Dear Mr. Tan,
I met with an accident yesterday. It was a small accident. Should I make an insurance claim or try to settle it privately?
REPLY
Read this FAQ:
http://www.tankinlian.com/articles/traffic.html
Thursday, February 07, 2008
Joke - Make a Will
A young doctor and a young lawyer have just set up in private practice. They met in the street one day and the doctor said, "Great news! I have just got my first patient."
"Congratulations", said the lawyer. "When you've got him to the point that he wants to make a will, let me know and I will go and see him. "
"Congratulations", said the lawyer. "When you've got him to the point that he wants to make a will, let me know and I will go and see him. "
Keep invested in STI ETF
Hi Mr. Tan,
I have $90,000 invested in STI ETF. It was slowly accumulated through POEMS Share Builders Plan over the last few years.
Should I sell the ETF and buy individual blue-chip shares? Will it results in more savings over the long-term? Will selling all the shares in one go have any effects on the selling price?
Looking forward to your reply.
REPLY
It is better to keep you STI ETF. It is professionally managed, well diversified. You do not have to worry about collecting dividends, subscribing to rights issues, etc. These are taken care for you. The expense ratio of 0.3% is small.
I have $90,000 invested in STI ETF. It was slowly accumulated through POEMS Share Builders Plan over the last few years.
Should I sell the ETF and buy individual blue-chip shares? Will it results in more savings over the long-term? Will selling all the shares in one go have any effects on the selling price?
Looking forward to your reply.
REPLY
It is better to keep you STI ETF. It is professionally managed, well diversified. You do not have to worry about collecting dividends, subscribing to rights issues, etc. These are taken care for you. The expense ratio of 0.3% is small.
Higher cost of Vivolife
Dear Mr. Tan,
An NTUC agent approached me to sell the new Vivolife product. The return from this product is lower than a similar product that was being discontinued.
The agent claimed that the commission is not significantly different. Why is the return from the so much lower?
REPLY
I am not familiar with the new product. My understanding is that the charges are higher to cover the following:
a) Higher commission to the agent
b) Higher advertising expenses
c) Higher profit margin
d) Cost of the additional benefits (or frills).
I suspect that the yield for the period of premium payment could be quite low. You should ask the agent to compute the yield, based on the cash value at the end of this period. If the net yield(after deducting all the costs) is still more than 3%, you can invest in this product.
If not, it is better for you to follow the advise in this FAQ:
http://www.tankinlian.com/faq/savings.html
Gong Xi Fa Cai.
An NTUC agent approached me to sell the new Vivolife product. The return from this product is lower than a similar product that was being discontinued.
The agent claimed that the commission is not significantly different. Why is the return from the so much lower?
REPLY
I am not familiar with the new product. My understanding is that the charges are higher to cover the following:
a) Higher commission to the agent
b) Higher advertising expenses
c) Higher profit margin
d) Cost of the additional benefits (or frills).
I suspect that the yield for the period of premium payment could be quite low. You should ask the agent to compute the yield, based on the cash value at the end of this period. If the net yield(after deducting all the costs) is still more than 3%, you can invest in this product.
If not, it is better for you to follow the advise in this FAQ:
http://www.tankinlian.com/faq/savings.html
Gong Xi Fa Cai.
Future for Financial Advisers
Mr. Tan,
Can I say that the days of an insurance adviser is numbered because:
1) An insurance adviser is highly unlikely to transact several term a day as each plan will be for very long term. The adviser have to look for the next person for planning.
2) Commission is low especially for Term insurances. It is difficult and take a lot of time to plan and convince the next person to the Term insurance. The adviser eventually get paid peanuts for the vast amount of time taken.
3) Next comes the emergence of index funds which pay low sales charge and no wrap fees. Adviser may even not earn a single cent to introduce these funds.
4) There is also no guideline on how much an adviser is worth for his time and advice. If the public view an adviser time as $10/hour, how many hours must an adviser works to compensate for his business cost? Is it possible for him to get 10 customers a day in order to earn that $100/day. Is meeting that 10 customers day considered as efficient?
5) Financial planner is different from other professional such as doctors and lawyers. People look for them when they are seriously sick or need legal advice. People don't usually think they will need a Financial planner due to their low urgency towards financial planning.
Financial Advisers took great pains to gain hybrid knowledge ranging from Insurance, Investments, Tax, Estate, CPF, Retirement, etc. They also keep updated on all the changes and investment climate.
Do you think that it is fair that advisers should always get lower paid than other professionals?Should the public get all the advices for free and then buy the cheapest term insurance and ETFs and they pay peanuts to the agent?
In your opinion, do you think that if there are no proper framework protecting the advisers in term of compensation scheme, a too drastic change in the benefit towards the public will kill many good advisers which may subsequently result in more social problem?
REPLY
I am optimistic of the future for a new type of financial adviser who provides good value for the client. The client will look for a trusted financial adviser, just as a patient will look for a good and trusted doctor.
The consumer will pay a fair rate of remuneration for the advice and help in making the transaction. The adviser can earn a good level of income by working efficiently and spreading his remuneration over a large number of clients (i.e. keep the cost low for the customer).
Can the new model give a living for many financial advisers? I believe so. There are so many people that need good advice. Many advisers are needed to educate and give good advice to these people.
In the economy, we need many teachers, many doctors, many nurses, many preachers. They do good work to serve the entire population. We also need many financial advisers to do their good work.
Gong Xi Fa Cai.
Can I say that the days of an insurance adviser is numbered because:
1) An insurance adviser is highly unlikely to transact several term a day as each plan will be for very long term. The adviser have to look for the next person for planning.
2) Commission is low especially for Term insurances. It is difficult and take a lot of time to plan and convince the next person to the Term insurance. The adviser eventually get paid peanuts for the vast amount of time taken.
3) Next comes the emergence of index funds which pay low sales charge and no wrap fees. Adviser may even not earn a single cent to introduce these funds.
4) There is also no guideline on how much an adviser is worth for his time and advice. If the public view an adviser time as $10/hour, how many hours must an adviser works to compensate for his business cost? Is it possible for him to get 10 customers a day in order to earn that $100/day. Is meeting that 10 customers day considered as efficient?
5) Financial planner is different from other professional such as doctors and lawyers. People look for them when they are seriously sick or need legal advice. People don't usually think they will need a Financial planner due to their low urgency towards financial planning.
Financial Advisers took great pains to gain hybrid knowledge ranging from Insurance, Investments, Tax, Estate, CPF, Retirement, etc. They also keep updated on all the changes and investment climate.
Do you think that it is fair that advisers should always get lower paid than other professionals?Should the public get all the advices for free and then buy the cheapest term insurance and ETFs and they pay peanuts to the agent?
In your opinion, do you think that if there are no proper framework protecting the advisers in term of compensation scheme, a too drastic change in the benefit towards the public will kill many good advisers which may subsequently result in more social problem?
REPLY
I am optimistic of the future for a new type of financial adviser who provides good value for the client. The client will look for a trusted financial adviser, just as a patient will look for a good and trusted doctor.
The consumer will pay a fair rate of remuneration for the advice and help in making the transaction. The adviser can earn a good level of income by working efficiently and spreading his remuneration over a large number of clients (i.e. keep the cost low for the customer).
Can the new model give a living for many financial advisers? I believe so. There are so many people that need good advice. Many advisers are needed to educate and give good advice to these people.
In the economy, we need many teachers, many doctors, many nurses, many preachers. They do good work to serve the entire population. We also need many financial advisers to do their good work.
Gong Xi Fa Cai.
Medishield: Cheap and Good
Read this article from Dr. Money, published in the New Paper. It explains how to keep the cost of health care low. It also advises on insuring under Medishield:
http://newpaper.asia1.com.sg/columnists/story/0,4136,154148,00.html
More articles from Dr. Money:
http://www.tankinlian.com/drmoney/
Gong Xi Fa Cai.
http://newpaper.asia1.com.sg/columnists/story/0,4136,154148,00.html
More articles from Dr. Money:
http://www.tankinlian.com/drmoney/
Gong Xi Fa Cai.
Wednesday, February 06, 2008
Actuary Joke: Walk half the distance
A mathematician and actuary are in a room. There is a pretty girl at the other end of the room. It takes 10 seconds to walk half the distance to the girl, another 10 seconds to walk half the remaining distance, another 10 seconds to walk half the remaining distance, and so on. How long will it take to reach the girl?
The mathematician replied ... "I will never reach the girl. No matter where I am, there is a distance and it takes 10 seconds to walk half of that distance."
What did the actuary say? .... Remember, the actuary is a practical person.
The mathematician replied ... "I will never reach the girl. No matter where I am, there is a distance and it takes 10 seconds to walk half of that distance."
What did the actuary say? .... Remember, the actuary is a practical person.
Boosting the US economy
The US Government intends to spend USD 150 billion to boost the economy. President Bush and the Republicans like most of the money to be given as tax rebates in the hands of tax payers to spend. The Democrats prefer the money to be spent by the Government to benefit the people.
Which is better?
Surveys have shown that most people will not spend the tax rebate. Instead, they will keep it as their savings. This will not have the impact of boosting the economy.
The Republications argued that individuals know how to spend their money. They do not like other people, such as the Government, to decide how to spend the money.
Generally, I prefer the Democrat's approach. Certain expenditure have to be decided by the Government, e.g. invest in infrastructure, welfare for the poor, or to boost the economy. This is more likely to be effective, compared to leaving it "to the market".
Which is better?
Surveys have shown that most people will not spend the tax rebate. Instead, they will keep it as their savings. This will not have the impact of boosting the economy.
The Republications argued that individuals know how to spend their money. They do not like other people, such as the Government, to decide how to spend the money.
Generally, I prefer the Democrat's approach. Certain expenditure have to be decided by the Government, e.g. invest in infrastructure, welfare for the poor, or to boost the economy. This is more likely to be effective, compared to leaving it "to the market".
Changes to CPF Investment Scheme
Dear Mr. Tan,
From 1 April 2008, there are some restrictions on investing CPF money in financial products. My insurance agent advise me to invest before the deadline. Is this a good move?
REPLY
If you keep your money in CPF, you can earn 2.5% + 1% bonus on ordinary account or 4% + 1% on special account. This is a good rate of return.
Most life insurance products offer a lower return, in spite of a slightly higher risk. This is due to the high charges taken away by the insurance company to pay agent's commision and for their profit margin.
If you wish to invest your ordinary account, you should select a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you are not sure, it is better to keep your money in the CPF and enjoy a fairly attractive interest rate, with the bonus.
Read this article from Dr Money:
http://newpaper.asia1.com.sg/columnists/story/0,4136,153456,00.html
More articles:
http://www.tankinlian.com/drmoney/
From 1 April 2008, there are some restrictions on investing CPF money in financial products. My insurance agent advise me to invest before the deadline. Is this a good move?
REPLY
If you keep your money in CPF, you can earn 2.5% + 1% bonus on ordinary account or 4% + 1% on special account. This is a good rate of return.
Most life insurance products offer a lower return, in spite of a slightly higher risk. This is due to the high charges taken away by the insurance company to pay agent's commision and for their profit margin.
If you wish to invest your ordinary account, you should select a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you are not sure, it is better to keep your money in the CPF and enjoy a fairly attractive interest rate, with the bonus.
Read this article from Dr Money:
http://newpaper.asia1.com.sg/columnists/story/0,4136,153456,00.html
More articles:
http://www.tankinlian.com/drmoney/
Agent plays an important role
The agent (e.g. stockbroker, property, insurance) can play an important role in the new economy. They can help the customer to assess information, give advice and handle the transactions.
I communicate with my stockbroker by e-mail, mobile phone and SMS. I ask for information and also make transactions (to buy or sell shares or other securities). The stockbroker can ask his colleagues in the research department to get the information that I need.
I pay a brokerage of 0.3% on the shares that are transacted. This is much lower than the initial spread of 3% to 5% that is charged by unit trust and insurance funds.
I hope that the insurance industry and the agents can be as efficient as the stockbroking industry, and offer their products at lower cost to the customers.
I communicate with my stockbroker by e-mail, mobile phone and SMS. I ask for information and also make transactions (to buy or sell shares or other securities). The stockbroker can ask his colleagues in the research department to get the information that I need.
I pay a brokerage of 0.3% on the shares that are transacted. This is much lower than the initial spread of 3% to 5% that is charged by unit trust and insurance funds.
I hope that the insurance industry and the agents can be as efficient as the stockbroking industry, and offer their products at lower cost to the customers.
Government bonds and endowment
Mr. Tan,
What is the difference between investing in a single premium endowment for 10 years and buying a government bond for the same period? Which is better?
REPLY
The net yield in both cases should be quite similar, i.e. around 3.5% per annum.
The endowment provides some life insurance cover (but this is really quite insignificant). A part of the return is not guaranteed, so the actual return may be slightly higher or lower, depending on the future bonuses. If you terminate the policy before maturity, you are likely to suffer a loss.
The government bond gives a guaranteed yield and is risk free. You can sell the government bond at any time, based on its fair market price. There is no penalty. The dividends are paid to you every 6 months (which may or may not be an advantage to some investors).
I prefer government bonds due to its low cost, and its flexibility (i.e. not locked-in).
What is the difference between investing in a single premium endowment for 10 years and buying a government bond for the same period? Which is better?
REPLY
The net yield in both cases should be quite similar, i.e. around 3.5% per annum.
The endowment provides some life insurance cover (but this is really quite insignificant). A part of the return is not guaranteed, so the actual return may be slightly higher or lower, depending on the future bonuses. If you terminate the policy before maturity, you are likely to suffer a loss.
The government bond gives a guaranteed yield and is risk free. You can sell the government bond at any time, based on its fair market price. There is no penalty. The dividends are paid to you every 6 months (which may or may not be an advantage to some investors).
I prefer government bonds due to its low cost, and its flexibility (i.e. not locked-in).
High cost Endowment Policy - Views
Mr. Tan,
Is it possible for an insurance company to offer an endowment policy with low expense charge, so that the return can be 4% or better? I do not mind giving some of the return, as long as it is reasonable, and i still get a good return.
REPLY
It is possible for an insurance company to design an endowment plan that offers a higher return. The customer has to buy this plan directly from the insurance company, as the insurance agent will not sell it, due to low commission. So far, I am not aware of any insurance company willing to offer this "low cost" endowment plan.
Mr. Tan,
I have been studying your figures closely. If I save $500 over 20 years, my total saving is $120,000. the return based on $198,000 is $78,000. If the charges take away $45,000, then I am left with a return of only $33,000. Why should the charges take away nearly 60% of my hard earned return for 20 years?
REPLY
It is correct that the high charges take away more than 50% of the return that you can earn over the next 20 years. It is better to invest in a low cost product, so that most of the return will go back to you. For life insurance protection, you can buy a separate, low cost Term insurance plan.
Mr Tan,
Where can I get yield of 5% if I save $500 a month?
REPLY
If you are investing for the next 20 years, it is likely that you will get a return of 5% per annum on an investment fund. The gross return on the life insurance fund should also give you 5% per annum (my estimate), before deducting expenses.
Is it possible for an insurance company to offer an endowment policy with low expense charge, so that the return can be 4% or better? I do not mind giving some of the return, as long as it is reasonable, and i still get a good return.
REPLY
It is possible for an insurance company to design an endowment plan that offers a higher return. The customer has to buy this plan directly from the insurance company, as the insurance agent will not sell it, due to low commission. So far, I am not aware of any insurance company willing to offer this "low cost" endowment plan.
Mr. Tan,
I have been studying your figures closely. If I save $500 over 20 years, my total saving is $120,000. the return based on $198,000 is $78,000. If the charges take away $45,000, then I am left with a return of only $33,000. Why should the charges take away nearly 60% of my hard earned return for 20 years?
REPLY
It is correct that the high charges take away more than 50% of the return that you can earn over the next 20 years. It is better to invest in a low cost product, so that most of the return will go back to you. For life insurance protection, you can buy a separate, low cost Term insurance plan.
Mr Tan,
Where can I get yield of 5% if I save $500 a month?
REPLY
If you are investing for the next 20 years, it is likely that you will get a return of 5% per annum on an investment fund. The gross return on the life insurance fund should also give you 5% per annum (my estimate), before deducting expenses.
Tuesday, February 05, 2008
CDOs being rated downwards
Collateralized debt obligations may be downgraded as many as five levels as mortgage-related losses force Fitch Ratings to review its criteria for $220 billion of the securities.
The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to guidelines proposed by Fitch today.
CDOs that package high- yield assets may be reduced as many as three levels for the portions first in line for losses.
The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to guidelines proposed by Fitch today.
CDOs that package high- yield assets may be reduced as many as three levels for the portions first in line for losses.
Target of 1,000 visitors a day
My target is to get 1,000 visitors a day. I am still stuck at 750 visitors. Please help me to promote my blog to your friends.
Gong Xi Fa Cai. Wish you prosperity and happiness in the Year of the Rat. (I was borned in the year of the RAT, and will be 60 years old).
Gong Xi Fa Cai. Wish you prosperity and happiness in the Year of the Rat. (I was borned in the year of the RAT, and will be 60 years old).
Invest CPF ordinary account in STI ETF
Mr. Tan,
What is an easy way to invest CPF ordinary account in the STI ETF?
REPLY
From CPF website: The CPF Investment Scheme (CPFIS) gives members the opportunity to invest their CPF savings to enhance their retirement funds. Members may invest all available balance in their Ordinary Account (OA) and Special Account (SA) in professionally-managed products such as fixed deposits (FDs), Singapore Government bonds and treasury bills, Statutory Board bonds, annuities, endowment insurance policies, investment-linked insurance products (ILPs), unit trusts, and exchange traded funds (ETFs).
How to invest?
1) Open a CPF Investment account with any Major 4 Banks (Bring CPFstatement & IC)
2) Check CPF the amount can be invested.
3) Open an acct with the Broking House ( If you do not have one )
4) Instruct Remisier/Dealer to Buy under CPF
You can also refer to this website to see the service provided by UOB:
http://www.uob.com.sg/pages/personal/investments/finplanning/cpfinvestment.html
And DollarDex
http://www.dollardex.com/sg/index.cfm?current=../contents/cpfisoa&contentID=1020
What is an easy way to invest CPF ordinary account in the STI ETF?
REPLY
From CPF website: The CPF Investment Scheme (CPFIS) gives members the opportunity to invest their CPF savings to enhance their retirement funds. Members may invest all available balance in their Ordinary Account (OA) and Special Account (SA) in professionally-managed products such as fixed deposits (FDs), Singapore Government bonds and treasury bills, Statutory Board bonds, annuities, endowment insurance policies, investment-linked insurance products (ILPs), unit trusts, and exchange traded funds (ETFs).
How to invest?
1) Open a CPF Investment account with any Major 4 Banks (Bring CPFstatement & IC)
2) Check CPF the amount can be invested.
3) Open an acct with the Broking House ( If you do not have one )
4) Instruct Remisier/Dealer to Buy under CPF
You can also refer to this website to see the service provided by UOB:
http://www.uob.com.sg/pages/personal/investments/finplanning/cpfinvestment.html
And DollarDex
http://www.dollardex.com/sg/index.cfm?current=../contents/cpfisoa&contentID=1020
Travel by BMW
Singaporeans travel by BMW using “bus, MRT, walk”. To promote, the Government plans to:
a) Build more MRT lines over the nexlt 15 years in Singapore.
b) Introduce more feeder services
I wish to suggest a further leg to this strategy:
c) Make it practical for people to walk to and from the MRT station.
My proposal is:
d) Build elevated, shaded walkways from MRT stations to cover a distance of approximately 1 km to reach different neighbourhoods.
e) Make it possible for people to climb once and use the walkway to reach the MRT station, crossing many roads.
f) It will be comfortable to walk on the elevated walkway as it is shaded from the sun and rain.
g) This will also encourage people to walk to the nearby town center, market, school or bus terminus.
In Taipei, there is an elevated walkway (the local called it the Skywalk) that crosses many roads in the Taipei City Government disrict. It is well used.
It may be costly to build the elevated walkways, but if can be considered as being part of the total cost of the MRT line. The incremental cost of the walkway is probably less than 5%. It can be justified, if it encourages more people living in the nearby areas to use the MRT system.
Perhaps, a pilot project can be done to build this elevated walkway in one town, e.g. Ang Mo Kio, to test its feasibility? If successful, it can be implemented in the other towns.
a) Build more MRT lines over the nexlt 15 years in Singapore.
b) Introduce more feeder services
I wish to suggest a further leg to this strategy:
c) Make it practical for people to walk to and from the MRT station.
My proposal is:
d) Build elevated, shaded walkways from MRT stations to cover a distance of approximately 1 km to reach different neighbourhoods.
e) Make it possible for people to climb once and use the walkway to reach the MRT station, crossing many roads.
f) It will be comfortable to walk on the elevated walkway as it is shaded from the sun and rain.
g) This will also encourage people to walk to the nearby town center, market, school or bus terminus.
In Taipei, there is an elevated walkway (the local called it the Skywalk) that crosses many roads in the Taipei City Government disrict. It is well used.
It may be costly to build the elevated walkways, but if can be considered as being part of the total cost of the MRT line. The incremental cost of the walkway is probably less than 5%. It can be justified, if it encourages more people living in the nearby areas to use the MRT system.
Perhaps, a pilot project can be done to build this elevated walkway in one town, e.g. Ang Mo Kio, to test its feasibility? If successful, it can be implemented in the other towns.
Useful information
Hi Mr Tan,
Thank you for providing such informative information on your blog. I really do appreciate your kindness with all my heart.
I wish I have such knowledge since the day I started working. It is not too late as usually but one is not able to turn back the clock on those lost time.
I just want to wish you and your loved ones a very Happy, Healthy and Wealthy Rat Year! All the best for the forthcoming new year!
V
Thank you for providing such informative information on your blog. I really do appreciate your kindness with all my heart.
I wish I have such knowledge since the day I started working. It is not too late as usually but one is not able to turn back the clock on those lost time.
I just want to wish you and your loved ones a very Happy, Healthy and Wealthy Rat Year! All the best for the forthcoming new year!
V
High cost Endowment Policy
If you save $500 a month over 20 years, and earn an average yield of 5%, you should get a maturity sum of $198,000.
If you put this money in an endowment policy (or a variation of this policy), you get suffer a loss of 20% or more, depending on the expense and other charges taken away by the insurance company. These charges can reduce your yield by 2% or 2.5%.
Here are the figures:
Where did the 23% (ie $45,000) go? They are used to pay the following:
a) Commission to the agent
b) Advertising
c) Expenses and profit of the insurance company
d) Mortality charges
How much does the mortality charge cost, if you buy Decreasing Term insurance to provide the same amount of protection?
The mortality charge should cost less than 2%. The remaining 21% is spent on high expenses and charges.
Lesson: An endowment policy provides good value if the mortality and expense charges is not more than 10% of the premium.
If you put this money in an endowment policy (or a variation of this policy), you get suffer a loss of 20% or more, depending on the expense and other charges taken away by the insurance company. These charges can reduce your yield by 2% or 2.5%.
Here are the figures:
Net Maturity Total
Yield charges
5.0% $198,000 Nil 0%
4.0% $179,000 $19,000 10%
3.0% $161,000 $37,000 19%
2.5% $153,000 $45,000 23%
Where did the 23% (ie $45,000) go? They are used to pay the following:
a) Commission to the agent
b) Advertising
c) Expenses and profit of the insurance company
d) Mortality charges
How much does the mortality charge cost, if you buy Decreasing Term insurance to provide the same amount of protection?
The mortality charge should cost less than 2%. The remaining 21% is spent on high expenses and charges.
Lesson: An endowment policy provides good value if the mortality and expense charges is not more than 10% of the premium.
Dual currency investment (or deposit)
Dear Mr. Tan,
Recently, I wanted to invest in Australian deposit (to enjoy a higher interest rate). The relationship manager recommended a Dual Currency deposit to me. It gives me a higher interest rate, but on maturity I am given my money back in Singapore dollars or Australian dollars, depending on the exchange rate at that time. Is this a good investment?
REPLY
I advise against this type of structured product. Although you get a slightly higher interest rate, you are exposed to the risk of a loss (in case the Australian currency depreciates). You do not get the benefit of any gain in this currency.
This is explained in more detail in this FAQ:
http://www.tankinlian.com/faq/duali.html
It is better to invest in a straight forward foreign currency deposit:
http://www.tankinlian.com/faq/foreign.html
Recently, I wanted to invest in Australian deposit (to enjoy a higher interest rate). The relationship manager recommended a Dual Currency deposit to me. It gives me a higher interest rate, but on maturity I am given my money back in Singapore dollars or Australian dollars, depending on the exchange rate at that time. Is this a good investment?
REPLY
I advise against this type of structured product. Although you get a slightly higher interest rate, you are exposed to the risk of a loss (in case the Australian currency depreciates). You do not get the benefit of any gain in this currency.
This is explained in more detail in this FAQ:
http://www.tankinlian.com/faq/duali.html
It is better to invest in a straight forward foreign currency deposit:
http://www.tankinlian.com/faq/foreign.html
Another perspective
Why did NTUC Income sell endowment and whole life policies during my time as CEO? Here is a view expressed in another blog:
http://www.indextown.com/archives/2007/12/08/mr-tan-kin-lians-blog/
http://www.indextown.com/archives/2007/12/08/mr-tan-kin-lians-blog/
Lower upfront cost
Earlier this week, I wanted to put additional investment in the Combined Fund of NTUC Income. through my Flexi-link policy. I was told that the upfront spread for new investment was 3%.
I decided to look for an alternative investment. I finally made my additional investment in the following:
a) Buy 8 blue chip shares and REIT in the stockmarket (for some diversification)
b) Invest in the STI exchange traded fund
The upfront cost of my investment is only 0.3% (in brokerage fee). This is one-tenth of the cost of investing in the Combined Fund.
A comparison of the annual fees is:
a) Combined Fund - 0.9%
b) STI ETF - 0.3%
c) Blue chip shares - Nil
Lesson: If you have a large amount to invest, you can buy a few shares directly. If you have a smaller sum, you can invest in the STI exchange traded fund (for diversification and low cost).
I decided to look for an alternative investment. I finally made my additional investment in the following:
a) Buy 8 blue chip shares and REIT in the stockmarket (for some diversification)
b) Invest in the STI exchange traded fund
The upfront cost of my investment is only 0.3% (in brokerage fee). This is one-tenth of the cost of investing in the Combined Fund.
A comparison of the annual fees is:
a) Combined Fund - 0.9%
b) STI ETF - 0.3%
c) Blue chip shares - Nil
Lesson: If you have a large amount to invest, you can buy a few shares directly. If you have a smaller sum, you can invest in the STI exchange traded fund (for diversification and low cost).
Minibond Series 35
Dear Mr. Tan,
Please give your advice about minibond series 35, issuer Pacific International limited. The notes have a AAA rate, it means the lowest risk to invest ?
REPLY:
Sorry, I am not able to advice you on this investment.
You have to be careful about the AAA rating. Some CDO (collaterised debt obligations comprising of subprime mortgages) have AAA rating and are found to be of poor quality. I am not sure if the investments of this fund fall in this category.
My general views about structured products (not specifically related to this product) are set out in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
Please give your advice about minibond series 35, issuer Pacific International limited. The notes have a AAA rate, it means the lowest risk to invest ?
REPLY:
Sorry, I am not able to advice you on this investment.
You have to be careful about the AAA rating. Some CDO (collaterised debt obligations comprising of subprime mortgages) have AAA rating and are found to be of poor quality. I am not sure if the investments of this fund fall in this category.
My general views about structured products (not specifically related to this product) are set out in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
Monday, February 04, 2008
REITS with good yield and low price
Here are some REITS with good yields and low price to book ratio:
A P/BR ratio less than 1.0 means that the price is lower than the book value of the assets. Some of the prices have moved over the past few days. (Note: I have personally invested or plan to invest in some of these REITS).
Price Dividend P/BR
31/1 yield
Allco REIT 0.67 11.7% 0.42
Mapletree REIT 0.93 7.9% 1.10
McQuarie Prime 1.05 7.0% 0.91
Suntec REIT 1.50 6.7% 0.73
K-REIT 1.46 6.5% 0.73
A P/BR ratio less than 1.0 means that the price is lower than the book value of the assets. Some of the prices have moved over the past few days. (Note: I have personally invested or plan to invest in some of these REITS).
Buying a Shield plan
Dear Mr. Tan,
Do you have any advice on how to choose between the various Medishield plans offered by CPF and the insurance companies? Which is better choice?
REPLY
You can read my general tips in this FAQ:
http://www.tankinlian.com/faq/shield.html
Do you have any advice on how to choose between the various Medishield plans offered by CPF and the insurance companies? Which is better choice?
REPLY
You can read my general tips in this FAQ:
http://www.tankinlian.com/faq/shield.html
Higher productivity in insurance sales
Mr. Tan,
It seems from your postings, that you are against insurance agents. If there are no insurance agents, how will the insurance company get its sales?
REPLY
I am in favour of insurance agents who play a useful role by offering good value products to customers for a fair rate of commission.
I am against insurance agents who explot consumers by offering poor value products, so that they can earn a high rate of commission. They are trained to find ways of pushing these products to a unsuspecting consumer.
I hope that the selling of insurance can achieve the same level of productivity as the selling of shares. The commission rate earned by stockbrokers has reduced by 70% in recent years. The stockbrokers are able to make an adequate income on a reduced rate of commission by working more efficiently and by handling a larger volume of sales. They are able to bring down the transaction cost for consumers.
It is possible for insurance agents to find a more efficient way of marketing and similar value to consumers.
If insurance companies offer good value products, consumers will buy the insurance products willingly. There is no need for insurance agents to spend a lot of time to push these products to them.
It seems from your postings, that you are against insurance agents. If there are no insurance agents, how will the insurance company get its sales?
REPLY
I am in favour of insurance agents who play a useful role by offering good value products to customers for a fair rate of commission.
I am against insurance agents who explot consumers by offering poor value products, so that they can earn a high rate of commission. They are trained to find ways of pushing these products to a unsuspecting consumer.
I hope that the selling of insurance can achieve the same level of productivity as the selling of shares. The commission rate earned by stockbrokers has reduced by 70% in recent years. The stockbrokers are able to make an adequate income on a reduced rate of commission by working more efficiently and by handling a larger volume of sales. They are able to bring down the transaction cost for consumers.
It is possible for insurance agents to find a more efficient way of marketing and similar value to consumers.
If insurance companies offer good value products, consumers will buy the insurance products willingly. There is no need for insurance agents to spend a lot of time to push these products to them.
Selecting Blue Chips
Dear Mr. Tan,
In your blog, you mentioned to select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. I wish to ask which are the 5 companies you feel has greatest value and potential? I understand this is in your perosnal capacity and that you are actually doing me a favour if you reply.
REPLY
I assume that, in a perfect market, the prices of each share reflects its future profitability. You only need to be concerned with:
a) Buying blue chip shares - as they are more stable
b) Have a certain degree of diversification.
I do not have any insight into which of the 30 shares in the STI index that I should invest it. I just chose one from each sector, say bank, property, conglomerate, media, transport.
In your blog, you mentioned to select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. I wish to ask which are the 5 companies you feel has greatest value and potential? I understand this is in your perosnal capacity and that you are actually doing me a favour if you reply.
REPLY
I assume that, in a perfect market, the prices of each share reflects its future profitability. You only need to be concerned with:
a) Buying blue chip shares - as they are more stable
b) Have a certain degree of diversification.
I do not have any insight into which of the 30 shares in the STI index that I should invest it. I just chose one from each sector, say bank, property, conglomerate, media, transport.
Divident yield on STI Exchange Traded Fund
Dear Mr. Tan,
Does the STI Exchange Traded Fund pay out a dividend? Is the dividend yield good?
REPLY
My stockbroker has confirmed that the STI ETF gives a dividend every six months. The total dividend for the past year is 10 cents, representing about a 3% yield on the current share price of $3.20.
Apart from the dividend yield, you should be able to enjoy an appreciation in the share price, as it tracks the STI index.
Does the STI Exchange Traded Fund pay out a dividend? Is the dividend yield good?
REPLY
My stockbroker has confirmed that the STI ETF gives a dividend every six months. The total dividend for the past year is 10 cents, representing about a 3% yield on the current share price of $3.20.
Apart from the dividend yield, you should be able to enjoy an appreciation in the share price, as it tracks the STI index.
Redeem whole life policy?
Hi Mr. Tan,
I had bought a whole life policy in 2000 covering sum assured OF $50,000. I'm paying about $850 per annum. It going to break even in about 1 year's time. Is it advisable to redemn the policy and buy a term policy instead?
REPLY
Read this FAQ and see if it answer your question:
http://www.tankinlian.com/faq/exist.html
I had bought a whole life policy in 2000 covering sum assured OF $50,000. I'm paying about $850 per annum. It going to break even in about 1 year's time. Is it advisable to redemn the policy and buy a term policy instead?
REPLY
Read this FAQ and see if it answer your question:
http://www.tankinlian.com/faq/exist.html
Call and Put Options
Dear Mr. Tan,
I need your advise on how to purchase Options (ETF) for STI index. If I buy OPTIONS, is it subjected to PUT/CALL ? If I invest regularly for 20-30 years, can I buy OPTIONS that do not expire? Is there any difference between buying Options thru broker & via ONLINE website?
REPLY
I am not able to advise on short term investments, such as options. Generally, options are costly and are intended for short term speculation or hedging. All options have an expiry date that is usually three months. It is not suitable as a long term investment.
Generally, you should avoid investing in financial products that you are not familiar with.
I need your advise on how to purchase Options (ETF) for STI index. If I buy OPTIONS, is it subjected to PUT/CALL ? If I invest regularly for 20-30 years, can I buy OPTIONS that do not expire? Is there any difference between buying Options thru broker & via ONLINE website?
REPLY
I am not able to advise on short term investments, such as options. Generally, options are costly and are intended for short term speculation or hedging. All options have an expiry date that is usually three months. It is not suitable as a long term investment.
Generally, you should avoid investing in financial products that you are not familiar with.
Single Premium Endowment
Hi Mr. Tan,
What is single premiun endownmwnt insurance plan? Should I invest in this policy? Is it safe to invest my retirement fund in The Big-e plan paying 2.75%, better than CPF board rate of 2.5%.
Interest rate is dropping everywhere, despite of the high inlation rate this year (estimated 6%)
Recently, I lost money in the stock market, so I had decided to park my emergency fund in a safe investment.
REPLY
A single premium endowment gives you a return of about 3% to 4%, but your money has to be invested (i.e. locked in) for the entire duration of 10 to 15 years. If you withdraw early, you are likely to suffer a penalty. It also offers some modest life insurance cover.
The difference between BIGe and CPF is only 0.25%, it is better to keep your money in CPF. If possible, transfer your savings from ordinary account (0.25%) to the special acount (4% + 1%) to earn a higher interest rate.
If you wish to have a better return, you can invest for the long term. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
What is single premiun endownmwnt insurance plan? Should I invest in this policy? Is it safe to invest my retirement fund in The Big-e plan paying 2.75%, better than CPF board rate of 2.5%.
Interest rate is dropping everywhere, despite of the high inlation rate this year (estimated 6%)
Recently, I lost money in the stock market, so I had decided to park my emergency fund in a safe investment.
REPLY
A single premium endowment gives you a return of about 3% to 4%, but your money has to be invested (i.e. locked in) for the entire duration of 10 to 15 years. If you withdraw early, you are likely to suffer a penalty. It also offers some modest life insurance cover.
The difference between BIGe and CPF is only 0.25%, it is better to keep your money in CPF. If possible, transfer your savings from ordinary account (0.25%) to the special acount (4% + 1%) to earn a higher interest rate.
If you wish to have a better return, you can invest for the long term. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Questionable sales practices
Over the years, and in many countries, they have been lots of consumer complaints on the sales practices of:
a) used car dealers
b) insurance agents
c) property agents
Here are the underlying causes of this problem:
a) the sales person is paid a commission on the sale
b) if they do not make any sale, they do not earn any commission
c) it is difficult to make a sale in a competitive market
d) some have to resort to questionable practices to close the sale
e) the products are non-standard
f) there is lack of consumer information
Some organisations try to solve this problem by setting standards of professional practices. But, this is difficult to achieve, due to the inherent conflict, and the need to close a sale in a competitive market.
Here are tips for consumers:
a) Do not buy from a sales person who approach you
b) Do some research to understand the product
c) Get price comparison of similar products
d) Ask questions to get answers that can be compared easily
e) Get an independent person to help you to make the decision.
All the best.
a) used car dealers
b) insurance agents
c) property agents
Here are the underlying causes of this problem:
a) the sales person is paid a commission on the sale
b) if they do not make any sale, they do not earn any commission
c) it is difficult to make a sale in a competitive market
d) some have to resort to questionable practices to close the sale
e) the products are non-standard
f) there is lack of consumer information
Some organisations try to solve this problem by setting standards of professional practices. But, this is difficult to achieve, due to the inherent conflict, and the need to close a sale in a competitive market.
Here are tips for consumers:
a) Do not buy from a sales person who approach you
b) Do some research to understand the product
c) Get price comparison of similar products
d) Ask questions to get answers that can be compared easily
e) Get an independent person to help you to make the decision.
All the best.
Save in a period of inflation
A young person made this argument, "What is the point of saving when prices will increase next year. It is better to spend now."
Here are my views:
1. Do not spend on unnecessary and expensive things.
2. If more people curtail their spending, prices will come down
3. You can invest your savings in equities and properties, to earn a return that beats inflation
4. Invest in a low-cost fund to achieve diversification. It also allow you invest in small amounts.
Inflation is caused by too many people spending too much in the fear of increasing prices in the future.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Here are my views:
1. Do not spend on unnecessary and expensive things.
2. If more people curtail their spending, prices will come down
3. You can invest your savings in equities and properties, to earn a return that beats inflation
4. Invest in a low-cost fund to achieve diversification. It also allow you invest in small amounts.
Inflation is caused by too many people spending too much in the fear of increasing prices in the future.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Sunday, February 03, 2008
MediShield
Medishield is a medical insurance scheme operated by Central Provident Fund. It pays 80% to 90% of hospital bills above $1,000/ $1,500. It covers daily charges up to $250 per day ($500 for intensive care) and up to certain limits for surgery, implants, radiosurgery and outpatients.
There is an option for you to buy a private Shield plan (instead of MediShield) to get higher coverage. You have to pay a higher premium.
There is an option for you to buy a private Shield plan (instead of MediShield) to get higher coverage. You have to pay a higher premium.
Medisave
Medisave is a sub-account in your CPF account. Workers up to 35 years contribute 6.5% of their wages into the Medisave account (subject to a limit). Older workers contribute a higher porportion of their wages. The balance in the Medisave account earns interest at 4% (plus 1% bonus, subject to a cap).
The Medisave account can be used for paying hospital bills, certain outpatient expenses and for medical insurance.
The Medisave account can be used for paying hospital bills, certain outpatient expenses and for medical insurance.
Use Medisave sparingly
Many people like to use their Medisave savings, whenever they have the opportunity, e.g. to pay the hospital bills or buy expensive medical insurance.
I wish to make this suggestion: if you can afford to pay your hospital bill by cash, it is better to pay cash and keep your Medisave intact.
Why?
Your money in the Medisave account will earn interest at 4% plus 1% (for the first $20,000). This is much higher than the interest that you can earn on fixed deposit. It is better to keep your money in Medisave to earn a higher rate of interest.
When your Medisave exceeds the cap, it will be transferred into your special and ordinary account. It can be withdrawn when you reach age 55, if you wish to use the money. If not, you can keep it in the retirement account and earn 4% plus 1%.
Lesson: Keep your money in Medisave to earn a higher rate of interest. Do not withdraw it, unless you have no other way to pay your hospital bills. Do not overspend on your medical insurance.
I wish to make this suggestion: if you can afford to pay your hospital bill by cash, it is better to pay cash and keep your Medisave intact.
Why?
Your money in the Medisave account will earn interest at 4% plus 1% (for the first $20,000). This is much higher than the interest that you can earn on fixed deposit. It is better to keep your money in Medisave to earn a higher rate of interest.
When your Medisave exceeds the cap, it will be transferred into your special and ordinary account. It can be withdrawn when you reach age 55, if you wish to use the money. If not, you can keep it in the retirement account and earn 4% plus 1%.
Lesson: Keep your money in Medisave to earn a higher rate of interest. Do not withdraw it, unless you have no other way to pay your hospital bills. Do not overspend on your medical insurance.
Medishield and Eldershield
Dear Mr. Tan,
What is the difference between MediShield and Eldershield? For an individual at the age of 50, does it make sense to insure to the maximum in these two plan?
REPLY
Medishield pays for most of the hospital expenses above a certain sum.
Eldershield pays a monthly income of $400 for a period of up to 72 months, if the insured is incapacited to an extent that he or she is not able to carry out several activities that are needed for daily living. This benefits helps to pay part of the cost of nursing care.
It is better to insure for the basic coverage. Do not over-insure, as you will be paying a higher premium. You need to keep some of your savings to meet the higher premiums when you grow older.
What is the difference between MediShield and Eldershield? For an individual at the age of 50, does it make sense to insure to the maximum in these two plan?
REPLY
Medishield pays for most of the hospital expenses above a certain sum.
Eldershield pays a monthly income of $400 for a period of up to 72 months, if the insured is incapacited to an extent that he or she is not able to carry out several activities that are needed for daily living. This benefits helps to pay part of the cost of nursing care.
It is better to insure for the basic coverage. Do not over-insure, as you will be paying a higher premium. You need to keep some of your savings to meet the higher premiums when you grow older.
Savings for the short term and long term
From your monthly income, you have to pay the expenses. You should keep the remainder as savings for the future.
For the short term savings, you have to keep in a savings or current account. You may have to make certain large payments during the year, for example, expenses for the start of the school year, payment of taxes, etc. This can come out of your bank account.
You can set aside a part of your savings for the long term. This should be invested to earn a high rate of return, e.g. in an investment fund. As the flow of your future savings is uncertain, you should avoid investing in an inflexible financial contract that have a large upfront charge or imposes a penalty on early termination.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
For the short term savings, you have to keep in a savings or current account. You may have to make certain large payments during the year, for example, expenses for the start of the school year, payment of taxes, etc. This can come out of your bank account.
You can set aside a part of your savings for the long term. This should be invested to earn a high rate of return, e.g. in an investment fund. As the flow of your future savings is uncertain, you should avoid investing in an inflexible financial contract that have a large upfront charge or imposes a penalty on early termination.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Impressions of Kuala Lumpur
I visited Kuala Lumpur on 1 February on the inaugural flight of Jetstar Asia. I was surprised that there is no need to complete any immigration and customs form. The authorities have recently dispensed with this requirement. It was quite easy to clear through the formalities. Wow!
I hope that more countries will make life more enjoyable and simpler for the traveller.
I stayed one night at Genting Highlands and another night in Kuala Lumpur (at Bukit Bintang). This area is like Orchard Road in Singapore. It is busy and exciting. Several of the five star hotels in the area belong to the Starhill Group. (I wonder if Starhill is the translation of Bukit Bintang?)
Traffic is bad in Bukit Bintang, but I was told that this was due to the festive season. Otherwise, my stay in Kuala Lumpur is enjoyable.
I hope that more countries will make life more enjoyable and simpler for the traveller.
I stayed one night at Genting Highlands and another night in Kuala Lumpur (at Bukit Bintang). This area is like Orchard Road in Singapore. It is busy and exciting. Several of the five star hotels in the area belong to the Starhill Group. (I wonder if Starhill is the translation of Bukit Bintang?)
Traffic is bad in Bukit Bintang, but I was told that this was due to the festive season. Otherwise, my stay in Kuala Lumpur is enjoyable.
Friday, February 01, 2008
Keep your savings in your personal insurance policy
A mother bought an endowement policy in the name of her son. The policy matured recently and a cheque was delivered to the home. The son was under custody for drug rehabilation.
The mother was worried that if the maturity money is credited into the son's account, he will use it to buy drugs.
But she is stuck. The money legally belonged to the son, even though she paid the premium over the years. The mother is poor, and actually need the money for her own use.
Lesson: It is better to keep savings in your own name, and not in the name of your children. You can use the money for their education or other suitable purchase at a future date. If you buy the policy in the name of your child, you will lose control of the money.
The mother was worried that if the maturity money is credited into the son's account, he will use it to buy drugs.
But she is stuck. The money legally belonged to the son, even though she paid the premium over the years. The mother is poor, and actually need the money for her own use.
Lesson: It is better to keep savings in your own name, and not in the name of your children. You can use the money for their education or other suitable purchase at a future date. If you buy the policy in the name of your child, you will lose control of the money.
Invest on your own
If you invest on your own in the stock exchange, you can reduce your expenses considerably. If you buy shares or the exchange traded fund, you pay a brokerage of 0.3%. There is no annual fee.
If you are not sure about the shares to select, invest in the STI exchange traded fund. It is invested mainly in about 30 Singapore blue chips that make up the ST index. This gives you diversification.
1,000 STI ETF will cost you abotu $3,200 now. If you are investing your monthly savings, you may have to wait for 1 year to accumulate sufficient savings to buy 1,000 shares.
You can offer a price between the buy and sell price quoted on the exchange. Your order will stand in the queue, waiting for someone to sell to you. If you are keen to buy immediately, you can pay a higher price to match the sell price on the board.
If you have a large sum to invest (say $100,000 or more), you can select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. This will give you some degree of diversification. It is like creating your own portfolio.
You will need to open an account with a stockbroker and a CDP account.
If you are not sure about the shares to select, invest in the STI exchange traded fund. It is invested mainly in about 30 Singapore blue chips that make up the ST index. This gives you diversification.
1,000 STI ETF will cost you abotu $3,200 now. If you are investing your monthly savings, you may have to wait for 1 year to accumulate sufficient savings to buy 1,000 shares.
You can offer a price between the buy and sell price quoted on the exchange. Your order will stand in the queue, waiting for someone to sell to you. If you are keen to buy immediately, you can pay a higher price to match the sell price on the board.
If you have a large sum to invest (say $100,000 or more), you can select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. This will give you some degree of diversification. It is like creating your own portfolio.
You will need to open an account with a stockbroker and a CDP account.
Real Estate Investment Trust (REIT)
The share prices of the Real Estate Investment Trusts (REIT) are now about 20% below its recent peaks. The yields on many REITS now range from an an attractive level, from 5% to 8%. Rentals on the properties owned by the REITS are expected to remain strong over the next few years, giving support to the high yield. This is an attractive class of investment.
Subscribe to:
Posts (Atom)