There will be very little remaining unless one downgrades the property or do something to realize the value of the asset that the government has promised to endlessly appreciate.

4. Incorrect Insurance Protection
When quizzed about insurance, the response of most Singaporeans will be that they are over covered. They have bought dozens and dozens of it already. A closer look would reveal mainly PA plans, ILPs, company insurance and endowments with little useful coverage. I believe the correct phrase would be over paying not over covered. Most might not even have a proper shield plan, disability income or a basic high coverage term plan covering CI. As a result, when unforeseen events happen, retirement savings are wiped out as none of their "over coverage" can be used.

5. Giving In To Children
With the rising cost of living, coupled with the higher living expectations, it is getting difficult for the younger generation to have a head start in life without help from their parents. Tertiary education needs, wedding needs, property needs, most of which require high capital upfront even though they only just started out. Not wanting to disappoint their beloved children, parents spare nothing for themselves to help them.

6.Lack Of Proper Advice
Nowadays, the financial planning industry is so competitive that even the Post Office sells insurance. And the banks are also bugging everyone to buy General Insurance. All these commission driven sales has shaped the industry to provide "advice" focused on selling, selling and selling. There seems to be little avenue if one wants to seek genuine proper advice and the noise drowns sincere advisers creating a negative image overall.

Dreams will remain just that, unless you take action to realize them. Of course some may not wish to retire, but note the difference of having a choice to retire if one wishes versus having no choice due to a lack of funds.

Stuff Your Financial Planner Will Not Tell You

2011-04-22T21:49:00.000+08:00

Not all financial planners are created equal. And they may be hiding stuff from you.

1. I am not qualified for the job.
Although Singapore requires all the licensed insurance agents to take the CMFAS papers, the papers are only the beginning of understanding insurance products. They do not cover how to develop a proper financial plan. It requires further pursuit of CFP or ChFC qualifications and continuous upgrading of new developments.

2. Your interest is not my top priority.
The remuneration system is commission based, which means that if no product is sold, the agent is providing free service. Hence, the top priority would be to sell something. This creates a serious conflict of interest.

3. I only look at insurance.
A comprehensive financial plan includes looking at estate planning, taxes, budgeting and risk management. However, most financial planners come from insurance company and only have insurance products available. Hence, they are narrowly focused will use only what they are able to sell to solve everything. And further, they can only be compensated through the sale of products and not advice.

4. I only understand what I sell.
In addition, as most financial planners come from a single insurance company, they only understand they company product and not what is available in the market. Perhaps, even if they do know, they choose to advise to avoid it. For example, ILPs versus purely investing in unit trust directly.

5. I cannot beat the market.
Many have the impression that financial planners are the experts to give super returns. They are bought in by their unrealistic projections of returns without questioning if it is reasonably achievable or is there better alternatives. True financial planning is to manage risk, investing suitability with the right asset allocation for the risk profile and not to take unnecessary risk to time markets to achieve high returns.

6. I will not be able to service you after the sale.
Being paid solely by commission, the agent has to sought after new business to feed himself. Unless you can endlessly purchase a new plan every meeting, do not expect the agent to provide excellent after sales service during claims.

Well, do look out for these points when meeting a financial planner or insurance agent.

Hyflux Preference Shares

2011-04-17T20:57:00.000+08:00

I suppose by now every other finance blogger would have already posted about this share issue.

Judging by the strong response, market is hungry for higher returns. And allowing this issue to be CPF approved, the expected response is going to be over-whelming. As a result, even though I ain't too optimistic about the prospects of Hyflux, it would be an opportunity to make a quick buck.

There seems to be a lot of noise about its developments in middle east, a director selling off his shares, the outlook for future projects and if the company can maintain profitability with the rising cost of material after bidding so low for the projects that they have won.

Consideration:

The downside is the price tanks, then I'll be holding the preference shares for the potential 6%.
The upside is the price opens high and I can sell it off for a quick profit.

Well, looks like a risk reward that is worth a shot. Anyway, it is still anybody's guess if I'll be awarded for my bid to even have a chance at this gamble.

Tough Times For SGD Unit Trusts

2011-04-16T17:31:00.000+08:00

MAS has recently announced to re-center the SGD currency band to allow the pace of appreciation to continue given the rate of inflation.

As a result, unit trusts denominated in SGD and investing in markets overseas whose local currency may not appreciate as much compared to the SGD will see their returns badly affected.

2 ways to minimize this foreseeable risk is to invest only in the Singapore market; Or select funds that have a SGD- Hedged version. This is to ensure any possible returns achieved by the fund will not be eroded away by forex conversions.

This is especially so for fixed income funds where the volatility of the forex market has overshadowed the returns from these funds in recent years.

Rat Race

2011-03-31T22:52:00.001+08:00

Saw this picture from http://bullythebear.blogspot.com and couldn't help but post it here as well.

A picture paints a thousand words.

Why Your Salary Is Not Enough

2011-03-29T07:54:00.001+08:00

Ever complain about not earning enough and not having sufficient to spend. While it is good to be competitive and strive to improve the financial earning capability, balance approach is also to appreciate what one has currently.

1. Keep Comparing With Others
Even if you were to strike the jackpot and win $1 million, you would still feel poor! There will always be someone richer than you, unless you are Carlos Slim, who is the richest man in the world at the moment. When you want everything, anything short of achieving that would come as a disappointment!

2. Living A Lifestyle Ahead of Schedule
Affordability is relative. If your salary is $50k annually but you try to live the $100k lifestyle, your salary will never be enough! Delayed gratification will get you further, i.e. living the $50k lifestyle even if you are earning $100k.

3. The Glass Is Half Full
Salary is like a fixed amount of coffee being dispensed from a kopi machine. If you use a 250ml cup, it is just nice and full. However, if you use a 500ml cup, you will be disappointed as it is only half full. The coffee didn’t change, but the container (the expectation) did.

4. Unnecessary Expenses
Top 10
1. Coffee (Especially over priced ones like Starbucks, on second thought, maybe now it should also include over priced bubble tea like KOI)
2. Cigarettes
3. Alcohol
4. Bottled water
5. Frequent taxi trips
6. Car washes
7. Weekday restaurant lunches & dinner
8. Vending machines snacks/drinks
9. Interest charges on credit card bills
10. Unused memberships

Well, it is not about being miserly. Search for alternatives, there could be a less expensive option.

ST Forum: Insurance payout fell short of expectations

2011-03-25T00:26:00.001+08:00

This was found on the ST Forum on 24th March 2011: "Insurance payout fell short of expectations"

Looks like another case of mis-selling on the surface. Everyone would be siding the customer. However, a more neutral view would be to focus on the app title the writer chose, especially on the word "expectations".

Like most customers, the individual is painting a very one sided story. According to his expectation, it was "$20,000 upon death". Is that all? If it was that simple, he could did a little research and purchase a term plan, period.

What if it included: 1) 100% returns after 20 years; 2) Within a budget of $200/month; 3) With Critical Illness coverage for 10 years; 4) Inclusive of investment like returns; 5) Medical loading due to age 50 years old with medical history, etc. I believe you get the picture.

Imposing all the impossible requirements according to his expectations would also result in the agent designing a plan to please him and herself. We do not have the full information to judge but consumer expectations of insurance is also important.

Further, customer "wanting" a payout of $20,000 in event of his mother's death is highly suspicious.. Anyway, it should be based on needs and not wants. Simply wanting $20,000 does not make it necessary nor sufficient.

He is not the first and definitely will not be the last. Get yourself educated and beware to avoid falling into the same problem.

Also, I do not particularly like how AIA has handled the explanation by brushing it to free look and buyer beware instead of responding with the FNA conducted. It is disappointing to see how the after sales service is. No wonder the industry has such a poor image.

Impact Of Japan Earthquake

2011-03-15T08:56:00.000+08:00

Firstly, my condolences goes out to all those affected by the disaster.

According to many economist, Japan is at serious risk of falling into a recession but will recover quickly, sparing the global economy a significant shock.

How bad will Japanese businesses be hit?
Many factories remain closed due to damage to roads and rails, disruptions of supply chains and limits on the supply of electricity. Overall GDP is expected to decline in the second quarter.

Who will pay?
Both insurers and the government start paying to rebuild roads, ports, factories and homes damaged or destroyed. Even though the Japanese government is already under massive debt of more than twice GDP, this may result in excessive borrowing.

What will the impact be on the global economy?
Some high-value goods, such as computer chips or specialized auto parts are only made in Japan, raising the possibility of some production disruptions.

The excess borrowing that the Japanese government is likely to take on to pay for reconstruction could drive up bond yields.

Well, it may be too early to determine the effects, but the nikkei has already dropped 6% on Monday and as of Tuesday morning, a further 5% drop.

1.75% Sales Charge

2011-03-14T21:56:00.000+08:00

Competition is really heating up among unit trust distributors.

I recently logged in to my DBS internet banking and realized that one can actually purchase unit trust online through this portal.

The sales charge is 1.75% for all unit trust! Even those traditionally 5%. Furthermore, one can RSP up to $500/month at 0% sales charge!

Seems like the best way to start is to enter the minimum, normally $1,000 and subsequently RSP $500/month, the effective sales charge will be the $17.50 on the initial amount only and one can enjoy the benefits of dollar cost averaging.

Not sure if other banks have this function available on their i-banking platform and are the charges competitive?

This saves the hassle of even opening a separate account with other platform providers like fundsupermart which comparatively, charges a platform fee. Although I do remember that fundsupermart does run some promotions occasionally for their funds in focus that gives attractive sales charges.

Well, doing a little home work does save one unnecessary charges that erodes the profits, since all essentially offer the same outcome, i.e. to purchase unit trust.

Low MediShield Coverage

2011-03-07T23:17:00.000+08:00

I read the article in regards to the low pay out of medishield for Ms Goh's father medical bills with pride.

This is not the first time such a complaint was published in the forum and I believe it would not be the last. It is precisely this reason that I have my family covered under a proper private shield plan and I always advise clients & non-clients the importance of understanding your plan's coverage to suit your expectations and affordability.

The advice is mostly fell upon deaf ears. Similarly, has Ms Goh upgraded her personal shield plan as well so she does not suffer the same fate? Does she understand what medishield covers and what it does not? It usually takes a crisis to appreciate what is lacking. Had she spent the time to read more about medishield and less writing to the forum, she would have gotten her answer. The various options are available and information is provided. Neglecting protection and complaining when suffering insufficient coverage is like ignoring to buy and wear shoes but angry when stepping on sh*t bare footed.

Many are complaining about the exclusions taking the plan at a later age. I for one is in favor of it. I appreciate the coverage provided and is perfectly willing to pay the premium for it, it is absolutely necessary. I do not mind being healthy, not claiming and paying the premiums to subsidize others who are claiming. It is only fair as they will be subsidizing me in return should I require to claim.

Consider, it would be unfair if they accept everyone regardless of medical conditions. In such a case, everyone would not take up coverage, only upon diagnosis of illness then we proceed to purchase coverage only to claim almost immediately. And as a result the concept of insurance would fail as premiums would be equivalent to the cost of treatment. The non-claimants would not be "subsidizing" the claimants.

Help yourself today.
http://www.moh.gov.sg/mohcorp/hcfinancing.aspx?id=11222

Inflation

2011-03-07T08:44:00.000+08:00

The inflation rate in Singapore was reported at 5.5 percent in January 2011.

Normally, most governments use the interest rates to curb inflation. However, Singapore interest rates are still at rock bottom rates as the Singapore government uses currency exchange to manage the economy.

As a result, a lot of overly conservative investors are being taken for a ride in Singapore. Fixed deposits are at 0.5%, CPF OA 2.5%, new corporate bond issues are averagely 2%, leaving anything in deposits attract a 0.1% return, etc. All of which are eroding the value to inflation.

Investing involves risk and the market is pretty much in a side ways mode at the moment. So how else can the average Singaporean take advantage of a strengthening SGD dollar to beat inflation since Singapore uses that method of government policy.

Credit Card Debt

2011-02-16T22:31:00.000+08:00

The rollover ratio, which refers to credit card balances outstanding for 30 days or longer as a percentage of total credit card balances, was 15.5% in 2010, after dipping to a historical low of 14.5% in 2008.

Data from Credit Bureau Singapore show that the share of “revolvers” has remained broadly stable. However, the share of “frequent revolvers” has risen slightly in recent months. Young adults aged 21-29 have contributed to this increase. As of November 2010, they represent 39% of new credit cardholders who are frequent revolvers. Young adults also account for a rising share of credit card defaulters, increasing from 9.4% or 123 defaulters in January 2008 to 13.4% or 233 defaulters in November 2010. This bears close monitoring.

This is indeed a worrying trend. The outrageous interest rates charged on credit card balances and the effect of compounding is a definite route to financial ruin. It is important to spend within ones' means.

Equity Versus Property

2011-02-07T21:46:00.000+08:00

Looking at the wealthiest people in Singapore, one can’t help but notice the strong correlation to the real estate businesses. No wonder Singaporeans have such fascination about the property market.

Often when discussing about investments like equity, most would compare the returns with investing in the property asset class. However, based on absolute returns only is not an apple to apple comparison. Property investments have its own set of risk and disadvantages which needs to be taken into consideration as well.

Firstly, there is inefficient pricing mechanism. Equity market has a transparent price traded on the stock exchange, whereas property is priced at valuation which can be very subjective. Location, facing, floor level, amenities, facilities, accessibility, renovation, etc, all play a significant role in affecting the price and beauty lies in the eyes of the beholder.

Secondly, there is limited liquidity. Apart from the less traded small cap stocks, the index component stocks do enjoy a fair amount of volume on a daily basis. The sale of stocks can be recovered for cash within a week. However, property owners may suddenly have a total lack of buyers when prices start to decline and the transaction takes an average of 6 to 8 weeks to be completed.

Thirdly, although holding a physical asset is what makes investing in property attractive, it brings along the hassle of maintaining it. There are the usual woes of cleaning, plumber services, electrical maintenance, furniture, appliances, painting, etc. Even during rental, there may be tenant issues like contract renewals, debt collection and neighbor complaints.

Fourth, both asset classes allow the use of leverage. However, this can be a double edged sword, affecting the property class more adversely due to the limited liquidity. During a downturn, investors could be holding on to net debt when the outstanding mortgage is above market value of the property. Further, the bank mortgage could be based on fluctuating rates like SIBOR or SOR, adding additional risk if the interest rates were to increase significantly.

Fifth, high capital outlay is required. With the recent cooling measures, one is only allowed 70% mortgage for the second property which will require 30% down payment upfront, excluding Cash Over Valuation (COV) that is also on the high side. Excess cash or CPF will be required for the investment property after the purchase of their first property for own residence.

Sixth, the transactional and on-going costs can be substantial. For equity, the brokerages charges and fees are pretty straightforward and clear. However, property investments involve transactional costs like legal fees, agent commission and stamp duties. On a regular basis, there are also property tax, power supply, maintenance fees, various bills, etc.

In conclusion, this is not meant to down play that equity is superior over property as an investment class. It is more of an analysis of the disadvantages that property investments have to justify their potentially higher returns. Therefore, it is not fair to just compare their returns directly; one has to consider the disadvantages as well.

- Written for IMSavvy

Feng Shui Investment Predictions

2011-02-01T22:46:00.000+08:00

The Lunar New Year is just around the corner and Feng Shui masters are giving their predictions for the coming year.

A summary of some common views.

The rabbit is a very cautious animal. Every time it hops a bit, it turns around and checks out the environment before moving on. The market will go up but every now and then it will slow down take a breath, take a look at the surroundings, evaluating what is going on and continue to go up. It will be a zigzag market.

Water industries will perform well this year. These include shipping, logistics, marine, consultancy, lottery, oil, casino and advertising sectors.

Earth industries will not fair so well this year. These include property, renovation, agriculture, human resource and developers.

Well, Gong Xi Fa Cai! Be well and prosper!

The Root Of Evil Sales

2011-01-31T21:44:00.000+08:00

After looking through some popular blogs by Mr Tan Kin Lian and Mr Wilfred Ling, they often share stories about insurance agents lying and selling toxic products. I was inspired to take a look at the issue from a different angle.

Sales people deliberately cheating and lying is definitely wrong. However, they do not need to lie to make a sale if the product they are selling is inherently good. Of course, cheating to sell an unnecessary product is unethical but since most Singaporeans are under insured, buying more insurance, if they can afford it, will not be "unnecessary".

And since MAS has reviewed and approved the insurance product, can it still be considered toxic? Many bloggers consider Investment Linked Plans (ILPs) to be generally toxic. The commission from the product is high and hence many insurance agents are advocating it.

So, back to the source of the problem. MAS has allowed for the sale of the product, if there is nothing good about the product, why is it even still made available? To have a good clean up of the industry would be to weed out all the unnecessary and harmful products so that even if agents lie and cheat, they would still be selling an inherently good product. For example, if you imagine, all that is available on the market are affordable shield and term insurance, how badly can one mis-sell those plans?

I believe in the goodness of some agents, they are new to financial planning and learn from managers who mentor them to sell toxic products unknowingly. It is not of choice that they lie or cheat but through innocently following their successful coaches.

I guess it is not fair to shift all the blame onto the regulator but I feel that they could play a bigger role and cleaning up the image of the industry by addressing the root of the problem. Rather than burdening sincere people from financial planning with unnecessary additional paperwork.

So, unlike my fellow bloggers, instead of lamenting on agents selling toxic products to customers, focus should be on why these toxic products are available. Similar to the food industry, if unscrupulous sales people try to sell virus infected meat or tainted milk, AVA is our gate keeper to disallow even the import of the product to be made available for sale.

0% Sales Charge

2011-01-27T23:58:00.000+08:00

All funds purchased at dollarDEX under CPFIS from 1 February 2011 to 31 March 2011 will be at 0% sales charge, for new investments.

With the competition so stiff, UT distributors are resorting to even 0% charges! I wonder what kind of profit margins are they looking at? fundsupermart tried it, but was unsuccessful. They started to impose a platform fee.

Well, no complaints, as the one to gain is the consumer. Last I heard, banks are rising the sales charges. May the ignorant do some research and save on unnecessary cost such as this. They can always still visit the banks for the "free" advice and proceed to purchase on their own.

This is indeed a fantastic opportunity as the funds do well, the full gain is profit. There will not be any initial lost due to the up front sales charges. Do take full advantage of this.

Gold Trading?

2011-01-23T09:44:00.000+08:00

Recently, I was approached for the third time about gold trading. Giving in to the curiosity finally, I asked further what exactly was this fantastic investment opportunity.

I was told it was a company called Genneva Pte Ltd. So I went to google it and this was it's main website. Apparently, it was incorporated in 2008, so I guess I am a bit late in finding out about this company as it has been around for about 2 years.

The sole purpose of the company I suppose is the buy back programme. Where a customer buys a certain amount of gold (eg 1kg) at "market rate" with a 1.5% discount. The physical gold will be given to customer and Genneva will buy back that physical gold at ORIGINAL "market rate" without the discount 30 days later.

Therefore, it is a guaranteed 1.5% profit within 30 days! On a per annum basis, that is a return of about 18%! Seems too good to be true. In fact, looking through some literature online, they used to give 2.5% and 2% returns previously. Maybe the company is reaching an unsustainable limit already.

In my opinion, it sounds like a ponzi scheme. Well, I suppose some customers are indeed enjoying the returns, as with how most ponzi scheme initially works out, until one fine day, the company falls like a stack of cards.

Of course, many may argue that at least one is indeed holding on to the physical gold in such an event. But I suppose some hard questions need to be answered first.
1. How authentic is the physical gold in question? i.e. the purity, certification, weight, etc
2. Market rate is based on internationally accepted price or determined solely by the company?
Everything may be fairly sustainable, so long as gold prices keep going up, though I do not think prices are moving up at 1.5% every month.

Well, I hold no grudges with the Company, personally I am just not convinced. There does not seem to have much transparency as to the Company's organisation.

If it indeed is true, congrats for the customers who are getting the returns. If it does turn out to be a scam, again congrats to the customers who managed to take profit before it folds and unfortunately for those who did not, congrats to the directors of the Company for a carrying out a successful scheme.

Investment Ideas For 2011

2011-01-11T08:49:00.000+08:00

After reviewing reports for the outlook for year 2011, I noticed a central theme.

1. Most of them are overweight on equity as compared to bonds.
2. Indonesia and Thailand has experienced phenomenal growth and might not be able to repeat it into 2011. China is neutral due to tightening measures. India and Korea has also did well in 2010 and may continue to outperform in 2011.
3. It has been 10 years since the dot com bust and there is a resurgence of optimism about technology.
4. Taiwan seems to be a favorite due to its technology sector and close links with China.
5. Commodities continue to give mixed signals so it is better to remain cautious.
6. Currency-wise, emerging market currencies to continue to strengthen.

Instead of chasing after yesterday's winners, it is more important to be forward looking and grasp tomorrow's winners.

Looks like the crystal ball analysts are on a consensus that the theme for 2011 is technology.
And countries that will benefit most from it will be Taiwan, Korea and India.

UBS: Prices & Earnings Study

2011-01-05T22:59:00.000+08:00

Singapore registered one of the highest GDP growth in 2010. Property prices are on a relentless climb upwards, hence many are sitting on assets that are now worth more.

So, are Singaporeans better off?

Below is a comparison of the various aspects from data released by UBS which can be downloaded here .

1. Wage Levels
In 2006, Singapore has a wage level of 38.9 (100 being the benchmark). In 2010, Singapore has dropped to 35.0. This reflects that the wages of Singaporeans have actually decreased over the past 4 years.

2. Domestic Purchasing Power
In 2006, Singapore achieved 54.9 (again, 100 being the benchmark). In 2010, Singapore again dropped to 40.6. Which is a level close to Malaysia (Kuala Lumpur: 40.4).

3. Price Levels
In 2006, Singapore is 62.9. In 2010, Singapore has shot up to the 11 most expensive city at 77.7.

So back to the question, are Singaporeans better off?

COE prices are closing to previous record levels.
Inflation has hit over 3% in Nov 2010.
Effective wage levels are dropping, most likely due to fierce competition from foreigners.
Many are taking on larger and larger loans to finance their purchases like weddings, property and cars.
Global demand is driving commodity prices ever higher, basic necessities like food and clothing are getting more expensive.

Is this direction of growth sustainable for the average Singaporean who demands a higher standard of living being a First World city.

STI Technical Analysis

2010-12-16T08:04:00.001+08:00

It seems that the STI Index is forming a perfect head and shoulders (H&S) pattern. For those who believe in reading charts, I suppose this is a crucial time to be cautious.

Market is still hoping for a Santa rally and year end dressing. If that happens, it should shift the chart from falling below the neck line level of 3120 which will complete the H&S formation.

Cash Back Schemes

2010-12-09T00:24:00.000+08:00

There are currently many CPF cash back schemes and it is provided by financial advisory services in the sale of financial products such as unit trusts to its clients.

It targets working-class investors and procure them to purchase unit trusts from the financial advisers using their otherwise inactive Central Provident Fund (“CPF”) monies in exchange for cash-backs. This way, the investors would receive an immediate cash return simply by using their CPF funds to purchase unit trusts.

Under this arrangement, everyone was supposed to benefit, the financial advisers and the investors. At the height of these schemes, one firm, Acclaim Insurance Brokers Pte Ltd earned commissions in the tune of some $3 million in less than one year. One of the advisers reportedly earned about $450,000 in commission in just four months, the bulk of clients were predominantly from the Malay community.

It seems like a very lucrative business and it was in the financial interest of all parties. Hence, these practices will continue and what is MAS doing to prevent it? Introducing more forms to fill and adding more complex procedures will not stop people's money from being cheated. However, it will discourage genuine people from proper financial planning.

Types Of Insurance

2010-12-05T14:10:00.003+08:00

With the exchanges on the ST Forum after SM Goh Chok Tong’s speech at the NTUC Income 40^th anniversary promoting term insurance, it would be timely to review the various types of insurance available.

Broadly for death, total and permanent disability (TPD) and critical illness (CI), there are:

Term
Whole life
Endowment
Investment Linked (ILPs)

Term insurance is generally pure insurance where one pays for the protection coverage, if the insured events do not occur, the premiums are non refundable. The other 3 are mainly a hybrid of term insurance with a saving/investment portion. The savings/investments portion is inflexible and subjected to various terms and conditions if one wish to withdraw from it. The premiums are higher, tenor longer and ultimately this translates to more commission to the sales staff and therefore, less beneficial to the payer.

There are also important kinds of insurance that are term, namely,

Hospitalization (Shield plans)
Disability Income
Personal Accident (PA)

With the rising cost of health care in Singapore, Hospitalization insurance cannot be more emphasized. Medishield only provides for the basic coverage. For more comprehensive plans, one has to upgrade to an appropriate private shield plan and the suitable rider.

Disability income provides better coverage compared to a TPD plan as the disability can be occupation related. A few major obstacles for the promoting of this plan, to my knowledge, are that it is only provided by 2 insurers in Singapore and the underwriting process can be very stringent.

A PA plan can provide coverage for most unforeseen accidents at a very affordable price. It pays a lump sum upon death or TPD and hospitalization coverage if it is as a result of an accident.

A combination of these 3 plans for young adults just starting out to work would be sufficient and averagely would cost less than $50 a month for basic coverage. It would be ideal to compliment with a term plan for death, TPD and CI. The more affordable ones are from group insurance like SAF, NTUC Union and company plans.

However, commission from all these plans normally does not even cover the cost to prepare and submit the paper work. Most group insurance does not even pay any at all, hence they are seldom recommended. As a result, there is little awareness of its availability.

- Written for IMSavvy

Is Public Housing For The Public?

2010-12-01T19:34:00.002+08:00

Was peering at a block of HDB flats in front of me one day when a thought suddenly struck me.

A 4-room HDB flat cost on average about $300k. A 12 storey block of flat has about 50 units. That translates to $15 million in value for a block of flats. Furthermore, these are all leasehold 99 years. Well, my point is, so what determines the value?

It seems that the system in Singapore is to take the latest transacted prices of nearby properties to determine the approximate value of the property in consideration.

To make things worse, there is Cash Over Valuation (COV). If the valuation is wrong, shouldn't it be amended to reflect its true value? Properties should be transacted at their valuations and the COV paid to the owners directly without affecting transacted prices, which will ultimately affect surrounding property values. The COV will need to be justified due to the unique property features which may not be present from surrounding properties.Or else, this would result in an endless spiral of valuations being chased upwards.

Is that a fair system in determining public housing, a basic need?

Imagine if public transport was to practice a similar method to determine price. Customers had to pay a fare based on the prices paid by customers before them. Assume a limited capacity ride and customers are allowed to choose to pay more to ensure a place on the ride, displacing others who pay less. From this simple thought exercise you would have guessed that customers' base fare will keep going higher as frustrated customers earlier who do not get in will pay more and it will be an endless cycle upwards. Unless one can choose not to take public transport any more, we are at the mercy of this system.

Therefore, similarly, unless one can choose to live on the streets, I strongly believe the public housing system in Singapore needs to be reviewed. Public housing should be just that, to fulfill the basic need of shelter and affordability is key. Luxury real estate is for the rich, for investments or rental and the well-heeled can be subjected to market forces of supply and demand but not for the HDB flats.

Looking in the past, how was property valued initially when there was no transaction to draw reference from? They were priced so that it was affordable to all Singaporeans to provide for their basic need of shelter. New public housing prices used to be $30k a unit, now it is $300k, has the average income increased from $1k/monthly to $10k/monthly? What has changed to justify the current pricing system?

Introducing measures to indirectly slow down the price increase is not solving the root of the problem nor will it bring down prices back to reasonable levels. Direct intervention is necessary.

Retiring At 68

2010-11-21T17:08:00.003+08:00

The Singapore government is in process of rising the retirement age from 62 to 65 and may eventually increase it to 68.

This would not have been necessary if most had been prepared for their retirement. So what is the main cause that they are caught off guard?

I believe it is due to a lack of access to good financial advice.

The primary people giving out “financial advice” are insurance agents, Independent Financial Advisors (IFAs) and bank relationship managers (RMs). All these financial experts have passed the requisite MAS qualifications to be certified in basic insurance and investment product knowledge.

Firstly, this does not prepare these product sales people with the skill for comprehensive financial planning. Covering not only insurance and unit trust investing but include estate planning, tax planning, budgeting, portfolio management, etc. This reflects the quality of the financial advice available.

Secondly, their remuneration is mainly based on commission from product sales. Everyone needs to make a living so no one will work for free. Therefore, if there is no sale of any product, do not expect any advice at all. Moreover, the type of advice will also be focused on the product with the highest commission.

This shows that there is virtually no access to proper financial advice.

Instead of relying on others, it is best to get educated. Ministry Of Education (MOE) could look into making financial planning a compulsory subject in school and educating students on the importance of taking charge of their personal finances.

Singaporeans also have the CPF board which quietly looks after many areas through “Opt-out” schemes.

* One, it helps many to save. Being a compulsory disciplined savings, it has allowed many to afford their first residential property and a minimal level of income upon retirement;
* Two, it has provided the most affordable group insurance scheme, Dependant Protection Scheme (DPS);
* Three, it has helped to cover most under the MediShield scheme to defray the rising cost of medical care and have some savings for medical through MediSave;
* Four, it covers those over age 40 with long term care insurance, ElderShield;
* Five, it allows for estate planning through nominating a beneficiary or compulsory schemes like Home Protection Scheme (HPS);
* Six, it even grows the savings at a guaranteed rate of 2.5%, 4% and an additional 1% bonus.

CPF could look into educating the public of the benefits of their schemes and how best to compliment a financial plan with what CPF currently provides.

Fixed Deposit Rates

2010-11-05T11:02:00.000+08:00

ICICI Bank is offering amazing FD rates.
1 year: 1.45%
2 year: 1.85%
3 year: 2.15%
Source
Effective 22 Oct 2010.

Get Rich Quick Courses

2010-11-04T13:33:00.000+08:00

I am amazed at the amount of trading courses advertised in our local newspaper The Straits Times. Many are promising to teach the secrets to trading successfully in foreign exchange, options, stocks, internet marketing and even property.

From my understanding from course participants’ feedback, most of these courses promise to pass on the secret formula of success after a short 3 day course over the weekend even if you are only a beginner. Lured by greed of claims to easy money, those who signed up parted with thousands of dollars to register. However, they ended up attending a course that did little more than teach them the basics of how to open an account and enter a trade.

By the law of large numbers, if a huge number of people attended, there is a random possibility that someone will eventually be successfully. That particular person will be highlighted and produced as evidence that they succeeded due the system. But if the system was so good in the first place, shouldn’t everyone be able succeed?

Some other puzzling questions: If the trainer had such a successful system, why does he bother to teach when he could be in the Bahamas enjoying? And if he had such a charitable heart to share, can’t he do it for free to help all those less fortunate people and elevate the whole world from poverty?

I hope I am not brushing that all courses are scams, but what I am trying to put across is, educational courses and institutes are regulated; Casino and gambling are regulated; Sale of financial products is regulated. So why isn’t trading courses regulated?

MAS has established such stringent criteria that purchasing any financial product, even a simple term life insurance for less than $10/month requires a detailed fact find, needs analysis, risk profile questionnaire, justified recommendation, at least 3 product comparison, detailed Benefit Illustrations with table of deductions and distribution cost, Product Summary, Your Guide To Life Insurance, Your Guide To Health Insurance and even comes with a 14 day free look period. Moreover, it has to be explained by a licensed practitioner that has passed the required examinations and attend regular competency training. There is also an established avenue (fidrec) for redress if any dispute arises.

Perhaps these same criteria can be applied to ensure that the course is suitable for the consumer before they are allowed to sign up for the course if the authorities feel that it is important to protect the interest of the general public. The trainer should also acquire the requisite professional certifications.

Till that happens, it will be caveat emptor, “let the buyer beware”. Do not be misled and blinded by greed.

- Written for IMSavvy

Horror At Downtown East

2010-11-02T07:57:00.000+08:00

Halloween turned into a real-life horror story at Downtown East on Saturday when a young student was publicly attacked. He unfortunately did not survive from his wounds.

According to The Straits Times, 19-year-old Darren Ng Wei Jie, got into a staring incident with another group of about 10 teenagers.

Witnesses then said they saw angry words exchanged before Darren is believed to have been slashed several times by his attackers, who were armed with choppers.

Comments:
Teenagers having choppers handy to slash others would not be something people would normally guard against when out shopping.

Life can be so unexpected. A young man with a bright future ahead ruined just because of a trivial stare.

Condolences to the family for their lost. And may justice be served to those attackers.

Investing Strategies

2010-10-14T00:27:00.002+08:00

What is the most important aspect when investing?
i) Market Timing
ii) Security Selection
iii) Asset Allocation

Market timing is the attempt to predict the future by buying or selling investments in an effort to maximize profits. Many feel that this is the most important; hence, they regret not entering the market when it bottoms and exiting when it peaks.

As we all know, it is impossible to predict the future (Unless through an unfair advantage like insider information or market manipulation or just simply plain luck). These attempts will cause frustration and incur hefty transactional costs, with little profitable results over the long run.

A simple strategy would be to practice dollar cost averaging. Over the long term, the average purchased price will be lower than the average price. This is due to purchasing of more units when prices are low and less units when prices are high.

Security selection is the attempt to predict which specific security will outperform. This is normally carried out by performing fundamental analysis. Many also place great importance in this area by focusing on working out all the required financial ratios to pick the ideal security.

This poses the risk of being too narrowly focused. The selected security is not guaranteed to perform as expected and there are so many unforeseen circumstances that can affect its performance. At the same time, it is too time consuming to analyze all possible securities.

A strategy to overcome these drawbacks is to use Exchange Traded Funds (ETFs). These ETFs mirror the performance of Indexes. Index components are already determined, they are usually the more established securities and it offers diversification at low management fees.

Asset allocation involves determining the percentage of your portfolio to be spread across the various types of securities. It is an often neglected aspect but can be the most important, especially since one has full control over it.

The key to asset allocation is the correlation of the securities within your portfolio. For example, if there are 2 types of securities with low or even negative correlation, the returns will not be affected yet the risk can be minimized by combining them in the correct proportions.

In conclusion, the mass market can achieve reasonable results by determining their risk appetite, followed by allocating their portfolio wisely based on correlation into the respective type of suitable securities’ ETFs using dollar cost averaging.

- Written for IMSavvy

Betting On Insurance

2010-10-03T22:58:00.000+08:00

Casinos are all the rage right now and it seems timely to relate it to another form of risk related item which most would prefer not to talk about, insurance.

In the financial planning line, it is common to hear remarks that one does not believe in insurance. These remarks are often made by people who feel that insurance is similar to gambling at the casino. They liken it to placing a bet with the insurer that the insured event does happen.

On the surface, the similarity of money wagered for a chance event is obvious. However, taking a deeper comparison, there are two main underlying differences.

Firstly, there is a fundamental difference in the chance event involved. In gambling, the event creates a new risk that has not existed before. For example, if one was to bet on dice, the event is the outcome on the dice. This event could happen without any dire consequence if no one betted on the outcome or would not have mattered if the dice was not even rolled on purpose in the first place.

However, in insurance, it is transferring the risk of an existing event. For example, if one was to bet with the insurer on one’s death by accident. If the outcome happens, the family of the insured would suffer and it is a risk that existed already.

Secondly, the next difference is in the “interest” of the outcome. In gambling, the winner gains at the expense of the loser. Both parties hold opposing interest by betting against each other.

In insurance, the insurer and the insured hold the same interest. They both do not wish for the chance event to happen. The insured has indeed paid money, although the event does not happen, he has bought a peace of mind for financial protection.

Therefore, insurance is socially productive compared to gambling. Insurance allows risk transferring of an existing event and giving comfort that it can restore the insured financially if a loss occurs. Whereas gambling creates unnecessary new risk and never restores the loser to his former financial position.

- Written for IMSavvy

Farewell To Mrs Lee

2010-10-02T20:48:00.000+08:00

MRS Lee Kuan Yew, wife of Minister Mentor, died today at home at 5.40 pm at age 89, said the Prime Minister's Office on Saturday.

Condolences to our Minister Mentor, Prime Minister and his family.

TM Legacy Care & TM Lifestyle Care

2010-08-05T18:48:00.000+08:00

TM Asia Life has added 2 new products:

(1) tm legacy care (lp)

This is a participating whole of life plan with limited premium payment options.
It comes bundled with early cancer benefit rider.

(2) tm lifestyle care (lp)

TM Lifestyle (LP) is a limited premium participating whole life plan.
It comes bundled with an Accidental Death cover up to age 65 and early cancer benefit rider.
Starting from age 65, the policy shall pay out a lifetime of annual income amounting 4% of original sum assured.

Details can be obtained from their website.

Low Risk High Returns?

2010-08-04T18:43:00.000+08:00

Lorna Tan advised ways to be wary of "easy money" promises in today's ST.

A summary as follows:

1. Beware of promises of quick gains and scams.
Easy come, easy go. If it is too good to be true, it probably isn't true.

2. Deal with regulated providers by checking with MAS alert list.
Consumers dealing with unregulated entities will not enjoy MAS protection.

3. Questions to ask:
- Is the provider regulated? (Governed)
- Where do the returns come from? (Fundamentals)
- When will the returns be paid? (Timing)
- How long is the investment? (Duration)
- How can the performance be monitored? (Transparency)

AIA S$ 2Pay5 Plan

2010-08-03T00:28:00.000+08:00

The S$ 2Pay5 plan is a 5-year non-participating, limited 2-year pay product. i.e. you will need to pay annual premiums for two years, and then receive a lump sum payout at the end of five years.

The plan offers a guaranteed yield ranging from between 2% to 2.2% depending on the annual premium amount.

It is suitable for individuals who would like a guaranteed return of 2% over 5 years and does not have any immediate cash needs.

Risks involve surrender penalty upon early withdrawal.

The plan also provides for an additional 10% accidental death benefit in the first policy year.

Free Advice

2010-08-01T16:58:00.000+08:00

I read with a sigh of resentment this blog post from Tan Kin Lian's Blog.

A reader sent 10 insurance benefit illustrations and asked to analyse them, and recommend which plan offers the best value. Mr Tan asked if he is willing to donate $50 for each analysis and never heard from him since.

Such is the consumer market in Singapore.
1) Looking for FREE advice. If the advice is free, is it good advice? If one is willing to pay a doctor for medical advice, are you willing to pay a financial planner a fee for financial advice?
2) Offering the best value may not be in the client's best interest. There are many pro and cons for various products, do you even need them in the first place? Value is in the eyes of the beholder. In my opinion, advising without first understanding the client has no value at all.

This has further reinforced my view that to succeed, just give the customers what they want. Sell them based on the "best value" (which in reality involves massive amounts of mis-selling) without listening to proper needs at all. Give them the quality of free advice since that is all they are looking for.

Heroes die young. The majority of consumers for this industry just isn't looking for good financial advice and are not willing to pay for it either.

China Overtakes Japan

2010-07-30T20:35:00.000+08:00

According to a senior central bank official in an interview. China has moved ahead of Japan to become the world's second-largest economy.

Yi Gang, a vice-governor of the People's Bank of China and also the head of the State Administration of Foreign Exchange (SAFE), did not explain how he had arrived at the figures, according to the comments posted on the SAFE website.

China economy grew 10.3 percent in the second quarter and 11.1 percent in the first half.

China's gross domestic product in the first six moths stood at 17.284 trillion yuan, according to the National Bureau of Statistics. That comes to 2.5324 trillion dollars, using the central bank's average monthly exchange rates.

MM Lee Says There Should Be No Retirement Age

2010-07-29T00:30:00.000+08:00

He said: "You work as long as you can work and you will be healthier and happier for it. If you ask me to stop working all of a sudden, I think I'll just shrivel up, face the wall and just that."

He said: "Many of our workers have a preferred retirement, and then they die early! It won't be long before the message sinks home that if you keep doing what you're doing for almost the whole of your life, the chances are you will stay interested and engaged in life, there's something to do tomorrow and you keep going. If you start saying,'oh! I'm old!' And you start reading novels and playing golf or playing chess, well, you're on the way down."

Our healthy 86-year-old MM Lee is a living example of aging gracefully.

It is important to plan for the desired retirement lifestyle.

Doing Things Right Or Doing The Right Thing

2010-07-27T19:13:00.000+08:00

In an article by Wilfred Ling, he talked about a mother who would like to leave her estate to an adopted child.

So, in her Will, the lawyers probably did things right by fact finding the number of children and drafting the Will the typical legal way. However, they did not do the right thing by seeking the client's wishes and listening to their actual circumstances.

I think in sales, one can get caught up in making sure all the compliance and regulatory requirements are done properly. But it is actually more important to do the right thing as well, by listening to the actual needs that need to be addressed.

Excuse me, are u an independent adviser?

2010-07-27T00:31:00.000+08:00

Some key points of the letter published in the forum page of the straits times:

Jul 26, 2010
What it means to be an 'independent' financial adviser

WE REFER to Mr Larry Haverkamp's letter ('Onus on insurers to boost transparency'; July 12).

1) The use of the term 'independent' has been a much debated issue, and rightly so. The Association of Financial Advisers (Singapore) recognises that the use of the term 'independent' under the Financial Advisers Act (FAA) connotes a serious undertaking to provide clients with objective and unbiased advice. So the term should not be used by financial advisers and their representatives if they are unable to demonstrate that they do not have financial or commercial links with product providers that are capable of influencing their recommendations, as spelt out under Section 64 of the FAA.

2) Investors in Singapore must recognise that they need to take responsibility for the decisions they make and cannot expect the Government or the institutions to look after them all the time.

Raymond Ng
President
Association of Financial Advisers (Singapore)

Comments:

1) It is not rocket science to determine if a firm is "independent" or not. However, it takes enforcement to ensure that it is used appropriately. And that is lacking.

2) Consumers need to take responsibility. Many are so ignorant and expect the Government to protect their interest while they take no responsibility in educating themselves. Blaming everything else when things go wrong.

HDB to build more new flats

2010-07-26T06:47:00.000+08:00

With HDB resale flat prices hitting new highs recently, causing cash-over valuation (COV) to go up, Mr Mah made the promise to push out enough flats for first-time home buyers.

His advice for them is to go for new flats, where there is no COV.

"What HDB is going to do is to build more new flats for first-timers, so this will help take care of the first-timer market, and that will help to reduce some pressure on the resale flat market. So over time, the resale flat market will stabilise. I think at this point in time, there is still an imbalance," said Mr Mah.

"It is the second-timers, upgraders and downgraders who have to go into the secondary resale flat market," Mr Mah said.

He continued: "If you are a first-timer buyer, there's more than enough flats for you. But if you are a second-timer, obviously you have to compete in the market with the first-timers and others.

"This equilibrium in the prices will be reached at some point in time in the medium term as we push out this supply. So I would expect in another year or so, it should be able to stabilise everything."

However, he said three years is the "norm" waiting time for new flats.

Those who do not want to wait have other options, such as resale flats. But he added this is one reason resale flats are more expensive, as the "cost difference reflects the time difference".

Lapsing Of AXA Insurance Sold By Finexis

2010-07-24T12:11:00.000+08:00

It was reported in the Straits Times today that AXA is trying to claw back $7 million from Finexis. Because, last year, Finexis had a promotion where they were giving away free 1 year term insurance (FutureProtector) to its customers and potential customers.

Being from the industry, I had met clients who claimed this. I did not know the mechanics of how this was possible, but through the explanation in the article, all has become clear.

It takes 2 to clap.
1. AXA was silly enough to give 117% commission! Where are they supposed to get the extra 17% from? It is a losing contract no matter how you look at it. No wonder the CEO resigned.
2. Finexis being a MAS licensed firm did not carry out proper needs based selling professionally and objectively as per their code of ethics as financial planners required.

Well, from a purely sales point of view, if they are giving 117% commission, everyone would call up everyone in his phone book to just sign up for the MAXIMUM free coverage and pocket the 17% FREE MONEY from AXA. THIS IS AN ABSOLUTE FREE LUNCH DEAL!

I wonder on average how much did each agent pocket from the free $7 million. In fact, I puzzled why they managed to lose only $7 million.

Kishore M Reprimanded By MAS

2010-07-23T00:28:00.000+08:00

Was looking for information for Kishore M online after seeing his advertisement in the newspaper about his courses and stumbled upon this MAS website.

http://www.mas.gov.sg/news_room/enforcement/2010/Commerz_Capital_International_Pte_Ltd_and_Mr_Mansinghani_Kishore_Mirchumal.html

Time To Invest In Apple?

2010-07-23T00:18:00.000+08:00

Telecommunications operators, SingTel and StarHub, will be launching the iPhone 4 on 30 July.

The iPad will be available in Singapore from 23 July.

Looks like the Apple phenomenon is very strong, is it an opportunity to invest in Apple shares? Is there still growth potential?

Maid Inherits Millions

2010-07-21T23:55:00.000+08:00

A devoted Filipina maid inherited six million Singapore dollars from her late employer after more than 20 years of service.

The maid refused to be named in public for fear of possible threats to her life in the impoverished Philippines, where wealthy people have been kidnapped for ransom and some killed by their abductors.

The windfall, including cash and a luxury apartment near the Orchard Road shopping belt, came from the estate of her employer Quek Kai Miew, a medical doctor and philanthropist who died last year at 66.

The maid had also taken care of the doctor's late mother, and was told that she would be a beneficiary of her employer's will when it was drawn up in 2008.

Looking at a different angle, this is excellent estate planning if it is being executed to her intentions. Will was carried out properly even though it is to an unrelated party.

Prudential iPhone App

2010-07-21T23:49:00.000+08:00

Noticed on Digital Life today of the Prudential ad for their new iPhone app "What's your number".

The application is available for free download to the Apple iPhone, iPad and iPod touch at the iTunes App Store.

It enables users to calculate conveniently and quickly their retirement "number " - the savings required to enjoy a retirement based on their selected lifestyle.

This new application is an extension of Prudential's successful "What's Your Number?" retirement planning campaign that was first launched in 2005.

Sunshine Empire

2010-07-20T23:00:00.000+08:00

The founder of Sunshine Empire, James Phang Wah, his wife Neo Kuon Huay and Sunshine director Jackie Hoo Choon Cheat were found guilty by the court for their roles in running a fraudulent ponzi scam, Sunshine Empire.

They will be sentenced on 30th July 2010.

Their packages promised high returns. In reality, the returns were derived from the money that were from newer investors. Encouraged by the attractive returns, the initial few drew more into the scheme. However, after 15 months, this was not sustainable and they were eventually found out.

Do not fall prey to such schemes, refer to MAS website for the Alert List.

Mortgage Protection

2010-07-18T21:59:00.000+08:00

In the Sunday Times today, Lorna Tan talked about protecting the roof over your head and the importance of mortgage insurance.

Summary of the main points highlighted:

1. The amount of cover
Is there other insurance or other means to meet repayments if needed?

2. Buy on a joint life basis

3. Buy early
The older you are, the higher the premium you have to pay.

4. Interest rate assumption
There is a risk that the insurance proceeds might not be enough to pay off the outstanding loan.

5. Guaranteed premiums

6. Check the supplementary benefits
Check the definition of what constitutes total and permanent disability and whether the payout comes in a lump sum or as instalments spread out over a few years. A mortgage cover that offers to waive the premiums if the insured is diagnosed with critical illness.

Mortgage insurance is indeed important, another option is to consider downgrading or alternative living arrangements if necessary.

One Died In Collision At Bedok

2010-07-17T12:58:00.000+08:00

The accident happened on Bus Service No 87 on Friday around 3.30pm along Chai Chee Street.

A stationary lorry was being used to prune trees. The crane mounted on the bed of the lorry smashed through the rear left upper deck of the bus.

A 50-year-old man, Mr Ahmad Lispa, who was seated on the top deck of the bus, was killed.

The bus was trying to overtake the lorry and may have misjudged the clearance of the top deck, coupled with negligence of maneuvering of the crane to a safe position for traffic.

Life can be so unexpected, condolences to the family of Mr Lispa.

AXA Motor SmartClaims On iPhone

2010-07-17T06:40:00.000+08:00

Now you can get on-the-spot assistance with AXA's new motor claims iPhone application.

* Locate the nearest AXA Premium Workshop or Glass Repairer by GPS
* Access AXA 24-hour hotline for towing services & further advice on the accident
* Take photos of the accident scene & damages
* Record 3rd party & witness details
* Submit all accident details to your selected AXA Premium Workshop instantly
* Get easy access to all Emergency numbers
* Contact AXA or your agent for further assistance

This will be a very useful app to have on the iphone.

More details here.

Singapore’s Economy Grew At Record Breaking Pace

2010-07-15T22:15:00.000+08:00

Singapore's Ministry of Trade and Industry reported yesterday (Wednesday) that gross domestic product (GDP) grew by 18.1% in the first half of the year, expanding 26% in the second quarter from the previous three months, and 19.3% in the second quarter from the same 2009 period.

The rise is the country's biggest since record-keeping began in 1975. This has prompted the government to predict GDP will rise 13%-15% in 2010.

If Singapore were to achieve that, it will be among the fastest-growing countries in the world this year!

Let's not be too happy just yet as we can expect a strong possibility of inflation because of these numbers.

Our property prices have surpass the 1996 peak and COE prices have increased, however, the CPI is a lagging indicator. It is a dangerous period as the interest rate environment is still at a low and we will see our value of money decrease due to inflation.

So do invest wisely to avoid the effects of inflation.

Maybank Pocket Me Giro

2010-07-14T18:01:00.000+08:00

Get rewarded when you charge your Maybank credit card payment to GIRO.

Under the Maybank Pocket Me Giro payment system, your Maybank credit card bills will be automatically paid each month using giro.

In addition, you will receive cash rewards into your bank account based on the bill size, "rounded up to the nearest $5".

For example, if your outstanding credit card bill is $103.50, you will get a $1.50 cash reward for that month. If the bill is $200, you will get $5.

The promotion will run from 15 June 2010 to 30 June 2011.
The cash reward awarded will be up to a maximum of S$5 per month till 30 June 2011.

Reading through the T&Cs, they did not state any minimum charge amount.
Therefore, if we charge only $1.00, would Maybank still give $5?
Anyway, by charging to your card wisely, you potentially can get 5% cashback for a $100 bill and no worries about forgetting to pay the bill.

For more information.
http://info.maybank2u.com.sg/personal/promo/detail.asp?page=pocket-me-giro

Reflection

2010-07-14T00:02:00.000+08:00

Part of financial planning is better understanding ourselves, increasing our awareness of who we are and what we want.

If you could create your perfect calendar, how would you spend each day, each week, each month and each year?

At first glance, many quick answers come to mind.
But the question is very specific that it covers the whole year, every year.

What do you really want to do? i.e. What would make you excited to wake up and look forward to doing everyday?

Spending time with loved ones? Sometimes too much interaction would lead to more quarrels and disagreements.

Traveling? Can you be traveling everyday, for the whole year? It is probably too tiring to do on a regular basis.

The point is, sometimes, we complain about our circumstances. However, have we really thought about the alternative we wish for?

Paul The Octopus

2010-07-12T22:17:00.000+08:00

What is with the craze over Paul?
To make things worse, he correctly selected Spain to win the World Cup 2010!

Picking the winner is a 50-50 chance. It is either one or the other. It is not too difficult to have picked the winner of 4 out of 5 games by pure random chance. But it is still fascinating how fate plays its dice.

Similarly for investing, a fund can either out perform or under perform. It is a nearly 50-50 chance of picking the winner. Hence, it can be by pure luck that the financial adviser has selected the winning fund 4 out of 5 times.

The analogy of selecting stocks by using a dart board or through monkeys have yielded similar performance from fund managers. But the fund manager who managed to be one of the lucky few to pick all the winners acquire fame much akin to Paul. Their legendary status will last unless their "prediction" powers fail them the next time.

I wonder what they will be asking Paul to choose next?

World Cup Winner

2010-07-11T08:13:00.000+08:00

Germany has beat Uruguay for the third spot.
Either Spain or Netherlands will claim the second spot.
There can only be one winner.

Who remembers the runner up of the past World Cups? How many times has the country qualified for the finals but lost? No one bothers! We only know who is the winner and track how many times a country has won.

It is a winner take all world.
Even in business, which is the most successful fast food chain in the world? I am sure most would think of McDonald. So, who is second? Subway, KFC, Pizza Hut, Wendys? Who cares.
Try this with other lines of business, automobiles, mobile phones, beverages, etc and you get the drift.

If we wish to be successful, we cannot settle for second best.
In investing, we need to identify and select the winners as well.
Cheers!

Outlier

2010-07-09T23:22:00.000+08:00

In statistics, an outlier is an observation that is numerically distant from the rest of the data.

"Outliers: The Story of Success" is a non-fiction book written by Malcolm Gladwell. In Outliers, Gladwell examines the factors that contribute to high levels of success.

In part one, he examines opportunity.
1) Looking at why the majority of Canadian ice hockey players are born in the first few months of the calendar year.
2) "10,000-Hour Rule", claiming that the key to success in any field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours.
3) How Microsoft co-founder Bill Gates achieved his extreme wealth, partly due to the year he was born.
4) How two people with exceptional intelligence, Christopher Langan and J. Robert Oppenheimer, end up with vastly different fortunes.

In part two, he looks at legacy.
How culture and upbringing actually affects to a great extent our decision making process in response to different circumstances. Examples include the reasons for plane crashes and why Asians can do math better.

Well, basically, he shared some fascinating reasons and examples for success and failure. Some there is no control over like birth month/year/location and in addition, the minimum of 10,000 hours hard work.

The Matthew Effect

2010-07-07T21:12:00.000+08:00

The Matthew effect in sociology is the phenomenon where "the rich get richer and the poor get poorer".

It takes its name from a line in the biblical Gospel of Matthew:
"For to all those who have, more will be given, and they will have an abundance; but from those who have nothing, even what they have will be taken away." — Matthew 25:29

This was illustrated in the first chapter of "Outliers" by Malcolm Gladwell.

Being a year end baby, I had felt first hand the effects of the disadvantages faced for being born late in the year. I had shared my ideas with others only to be brushed off.

Malcolm Gladwell shared that certain selection process has resulted in an unfair bias towards the time one was born. Most talent is scouted at a certain young age to be groomed and those being born earlier, has the advantage of being more developed physically for sports or more mentally developed for music and ultimately, they have more time to practice. Those born in the later part of the year has nearly zero chance of ever being selected.

Similar to Singapore education system, children are streamed into EM1, EM2, EM3 previously at age 10. I am very sure that if we were to separate it to birth month, there will be proportionally more Jan, Feb, Mar babies in EM1 and more Oct, Nov, Dec babies in EM3. Is such a system fair?

Well, I am just glad that finally someone is agreeing with my sentiments since I was in Primary school!

So, chances of people being successful is proportionate to the time of the year he was born.