Friday, November 02, 2007

Right time to buy a property?

Dear Mr Tan :

I really enjoy reading your blog - it offers practical advise and alternate views which sometimes is so obvious. We are influenced by other people around us and does not see the alternative options.

I have been working in Singapore for about 15 years, and recently became a citizen. I have been renting a property and the rental will seen be increased sharply. I have about $500,000 in my CPF and liquid investments.

I am interested in buying a permanent home. What is your opinion in this matter? I do not qualify for a new HDB flat. Should I buy resale HBD?


I am not really familair with this matter. I wonder if it will help for you to visit HDB and talk to the officer there?

Generally, I think that HDB resale represents a good investment, as there is a large pool of people who are willing to sell, to move to another new HDB property. So, you should get a reasonable price.

Perhaps, if you talk to a property agent and get some quotes of what are available, you may be able to make a better decision. If you have some possible offers, you can ask me to help you make an analysis.

Excessive charges on ILP

Dear Mr Tan,

I bought an Investment Link Product in 2001 and made an investment of $1,000. This investment has is being depleted by the monthly charges. If I wish to make a partial withdrawal, I have to incur a charge of almost 40%.

When I bought the ILP, I was only 19. Can the policy contract be binding on me? I was not informed that the investment would be subject to the fee deduction and the withdrawal charge.

When I asked the adviser, he said he did not know that the fees would be deducted from the investment. I am bearing the brunt of his negligence. Does it mean that as long as the clause is in the contract there is no duty for him to advise me personally?

Thank you Mr Tan, I really really appreciate your help.


I suggest that you ask the insurance company to give you a statement for the past 6 years, showing the amount that you have invested, and the charges that are taken out each year (indicating the type of charge).

This statement should show what you can get now, if you cancel the investment. If you pass the statement to me, I will try to see if the charges are reasonable or excessive.

You should also get a written statement from the adviser that he was not aware about the withdrawal charge, and that he did not advise you about it. If you have this statement, you may have a chance to get the insurance company to allow you to make the withdrawal without this withdrawal charge.

Cooperative Housing in North America

In Singapore, we are familiar with the condominium type of ownership. Each owner has the ownership of a specific unit in the condominium and contributes towards the common upkeep of the condominium.

This type of property ownership is also popular in many countries, including North America.

There is a slightly different kind of ownership found in Canada and a few states in USA, especially New York. It is called cooperative housing. Each owner owns a share of the entire project, and has the right to live in a unit. The owner does not own the specific residential unit.

There are some advantages in this type of ownership:

1. The ownership of the cooperative is similar to equity. It can be transferred more easily, without the high cost associated with a property.
2. The management corporation has more control over the upkeep of the cooperative housing.
3. It helps to strengthen the community bond among the residents of the housing project.

I hope that this new type of ownership can be made available in Singapore.

More about cooperative housing:

Next Step for a NS Man

Good afternoon Mr Tan,

I just happened to came to your blog and started to read about the posts that you posted. I think it gives good information for the public.

I am currently serving National Service. I have been reading a lot about financial planning. I hope that I can manage my money better. Is there any advise for teenager like me to deal with our money besides saving and putting it in the fixed deposits?

Thanks a lot for your guildance.


You can read this FAQ

And more FAQs at:

All the best for your future.

Importance of low cost product

If you invest $5,000 yearly for 20 years and earn 5% per annum, you will get $165,000 on maturity.

If you pay an annual premium of $5,000 into an endowment policy, your gain of $65,000 may be reduced by about 50%. You will get a maturity benefit close to $132,000 giving you a net return of 2.7% per annum.

Where does the remaining $33,000 of the gain goes to? The likely component are:

* marketing and other expenses: $20,000
* cost of insurance: $6,500
* profit to the insurance company: $6,500
* total $33,000

Most insurance companies have high expenses, especially in paying commission to the agent. If you choose a company that have lower expenses, you can save $5,000 to $10,000 and get a higher return.

If you buy term insurance (about 5% of the premium) and invest the remaining 95% in a low cost, diversified fund, you can save on a large part of the $26,500. You have to invest in a low cost fund, so that most of the return will go back to you, and not to the fund manager.

Note: The maturity amount is not guaranteed as it depends on the actual return from the investments over the next 20 years.

Thursday, November 01, 2007

Double coverage for medical insurance

Dear Mr Tan,

I am insured for group medical by my company. An insurance agent advised me to buy a Shield plan from his company so that I can continue to get coverage after I leave this employer. I read your previous posting that this is double coverage. What should I do?

Which company offer the best Shield plan? Is it NTUC, AIA or Avivia? What is your advice?


If you buy a Shield plan on top of the medical insurance provided by your employer, you are paying the full premium for the Shield plan for partial or no coverage, as most of the medical cost can be met from the employer's plan.

Here are two better options for the employee:

1) Ask your employer to buy a Shield plan. This allows allows you to continue the plan on your own when you leave your employer, i.e. the plan is portable. As the Shield plan has a deductible, you can ask the employer to buy the rider to cover it. If the total cost to the employer is higher than the group plan, you can volunteer to pay a portion of the total cost.

2) Ask your employer to stop the group plan and contibute the premium to your Medisave account. You can pay for your own Shield plan using the Medisave.

Both options avoid the wastage of double coverage and reduces the cost to the employer and employee.

I am not familiar with the coverage and premium charged on the Shield plans by the various insurance companies. I am not able to comment on the plan that is best for you.

Give a fair return to the policyholder

Dear Mr Tan,

I am a regular visitor to your blog, which I find it quite informative. You have been advocating "Buy Term and Invest the rest".

Are you also saying that there is no need for one to buy whole life or endowment policies as they do not yield better returns?

If I extrapolate, does it mean that on hindsight, when you were CEO of Income, products such as Living Policies should not have been sold? I hope to see your response to this issue in your blog.


1. NTUC Income launched its Combined Funds in 2003. I have been actively promoting these products under its Flexi-Link and Ideal plans. These investment products have low charges and give good value to the policyholder. The insurance protection can be bought seprately through term insurance. Most of my personal savings are in these products.

2. The Endowment and Living policies from NTUC Income give a fairly satisfactory return ,due to lower commission rates,. The return is higher than similar products from other insurance companies. They are suitable for policyholders who prefer to have the discipline of regular savings.

3. For most young people, who needs flexibility in their savings, "buy term and invest the difference" is a better choice. The investment should be made in large, well diversified, low cost funds. The Combined Fund from NTUC Income meet this criteria. Another option is the STI Exchange Traded Fund.

4. I have always upheld the principle that a insurance product must be designed to give a fair return to the policyholder, while leaving a fair margin to pay the expenses to market and manage the product. During my tenure, I kept the expense low, so that the policyholders can get a fairly attractive return for their long term savings.

Wednesday, October 31, 2007

Free look period

Dear Mr Tan,

Recently, I bought the Revosave after meeting a NTUC agent in a shopping mall. She was very persuasive and told me all the good features of the insurance policy. I signed for the policy.

Later, my friend told me that the return on this policy is poor, compared to other products from NTUC. I want to cancel the policy. What is your advice?


If you have bought the policy within the last 14 days, which is the free look period, you can ask to cancel the policy and get a full refund.

The return on this policy is about 2% to 3%. It is lower than the return on an ordinary endowment policy, which should give about 4% p.a. Due to the annual payout under this policy, the period of investment is short. After deducting the commission payable to the agent, the return to the policyholder is quite low.

Journey on upper deck of bus

I visited a friend at his office in Bedok. To home by MRT, I have to take the train from Bedok to City Hall and change to another train to Yio Chu Kang. From there, I can take a bus to my home. I expect the trains to be crowded, as it was 5 pm.

I search the public tranport guide and found that there is a bus service 25 from Bedok Interchange to Ang Mo Kio Interchange. From there, I could change to another bus to my home.

I had a pleasant ride from Bedok to Ang Mo Kio on a comfortable seat on the upper deck of the bus. I had a good view of Singapore. The bus was not crowded.

Lesson: It is now quite easy for me to move around Singapore on the public transport, with I carry the guide with me.

Tuesday, October 30, 2007

A bus journey with a transfer

I was invited to a dinner at Concourse Building in Beach Road.

I decided to take a bus from my home. There is no direct bus. I went to the Transit Link website and used its Bus Journey Planner.

I entered my starting and ending bus stops. It displayed the best route for me. I had to take service 857 for 4 stops to Bendemeer Road and change to service 107 for 8 stops to Jalan Sultan.

It was quite convenient and easy. As it was during the busy period, I had to stand on the first part of the journey. I had a seat for the second part.

This is the first time that I have taken a bus journey with a transfer. It was quite easy with a little preparation. The service provided by Transit Link was useful.

BIGe from Aviva

Mr. Tan

I cannot understand how come Aviva BIGe can guaranteed interest of 3.5% without sales charges and withdrawal fees wherelse not other institution can offer that. Is there any "catch" that I overlook on this product?


Aviva only guarantees 3.5% for 3 months. Thereafter, they have the right to reduce the interest rate (subject to a minimum of 2.5%).

Although they have to pay out 3.5%, they are able to invest in the stockmarket to earn a much higher return. They are taking some risk, but it can be covered by their risk capital.

I think that they probably invest a portion of their funds in the stockmarket to earn a higher return. This is also a good way for them to build up a base of customers for their other products. They only offer this facility on CPF savings, as the saving for most members are quite modest.

Unit Trust and ILP

Hi Kin Lian,

I have been reading your blog articles and found them to be useful. May I ask your expert advice on the following:

(1) What is the difference between buying unit trusts from insurance companies (i.e. investment link products) versus buying from banks? It appears that many people are buying ILP as the insurance agents are peddaling these products. The banks don't peddale these products because unit trusts are not their lifeblood.

Reply: For lump sum investments, the difference between ILP (from insurance company) and unit trust (from a bank) is quite small. The upfront charge is between 2.5% to 5%. The annual charge is similar.

For monthly investments, the ILP imposes an additional charge which can take up up to 18 months of the premium. Most of the charge goes to pay the commission of the insurance agent. There is no similar charge from unit trust.

(2) Is it worthwhile to pay for a financial adviser from a wealth company (not insurance company) to take care of our investment funds? Should I decide by myself?

Reply: For most people, it is better to choose a large, well diversified, low cost fund and invest for the long term, i.e. 10 years or longer. In this case, you do not need a financial adviser to advise you on when to buy or sell.

The additional charge impose by the financial adviser can take away an additional 0.5% to 1% a year. Read this FAQ:

When to buy a Life Annuity?

Hi Mr Tan,

Thanks for the link to your FAQ. Very informative and good.

I hope you can advise on the following questions, as the insurance adviser may not give truthful answers.

1. What is estimated total annual cost (distributing, commission, fund management fee, profit, etc) in term of % of invested sum ?

Reply: I estimate the expenses, when spread over the years, to be less than 1% per year.

2. Better to buy early (age 50) or late (age 70) ?

Reply: Perhaps at 65.

3. Is it a good time to buy when interest rate peak ?

Reply: Yes.

Increase in ERP charges

The ERP (electronic road pricing) charges will be increased again.

It will cost $6.50 in ERP charges to drive from Ang Mo Kio to the city. That is a lot of money. You have to pay the high charges for parking your car as well. And it is no fun to drive in a congested road.

Taking a taxi is also expensive. You have to pay the taxi fare, a lot of surcharges, including the ERP charges.

What is the solution?

1. Learn to take public transport, like the bus or MRT
2. It is comfortable, even when it is crowded
3. It is relatively inexpensive.
4. Buy a ez-Link card and travel around Singapore. Use it on the MRT, bus or LRT. You will get familiar with the system.
5. Visit the Transit Link website and try the Bus Journey planner.

Monday, October 29, 2007

Intra town travel

From Wikipedia:

The concept of having rail lines which could bring people from door to door without requiring the use of road-clogging buses was much favoured by the government transport planners, especially with the increased emphasis on a rail-based public transport network.

For intra town travel, LRTs were favoured over buses because trains run on dedicated elevated guideways, bypassing any traffic congestion and traffic lights on the roads, and does not add to road traffic. Train arrival and departure times are also almost guaranteed this way.

It is also cleaner as the trains are electrically powered, and therefore lessens the effects of air pollution.


It is useful to have a LRT system in our busy towns, where the roads are congested, perhaps Tampines and Toa Payoh?

Ride on Bukit Panjang LRT

I took a ride on the Bukit Panjang LRT.

It was a pleasant experience. The fare is about 80 cents, similar to a bus fare. The waiting time for a train is about 3 minutes. Each LRT station has lifts and staircase. I find the service to be satisfactory. Well done to SMRT.

I met a friend. He told me that he like the LRT service. According to him, the only drawback is that the train had to make some sharp turns at certain parts of the journey. I was not aware about any inconvenience.

I find that the LRT train occupies only half of the platform. A full length train will have twice the capacity. More people can be encouraged to take the LRT.

Views of Light Rail Transport

I posted my experience on travelling on the Light Rail Transport (LRT) in Sengkang.

I received the following comments from other users:

1. The distance between LRT stops is longer than between bus stops
2. It is tiring to climb up and down the stairs to the LRT stations
3. The LRT service in Choa Chu Kang is inefficient and slow
4. It is expensive to travel by LRT.

I did some further research and found the following:

1. The average distance between LRT stops is about 0.65 km, compared to 0.4 km for bus stops. For more developed areas, the distrance is similar to bus stops.
2. LRT stations are provided with lifts and stairs.
3. The fare for LRT is about the same as for a feeder bus. It cost about 66 to 88 cents, depending on distance.

It is costly to build the infrastructure for the LRT system. We need to use it more fully. We need to get more people educated about using the LRT in the towns that are served by it.

Tips on Buying Insurance

Insurance to buy:

1. Insure the potentially large loss, with a small chance of occurence. For example, the total loss of a property or vehicle or a large liability claim.

2. Compare the premium rates charged by different insurance companies for the same insurance product. Competition helps you to get a lower price.

3. Buy a product where the total claims paid by the insurance company represent at least 65% of the premium. You are getting a fair deal.

Insurance to avoid:

4. Do not insure a small loss that you can afford to pay from your savings, such as the Deductible on a medical insurance plan or the Excess on a motor insurance claim.

5. Do not buy any product that is designed to be different and are not comparable to other products in the market. It allows the insurance company to charge a higher premium, relative to the claim.

6. Avoid a product where the features are too complicated, and you are not able to determine the expected claim ratio.

Invest in a large, well diversified, low cost equity fund

Dear Mr Tan

You advised to invest in equities for 10 years or longer. Is there a risk that, at the end of 10 years, the fund will still show a loss for the period? In the past, I have invested in some funds for more than 10 years and still showed a loss.


There is a chance that you may suffer a loss, but the chance is quite small.

You should invest in a large, well diversified, low-cost fund for 10 years or longer. Preferably, the fund should be invested to follow the market benchmark.

Since 1980, there has never been a period of 10 years when the Singapore equity market (as reflected by the Straits Times Index) shown a loss. For some periods, the average return is higher and for other periods, they are lower.

Over the past 20 years, the average return on Singapore equities is 9.2% per annum (including reinvestment of dividends). The average return on global funds for the same period is 7.7%, after conversion to Singapore dollars.

If, at the end of 10 years, the market is weak and produces a low average return, you have the choice of waiting a few more years for the market to recover to get a higher return.

If you invest in a small fund that is not well diversified, your fund may perform worse than the market, due to poor stock selection by the fund manager. You may suffer a loss for the 10 years period. If your selected fund incurs a high expense ratio, it will also give a lower return than the market.

Lesson: Invest in a large, well diversified, low cost equity fund for a period of 10 years or longer. This will reduce your risk and give you a better return

Easy and difficult way to handle a simple matter

I own 1,000 shares but lost the share certificate 10 years ago. I wish to transfer the shares to the Central Depository.

1. Easy way (but not implemented)

I sign a declaration that my share certificate was lost for 10 years. The share registrar accept my statement and transfer the register them with the Central Depository, based on the company's share register.

2. Difficult way (which was the current practice)

I have to sign a declaration before commissioner of oath
I have to sign an indemnity and find a bank or insurance company to provide a counter indemnity
I have to apply to the share registrar to issue a new share certificate
I have to bring the certificate to the Singapore Exchange
I have to visit the stamp duty office and pay the stamp duty

Total of 5 tips and about $400 in expenses.

3. Life in Singapore can be complicated and costly. Businesses and government departments are more interested to make money from every activity. They do not care about the unncessary burden to the public.

Sunday, October 28, 2007

Lesson about structured products

1. Do not invest in structured products, such as swing fund or vitamin account.
2. The hidden cost is high.
3. You are locked in for a long period of 5 years or longer
4. You get a poor return, of less than 1% per year
5. You would have earned much more by investing in government bonds

Vitamin Account

I found the following information on the Vitamin account from the bank's website:

With the Vitamin Account, you'll enjoy:
4% quick payout after 3 months
Annual potential payouts
Unique Immune-15 Effect to potentially improve your immunity against market risk

Vitamin Account is a 6-year equity-linked structured deposit. The Bank will return you 100% of your principal amount if you maintain Vitamin Account till maturity or upon early redemption by the Bank.

Meanwhile, you should ensure that you have sufficient liquid assets during the 6-year investment period. Early withdrawal by you may result in you receiving substantially less than the principal amount invested.

From Year 2 onwards, when the potential payout rate for the year is 3% or more, the Bank will redeem your investment early. You will receive 5% bonus payout and your full principal amount. There will be no other potential payout.

What is 1 million dollars?

Remember Buangkok station? The operator did not wish to open the station during the intial period, as there were not sufficient commuters. They estimated that it would cost $1 million a year to operate the station. Residents living around the station were furious to see the station closed. They put up a "white elephant" sign.

Is $1 million a lot of money? It is a lot of money, if we measure the time taken for a working person to earn this sum. It is quite little, for many people who paid several million dollars to buy an expensive apartment in town.

I recall this joke.

Someone asked, "God, what is one million years to you". God replied, "To me, it is like one second".

He asked again, "God, what is one trillion dollars to you?" God replied, "To me, it is like one cent".

He though of a great idea. He asked again, "God, can you send just one cent to me?".

There was a slight pause. Then, God replied, "Of course. In a second!".

Payout under Vitamin Account

Dear Mr Tan

I invested $X with a local bank for over 5 years under its Vitamin account. Recently, I received a letter announcing a payount of this "Equity-Linked Structured Deposit Tranche A".

It calculates the payout to be as follows:

The average of the annual returns of all 18 shares is 1.9782%
The average is 1.9782/18 = 0.1099%

The letter indicated that they are crediting my principal plus .1099% (indicated as the 2nd payout amount) into my bank account on the maturity date.

What is my total return from this investment?


I am not familiar with the terms of this structured product. There appears to be a 1st payout that was made earlier. Can you find out the amount of this first payout, so that your total return can be calculated?

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