Saturday, June 30, 2007

Inflated Earnings

In good economic times (as like now), corporate earnings are inflated by the increase in asset prices.

As companies report higher earnings, their share price goes up and the price earning multiples goes up as well. More people buy into the shares.

When the bubble bursts, asset prices drop. Corporate earnings drop as well. In bad times, corporate earnings can drop by more than 50%. You can expect the share prices and price earning multiples to collapse.

Be careful about investing in properties and shares in times of inflated asset prices. It can be risky. Some people consider the current markets to be "frothy".

HSBC Multi-currency account

Dear Mr Tan,

I am a retiree. I would like to seek your advice regarding HSBS's Multi Currency Savings Account which the bank has been quite active in its promotion.

This single online account gives you easy access to 10 major currencies. You can transfer funds from one currency to another, as well as enjoy attractive interest rates on all 10 currencies offered.

It appears that the account offers attractive interest rates ie more than the interest rates that local banks are offering. In your opinion, do you think it is good to invest?



I think that it should be all right. As you are not locked into the investments (except for the short period of any fixed deposit), you have the freedom to move your money among the various currency according to the interest rate that they pay you.

You do need to be careful about investing in foreign currency as it may fluctuate in value compared to Singapore dollars.

Someone suggest that you should also compare the interest rate offered on this multi-currency account, compared to the similar instruments in the market. You should also consider the charges for converning the money. I agree.

Generally, it is good to have the convenience of managing it in one account. Actually, I wanted to open an account myself, but I have not got down to doing it.

Investments of the Money Market Fund

The money market fund is invested in short term bonds and treasury bills. Here are the current yields from these investments:

* treasury bill: 2.22% (3 months) 2.25% (1 year)
* government bonds 2.58% (5 year)

Daily interbank rates: fluctuate between 2.25 to 3%

Depending on the mix of the instruments, the return of the fund should move within the above range. The fund manager deducts 0.25% to cover its expenses.

Alternative: If you do not wish to invest in the money market fund, you can buy the treasury bills or government bonds directly. You have to pay some transaction fee to the stockbroker or the bank.

Better governance and disclosure for par policies

Dear Mr Tan,

What are your views about the proposed measures to ensure better governance and disclosure for par policies? Will it help to ensure that the consumers will get a higher bonuses and a better return on their par policies?



This is just a first step. To ensure its success, a lot of work has to be done over the next few years, to improve the system.

There are two important aspects of the new measures:

a) governance; internal rules that guide the management of the par fund (ie the fund holding the assets of the participating policyholders)

b) disclosure; to disclose the impact on changes in the bonus rates to the participating policyholders

In the ideal situation, the par fund should be managed in the interest of the par policyholders, as follows:

* the fund should be invested to earn a good return over the long term, at an acceptable level of risk

* the expenses should be minimised (so that most of the return will accrue to the policyholders)

* there should be a "fair method" of distributing the surplus between the policyholders and the shareholders

The management has to observe high integrity in managing the par fund and to treat the policyholders "fairly".

In the past, many life insurance companies are operated as "mutual companies"(ie without shareholders). It was easier to ensure that the fund is runned in the interest of the policyholders.

Nowaways, most life insurance companies are operated as stock companies (with shareholders). The companies have to face the challenge of ensuring "fair treatment" of the policyholders, while trying to give the best return to their shareholders.

The proposed new measures try to solve these challenges. It is not easy. But it is worthwhile to make a start.

Yield on Money Market Fund

Dear Mr Tan,

The fixed deposit interest rate is very low at the moment (<2%). I consider parking a sum of said $30,000 in the Flex-Cash (ie Money Market Fund) as it return is stated at 3% or more.
What do think, is it a right move?



The yield on Flexi Cash has also fallen in recent weeks. It should be about 2% p.a. now.

I think that it is all right to put into Flexi Cash as you have the flexibility to take it out at any time, without any penalty.

Money market fund - NTUC Income

Hi Mr Tan,

Recently, I put a sum of money in NTUC money market fund. The bid/offer rate was 1.066, but it drop to 1.065 the following day.

Assuming I had invested 100,000 units, I would have lost $100. Is my assumption correct ?

Why does the price go down? The MMF is not a safe investment. Perhaps I should park my saving in FD or Govt Bond, correct?



You should look at the price over several days and not on a specific day. The drop in price is probably due to a unusual situation (eg usually due to change in money market interest rate) and is corrected the following day.

If you wish to take out your money, you can ask NTUC Income to wait until the price reaches a certain level, so that you are not subject to this temporary fluctuation.

For example, I wanted to withdraw some money when the price was at 1.066. It had been at this level for many days. I gave instruction to make the withdrawal when it reached 1.067. It occured within a few days.

Subprime lending

Source: Wikipedia

Subprime lending, also called "B-Paper," is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history.

A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others.

Subprime lending is typically defined by the status of borrowers. A subprime loan is, by definition, a loan made to someone who could not qualify for a more favorable rate. Subprime borrowers typically have low credit scores and histories of payment delinquencies, charge-offs, or bankruptcies. Because subprime borrowers are considered at higher risk to default, subprime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees, or an up-front charge.

Proponents of the subprime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market. But opponents have criticized the subprime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. subprime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default, and several major subprime lenders have filed for bankruptcy.

Friday, June 29, 2007

Property Insurance

When you insure a property, you should be covered against the following perils:

* Fire, lightning, explosion
* Bursting or overflowing of water tanks
* Theft or burglary - has to be caused by forcible and violent entry
* Malicious damage
* Riot & Strike
* Earthquake, wind and storm, flood

My management style

How do you describe your management style?

Reply: I set values and goals.

I work with my colleagues on the broad strategies to achieve specific goals. I let them choose the specific strategy and take the specific ations to achieve the results.

I let the results decide on whether they have taken the right actions. Often, the actions can be modified, so that the results can be improved.

My colleagues who worked with me for 5, 10 or more years, generally like my style. I describe it as the "entrepreneurial" approach.

Engaging the customers

How does NTUC Income engage the customer (during the time that you were the CEO)? Does this help in the development of its business?


Over the past years, NTUC Income has actively communicated with its customers (policyholders) on the following:

* NTUC Income is a cooperative society
* Most of its surplus are distributed among its participating policyholders
* It shareholders receive only 2% of its surplus
* Its primary aim is to serve its policyholders (members) by offering low cost and a better return
* NTUC Income communicate actively and in a transparent manner
* It does not need to maximise profit for shareholders (ie avoid conflict of interest)

This active communication strategy has built up a strong loyalty among its policyholders.

How to run a world class call center

I wish to share this secret about how NTUC Income wins the award for being a world class call center:

* it uses low cost, effective technology
* the calls are answered immediately by a human voice (without the need to press buttons)
* it has a low turnover rate of employees
* the front line officers handle simple calls and refer difficult cases (about 5% of calls) to specialists to call back

The cost of the technology is only 10% to 20% of what big organisations spend on their call center systems, without sacrificing on the necessary functionalities.

By using a two level system of handling enquiries, it is easy for the front line officers to handle 95% of the calls (with less training and better service quality). They refer the difficult enquiries and complaints to the specialists. This reduces the stress of the job.

They enjoy providing the customer service.

I was involved in the strategy to build up the call center when I was CEO of NTUC Income.

Importance of Customer Service

How important is customer service?

My view: it is very important, especially for a financial institution. It allows the provider to build a long term relationship with the customer.

I observe the following principles in dealing with customers:

* attend to their matter promptly
* be honest, open and transparent (ie HOT)
* look after the customer's interest (helps to build trust).

A good customer is willing to pay a fair price that allows me to meet the expenses and make a fair profit.

I keep my cost low by reducing waste and operating efficiently. This is also appreciated by the customer, as they do not have to pay more for good customer service.

Primary values that drive a business

What are the primary values that drive NTUC Income's business (during the time that you were the CEO)? Are these values responsible for the success of the business?


The primary values were:

* act in the best interest of the customers
* act honestly, with integrity, and be transparent

We act in the best interest of the customer and offer good value in the form of lower prices or better return on their savings. We achieve it by operating efficiently, reducing cost and cutting down on wastage.

We were able to earn an adequate margin to meet our expenses and to provide a modest profit to shareholders.

We act honestly, with integrity. We offer products that meet the genuine needs of the customer. We keep the product simple, so that they can understand it, and choose it for its value.

Some business make profits by offering products that "cream off" the customer. They "hype up" the products beyond its real value. We do not engage in these misleading practices.

These values allowed us to build strong loyalty and trust from our members (customers) and contributed to the growth of our business.

Stop paying premiums earlier

Dear Mr Tan

I bought a living policy (to cover critical illness) from NTUC Income. It requires me to pay premium until age 85. I am not prepared to pay premium for so many years. What should I do with this policy?



You can decide on when you wish to stop paying the premium, say at age 60, 65 or 70. At that time, you have the following options:

* cancel the policy and receive the cash value

* convert the policy to a "paid-up policy"; you do not have to pay any more premium, and will be covered for a reduced sum assured

You can ask the adviser to get NTUC Income to quote the cash and paid up value at age 60, 65 and 70. You can decide on when is the best time to stop paying the premium

Revision of premium under Critical illness plan

Dear Mr Tan,

I bought a critical illness plan. It has a clause that allows the insurance company to revise the premium rate in the future, subject to a cap of 1.5 times. I am worried that the cost may be unaffordable to me. What are your views?



For most life insurance plans, the premium rate is guaranteed for the entire term of the contract.

The only exception is for a critical illness plan. There is a clause that allows the insurance company to revise the premium rate, if it is necessary due to an increase in claims.

The reason for this clause is:

* the plan covers several critical illnesses, such as cancer, heart failure, etc

* the insurance company is worried that the claim rate for some illnesses may increase significantly in the future (beyond what was projected in the premium rate)

* due to this uncertainty, they cannot guarantee the current premium for many years into the future

If the claim rate is kept within the current projection (which already allows for higher claim due to age), there is no need for the insurance company to revise the rate.

So far, the claim experience has been favourable. There was no need for the insurance company to revise the rate. I believe that this situation should continue into the future.

Collateralised Debt Obligation (CDO)

Recently, you hear about problems with the sub-prime mortgages in USA. There is a high default rate among these mortgages. The high default has now affected the CDOs that are issued on these assets.

Here is a definition about CDOs from Wikipedia:

Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.

CDOs divide the credit risk on a portfolio of fixed income assets among different tranches. They issue senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches(unrated).

Losses are applied in reverse order of seniority and therefore junior tranches offer higher coupons.

Using CDO technology, from one portfolio of generally risky assets a range of products are created, from the risky equity tranche to the relatively lower-risk senior debt.

Lesson: There are many complicated financial products in the market. When things go wrong, it is quite difficult to sort out who takes the losses on the various tranches of the products. It is risky to invest in these products.

Structured products advertised in the newspapers

I have studied many of the structured products that are advertised in the newspapers recently.

Here are my observations:

* many products have an element of speculation, ie you will get a higher return if certain events happen; for some products, you may suffer a large loss under other specified events

* the advertisements usually do not give the essential details; you have to ask for the prospectus or the brochure

* it is difficult to predict the likelihood of these events or to calculate the likely amount of the gain or loss (even for an expert like me)

* after paying the embedded charges and the marketing expenses, the products are likely to give a poor return to the investor

Lesson: Do not invest in these products; you are paying a high cost and not getting any real value.

If you wish to take risk, invest in equity directly. If you want a safe investment, buy government or highly rated corporate bonds.

Save for children's education


If you are require some money after some years (e.g. 20 years later for children education) and insurance, it may not be good to buy a term plan and invest the rest as Mr Tan said.

At the 20th years, it may be a market down turn or the companies you bought are valued lowly by the market, and you are not able to get a decent returns - though the chances are low if the time is long.

With an endowment fund, all reversionary bonus declared in the past years are guranteed, your are more assured of a reasonable returns and assured cash after 20 years.



If you save for your child's education in a large, well diversified, equity fund, you are able to withdraw the savings over a few years to fund the education expenses. This ensures that you get an average market return and is not affected by the market price at a specific maturity date.

You can enjoy the benefit of a higher long term return from the equity market. This return is likely to be much higher than an endowment plan. You also save on the high charges embedded in an endowment plan.

You also have the option to move to a bond fund closer to the maturity date, and avoid the fluctuation in the equity fund.

Thursday, June 28, 2007

Critical illness rider

Dear Mr Tan,

I bought a basic life policy with a few riders (ie accident, critical illness, etc).

I was assured by the insurance agent that all premiums for the riders would be loaded up to a maximum of 1.5 times the original premium.

When the policy document arrived, only critical illness had a written clause that indicates that premium would be capped at 1.5 times the original premium. There is no cap on the other riders.

Is this all right?



I believe that the premium for the basic policy and all the other riders (except for critical illness) are already fixed at the current rate for the duration of the contract. You can check with the agent to confirm that this is the case. If so, you do not have to worry about future increase in the premium rate for these riders.

The premium rate for critical illness is the only rider that is subject to revision. This is the practice of the insurance industry, and reflects the possibility that the claim on critical illness may increase significantly in the future. In your case, your insurance company has set a capped at 1.5 times of the premium.

Index Funds

Dear Mr Tan,

What are your views on index funds?



Please read my FAQ. I like investing in index funds due to its low cost. In the case of Singapore, a good index fund is the ST Tracker Fund

Application of actuarial know-how

1. Here is an example of how actuarial know-how can be applied in motor-car insurance

100,000 people insure their cars
20% have an accident each year

Total claims to be paid is estimated to be (say) $60 million (average of $3,000 per claim)
Expenses to run the business $20 million
Total is $80 million

Each person has to pay a premium of $800
The insurance company can charge more, to make a profit margin

2. Different premium rates

Not everyone pays the same premium rate of $800
Some people are more accident prone
Some vehicles are more expensive to repair
The premium rate varies according to the type of risk

3. Time value of money

The claims are paid one, two or more years in the future
The premium can be invested to earn an income
This can be used to reduce the premium rate, or to increase
the profit.

Role of Insurance in Financial Well-being

Talk at Junior College

Mr Tan Kin Lian qualified as an actuary in 1975. He was the chief executive of NTUC Income for 30 years from 1977 until his retirement in 2007.

In his talk, he will touch on the following topics:

* Economic functions of insurance
* Careers in insurance
* Role of an actuary
* Special skills requied to be an actuary

Insurance plays two important economic functions. It is a way of managing risks of individuals and businesses. Each person contributes a small sum of money (called a premium) into a pool to pay the claims of the people who suffered the insured losses. By reducing risks for all the parties, it helps people to carry out their economic activities and daily lives, without being financially destroyed by an unfortunate event.

Life insurance is also a way for ordinary people to make regular savings for their future needs. The funds that are mobilised can be invested for the long term to build the infrastructure and the productive capacity of the economy. It also earns a return on the funds to be shared by the investors.

The insurance industry provide careers for the following categories of people:

* marketing and sales
* customer service
* technical (underwriting risk and managing claims)
* investments
* administrative, support, technology and management functions

The actuary plays a special role in the insurance industry. He evaluates the risks and calculates the premium rates to be charged for the risks. His skill is applied in all fields of insurance, namely in life, general and health insurance.

He has to use two special knowledge:

* statistics showing the chance of occurrence of certain losses
* time value of money, as the losses may occur at various times in the future

Some actuary also play an important role in marketing and communication. He can explain the insurance and financial products in simple terms for the ordinary people to understand.

You can read more about Mr Tan and his special area of knowledge from the following:


Express differing views

The visitor to my blog include:

* ordinary people who are interested in financial education
* insurance and investment professionals

My blog is intended mainly for the ordinary people. Most of them find my views to be educational and useful.

I also welcome the contribution of the professionals, as they add to my limited knowledge. They can tell me more about certain products in the market, to allow me to make an analysis.

Some of them express views that differ from my views. This is all right. They should avoid making judgement. After all, it is just a view.

Trading in Endowment Policies

There is a website service (in the UK) that allows a policyholder to find someone who is willing to buy his endowment policy for a better price than the cash value offered by his insurance company.

The advertisement says:

* We offer an exclusive 'execution-only' service for people wishing to sell their unwanted endowment policies.

* Shop around the endowment marketplace in order to try and find you the best offer for selling your endowment policy.

* We will usually get you a number of offers for your endowment policy.

This is how the "trading" works. The insurance company has a monopoly of your endowment policy, and will offer you a poor value. This allows them to make a profit when you surrender your policy.

By approaching the market place, you may be able to find another buyer who can give you a higher value. They will keep the policy till maturity and still make a profit over their funding cost.

I believe that someone tried to introduce this service in Singapore. But I am not aware if it has been successful.

Wednesday, June 27, 2007

Structured products and life annuity


Mr. Tan,I agree with most of your write-ups except for your view on structured products and annuity.

First, I think you are not conversant with structured products.They are very low risk if you understand them and you can say they offer free lunch.(good return at almost no risk)

Secondly, CPF offers the best annuity . It has good payout and has options to let you choose the duration and amount of payout. If you want to recieve until 100 years old it can be designed as such.

Today Insurers'annuities are not comparable except maybe variable annuity.
As a whole it is commendable of you to educate the public.You are indeed providing a social service. Thank you , Mr. Tan.



Most of the structured products which are capital guaranteed give a poor return. For example, the Swing Fund that recently matured gave a return of 2% in total for 5 years. During this period, the stockmarket went up by more than 50%.

If you want no risk, invest in a government bond. You can get nearly 15% for 5 years. This is much better than the structured products which give less than 5% (after deducting the charges).

Leaving your money in CPF to earn 4% per annum is a good idea. It is also a good idea to invest in a participating annuity plan from NTUC Income. You should see an insurance adviser to learn about the difference. You can make a better decision.

Read the FAQ.

Financial Planning Tips and Products

If you wish to have my financial planning tips and an explanation of the common products, you can read the FAQs here.

Low cost endowment plan

Dear Mr Tan,

Are there any low cost endowment plan? I like to get a secure return of about 4% per annum, and have life insurance cover built in as well.



You can buy a single premium endowment plan. It should give you a return that meets your target. The upfront charge is usually less than 3% of the single premium. This allows the policyholder to earn a good return (after deducting the charges).

I am not aware about any monthly premium endowment plan that are designed to be "low cost". It is possible for this plan to be designed with an upfront charge of (say) 20% of the annual premium. This will give a good return to the policyholder. There will be a good market for this product.

Most endoment plan that are now in the market have an upfront charge that take away one year's of premium. The net return is poor.

Streettracks Gold Shares

streetTRACKS® Gold Shares is the first gold-backed exchange-traded fund to be listed in Asia. It is designed to track the price of gold and trade like any stock on the exchange.

The Gold Shares are backed by physical allocated gold bullion and are denominated in U.S. dollars. Investors can buy as little as one board lot of ten shares, with each share priced at approximately one-tenth the spot price for an ounce of gold. If the gold price is USD 650, the minimum investment amount is USD 650.

Transparent interest rate on home loans

Hi Mr Tan

What are your views about the "transparent" interest rate charged by DBS Bank on their home loans? It seems to be slightly higher than the interest rate of other banks. As the interest rate moves with the interbank rate, will I have to pay more, if interest rate goes up?



I prefer a transparent interest rate. The rate charged by DBS is based on a interbank rate, plus a premium of 1.25%. I think that this is a fair rate.

It is better to have a transparent rate. This ensures that you will get a fair rate, even if you do not monitor it closely.

There were news reports that some banks adopt many tranches of board rates previously, and may be overcharging some customers, who do not monitor the rate closely.

It does not matter that the interest rate may move up or down with the market. Over the years, this will average out. It is more important that you arrange with the bank for the following:

* keep the same monthly payment, even if interest rate goes up
* flexibiilty to make early repayment, if you have the cash.

Invest in Gold ETF

Hi Mr Tan,

What is you view in investing in Gold via Exchange Traded Funds (ETF)? Is it a good time to go into Gold?



I am not familiar with investing in gold, and also the right "timing" to invest in gold.

Some experts believe that gold should be part of a well diversified portfolio. If the current price is not too high, it may be a good time to implement this diversification.



The Counter is Gold 10 US $ under stock exchange. Seller @ US 63.80(Last done 63.60)

It is similar to trading in STI-ETF. However, this is in 10 shares and in US $
Fom the above indication, you can buy min of 10 shares, the cost will be US$ 638

According to my colleague, this price is fair as it is close to physical gold and move in tandem to it.

Insights into Financial Investments

Dear Mr Tan,

Thank you for so unselfishly sharing your knowledge with us. I especially appreciate your insights into financial investments and your friendly approach. I enjoy reading your blog!

I wish you all the best.

Understanding Research

Research is important to build our knowledge based industries in Singapore. Besides manpower and infra structure developments we must bring our capabilities to higher levels through research in order to advance and remain competitive.

Dr. Lee Kum Tatt has been involved in many fields of research in his life. He shares with us his experiences and views on how he classified research and how they are evaluated. Read his article on Classification of Research Activities in his blog.

Insurance is pooling of risk

Insurance is pooling of risk. If we have a large group of people joining an insurance scheme, everyone pays a contribution to the pool. The contribution is used to pay benefits to those few who have to make a claim for the insured event, e.g. death or accident.

If you join a pure insurance scheme, the cost should be quite low. It is based on the total amount of claim divided by the number of people, plus a small loading to cover the expenses.

Unfortunately, the real cost to the consumer could be much higher, due to the following factors:

* the pure insurance is combined with some other benefits, such as savings and investment

* a proportion of the premium is used to pay the commission for the adviser to sell the product

* the consumer may not get a good deal

If you buy the simple product that offers only the pure insurance, you will be able to compare the prices charged by a few insurance companies. You can get a product that offers you the coverage at a modest cost.

Lesson: Go for the simple products that you can understand and make a comparison. You can get a better deal.

My approach towards my career

Hi Mr Tan,

I'm just finished NS and is currently awaiting for my enrolement into NTU to study engineering. During my free time, I had been thinking about my future goals and what I want to achieve in the future, in my personal development, career, wealth ,and family and friends.

I'm writing to you hoping that you could share with me your advice. What made you chose the path you have choosen? Before you started out did you had a vision of what you want to achieve? Did you just know by instinct that the financial industry was the right fit for you? Was money the primary consideration?

As a corporate veteran, what are your views? Is it really hard to get promoted these days? Do you have any advice on how to successfully climb the corporate ladder? What in your opinion are the most important factors or skills that has contributed to your carrer? Is it the people-skills like they always say (EQ) rather that the credentials? Any tips on how to be a people person ?



I decided to take the actuarial course because it suited my interest. I was strong in mathematics and was able to communicate clearly. These strenghts make it quite easy for me to pass the actuarial course. However, for most other people, this course was considered to be very challenging and difficult.

I know that the actuary is well paid, but it was not an important factor to me. Interest was more important. I enjoy studying the actuarial course, because the subjects are very useful for many aspects of daily lives, eg financial, investment and demographic matters.

I also took an active interest in learning about information technology and how to program computers to do the calcuations, data processing and other work. They help to make it easy for business to be conducted more efficiently, at lower cost and better customer service.

Here is my approach towards promotion in my career:

* I learn the skills that are useful for my work
* I put them to good use, to improve the business results
* The opportunity for promotion will come
* I am patient.

I hope that you find these remarks to be useful.

My blog had 60000 visitors

Dear Mr Tan,

Congratulations for having more than 60,000 visitors to your blog. This is a milestone during this short span of time (since 8 Feb 2007).

Once again, thank you for the free and independant advice on financial matters.



I receive an average of 500 visitors a day. The visitors have incresed in recent weeks.

Tuesday, June 26, 2007

Market Timing


Mr. Tan, you seem to be an advocate of market timing, from most of your postings. Investors following your advice are in great danger. I think, Mr. Tan, you need to get your understanding of investment right.

Despite your many years as a CEO of Income and to be fair to you, your knowledge of investment is horrendous.

You better stick to insurance. Even in this area I also find your recommendations not appropiate sometimes. You have great knowledge in products but not planning.

You are sincere, there is no doubt at all. but this is not enough. Hope you take this in good spirit of sharing.



I posted a study by Plexus Asset Management. It showed the experience over the past 100 years in the United States. For a investor who made an investment at a time of high market P/E ratio, the return over the next 10 years is lower than for other periods.

If you wish to ignore this study, it is all right. In my case, I prefer to avoid investing a lump sum at a time when the market is high. I prefer to wait for a more normal time. It is all right, if you make small monthly investments, and take take advantage of "averaging".

Three in one

Jakarta imposes a "three in one" system. For certain roads, during certain hours, each car should have at least 3 people. If not, the driver has to pay a heavy fine.

This is simular to the "four in one" system adopted in Singapore about twenty years ago.

My experience with Valuair

I took Valuair to Jakarta and back.

My experience is positive. The seat is comfortable. They serve a light meal on each trip. The fare is a discount of about 30% compared to Singapore Airlines.

The only disadvantage is that they allow a maximum of 9 kgs for a bag taken into the cabin. I had to check in my bag.

Sunday, June 24, 2007

Useful to have a financial or insurance adviser

I suggest the following approach for the ordinary lay person:

* learn about the basic aspects of financial planning (eg read my FAQs)
* use a low cost financial or insurance adviser

The adviser who can help you to make the best decision for your circumstances. If you do not take up a lot of their time, they can give you the advice for a low fee or to earn a modest rate of commission. For example, the advisers from NTUC Income falls into this category. By using the adviser, you can save a lot of time, and make a better decision.

For example, I can buy shares through the internet. But, I find it useful to go through a stockbroker. The fees have now come down to 0.3% (down from 1% a few years ago). I find it to be a fair rate of commission for the time spent by the stockbroker.

Future return depends on your entry level

I saw a study by Plexus Asset Managmeent. It looked at the P/E ratios of the S&P 500 index for each year from 1871 to 2006 and calculates the average ten-year forward real return.

Here is the findings

Average Average
P/E ratio 10 year return
8.5 11.0% p.a
12.0 8.1% p.a
15.0 6.1% p.a.
17.6 5.7% p.a.
21.6 3.2% p.a.

Lesson: Your future return depends on your entry level. If you invest in the stockmarket now (at P/E ratio of about 18 times), the likely real return over the next 10 years is 5.7% p.a. (and not the high return of past years).

Free and independent advice


Don't you think it's good we have Mr Tan here dispensing his free and independent advice in financial matters?

Why should financial advisors get a fee? From Mr. Tan free unbiased recommenation, you can get free independent financial advice at NTUC's business centre, and still get your financial plan implemented. There is no fee.

Just imagine if the rest like the banks and insurers follow the leadership of NTUC, would it be great cost savings for the consumers? In fact, I don't see any flaw in this business model at all. Free advice, low cost plans, zero fees.

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