Saturday, August 02, 2008

Can newspapers be trusted ?

In the past, newspapers could be trusted to tell the truth. They were objective in their reporting and were not driven by commercial consideration.

This laudable practice has changed in recent years. It is now quite common for newspapers to print articles that give a favorable slant to their big advertisers.

At one time, these articles were printed under the headline "Advertorial". This was intended to warn the readers that the article was contributed by the advertiser and that the newspaper did not verify the statements in the article.

Nowadays, the label of "advertorial" has disappeared. Some journalists are engaged to write a story for a big advertiser. The article has to be approved by the advertiser, in return for a big advertising budget.

This is how some newspapers get advertising revenue to cover the large expenses and to make good profits for their shareholders. This is necessary for the commercial success of the newspaper, and is now more important than independent and honest reporting.

Logic9 (Sudoku)

I am surprised that Logic9 on my website is one of the most frequently visited. It rank second to my FAQs.

There are many other websites offering Sudoku puzzles, but it seems that my website has some attractive features. They are:

1. Can play online
2. Easy to play
3. Can play 4 levels
4. Option to choose flowers and letters, instead of numbers.

I shall be updating the website to have more puzzles.


Joke: race horse telephoned

John had a restless night and keep on calling "Eva, darling" in his sleep. His wife Joan asked him who Eva is.

John replied that she was his favourite race horse. His wife accepted the explanation.

On returning home, he found his wife furious. He asked why. She replied "Your race horse telephoned today".

Advice on Financial Planning

Hi Kin Lian,
I have read your articles in your website and found that they were very informative and also gave us very good advices.

I would to find out do you provide financial planning for us. If you do, I would like to seek your advice.

I do not give specific financial planning advice. You can read the FAQs in my website and decide for yourself.

Read the FAQ on "Financial Planning for the Young". It tells you how much to set aside for your retirement and how to invest in a low cost fund. You can read the FAQ on "Personal Insurance" to decide on the type of low cost insurance that you need.

Land Banking Scam

Hi Mr. Tan,

I've just read your blog on land banking scam and though I would share a email that I sent to ST a while back when they had a relatively positive article on land banking back in 2007. I feel ST has not been as investigative as they should have been and many times, have articles that doesn't give a complete picture of investments , almost to the extend that it would appear they dare not provide any additional information or view other that so called "experts" with vested interests.


I wonder if you have done a proper investigation into the whole land banking issues, especially about companies like X since there has been numerous discussion about scams by them in the internet ? A simple search on the internet will throw up lots of information about such scams and how these scams works even if the titles or funds are put into escrow until the sales completed.

Your article by not addressing such issues does a great dis-service to the general public. I hope that ST will follow up with the investigative style that expose the previous NKF and that that has made us Singaporean proud of ST.

While I have tried to put reply to this article in the forum, I feels that this is insufficient for those readers that do not make use of the internet as much.

I would appreciate if yourself or your editor could look into this and do a proper follow up articles. And in view of the large amount of money changing hand just because of a simple article like this . I've also got calls from various companies trying to sell the land banks ideas and doing some "talks" over this weekend and having read your articles, I'm wondering if the timing of these calls is co-incident or deliberately timed to be after your article.

Friday, August 01, 2008

Exessive exposure?

In portfolio management, it is important to spread the investments and avoid having large stakes in certain investment. This is called concentration risk.

A stake of more than 5% is considered high. A better level should be not more than 3%.

I am somewhat surprised to read a report in Bloomberg about the following investments:

> GIC invested $18 billion in UBS and Citibank, representing 6% of its portfolio of $300 billion
> Temasek invested $5 billion in Merill Lynch, represented 5% of its portfolio of $100 billion.

Perhaps the total portfolio managed by GIC and Temasek is more than the amounts indicated. If not, the above investments would be considered as excessive.

Joke: Temperamental

Tom: Ther's one word that describes my wife: temperamental.

John: In what way?

Tom: She's fifty percent temper, and fifty percent mental.

Buy ID7 from Business Center

Dear Mr Tan,
I am a recent graduate and have been in the job market for about a year now. I would like to thank you for your advise with regards to insurance and fianncial planning which have been very insightful. I have had many friends over the past year who have tried to sell me ILPs from the various insurance agencies. Your blog has truly been a good guide in making the right decisions.

I am interested in the flexilink plan and ID7 plan from NTUC. Could you please refer me to NTUC Income agents who are still willing to offer these plans? I had written directly to the NTUC business centre with regards to my interest in ID7, but I had not received any reply from them.

Your advise is much appreciated.

I suggest that you visit the business center and talk to a salaried consultant. You should insist on ID7. Do not allow them to sell you another product.

Investing in the stock market

Hi Mr. Tan,
I have limited savings every month ($100 to $200) but I want to invest in the stock market. Is it advisable to invest thru poems share builders plan ? Details at

You can invest through POEMS.
It is better to invest in a well diversified fund, i.e. the STI ETF.
Read these FAQs:

Thursday, July 31, 2008

Arguments against a Minimum Wage Policy

The following arguments have been advanced against a "minimum wage policy" in Singapore:

1. Our business will be uncompetitive and will move to other countries
2. This policy is difficult to enforce, specially for small businesses
3. Our locals will be costly and lose jobs to foreign workers in Singapore
4. This policy is against free market principles.
5. The low wage workers are entitled to Workfare supplements
6. It will increase unemployment

Do you agree with these arguments? Are there reasons to support a minimum wage policy?

Joke: A present from the wife

A: Where did you get this nice suit?

B: It was a present from my wife. I came home unexpectedly early from the office the other evening, and there it was - hanging over the back of a chair in the bedroom.

Dual Currency Investment

A consumer was persuaded by the bank to invest in a linked-currency product, or also called a dual currency investment. It is explained in this FAQ:

He asked me to explain why this product is to the disdvantage of the consumer.

The actual product is quite complex, so it is not easy to understand, and not easy to explain. It involves the use of spot rate and target rate, and the practice or terminology may differ from one bank to another.

I will give a simplified example. Suppose you have SGD 100,000. If you keep it on 1 month deposit, you can earn interest rate of 1.2% p.a. If you buy a AUD-linked product, you may earn say interest at 6% p.a. The difference of 4.8% in interest rate will give you 0.4% for one month.

Suppose that there is a 50% chance that AUD will appreciate by 1% in a month, and 50% chance that it will depreciate by 1%.

If AUD appreciates by 1%, you will not get this gain as you have already been paid the additional 0.4% interest. If AUD depreciates by 1%, you have suffered a loss of 0.6% (after deducting the additional interest of 0.4%).

Why face the risk of losing 0.6%, when your gain is only 0.4% with similar probability?

In real life, there is a risk of making a larger loss of more than 1%. The currency could depreciate by 5% in a month. You will suffer the risk of this large loss, without the benefit of a similar gain, as your actual gain is capped at 0.4%.

The bank officer tells you, "If AUD drops, you can keep AUD and wait for it to recover." This is a misleading advice. You have actually suffered a loss and if you keep it longer, you suffer the risk of a bigger loss.

Look at it from another angle. Due to the arrangement, you had to buy AUD at the earlier price when you could buy it 1 month later at 1% less. So, you have suffered a loss of 1% on AUD and after deducting the 0.4% additional interest, the net loss is 0.6%.

Conclusion: The terms of the dual currency investment are set by the bank in their favor. These terms are usually unfavorable to the consumer. It is best to avoid this type of structured product, as they are structured to your disadvantage.

Wednesday, July 30, 2008

Avoid Dual Currency Investments

Hi Mr. Tan,
I refer to your FAQ on dual currency investment. I'm also being asked by my bank to invest in such type of investment - SGD/AUD.

I'm really waiting for the AUD to drop (or SGD to improve), to transfer my funds from SGD to AUD and send it to Australia. The bank said, since you're waiting, why not invest in this product.

My question after reading your example is, when would I stand to lose (you mentioned if the currency is converted to the linked currency). I don't quite understand when I would make a loss (my risk).

I understand that I can earn the interest if the SGD rate drops; I understand that I can earn if the AUD rate improves and my currency is converted at the agreed target rate. Either way, it's just whether I earn more or earn less, but I'm still earning, right?

Please give an example if it helps better explain how I will lose on my initial investment?

I advise people to avoid the linked currency products. My reasons are set out here:

Joke: 15 wives

Claude: How many wives have you had?
Fred: About fifteen - only one was my own

What the Financial Adviser is expected to do

Q7: What can I expect a FA representative to do when he recommends an investment product to me?

A: A FA representative must take all reasonable steps to:
1. Determine your investment objectives, risk tolerance, financial situation and investment experience;
2. Ensure that the product he recommends is suitable for you, taking into account the information you gave; and
3. Explain to you why the product he is recommending is suitable for you.

You should provide complete and accurate information to ensure that the FA representative is able to recommend a suitable product for you.

This advice, and other useful tips, can be found in this webpage:

Unit trusts and ILP

Dear Mr. Tan,
I am trying to find a suitable investment product. I go to a bank, it sells me unit trusts. I go to an insurance company, it sells me ILPs. Can't insurance companies sell units and bank sell ILPs as well?

Banks already sell ILP for insurance companies. These products have the same high charges and give poor value to customers.

Insurance companies do not sell unit trusts. They prefer to sell ILPs which allow them to pay high commissIon to their agent and earn a high profit margin.

Joke: A keen fisherman

I was watching a funeral the other day and upon the coffin lay a fishing rod, a reel and a fishing basket. I said to the fellow next to me: "He must have been a very keen fisherman?"

The man turned to me and said: "He still is. He's going straight to a fishing match after they've burried his wife."

Tuesday, July 29, 2008

Avoid participating policies

Dear Mr. Tan,
I have several policies with X. I received a letter showing a cut in the bonus rates, to be compensated by higher rates of special bonus. But the rates of the special bonus for my different policies are quite different. How do I know if I am getting a fair rate of bonus?

I am also quite confused with the different rates of bonus on my policies. More importantly, I find that my participating polices have still not reached the breakeven point after being in force for more than 10 years. I suspect that they have not distributed a fair rate of bonus, in spite of the attractive yield earned on the fund over the past ten years. I have raised this matter with X, but they keep giving me unsatisfactory replies.

My advice to the public is: Never invest in any participating life policy, including whole life policies where the premiums is paid for10 or 20 years. Here are the reasons:

1. The distribution cost is high and can take away up to 2 years of your savings. That is a lot of money to be given away.

2. You will not get a fair rate of return, as the insurance company will pay bonus that are far less than what the investments actually earned

Another actuary, who knows what is going on, told me that he avoids participating policies for the same reason. He will only buy Term insurance. He prefers to invest his savings in unit trusts, as the charges are lower and are transparent.

Personal Automated Transport

Do you like a new type of transport that operates like a taxi, at low cost and does not need a driver? Read about it in:

Difference between two statements

What is the difference between these two statements:

statement 1
sum of liability in respect of each policy of the participating fund - $X

statement 2
total liability in respect of all the policies in the participating fund - $X

Definition of integrity

Source: Wikipedia

In discussions on behavior and morality, one view of the property of integrity sees it as the virtue of basing actions on an internally-consistent framework of principles. This scenario may emphasize depth of principles and adherence of each level to the next. One can describe a person as having integrity to the extent that everything that that person does derives from the same core set of values. While those values may change, their consistency with each other and with the person's actions determine the person's degree of integrity.

Some commentators stress the idea of integrity as personal honesty: acting according to one's beliefs and values at all times. Speaking about integrity can emphasize the "wholeness" or "intactness" of a moral stance or attitude (harking back wittingly or unwittingly to the etymological parallels of the word in the Latin intactus, meaning "untouched"). Relevant views of wholeness may also emphasize commitment and authenticity. Structural integrity in engineering derives from this concept.

Some regard integrity as a virtue in that they see accountability and moral responsibility as necessary tools for maintaining consistency between one's actions and one's principles, methods and measures, especially when an expected result appears incongruent with observed outcome.

Investment charges

An anonymous reader wrote:

"I received this letter my company's 401K provider, It was supposed to convince me to sign up with AdviceTrack, and give them another half-percent of my retirement funds so that they could manage my investments for me.

The chart, however, isn't very convincing. If I continue to manage my funds myself, I end up with $76,564 a year. If I let their experts manage my funds for me, I get a whopping $67,619 - or, $9,000 less. Glad I'm not an expert."

Lesson: This anonymous reader did read and understand the brochure, which gave honest information. He decided to invest on his own. Many people may not be aware about the charges and sign up to use the advertised service.

The same situation applies to many people who buy high cost life insurance and structured financial products.

Liability and cash value

The MAS website contains the annual return submitted by insurance companies. Row 5 of Annex 1 K – Policy Liability of Participating Fund reported a figure as “sum of liability in respect of each policy of the participating fund”.

From the description, I presume that this total figure is obtained by adding up the individual figures applicable to each participating policy. I hope that this statement means what it says.

You can write to your insurance company to ask for:

1. the individual liability for each of your participating policies
2. the cash value for the same policy
3. the difference between these two figures

For example, if the liability for the policy is $30,000 and the cash value is $25,000, is it fair for the insurance company to keep $5,000 as additional profit, when they have already deducted their expenses, mortality charges and profit over the years, in arriving at the liability of $30,000. Are policyholders being cheated?

If a customer has $30,000 in the bank and the bank report it as the liabilty to the company, the bank is required to pay out the full amount to the customer on withdrawal. I believe that the same principle should apply to an insurance company.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board(IASB). The following is a quotation from IFRS Framework:

> A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits/

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.

Joke: a committee

The last time I sat on a committee, we were presented with a plan which had two alternatives. We therefore narrowed it down to eighteen possibilities for further discusison.

Monday, July 28, 2008

Land banking

A friend told this story to me.

Singaporeans love land. They have seen the price of land increase from $3 psf to $300 psf over the past 50 years. As they missed this wonderful investment, they are ready to jump at similar opportunities beyond Singapore.

Some entrepreneurs found a way to meet this demand. They choose a familiar city in Canada or USA. They are able to buy a big plot of land far away from the city, at a very low price. They divide the land into plots of marketable size and mark up the price by 10 times or more.

They employ a marketing company to sell these plots to Singaporeans. The marketing company can a large commission, maybe 30% or more, from the sale price. Many consultants love to sell this product and earn big commissions.

There is no way that the investor will know that the land is in the wilderness, with no road access, or facilities like power or water. They do not know the real value of the land, except the promise of the marketer that no investor had sold the land at a loss. (Actually, there is no transaction at all, as there is no investor willing to buy the plot from the original investor).

What is this investment called? It is called "land banking".

National Day 2008

National Day is approaching. We celebrate National Day on 9 August. I will be joining my friend for a visit to an orphanage.

What does the 5 stars of our national flag mean to Singaporeans? You can read their views in: You can also give your views.

Dealing with a Financial Adviser - what to look out for

(5) Be careful of verbal promises and guarantees of high returns. Never rely on verbal promises from your FA or its representative. Anything that sounds too good to be true probably is. Make sure that you understand what is guaranteed and what is not, and insist on written confirmation from your FA on any guaranteed returns or benefits.

This advice, and other useful tips, can be found in this webpage:

Financial advisers


Seriously in Singapore, we do not need so many Financial Agents, we only need 1 Independent Financial Agent (IFA) per 1,000 population. If Singapore have a population of 4.6 million, then we only need 4,600 qualified IFAs. However, if I am not wrong, the number we have is a five-figure. Anyone can tell us how many Financial Agents in Singapore?

In Singapore, we have 1.6 doctors, 0.3 dentists and 4.8 nurses/midwives per 1,000 population, but the number of Financial Agents in Singapore is more than these numbers combined.

Not everyone need them, those first timers in Financial Planning, and those with a high net worth asset may need them.After going through Financial Planning with a IFA and also going through a good Financial education, many of us should be able to handle our own Financial status ourselves.

The government should make "Personal and Family Financial Planning" as a module compulsory for all Final year ITE, Polytechnic and University students, and also those going to ORD from their National Service. They have to pass a written and practical test. These are the people who need such education the most. Another module that I suggest that must be made compulsory and they have to pass a written and practical test is "Relationship, Marriage and Family Planning" :-)

Yong Kiat

Joke: I remain

A landlord wrote to one of his tenants, asking him if he wished to renew the lease of the premises he was occupying. He received this brief answer: "Dear Sir, I remain, Yours faithfully."

Sunday, July 27, 2008

Accounting liability

A life insurance company has to file an annual report that shows the total of the "liability" on each individual policy. I believe that they pay a cash value that is much lower than the reported "liability". Is this fair? What does "liability" really mean?


In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

> They embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand;

> The duty or responsibility obligates the entity leaving it little or no discretion to avoid it; and,

> The transaction or event obligating the entity has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that can be inferred from a set of facts in a particular situation as opposed to a contractually based obligation.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board(IASB). The following is a quotation from IFRS Framework:

> A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.

High cost of advertising

I met a friend at a function. He told me that he had all his policies with Income previously. Recently, he decided to buy a life annuity from Great Eastern. He did not like what was happening in Income recently, with the high cost of advertising and the change in bonus structure.

I told him that Great Eastern may not offer a better deal, compared to Income. But, he was quite sure about his decision.

Financial adviser wants to help people

Hi Mr Tan,

I just come accross your website, when I m doing my study for my Module 5 of CMFAS exam and try to look for more information regarding Insurance.

I wanted to become a Financial Advisor, because I thought it is a good prospect job as it can earn income and can help people or their family when they are sick or after they passed away.

I never come accross to become insurance agent, until I made a claim for for my surgery from private Medishield and found that insurance is quite good.

Furthermore, I have read thru Module 5 and Module 9, from what the text book write and information giving, it seem insurance company really help people to save and be prepared when they need protection.

From Module 5, found that MAS did stated in rules and regulations as well as guidelines for FA to follow. Well this is good, we really collect client's info, analysed, and recommend based on the clint's needs.

After reading your blog, and after knowing what is cost of distribution and effect of deduction, I started to doubt my decision.

I would like to ask some questions:

1) It is all high cost finance products is not good?
2) Do you think it is a good idea to do saving/invest thru Insurance?

Mr Tan, I will be very appreciate if you can give comments to my decision to become insurance agents or share your experieces with us or my fellows friends. I want to earn money but knowing that(君子爱财,取之有道) a person earn the money in proper manner. I want to help people and educate people how to save and get protection when they need (this is what I want too)

Lastly, the company which sending me to training is Y. I think there are many people like me who is thinking that agent can help people and earn money. But I hope you can explain to us the actual and the reality of this world and market and what are the ways is the correct, if we want to become insurance agent.


If you sell insurance for Y, you can earn high commission, but your customers will get a poor yield.

I advise consumers to buy term insurance and invest in a low cost fund. They should avoid high cost insurance products, such as whole life, endowment and ILP.

Read the FAQs in my website,

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