An American Depositary Receipt (or ADR) represents ownership in the shares of a foreign company trading on US financial markets. The stock of many non-US companies trades on US exchanges through the use of ADRs. ADRs enable US investors to buy shares in foreign companies without undertaking cross-border transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.
Each ADR is issued by a US depositary bank and can represent a fraction of a share, a single share, or multiple shares of foreign stock. An owner of an ADR has the right to obtain the foreign stock it represents, but US investors usually find it more convenient simply to own the ADR. The price of an ADR is often close to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares.
Depository banks have numerous responsibilities to an ADR holder and to the non-US company the ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer Selfridges&Co. The largest depositary bank is the Bank of New York Mellon.
Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS).
Monday, April 07, 2008
CPF pays higher interest than treasury bills
Hi Mr Tan,
I have read your newspapers articles and about your website, find that you are a very knowledgable person in the finance field.
As a student, I have always wanted to know more about investments. My question is, can I get higher interest by investing in 3 months treasury bills or just leave my money in CPF for 3 months?
http://www.sgs.gov.sg/announce/bill-announce.html
http://www.sgs.gov.sg/announce/bill-result.html )
REPLY
It is better to leave your money in CPF as you earn 2.5% interest plus a bonus of 1%. Short term treasury bills pay less than 1% interest.
I have read your newspapers articles and about your website, find that you are a very knowledgable person in the finance field.
As a student, I have always wanted to know more about investments. My question is, can I get higher interest by investing in 3 months treasury bills or just leave my money in CPF for 3 months?
http://www.sgs.gov.sg/announce/bill-announce.html
http://www.sgs.gov.sg/announce/bill-result.html )
REPLY
It is better to leave your money in CPF as you earn 2.5% interest plus a bonus of 1%. Short term treasury bills pay less than 1% interest.
Income Tax Relief
Dear Mr. Tan,
The price of every thing has gone up. I believe that every one feels the pinch. This year, made people have to think about their household budget or personal budget. The relief that the Government gives to tax-payer has remained the same over the years. Do you think that the Government should raise the amount by 5% or more?
REPLY
The Government has been quite firm about not changing the income tax relief. They prefer to reduce the tax rates.
My personal view is that the income tax relief should be increased over the year, in line with inflation.
The price of every thing has gone up. I believe that every one feels the pinch. This year, made people have to think about their household budget or personal budget. The relief that the Government gives to tax-payer has remained the same over the years. Do you think that the Government should raise the amount by 5% or more?
REPLY
The Government has been quite firm about not changing the income tax relief. They prefer to reduce the tax rates.
My personal view is that the income tax relief should be increased over the year, in line with inflation.
Products that are good for customers
Products that are good for customers have the following features:
* meet the needs of customers
* transparent, easy to understand
* educate the customers
* low marketing expense
* fair profit margin
* easy to compare the price of similar products
Many products in the market have these features. The prices are kept competitive and at a fair level. They represent good value to the customers.
* meet the needs of customers
* transparent, easy to understand
* educate the customers
* low marketing expense
* fair profit margin
* easy to compare the price of similar products
Many products in the market have these features. The prices are kept competitive and at a fair level. They represent good value to the customers.
At the expense of customers
How can you identify a business that is being operated "at the expense of the customer"?
These businesses make big profits as follows:
* overcharge the customers
* mislead the customer into buying a bad product
* pays high commission to sales people to sell the products
The features of these products are:
* complicated
* lack of transparency
* speculative
Examples of these types of bad products are:
* time sharing
* land banking
* high cost insurance and structured products
These businesses are able to design products that are not suitable for customers, make them complicated, train marketeers to push the products and pocket big profits.
Lesson: Avoid these products that are developed to "rip off" the customers.
These businesses make big profits as follows:
* overcharge the customers
* mislead the customer into buying a bad product
* pays high commission to sales people to sell the products
The features of these products are:
* complicated
* lack of transparency
* speculative
Examples of these types of bad products are:
* time sharing
* land banking
* high cost insurance and structured products
These businesses are able to design products that are not suitable for customers, make them complicated, train marketeers to push the products and pocket big profits.
Lesson: Avoid these products that are developed to "rip off" the customers.
Sunday, April 06, 2008
More Trust & Faith in Our Younger Generation
Dr. Lee Kum Tatt’s (LKT ) blog is now one year old. He has many visitors from all over the world to his blog. They range from students, parents, professionals, professors and friends besides the men in the street. He has to cover a wide spread of people.
He has asked three of his grandchildren who are a University graduate, and two undergraduates for their views on his articles and the issues that affect them.
Read about their views in his blog www.leekumtatt.blogspot.com.
He has asked three of his grandchildren who are a University graduate, and two undergraduates for their views on his articles and the issues that affect them.
Read about their views in his blog www.leekumtatt.blogspot.com.
Customer Service in Singapore
COMMENT POSTED IN MY BLOG
Customer service level in Singapore is getting worse than expected. When you stand in front of the shopping centers customer service staff, they can just ignore you and act busy or chatting among themselves.
Hopefuly, every shopping centers management can really put in some effort to promote "Service with a good manners".
VIEW FROM TAN KIN LIAN
It is extremely impolite for customer service staff to chat among themselves, instead of serving a customer. This bad habit seems to be a Singapore culture. I hope that this weakness can be removed.
Customer service level in Singapore is getting worse than expected. When you stand in front of the shopping centers customer service staff, they can just ignore you and act busy or chatting among themselves.
Hopefuly, every shopping centers management can really put in some effort to promote "Service with a good manners".
VIEW FROM TAN KIN LIAN
It is extremely impolite for customer service staff to chat among themselves, instead of serving a customer. This bad habit seems to be a Singapore culture. I hope that this weakness can be removed.
Terminate an existing policy?
Dear Mr. Tan,
Please advice if it's good for me to terminate this policy (benefit illustion attached) which I hold since 1993. I intend to buy term and invest the cash in ETF STI. Appreciate what you are doing…
REPLY
Please follow this guide and let me have your preliminary conclusion:
http://www.tankinlian.com/faq/existinglife.html
Please advice if it's good for me to terminate this policy (benefit illustion attached) which I hold since 1993. I intend to buy term and invest the cash in ETF STI. Appreciate what you are doing…
REPLY
Please follow this guide and let me have your preliminary conclusion:
http://www.tankinlian.com/faq/existinglife.html
Being accessible to customers
Dear Mr. Tan,
I was reading your blog entry titled: Excellent Customer Service. I also understand that you used to communicate with customers directly when you were a CEO, is that what you mean by being "accessible"?
I can't figure out the rationale behind needing to have top people who are accessible to customers. Personally, as a buyer of a service or product, I do not really care about who solved my problems when they arise, I do not go directly to the highest level but work my way up until my problems are fixed. So if an organisation is able to hire and train good customer service officers, I do not see the need to have access to the top people.
I must say though, to have a very good customer service team is not easy. As a customer or shareholder of a company, I don't think it's a good idea to have the top people handling customers, as I think the cost will have to be passed on somehow, either to the customer or the organisation's bottom line will suffer. I hope and would appreciate if you could enlighten me.
REPLY
Most customers have their issues solved at the lower levels. Only a small number of cases go to the top. Some customers write an email to me (3 to 5 per day). It was quite easy for me to handle them.
I give them an immediate reply (usually a partial reply) and forward the issue to the right people to handle it. It worked quite well.
I was reading your blog entry titled: Excellent Customer Service. I also understand that you used to communicate with customers directly when you were a CEO, is that what you mean by being "accessible"?
I can't figure out the rationale behind needing to have top people who are accessible to customers. Personally, as a buyer of a service or product, I do not really care about who solved my problems when they arise, I do not go directly to the highest level but work my way up until my problems are fixed. So if an organisation is able to hire and train good customer service officers, I do not see the need to have access to the top people.
I must say though, to have a very good customer service team is not easy. As a customer or shareholder of a company, I don't think it's a good idea to have the top people handling customers, as I think the cost will have to be passed on somehow, either to the customer or the organisation's bottom line will suffer. I hope and would appreciate if you could enlighten me.
REPLY
Most customers have their issues solved at the lower levels. Only a small number of cases go to the top. Some customers write an email to me (3 to 5 per day). It was quite easy for me to handle them.
I give them an immediate reply (usually a partial reply) and forward the issue to the right people to handle it. It worked quite well.
Immediate or deferred annuity
An immediate annuity pays the annuity payment immediately. A deferred annuity pays the annuity payment at a specified date in the future. During the deferred period, the invested sum is invested to earn interest.
If you do not need the annuity payment immediately, you have the following options:
a) buy a deferred annuity
b) invest your money separately and buy an immediate annuity at the future date
Your choice depends on the terms that you are offered. For example, if the insurance company pays 2.5% per annum for the deferred period, it will be attractive compared to leaving the money in the bank to earn 1%.
If you buy the deferred annuity, you are locked into the contract now. If you wish to withdraw from it later, you may be subject to penalty. You should choose the deferred annuity only if you are sure that it is what you really want.
My preference is to invest separately and buy an immediate annuity at the time that you need the annuity payment. For example, it is better to keep your minimum sum in the Central Provident Fund until 62 or 65 years, and earn interest at 4% plus bonus of 1%. You can decide at 62, if you wish to switch to an immediate annuity at that time.
Lesson: Keep the flexibility. Do not be locked into a contract that you cannot change. If you buy an annuity contact, stick to it for the entire period.
If you do not need the annuity payment immediately, you have the following options:
a) buy a deferred annuity
b) invest your money separately and buy an immediate annuity at the future date
Your choice depends on the terms that you are offered. For example, if the insurance company pays 2.5% per annum for the deferred period, it will be attractive compared to leaving the money in the bank to earn 1%.
If you buy the deferred annuity, you are locked into the contract now. If you wish to withdraw from it later, you may be subject to penalty. You should choose the deferred annuity only if you are sure that it is what you really want.
My preference is to invest separately and buy an immediate annuity at the time that you need the annuity payment. For example, it is better to keep your minimum sum in the Central Provident Fund until 62 or 65 years, and earn interest at 4% plus bonus of 1%. You can decide at 62, if you wish to switch to an immediate annuity at that time.
Lesson: Keep the flexibility. Do not be locked into a contract that you cannot change. If you buy an annuity contact, stick to it for the entire period.
Lyxor Exchange Traded Funds (ETFs)
Hi Mr. Tan,
I read your blog. You said that it might be better to buy into ETF such as STI ETF to reduce expenses and upfront loading. Recently, there has been a number of Lyxor ETFs listed on SGX and they are denominated in USD. What is your opinion of such ETFs, in particular that the exchange rate risk of such ETFs seemed particularly high in current market?
REPLY
The Lyxor ETFs are denominated in USD for the purpose of trading only. The underlying risk depends on the asset class that the fund is invested in, and is not affected by the traded currency. For example, if the USD weakens and the underlying fund is performing well, the unit price denominated in USD will increase to compensate for it.
I am not familiar with the Lyxor ETFs, but if they are widely diversified, invested in good quality stocks (i.e. non speculative) and have low expense ratios, then these ETFs are suitable for long term investors.
I read your blog. You said that it might be better to buy into ETF such as STI ETF to reduce expenses and upfront loading. Recently, there has been a number of Lyxor ETFs listed on SGX and they are denominated in USD. What is your opinion of such ETFs, in particular that the exchange rate risk of such ETFs seemed particularly high in current market?
REPLY
The Lyxor ETFs are denominated in USD for the purpose of trading only. The underlying risk depends on the asset class that the fund is invested in, and is not affected by the traded currency. For example, if the USD weakens and the underlying fund is performing well, the unit price denominated in USD will increase to compensate for it.
I am not familiar with the Lyxor ETFs, but if they are widely diversified, invested in good quality stocks (i.e. non speculative) and have low expense ratios, then these ETFs are suitable for long term investors.
Future role of the intermediary
Hi Mr. Tan
If more insurance companies offer their products through the internet, is there a need for insurance agents?
REPLY:
Insurance agents will continue to play a useful role. They have to advice the customer on making the final decision, after the customer has obtained most of the information from the internet. As the insurance agent takes less time to make the sale, the commission rate can be reduced.
This is similar to the situation with buying shares from a stockbroker. The brokerage is now 0.3% (as compared to 1% previously). The stockbroker continue to do well through a larger volume of business.
I use a stockbroker to obtain relevant information and handle the transactions. This is more convenient than searching for the information by myself. I do not mind paying a slightly higher brokerage (compared to transacting through the internet), as the service is valuable.
There is a role for insurance agents in the new environment. The new system will be more efficient and will reduce cost for the benefit of everybody. The agent can earn a fair rate of remuneration, but should not be placed in a conflict of interest.
The challenge is making the change to move forward.
If more insurance companies offer their products through the internet, is there a need for insurance agents?
REPLY:
Insurance agents will continue to play a useful role. They have to advice the customer on making the final decision, after the customer has obtained most of the information from the internet. As the insurance agent takes less time to make the sale, the commission rate can be reduced.
This is similar to the situation with buying shares from a stockbroker. The brokerage is now 0.3% (as compared to 1% previously). The stockbroker continue to do well through a larger volume of business.
I use a stockbroker to obtain relevant information and handle the transactions. This is more convenient than searching for the information by myself. I do not mind paying a slightly higher brokerage (compared to transacting through the internet), as the service is valuable.
There is a role for insurance agents in the new environment. The new system will be more efficient and will reduce cost for the benefit of everybody. The agent can earn a fair rate of remuneration, but should not be placed in a conflict of interest.
The challenge is making the change to move forward.
Excellent Customer Service
Excellent customer service is built from the following components:
a) A genuine belief in doing the best for customers
b) Simple and efficent processes
c) People who enjoy serving customers
d) Teamwork among the service providers
e) Competent leadership, who knows the business
It is not possible to have excellent customer service under the following environment:
a) When an organisation wants to increase profit at the expense of customers
b) When there is high turnover of managers and staff
c) When people look after their individual performance, rather than work as a team
d) When the top people are not accessible to customers
There are so many organisations that fall into this trap. The leaders think that excellent customer service can be achieved by engaging consultants to improve the processes. It hardly works.
It takes man years to build an organisation that has excellent customer service. It can take a short time to destroy it.
a) A genuine belief in doing the best for customers
b) Simple and efficent processes
c) People who enjoy serving customers
d) Teamwork among the service providers
e) Competent leadership, who knows the business
It is not possible to have excellent customer service under the following environment:
a) When an organisation wants to increase profit at the expense of customers
b) When there is high turnover of managers and staff
c) When people look after their individual performance, rather than work as a team
d) When the top people are not accessible to customers
There are so many organisations that fall into this trap. The leaders think that excellent customer service can be achieved by engaging consultants to improve the processes. It hardly works.
It takes man years to build an organisation that has excellent customer service. It can take a short time to destroy it.
5 year Single Premium Endowment
Hi Mr. Tan,
I wish to seek your advice on the best return single premium endownment for 5 years. This sum of money is mean for housing which i intend to use it after 5 years.
My objective is to treat the single premium endowment as a form long term fixed deposit for high return as compare to the current fixed deposit rate. Thank you for your advice.
REPLY
You have to do some work. Call the telphone numbers of the life insurance company directly. Tell them that you have $x and wish to have a 5 year single premium endowment. Let me quote the best terms to you.
You can show me the figures (of guaranteed and non-guaranteed benefit). I will help you to make a decision. The telephone numbers of the insurance companies are found in this FAQ:
http://www.tankinlian.com/faq/termd.html
Alternatively, you can ask a bank or stockbroker to find a government bond that will mature in 5 years time. You will probably get a yield of about 3%. Over 5 years, the gain should be about 16%.
I wish to seek your advice on the best return single premium endownment for 5 years. This sum of money is mean for housing which i intend to use it after 5 years.
My objective is to treat the single premium endowment as a form long term fixed deposit for high return as compare to the current fixed deposit rate. Thank you for your advice.
REPLY
You have to do some work. Call the telphone numbers of the life insurance company directly. Tell them that you have $x and wish to have a 5 year single premium endowment. Let me quote the best terms to you.
You can show me the figures (of guaranteed and non-guaranteed benefit). I will help you to make a decision. The telephone numbers of the insurance companies are found in this FAQ:
http://www.tankinlian.com/faq/termd.html
Alternatively, you can ask a bank or stockbroker to find a government bond that will mature in 5 years time. You will probably get a yield of about 3%. Over 5 years, the gain should be about 16%.
Should MAS ban high cost products?
Someone posted a comment about an ILP product that gives poor cash value after two years. He asked, "Why doesn't MAS (i.e. Monetary Authority of Singapore) ban this type of product, or set some limit on the commission that can be paid to the agent?"
It seems that many consumers are not aware about the high charges of an ILP product, and now learn to their regret that so much of their savings is taken away from them.
If you are in this category, and you felt that the insurance agent has not been fair in disclosing this important point to you, should write to MAS. If enough people write to MAS, maybe, they will take actions to protect the interest of consumers.
Alternatively, you should write a letter of complaint to the newspapers and wait for MAS to reply to your letter.
It seems that many consumers are not aware about the high charges of an ILP product, and now learn to their regret that so much of their savings is taken away from them.
If you are in this category, and you felt that the insurance agent has not been fair in disclosing this important point to you, should write to MAS. If enough people write to MAS, maybe, they will take actions to protect the interest of consumers.
Alternatively, you should write a letter of complaint to the newspapers and wait for MAS to reply to your letter.
High charges of ILP policy
There are many stories about consumers who bought the ILP policy from several insurance conmpanies and agents, only to find the cash value to be so low after paying permiums for two years. Read this website to learn about the high cost:
http://www.askdrmoney.com/Ins_ILP_RP.htm
According to this survey by Dr. Money, the insurance proeuct can take away 19 months of your savings. If you save $300 a month, you will lose more than $5,000. It is a lot of hard work for you to earn this money. It is taken away to pay the insurance agent and the marketing cost of the insurance company.
You should avoid these high cost insurance products. Please help to tell your friends and relatives. They should avoid ILP policies sold by insurance agents.
It is better for you to invest in a low cost fund, such as the STI exchange traded fund (i.e. managed by StateStreets).
You can also wait for a few months, and invest in the Wealth Accumulator which will be introduced later this year. Read this FAQ:
http://www.tankinlian.com/faq/low.html
http://www.askdrmoney.com/Ins_ILP_RP.htm
According to this survey by Dr. Money, the insurance proeuct can take away 19 months of your savings. If you save $300 a month, you will lose more than $5,000. It is a lot of hard work for you to earn this money. It is taken away to pay the insurance agent and the marketing cost of the insurance company.
You should avoid these high cost insurance products. Please help to tell your friends and relatives. They should avoid ILP policies sold by insurance agents.
It is better for you to invest in a low cost fund, such as the STI exchange traded fund (i.e. managed by StateStreets).
You can also wait for a few months, and invest in the Wealth Accumulator which will be introduced later this year. Read this FAQ:
http://www.tankinlian.com/faq/low.html
Keen interest in Wealth Accumulator
Hi Mr. Tan,
I follow your blog, and there's more and more story about ILP charges. Sadly, I also have ILP policy with this "P" insurance company. When I signed the policy, I thought that's the only insurance model I can have with some value return. As for term insurance, initially, I thought it's not good since the policy doesn't return any value at the end.
But, as I read your blog, I understand that "Buy Term and Invest the Rest" might be a better model. However. it's too late for me, as the ILP has been signed about 1.5 years ago, and as you already know, the cash value is so little at this time. As I will still be charged by premium cost for another 1-2 years (which might be around 50%), do you think I should surrender this policy now?
Since current ILP model mostly doesn't give proper benefit to customer, and only gives heavy benefit to insurance agent, why don't the government ban this insurance model? Or at least make some regulation for the size of the initial premium charge? Government has done similar to the Sales Charge of Unit Trust, which only allows 3% sales charge to the Unit Trust (if it's invested using CPF), which as expected, followed by the reduction of sales charge by almost all institution or bank.
I look forward to your "Wealth Accumulator" product. Hope it will be an "innovation" that will be followed by other insurance company to provide better benefit for customer. May I know how you will realize/market this product?
REPLY
If you are willing to cut loss, you can terminate the ILP policy now and save on the high charges for the next few years. I hope to get a new insurance company to offer the Wealth Accumulator product later in 2008.
Read this FAQ to learn about the Wealth Accumulator:
http://www.tankinlian.com/faq/low.html
I follow your blog, and there's more and more story about ILP charges. Sadly, I also have ILP policy with this "P" insurance company. When I signed the policy, I thought that's the only insurance model I can have with some value return. As for term insurance, initially, I thought it's not good since the policy doesn't return any value at the end.
But, as I read your blog, I understand that "Buy Term and Invest the Rest" might be a better model. However. it's too late for me, as the ILP has been signed about 1.5 years ago, and as you already know, the cash value is so little at this time. As I will still be charged by premium cost for another 1-2 years (which might be around 50%), do you think I should surrender this policy now?
Since current ILP model mostly doesn't give proper benefit to customer, and only gives heavy benefit to insurance agent, why don't the government ban this insurance model? Or at least make some regulation for the size of the initial premium charge? Government has done similar to the Sales Charge of Unit Trust, which only allows 3% sales charge to the Unit Trust (if it's invested using CPF), which as expected, followed by the reduction of sales charge by almost all institution or bank.
I look forward to your "Wealth Accumulator" product. Hope it will be an "innovation" that will be followed by other insurance company to provide better benefit for customer. May I know how you will realize/market this product?
REPLY
If you are willing to cut loss, you can terminate the ILP policy now and save on the high charges for the next few years. I hope to get a new insurance company to offer the Wealth Accumulator product later in 2008.
Read this FAQ to learn about the Wealth Accumulator:
http://www.tankinlian.com/faq/low.html
Disappointing service at Business Center
Dear Mr. Tan,
Firstly, I will like thank you for your blog, which Ibelieve is beneficial to consumers.
I have visited a business centre of an insurance company on two occasions. Both times, the business consultants wanted to sell the idea of Life insurance to me. They looked disappointed when I insisted on a low cost term policy instead.
The moral of the story is;
1) Even though the consultants are earning mostly afixed salary (a small component in commission), it is difficult to be objective when commissions no matter how small or targets are involved.
2) Consumers have to take some responsibility in educating themselves and study the product before purchasing any products. It is difficult to obtain objective advice.
REPLY
Thank you for your feedback. I hope to get a new life insurance company to offer low cost insurance and low cost investment funds. They can be bought over the telephone or its office. This will happen later in 2008.
Firstly, I will like thank you for your blog, which Ibelieve is beneficial to consumers.
I have visited a business centre of an insurance company on two occasions. Both times, the business consultants wanted to sell the idea of Life insurance to me. They looked disappointed when I insisted on a low cost term policy instead.
The moral of the story is;
1) Even though the consultants are earning mostly afixed salary (a small component in commission), it is difficult to be objective when commissions no matter how small or targets are involved.
2) Consumers have to take some responsibility in educating themselves and study the product before purchasing any products. It is difficult to obtain objective advice.
REPLY
Thank you for your feedback. I hope to get a new life insurance company to offer low cost insurance and low cost investment funds. They can be bought over the telephone or its office. This will happen later in 2008.
Saturday, April 05, 2008
Dollar Averaging
Hi Mr Tan,
I have an investment link policy. My advisor has advised me to invest on a yearly basis to enjoy better allocation rates (i.e. at the moment, I am doing regularly investment on a yearly basis).
My question is for dollar cost averaging to work best (i.e. for long term investment), it is advisable to invest on yearly or monthly basis? You advice is appreciated.
REPLY
Both methods should produce neutral results. The effect of dollar averaging depends on the level of the market at the time of each investment
It is more important for you to buy an ILP that invest 100% of your annual or monthly premium. Do not buy an ILP that takes away two years of your savings.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
I have posted two cases in my blog of policyholders who were shocked to discover that after investing over $2000 for 2 years, they cash value is less than $400 today. You should not fall into the same trap.
I have an investment link policy. My advisor has advised me to invest on a yearly basis to enjoy better allocation rates (i.e. at the moment, I am doing regularly investment on a yearly basis).
My question is for dollar cost averaging to work best (i.e. for long term investment), it is advisable to invest on yearly or monthly basis? You advice is appreciated.
REPLY
Both methods should produce neutral results. The effect of dollar averaging depends on the level of the market at the time of each investment
It is more important for you to buy an ILP that invest 100% of your annual or monthly premium. Do not buy an ILP that takes away two years of your savings.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
I have posted two cases in my blog of policyholders who were shocked to discover that after investing over $2000 for 2 years, they cash value is less than $400 today. You should not fall into the same trap.
ILP policy takes away most of the premiums
Dear Mr. Tan,
I've bought an ILP policy. My premiums are $1200 per year and have paid it for two years. I has cash value of about $310 now. The sum insured is 100k. It is a yearly premium and the third one is going to be due soon.
After reading about the charges and feasibility of ILPs, I'm sceptical that I should keep this policy. Would you advise me to give it up or continue with it?
REPLY
I suggest that you ask the insurance company about the charges for the next three years, i.e. what percentage of your premium will be invested. If the charges are small, it is probably better for you to continue the policy, as you have already incurred most of the front end charges.
It is quite sad that an insurance company can take away so much of a person's savings. You should tell your family and friends to avoid this type of policy in the future.
I intend to get a new life insurance company to introduce an ILP that has no front end charge. 100% of the premium will be invested. Tentativelyly, this is called the Wealth Accumulator.
Read this FAQ:
http://www.tankinlian.com/faq/low.html
I've bought an ILP policy. My premiums are $1200 per year and have paid it for two years. I has cash value of about $310 now. The sum insured is 100k. It is a yearly premium and the third one is going to be due soon.
After reading about the charges and feasibility of ILPs, I'm sceptical that I should keep this policy. Would you advise me to give it up or continue with it?
REPLY
I suggest that you ask the insurance company about the charges for the next three years, i.e. what percentage of your premium will be invested. If the charges are small, it is probably better for you to continue the policy, as you have already incurred most of the front end charges.
It is quite sad that an insurance company can take away so much of a person's savings. You should tell your family and friends to avoid this type of policy in the future.
I intend to get a new life insurance company to introduce an ILP that has no front end charge. 100% of the premium will be invested. Tentativelyly, this is called the Wealth Accumulator.
Read this FAQ:
http://www.tankinlian.com/faq/low.html
Makeover of Orchard Road
I read about the $40 million makeover of Orchard Road.
Here are my wishes for this project:
a) Have a second level covered walkway to allow people to connect the whole stretch of Orchard Road. This can be linked to all the buildings.
b) Build a light monorail to run down Orchard Road connected to the walkway.
c) Have large multi-storey carparks on the fringe of Orchard Roads, connected to the monorail.
This will reduce the traffic congestion on Orchard Road. It will make shopping in Orchard Road more pleasant.
Here are my wishes for this project:
a) Have a second level covered walkway to allow people to connect the whole stretch of Orchard Road. This can be linked to all the buildings.
b) Build a light monorail to run down Orchard Road connected to the walkway.
c) Have large multi-storey carparks on the fringe of Orchard Roads, connected to the monorail.
This will reduce the traffic congestion on Orchard Road. It will make shopping in Orchard Road more pleasant.
Change of address
The authority now requires a resident to provide documentary proof for a change of address in the NRIC records. The documents could be a bill sent to the resident in the new address. This can caused timing problem.
I wish to suggest a practical solution. The new resident can ask two neighbours to be witnesses to the residency. The neighbours particulars can be provided for the authority to make the verification.
This is simple and effective. It also encourges the new resident to knock on the doors of the neighbours.
I wish to suggest a practical solution. The new resident can ask two neighbours to be witnesses to the residency. The neighbours particulars can be provided for the authority to make the verification.
This is simple and effective. It also encourges the new resident to knock on the doors of the neighbours.
Local Bus Services
I wish to introduce the concept of local bus services. I propose that it operates as follows:
a) Use light buses
b) Runs a specific route in a town
c) Uses the existing bus stops
d) Actively publicised through maps at bus stops
e) Operated by small operators
f) Licences to be given based on service level and commuter demand
g) Can be exempted from road tax and ERP, so as to bring down the cost for commuter
h) Fares to be controlled
Some taxi drivers may be interested to be operators of these light buses. This will reduce cost and create a more efficient public transport system.
a) Use light buses
b) Runs a specific route in a town
c) Uses the existing bus stops
d) Actively publicised through maps at bus stops
e) Operated by small operators
f) Licences to be given based on service level and commuter demand
g) Can be exempted from road tax and ERP, so as to bring down the cost for commuter
h) Fares to be controlled
Some taxi drivers may be interested to be operators of these light buses. This will reduce cost and create a more efficient public transport system.
Premium Bus Services
Is there a website that shows all the premium bus services that are available in Singapore?
It should show the pickup areas, drop off points, and the fares. Commuters can have an easy acces to the information instead of searching the many websites of the operators.
I hope that Land Transport Authority can be the central source of this information.
It should show the pickup areas, drop off points, and the fares. Commuters can have an easy acces to the information instead of searching the many websites of the operators.
I hope that Land Transport Authority can be the central source of this information.
Friday, April 04, 2008
Loading for term insurance
If you are a smoker, or have an adverse family history of cancer or heart disease, you may have to pay a loading of up to 100% on the standard premium for term insurance. As the premium rate is quite low, this loading may be still quite affordable.
Read this article: http://www.tankinlian.com/course/usa.html
Read this article: http://www.tankinlian.com/course/usa.html
High unemployment among youths in S Korea
My friend in South Korea told me that there is a high rate of unemployment of youths. Employers are reluctant to increase employment as it is costly to downsize the workforce during economic slowdown. The trade unions are strong and impose high cost for termination of workers.
Some employers will recruit young workers as temporary employees and pay wages that are half the rate of permanent workers.
Lesson: If trade unions are too strong, employers are afraid to recruit more people. If trade unions are too weak, employers pay low wages. The soceity has to find the correct balance between what is good for business and fair wages for workers.
Some employers will recruit young workers as temporary employees and pay wages that are half the rate of permanent workers.
Lesson: If trade unions are too strong, employers are afraid to recruit more people. If trade unions are too weak, employers pay low wages. The soceity has to find the correct balance between what is good for business and fair wages for workers.
Leverage
Leverage is the amount of loans compared to equity. If the leverage is 1 time, the amount of loan is the same as the amount of equity.
Some hedge funds are leveraged by 10 times. The borrowing is 10 times of the equity of the investors. This is risky.
I recalled that at the time of its collapse, Bear Stearns was leveraged 30 times. This is far, too high. To make matters worse, the borrowings are short term and their investments are long term. When the lenders refused to refinance the borrowings, Bear Stearns become insolvent. If they had to sell their investments, the markets would collapse. Bear Strearns had to be rescued by J P Morgan.
Lesson: It is very bad for hedge funds and investment banks to be highly leveraged. Leverage of 10 times is too high. Leverage of 30 times is madness.
Some hedge funds are leveraged by 10 times. The borrowing is 10 times of the equity of the investors. This is risky.
I recalled that at the time of its collapse, Bear Stearns was leveraged 30 times. This is far, too high. To make matters worse, the borrowings are short term and their investments are long term. When the lenders refused to refinance the borrowings, Bear Stearns become insolvent. If they had to sell their investments, the markets would collapse. Bear Strearns had to be rescued by J P Morgan.
Lesson: It is very bad for hedge funds and investment banks to be highly leveraged. Leverage of 10 times is too high. Leverage of 30 times is madness.
Personal savings for retirement
Hi Mr. Tan Kin Lian
I enjoyed your blog. My friend told me that the savings in CPF is not sufficient for retirement needs. I have to supplement it with personal savings to be invested for my retirement. What is the amount that I should save? How is this computed?
REPLY
I usually advice people to save 10% to 15% of their regular earnings for the future. This should be invested in a low cost fund, preferably an equity fund to obtain the best return.
This is explained in this FAQ:
http://www.tankinlian.com/articles/savings.html
I enjoyed your blog. My friend told me that the savings in CPF is not sufficient for retirement needs. I have to supplement it with personal savings to be invested for my retirement. What is the amount that I should save? How is this computed?
REPLY
I usually advice people to save 10% to 15% of their regular earnings for the future. This should be invested in a low cost fund, preferably an equity fund to obtain the best return.
This is explained in this FAQ:
http://www.tankinlian.com/articles/savings.html
Low cost funds
Dear Mr. Tan,
You referred to a low cost fund. What is the expense ratio that can be considered "low cost"? How do you find the expense ratio for a life insurance policy?
REPLY
If you are investing for the future, you should look for a fund that have an expense ratio of less than 1%. If you earn 6% and deduct an expense ratio of 1%, you get a net yield of 5%.
For a life insurance policy, the front end and other charges will reduce your yield by about 2.5%. It is quite high.
Read this FAQ:
http://www.tankinlian.com/faq/expense.html
You referred to a low cost fund. What is the expense ratio that can be considered "low cost"? How do you find the expense ratio for a life insurance policy?
REPLY
If you are investing for the future, you should look for a fund that have an expense ratio of less than 1%. If you earn 6% and deduct an expense ratio of 1%, you get a net yield of 5%.
For a life insurance policy, the front end and other charges will reduce your yield by about 2.5%. It is quite high.
Read this FAQ:
http://www.tankinlian.com/faq/expense.html
Difficult to find parking space
I visited a friend at his office in Bukit Merah. There is no parking space in his building or in the large building next to it. I had to park at a multi-story car park a few blocks away.
I concluded that it would have been more convenient to use public transport or to travel by taxi (in spite of the high fare). It is becoming quite inconvenient (and expensive) to use a private car.
I concluded that it would have been more convenient to use public transport or to travel by taxi (in spite of the high fare). It is becoming quite inconvenient (and expensive) to use a private car.
Singapore and Global Equities
Hi Mr. Tan,
You advised many people to invest in the STI ETF. This is invested only in Singapore. Should they be more diversified and invest in global equities? What are your views?
REPLY
It is all right for a Singapore resident to invest in Singapore equities. If you invest in the STI ETF, you are quite well diversified.
If you wish to take a global perspective, or you wish to reside abroad, it is all right to be invested in global equities.
This FAQ shows the past yields of the various asset classes, including Singapore and global equities:
http://www.tankinlian.com/faq/returns.html
You advised many people to invest in the STI ETF. This is invested only in Singapore. Should they be more diversified and invest in global equities? What are your views?
REPLY
It is all right for a Singapore resident to invest in Singapore equities. If you invest in the STI ETF, you are quite well diversified.
If you wish to take a global perspective, or you wish to reside abroad, it is all right to be invested in global equities.
This FAQ shows the past yields of the various asset classes, including Singapore and global equities:
http://www.tankinlian.com/faq/returns.html
Professionally managed funds
Dear Mr. Tan,
Is it better to buy a long term investment portfolio offered by banks or to buy company shares directly from a broker? What's your advise?
REPLY
It is better to invest in a professionally managed fund, provided that the expense ratio is kept below 1%.
The advantages are:
a) Diversification. You are invested in a large number of shares, and not in a few shares
b) Stock picking. You do not have to worry about stock picking. It is done by the fund manager
c) Transaction. You do not have to take care of collecting dividends, subscribing to rights issues, paying for share purchases and other tedious tasks. They are done by the fund.
Let the professionals take care of the investments (if the fees are modest).
However, if you have a large sum to invest (say, more than $1 million) and you can afford to spend the time to take care of the investments, you can buy the shares through a stockbroker. You will save the fees charged by the fund, but you have to do the work on your own.
Is it better to buy a long term investment portfolio offered by banks or to buy company shares directly from a broker? What's your advise?
REPLY
It is better to invest in a professionally managed fund, provided that the expense ratio is kept below 1%.
The advantages are:
a) Diversification. You are invested in a large number of shares, and not in a few shares
b) Stock picking. You do not have to worry about stock picking. It is done by the fund manager
c) Transaction. You do not have to take care of collecting dividends, subscribing to rights issues, paying for share purchases and other tedious tasks. They are done by the fund.
Let the professionals take care of the investments (if the fees are modest).
However, if you have a large sum to invest (say, more than $1 million) and you can afford to spend the time to take care of the investments, you can buy the shares through a stockbroker. You will save the fees charged by the fund, but you have to do the work on your own.
Hedge Funds
Someone asked me to explain a hedge fund. Here is an explanation from Wikipedia, accessed through Google.
A hedge fund is a private investment fund that charges a performance fee and is typically open to only a limited range of qualified investors.
Hedge fund activity in the public securities markets has grown substantially as it constitutes approximately 30% of all U.S. fixed-income security transactions, 55% of U.S. activity in derivatives with investment-grade ratings, 55% of the trading volume for emerging-market bonds, as well as 30% of equity trades.
Hedge Funds dominate certain specialty markets such as trading in derivatives with high-yield ratings, and distressed debt.
Alfred Winslow Jones is credited with inventing hedge funds in 1949.
In the United States, in order for an investment fund to be exempt from direct regulation, it must be open to accredited investors only and only a limited number of investors can belong to it.
While there is no legal definition of "hedge fund" under U.S. securities laws and regulations, typically they include any investment fund that, because of an exemption from the types of regulation that otherwise apply to mutual funds, brokerage firms or investment advisors, can invest in more complex and riskier investments than a public fund might.
Hedge funds managed from other countries have similar relationships with their national regulators. As a hedge fund's investment activities are therefore limited only by the contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into futures, swaps and other derivative contracts and leverage.
As their name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling.
However, the term "hedge fund" has come in modern parlance to be applied to many funds that do not actually hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase risk, and therefore return, rather than reduce it.
Hedge funds have acquired a reputation for secrecy. Being outside the regulatory regime that applies to retail funds greatly reduces the information a hedge fund is legally required to make public. Additionally, divulging trading methods and positions would compromise the business interests of many types of hedge fund, tending to limit the information they want to release.
The assets under management of a hedge fund can run into many billions of dollars, and this will usually be multiplied by leverage. Their sway over markets, whether they succeed or fail, is therefore potentially substantial and there is a continuing debate over whether they should be more thoroughly regulated.
COMMENT BY TAN KIN LIAN
A big risk in hedge fund is that its investment is "multipled by leverage". They borrowed additional funds at the market rate of interest to increase their investments. During the market downturn, the borrowers refused to refinance the short term loans. This caused the liquidity crisis.
A hedge fund is a private investment fund that charges a performance fee and is typically open to only a limited range of qualified investors.
Hedge fund activity in the public securities markets has grown substantially as it constitutes approximately 30% of all U.S. fixed-income security transactions, 55% of U.S. activity in derivatives with investment-grade ratings, 55% of the trading volume for emerging-market bonds, as well as 30% of equity trades.
Hedge Funds dominate certain specialty markets such as trading in derivatives with high-yield ratings, and distressed debt.
Alfred Winslow Jones is credited with inventing hedge funds in 1949.
In the United States, in order for an investment fund to be exempt from direct regulation, it must be open to accredited investors only and only a limited number of investors can belong to it.
While there is no legal definition of "hedge fund" under U.S. securities laws and regulations, typically they include any investment fund that, because of an exemption from the types of regulation that otherwise apply to mutual funds, brokerage firms or investment advisors, can invest in more complex and riskier investments than a public fund might.
Hedge funds managed from other countries have similar relationships with their national regulators. As a hedge fund's investment activities are therefore limited only by the contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into futures, swaps and other derivative contracts and leverage.
As their name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling.
However, the term "hedge fund" has come in modern parlance to be applied to many funds that do not actually hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase risk, and therefore return, rather than reduce it.
Hedge funds have acquired a reputation for secrecy. Being outside the regulatory regime that applies to retail funds greatly reduces the information a hedge fund is legally required to make public. Additionally, divulging trading methods and positions would compromise the business interests of many types of hedge fund, tending to limit the information they want to release.
The assets under management of a hedge fund can run into many billions of dollars, and this will usually be multiplied by leverage. Their sway over markets, whether they succeed or fail, is therefore potentially substantial and there is a continuing debate over whether they should be more thoroughly regulated.
COMMENT BY TAN KIN LIAN
A big risk in hedge fund is that its investment is "multipled by leverage". They borrowed additional funds at the market rate of interest to increase their investments. During the market downturn, the borrowers refused to refinance the short term loans. This caused the liquidity crisis.
Delay in issuing a policy
Hi Mr. Tan,
Could I seek your advise on this issue. My husband and I went down to one of the Business Centre in NTUC and sign off and make premium payment for Living Benefit policy under the Family Policy.
Yesterday, we received a letter to ask us to go for routine checkup and that NTUC will decide if they will take on the policy with us. Is it right for the insurance company to receive premium payment and then 3 weeks later sent us a letter of such?
What if something happens during this period? After making the premium payment, I thought I am covered under the policy and was shocked when I received the letter yesterday..
REPLY
The coverage will commence on the commencement date shown in the policy. This will be after the acceptance of your application, including medical checkup. In the meantime, the premium is received as an "advance premium" and is refunded in full if the application is rejected.
During my time, NTUC Income offered coverage against accident from the time of payment of the premium until acceptance of the application. I am not sure if this practice is still being continued. You can ask the business center about it.
Normally, there should not be a delay of 3 weeks. It should have been processed much earlier. It must have been an oversight.
What you may lose is the interest on the premium paid for a few days or weeks. As the interest rate is quite low, the lost interest is not significant. If you get accident coverage, it should make up for this lost interest.
Could I seek your advise on this issue. My husband and I went down to one of the Business Centre in NTUC and sign off and make premium payment for Living Benefit policy under the Family Policy.
Yesterday, we received a letter to ask us to go for routine checkup and that NTUC will decide if they will take on the policy with us. Is it right for the insurance company to receive premium payment and then 3 weeks later sent us a letter of such?
What if something happens during this period? After making the premium payment, I thought I am covered under the policy and was shocked when I received the letter yesterday..
REPLY
The coverage will commence on the commencement date shown in the policy. This will be after the acceptance of your application, including medical checkup. In the meantime, the premium is received as an "advance premium" and is refunded in full if the application is rejected.
During my time, NTUC Income offered coverage against accident from the time of payment of the premium until acceptance of the application. I am not sure if this practice is still being continued. You can ask the business center about it.
Normally, there should not be a delay of 3 weeks. It should have been processed much earlier. It must have been an oversight.
What you may lose is the interest on the premium paid for a few days or weeks. As the interest rate is quite low, the lost interest is not significant. If you get accident coverage, it should make up for this lost interest.
6 digit postal code
The 6 digit postal code used in Singapore is organised as follows:
a) A specific code is given to each building or residential block, e.g. 560207 is block 207 in Ang Mo Kio. The individual units are identified by the unit number, e.g. #12-456 for level 12, house 456.
b) Each landed property has a separate 6 digit number, e.g. 8098xx is for xx Begonia Drive.
In my view, it is inefficient to allot a 6 digit number for each house. It is better to allocate a 6 digit code for each street, e.g. Cactus Crescent and to identify each house by the house number. All the houses in the street share the same 6 digit code.
This new method has the following advantages:
a) Reduce the size of the postal code directory by as much as 90% (my estimate)
b) Allows the use of 6 digit postal code and house number for mailing.
A letter can be sent to
Lee Kim Teck
15
Singapore 809001
809001 could be the name of a street, say Begonia Drive.
a) A specific code is given to each building or residential block, e.g. 560207 is block 207 in Ang Mo Kio. The individual units are identified by the unit number, e.g. #12-456 for level 12, house 456.
b) Each landed property has a separate 6 digit number, e.g. 8098xx is for xx Begonia Drive.
In my view, it is inefficient to allot a 6 digit number for each house. It is better to allocate a 6 digit code for each street, e.g. Cactus Crescent and to identify each house by the house number. All the houses in the street share the same 6 digit code.
This new method has the following advantages:
a) Reduce the size of the postal code directory by as much as 90% (my estimate)
b) Allows the use of 6 digit postal code and house number for mailing.
A letter can be sent to
Lee Kim Teck
15
Singapore 809001
809001 could be the name of a street, say Begonia Drive.
Letter with postal code only
I send a letter addressed to the following:
Tan Kin Lian
Singapore 809744
The letter finally arrived after 20 days. The post office searched for my house address and street address, using my postal code, and wrote it on the envelope. This is necessary for the postman to deliver the letter to my house (i.e. the "last mile").
Congratulations to Singapore Post. They did take the trouble!
Tan Kin Lian
Singapore 809744
The letter finally arrived after 20 days. The post office searched for my house address and street address, using my postal code, and wrote it on the envelope. This is necessary for the postman to deliver the letter to my house (i.e. the "last mile").
Congratulations to Singapore Post. They did take the trouble!
Thursday, April 03, 2008
Investing in resource and commodity
Hi Mr. Tan,
What is your view about investing in resource and commodity sector? I understand that this sector has appreciated fast during turmoil in the financial market, caused by high price of oil, gold, and other commodities. However, there's also a recent correction, which might give a better opportunity to enter.
What is your view of this sector fund? Currently I am looking at First State Global Resource, which has 1.5% annual management charge, and 1.74% expense ratio. The United Global Resource Fund has 8.63% expense ratio (which I think it's too high).
REPLY
I am not familiar with investing in the resource and commodity sector. I heard the comment of an analyst on CNBC. He said that commodities are bullish now, but investors should be ready to sell at short notice. He reminded investors about what happened on the bursting of the dotcom bubble.
I prefer to invest in a well diversified equity fund.
What is your view about investing in resource and commodity sector? I understand that this sector has appreciated fast during turmoil in the financial market, caused by high price of oil, gold, and other commodities. However, there's also a recent correction, which might give a better opportunity to enter.
What is your view of this sector fund? Currently I am looking at First State Global Resource, which has 1.5% annual management charge, and 1.74% expense ratio. The United Global Resource Fund has 8.63% expense ratio (which I think it's too high).
REPLY
I am not familiar with investing in the resource and commodity sector. I heard the comment of an analyst on CNBC. He said that commodities are bullish now, but investors should be ready to sell at short notice. He reminded investors about what happened on the bursting of the dotcom bubble.
I prefer to invest in a well diversified equity fund.
Investing in hedge funds
Hi Mr Tan,
Hope to seek your advice on my queries:
1) What is a hedge fund?
2) There are many investment portfolios offered by banks, are any of these considered as hedge fund?
3) Can you give an example of a hedge fund?
4) Is it safe to buy investment portfolios offered by banks such as UOB, OCBC?
5) Is it better off buying a long term investment portfolio offered by banks or is it better off buying company's shares directly from a broker? What's your advise? Note that I'm not one person who market watch.
REPLY
I suggest that you search for "Hedge Funds" in Google. You will come across several references in the internet. You can read the articles on hedge funds there.
If you are picking a unit trust offered by a bank, you should look at the initial spread, the annual expense ratio and other factors. Most of these funds have high charges that reduce the return on your investments.
You should avoid investing in an investment that you are not familiar, such as a hedge fund. There are many types of hedge funds. They take money from the investors and borrow additional money (i.e. leveraged) to make risky investments. Many hedge funds performed badly during the past year, as their investments lost money.
I usually advice people to buy a low cost diversified fund, such as the STI ETF, as a long term investment. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Hope to seek your advice on my queries:
1) What is a hedge fund?
2) There are many investment portfolios offered by banks, are any of these considered as hedge fund?
3) Can you give an example of a hedge fund?
4) Is it safe to buy investment portfolios offered by banks such as UOB, OCBC?
5) Is it better off buying a long term investment portfolio offered by banks or is it better off buying company's shares directly from a broker? What's your advise? Note that I'm not one person who market watch.
REPLY
I suggest that you search for "Hedge Funds" in Google. You will come across several references in the internet. You can read the articles on hedge funds there.
If you are picking a unit trust offered by a bank, you should look at the initial spread, the annual expense ratio and other factors. Most of these funds have high charges that reduce the return on your investments.
You should avoid investing in an investment that you are not familiar, such as a hedge fund. There are many types of hedge funds. They take money from the investors and borrow additional money (i.e. leveraged) to make risky investments. Many hedge funds performed badly during the past year, as their investments lost money.
I usually advice people to buy a low cost diversified fund, such as the STI ETF, as a long term investment. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Invest in a life annuity
Dear Mr. Tan,
I am 61 year old. I have around $100,000 to invest. I need your advise on a better investment compared to the low interest rate for fixed deposit.
I am thinking of putting the sum to a deferred anunity with NTUC Income. Am I able to withdraw the full amount from NTUC when I reach 65 years old. What are the likely return I will be getting in 4 year time?
REPLY
I suggest that you call the business center of NTUC Income and ask them about the return on the deferred annuity.
Please read this FAQ
http://www.tankinlian.com/faq/life.html
I am 61 year old. I have around $100,000 to invest. I need your advise on a better investment compared to the low interest rate for fixed deposit.
I am thinking of putting the sum to a deferred anunity with NTUC Income. Am I able to withdraw the full amount from NTUC when I reach 65 years old. What are the likely return I will be getting in 4 year time?
REPLY
I suggest that you call the business center of NTUC Income and ask them about the return on the deferred annuity.
Please read this FAQ
http://www.tankinlian.com/faq/life.html
Poor return on ILP policy
Hi Mr. Tan,
Great to chance upon your website!
I have an issue with my ILP investment. My annual premium is $1200, and I have been paying it for 2 years and eight months, current cash value at only $600.
I'm aware it's too late to cancel the account. Even though my monthly premium is not high, I still don't like the idea of paying for mortality charges.
Do you think it's more worthwhile to cancel now, suffer some loss and start investing in better products for a longer term gain? Does this make sense?
REPLY
As you have paid two years of premium, most of the upfront charges have already been incurred. I suggest that you keep the current investment account.
You can ask the insurance company for the mortality charges for the next five years and compare them with the benchmark rates shown on the attached.
http://www.tankinlian.com/faq/benchmark.html
If the mortality charges are too high, you can cancel the life insurance cover and buy a term insurance policy. You can still keep the investments.
If the mortality charges are reasonable, you can continue the policy for the next 5 to 10 years. You can cancel it when you reach age 60 or 65.
Great to chance upon your website!
I have an issue with my ILP investment. My annual premium is $1200, and I have been paying it for 2 years and eight months, current cash value at only $600.
I'm aware it's too late to cancel the account. Even though my monthly premium is not high, I still don't like the idea of paying for mortality charges.
Do you think it's more worthwhile to cancel now, suffer some loss and start investing in better products for a longer term gain? Does this make sense?
REPLY
As you have paid two years of premium, most of the upfront charges have already been incurred. I suggest that you keep the current investment account.
You can ask the insurance company for the mortality charges for the next five years and compare them with the benchmark rates shown on the attached.
http://www.tankinlian.com/faq/benchmark.html
If the mortality charges are too high, you can cancel the life insurance cover and buy a term insurance policy. You can still keep the investments.
If the mortality charges are reasonable, you can continue the policy for the next 5 to 10 years. You can cancel it when you reach age 60 or 65.
Public Tender
Singapore is used to the public tender system. The business is awarded to the tenderer who submitted the most competitive (lowest) bid. In some cases, the tenderer have to bid below cost, to win the tender. They find ways to cut corners to meet the low budget, leading to a poor quality of work.
Someone observed that the public tender system favours the large companies. They have the financial resources to spend money to submit the bid. The smaller companies are not able to compete.
I hope that there is another way for the principal to offer a reasonable price, and select the contractor based on their ability to deliver a better quality of work.
Someone observed that the public tender system favours the large companies. They have the financial resources to spend money to submit the bid. The smaller companies are not able to compete.
I hope that there is another way for the principal to offer a reasonable price, and select the contractor based on their ability to deliver a better quality of work.
Walkways in Hong Kong
My friend worked in Hong Kong a few years back. When he arrived in Hong Kong, he was provided with a car. After two months, he sold off the car. He preferred to use the Hong Kong MTR (Mass Transit Railway).
It was possible to walk to a nearby MTR station from most parts of Hong Kong. He could walk through the underground or overhead walkways. It was quite comfortable during most months of the year, due to the congenial weather.
He observed that many people in Hong Kong and Japan were quite slim. The walking is good for their health and keep them fit.
I hope that all MRT stations in Singapore have underground or overlink walkways. If commuters can walk in these sheltered walkway at a different level from the road traffic, more people will be willing to take the train. This has been proven by the Hong Kong experience.
It was possible to walk to a nearby MTR station from most parts of Hong Kong. He could walk through the underground or overhead walkways. It was quite comfortable during most months of the year, due to the congenial weather.
He observed that many people in Hong Kong and Japan were quite slim. The walking is good for their health and keep them fit.
I hope that all MRT stations in Singapore have underground or overlink walkways. If commuters can walk in these sheltered walkway at a different level from the road traffic, more people will be willing to take the train. This has been proven by the Hong Kong experience.
Wednesday, April 02, 2008
Interest rate on CPF savings
Mr. Tan,
From 1 January this year, interest rate for savings in the Special, Medisave and Retirement Accounts (SMRA) is pegged to the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1%. The average yield of the 10YSGS over one year, from 1 March 2007 to 29 February 2008, plus 1% works out to be 3.75%.
According to the news, CPF Board will only provide a floor of 4% for the Special, Medisave and Retirement Accounts rate for 2008 & 2009 only. The 4% will be lifted after 2 years, and the 2.5% floor rate will apply for all CPF accounts thereafter.
In view that the average yield of 10YSGS from Mar 07 to Feb 08 is only 2.75%, I'm kinda worry about this lower rate.
Furthermore, remember that last year, CPF Board encourage members to transfer their OA to SA and earn a 4% steady yearly compound interest seems to be no longer valid after 2010.
Care to share you comments?
http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_10Mar2008.htm
REPLY
I recommend the following:
1. Transfer your OA to SA to earn a higher rate of interest
2. Do not worry that the interest rate will drop below 4% as you still getting 1% higher than the market rate for govt bonds
3. I expect the interest rate to increase, due to higher inflation.
4. If you wish to earn a higher return on your OA, I suggest a low cost diversified fund.
See this FAQ:
http://www.tankinlian.com/faq/savings.html
From 1 January this year, interest rate for savings in the Special, Medisave and Retirement Accounts (SMRA) is pegged to the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1%. The average yield of the 10YSGS over one year, from 1 March 2007 to 29 February 2008, plus 1% works out to be 3.75%.
According to the news, CPF Board will only provide a floor of 4% for the Special, Medisave and Retirement Accounts rate for 2008 & 2009 only. The 4% will be lifted after 2 years, and the 2.5% floor rate will apply for all CPF accounts thereafter.
In view that the average yield of 10YSGS from Mar 07 to Feb 08 is only 2.75%, I'm kinda worry about this lower rate.
Furthermore, remember that last year, CPF Board encourage members to transfer their OA to SA and earn a 4% steady yearly compound interest seems to be no longer valid after 2010.
Care to share you comments?
http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_10Mar2008.htm
REPLY
I recommend the following:
1. Transfer your OA to SA to earn a higher rate of interest
2. Do not worry that the interest rate will drop below 4% as you still getting 1% higher than the market rate for govt bonds
3. I expect the interest rate to increase, due to higher inflation.
4. If you wish to earn a higher return on your OA, I suggest a low cost diversified fund.
See this FAQ:
http://www.tankinlian.com/faq/savings.html
CPF Life Annuity
Hello Mr. Tan
I am 59 years of age and am interested in participating in the CPF annuity scheme. As I have full faith in our government and when given the choice, I will always opt for a government managed program than a private company's.
However, I have been told by a CPF counter staff that the details are still being finalised and that this program will only start in 2013. I am not sure if the staff has given me the right information - why would the government take such a long time to start this program? I wouldn't know if 2013 will be too late for me.
REPLY
The CPF Lfe Annuity scheme is intended for people who reach age 50 in a few years time. You exceed this age. So, it is not intended for you.
You can leave your money in the CPF retirement fund to be drawn down in installments. It will earn an attractive rate of interest, currently at 4% plus 1% bonus on $40,000.
You can buy a life annuity from a private insurance company with your personal savings.
I am 59 years of age and am interested in participating in the CPF annuity scheme. As I have full faith in our government and when given the choice, I will always opt for a government managed program than a private company's.
However, I have been told by a CPF counter staff that the details are still being finalised and that this program will only start in 2013. I am not sure if the staff has given me the right information - why would the government take such a long time to start this program? I wouldn't know if 2013 will be too late for me.
REPLY
The CPF Lfe Annuity scheme is intended for people who reach age 50 in a few years time. You exceed this age. So, it is not intended for you.
You can leave your money in the CPF retirement fund to be drawn down in installments. It will earn an attractive rate of interest, currently at 4% plus 1% bonus on $40,000.
You can buy a life annuity from a private insurance company with your personal savings.
Two layer upfront charge
If you invest in a regular premium investment linked product (which is commonly sold in the market), you are hit with a two layer upfront charge, namely:
a) Distribution charge
b) Spread
The distribution charge is the proportion of the premium that is taken away from your savings during the first few years. Typically, this proportion is about 80% during the first year, 50% in the second year and 25% in the third and fourth years. The total taken away is 180% of the annual premium.
If you invest $500 a month, the amount taken away during the first 4 years is 180% of $500 X 12 or more than $10,000. This is the money that is taken away from your savings to pay commisison to the agent and other marketing expenses.
The net amount that is invested is subject to another upfront charge, called the spread. This could be as high as 5% of the invested amount.
For example, if you invest $500 a month during the first year, only 20% or $100 is invested each month. This invested sum has to buy the units at a spread of 5%. This is another upfront charge. After taking away this charge, the actual amount that is invested is only $95. You pay $500 and only get units worth $95.
If you are buying a regular premium ILP, you should ask about these two layer upfront charge. It is too costly. I advise you to avoid this type of investment.
a) Distribution charge
b) Spread
The distribution charge is the proportion of the premium that is taken away from your savings during the first few years. Typically, this proportion is about 80% during the first year, 50% in the second year and 25% in the third and fourth years. The total taken away is 180% of the annual premium.
If you invest $500 a month, the amount taken away during the first 4 years is 180% of $500 X 12 or more than $10,000. This is the money that is taken away from your savings to pay commisison to the agent and other marketing expenses.
The net amount that is invested is subject to another upfront charge, called the spread. This could be as high as 5% of the invested amount.
For example, if you invest $500 a month during the first year, only 20% or $100 is invested each month. This invested sum has to buy the units at a spread of 5%. This is another upfront charge. After taking away this charge, the actual amount that is invested is only $95. You pay $500 and only get units worth $95.
If you are buying a regular premium ILP, you should ask about these two layer upfront charge. It is too costly. I advise you to avoid this type of investment.
Low cost products
What are the low cost products?
They are:
a) Low cost insurance, i.e. term insurance
b) Low cost, diversified fund
Find out more from this FAQ:
http://www.tankinlian.com/faq/low.html
They are:
a) Low cost insurance, i.e. term insurance
b) Low cost, diversified fund
Find out more from this FAQ:
http://www.tankinlian.com/faq/low.html
Financial planning for the young
I recommends that a young person should save 15% of the earnings. This FAQ shows how this saving rate can contribute towards an income after retirement at age 65:
http://www.tankinlian.com/faq/finplan.html
http://www.tankinlian.com/faq/finplan.html
Tuesday, April 01, 2008
Alternative Investments
Alternative investments are hedge funds, managed futures and managed currency funds. The proponent of this asset class argues that it is not correlated to the traditional asset classes, for example, they can move in the opposite direction to equities.
This is suitable for short term investors, including professional fund managers, who are required to avoid showing a portfolio loss during a year.
For a long term investor, it is better to take the volatility and benefit from the average higher return over the long term. There is no point in investing in equities and than offsetting them by alternative investments. This strategy incurs high costs and reduces the return to the long term investor. It gives good fees to the professionals (i.e. fund managers).
If the investor wish to avoid volatility, it is better to invest in fixed income bonds, and accept a lower long term return. Do not invest in complicated structured products (including alternative investments) that gives you an even lower return.
This is suitable for short term investors, including professional fund managers, who are required to avoid showing a portfolio loss during a year.
For a long term investor, it is better to take the volatility and benefit from the average higher return over the long term. There is no point in investing in equities and than offsetting them by alternative investments. This strategy incurs high costs and reduces the return to the long term investor. It gives good fees to the professionals (i.e. fund managers).
If the investor wish to avoid volatility, it is better to invest in fixed income bonds, and accept a lower long term return. Do not invest in complicated structured products (including alternative investments) that gives you an even lower return.
Subscribe to:
Posts (Atom)