Saturday, September 13, 2008

Avoid investing with leveraged money

Dear Mr. Tan,
Three months ago, my bank suggested to take an overdraft at 3% interest to invest in a Dual Currency Invesment.

Since then, my investment has performed badly. With the drop in the AUD, my investments have been converted to AUD. It has dropped further, leading to a large unrealized forex.

How can I reduce my loss, especially from the leveraged investment?


Generally it is unwise to speculate (invest) using borrowed money (i.e. leverage).I suggest that you find an early opportunity to redeem the leverage.

It is all right to take risk with your savings (but not leverage) as you can afford to wait until the exchange rate recovers (and hopefully, it does recover).

Stress and uncertainty with Incomeshield

Hi Mr. Tan,

I would like to seek you advice on my Incomeshield. Previously, I was still covered under Medishield. I underwent an operation to remove X and Y. Later, I switched to Incomeshield. I declared the operation but forgot about the Y and only indicated X. I was accepted with no exclusion term.

Recently I found out about the omission and make another declaration. I was excluded from any claim relation to and/or arising out of Y.

I called CPF to check if I were to revert back to Medishield, would Y be excluded? They were not able to answer it. I called NTUC, they are not able to advise whether the basic component will still cover that.

At the point of my operation, I was covered under Medishield. What is the possibility that CPF will exclude this clause. I'm in dilemma as to whether I should continue with NTUC or go back to CPF.

I believe that Incomeshield is required (by Ministry of Health) to cover you for Y for the Medishield limits under Medishield. You can confirm this point with NTUC Income. If this is the case, you can lodge a complaint about giving you a lot of stress and uncertainty.

Friday, September 12, 2008

Simple Financial Planning

I wish to give this advice to any person on your financial planning:

> buy a 20 year term assurance for 5 to 10 years of your income
> ask the insurance company to quote the rate for your comparison
> do not talk to an insurance agent
> do not invest in any whole life, endowment or investment linked policy
> make monthly savings (of 15% of your earnings) in a bank
> when the saving reach $3,000, buy 1,000 units of STI ETF.

Read these FAQs:
Financial planning for the young
Personal insurance:
Buy Term Insurance directly:

If you talk to an insurance agent, be prepared for the agent to "convince" you to buy a critical illness policy or a term to 100 years (which is a whole life policy by another name). Say good-bye to more than $1,000 of your savings (as it will be used to pay commission to the agent.

Swedish practice on life insurance

After the Second World War, there were political discussions where the left wing parties, who were in power, suggested that all banks and insurance companies should be state owned.

As a compromise, a fairness principle was introduced in the Swedish Insurance Company Act in 1948. The fairness principle stated that premiums paid by policyholders shall be fair compared to the benefits received by these policyholders. For life insurance business, this was interpreted to mean that all profits made on premiums should be returned as bonus to the policyholders, present or future.

The shareholders of the companies were only allowed a fair return on the share capital, which in most companies was very small.

This was in line with how some life insurers already operated, but was a major change for some others.

During the 1960’s and 1970’s, a practice emerged of paying no dividends at all to shareholders, and this was formalised when the Swedish Parliament in 1982 passed a bill that prohibited the distribution of profits to shareholders of a life insurance company.

This is what makes special the mutual model for non-profit distributing life insurance companies in Sweden: as in a true mutual life insurance company, no profit is distributed to shareholders but the company is still formally a shareholder-owned company. An important aspect of this is that the shareholders retain the right to make important business decisions for the company, without requiring permission from the policyholders or any of their representatives.

Around 1990, unit link life insurance was allowed in Sweden, and unit link companies were allowed to distribute profits to its shareholders through dividends. Sweden became a member of the European Union in 1996, and a change to the Swedish Insurance Company Act in 2000 again opened up for distribution of profits to shareholders in traditional life insurance companies.

However, a process has been established to transform an existing life insurance company to a
profit distributing company, where a transformation for example depends on the approval of the policyholders.

Since then, only a few existing life insurance companies have changed into profit distributing
companies following the change of the company act. In these cases all existing capital of the company has been distributed to the policyholders while the shareholders have injected new risk capital in the form of equity into the company.

Thursday, September 11, 2008

Speaker's Corner, 13 September 5 p.m.

The Online Citizen is organising an event as follows:
Topic: Public Transport in Singapore
Venue: Speaker's Corner, Hong Lim Park
Time: 5 p.m.
Date: Saturday 13 September, 2008.
Agenda: Speech by 4 speakers on the topic

A paper on proposals to improve the public transport will be handed out.

Project 11-11-2008

My target is to achieve 500,000 visitors to my blog by 11-11-2008.

The sitemeter shows 430,484 visitors as at 11 Sep 2008. The average visitor per day is 1,137.

The projected date to achieve the target of 500,000 visitors is 11 Nov 2008 (based on average of 1137 per day). We are right on target ... exactly to the day!

Today is the 7th anniversary of 9-11 terrorist attack on the World Trade Center in New York.

Ask the agent

Many readers dare not ask the agent to explain the key questions. They are confused by the explanation given by the agent. They sent an e-mail to me for advice.

My usual reply is:
> The agent can earns $1,000 or more to sell a life policy to you
> The agent has a duty to explain the product clearly to you
> You should ask for explanation on the Benefit Illustration
> Ask for the explanation in writing
> You should never buy the product, if you are not clear about it

> I am not able to give personal advice to you
> You have to make your own judgement

Advice from my blog and website

Hi Mr. Tan,

I have been reading your articles on the high costs of whole life insurance. Could you help to comment on the below quotations from Income for a 10 yr and 20yr Vivolife policy? I would like to know the explanation of distribution cost and effect of deduction using the below.

(Details removed)

My advice is given in my blog:

Please read my blog and website for the information:

Wednesday, September 10, 2008

Insurance companies: commitment and transparency needed

Here is a letter printed in The New Paper:,4136,176036,00.html

Free Public Transport

This article describes cities that have free public transport:

A friend, who sent the information to me, confirmed that the information on Auckland is true:

Auckland, New Zealand
A free CBD loop service links the ferry terminus, railway station, universities, theatres, casino, galleries and shopping districts using hybrid electric buses. It operates from 8am to 6pm, 7 days, at 10 mins interval, but not all buses are hybrid.

The quality of service is quite good, although it does get crowded at certain time, eg. school hours, lunch time, etc.

World Class Public Transport System

Read about my suggestions to improve the public transport system in Singapore, and comments from other readers as follows:

Inadequate cash value

Dear Mr. Tan,

Thank you for telling us about the special report in The New Paper. I surrendered my life policy recently and received a refund that is much lower than the premiums that I paid. I have written to MAS to ask them to take up the case with my insurance company. I hope that they will act. Do you think that the insurance company will pay more to me?

Let us wait for the reply. Wish you all the best.

Tuesday, September 09, 2008

Take a bigger loan at a low interest rate

Hi Mr. Tan,
I am in the process of looking for a housing loan. My friend advised me not to pay off the loan so fast, but to use my available cash for investments. Is it a wise thing to do? He showed me some calculations, to convince me that I would be better off taking loans and investing my cash. But won't I be losing from the high interest the bank charges?

If the interest rate on your loan is low (say 2.6% for HDB loan), you should be able to earn more than than this interest rate from your invetment, if it is invested wisely. You should avoid investment that has a high charge, especially if it is marketed to you by an agent or financial adviser.

However, if the interest rate is more than 4%, it is not worthwhile to take the investment risk.

Suzy Orman on Life Insurance

A friend recommends a whole life policy and earns $10,000 in commission.

Watch this video:

Suitable products depending on needs

Some readers argued that certain products are not inherently bad. They are suitable for certain people, according to their needs. This is only partly true.

Here are my points:

> A product is bad, if it is designed to "cheat" people. This type of product has high charges that are hidden from the consumer.

> These products are "pushed" by agents or marketeers, who mislead the consumer through their "marketing techniques".

Most life insurance "savings" products and structured financial products fall in this category.

The good products are those that do not need to be marketed. They are bought by the consumer, usually over the counter. They include:

> bank deposits
> government bonds
> low cost unit trust
> term insurance products

Monday, September 08, 2008

Advice on Vivolife

Hi Mr. Tan,
You must be familiar with NTUC Vivolive. An agent tried to sell it to me...Is it of any good value? It seems to be a whole life policy.

You should ask the agent to explain the following figures to you:
1. What is the value of the premium accumulated at 3.75% and 5.25% after 20 years or at age 65 ?
2. What is the projected cash value of the prolicy after 20 years or at age 65
3. What is the percentage reduction from the value of the premium represented by the cash value?
4. If the percentage reduction is more than 30%, the policy is expensive.
5. What is the amount deducted from your policy as distribution cost (mainly to pay commission to the agent)

Read this FAQ: Hide quoted text -

Big exchange loss in a Dual Currency Investment

Hi Mr. Tan,
I invested in a Dual Currency Investment two years ago and made a good return. Recently, the AUD depreciated against the USD. All of my investments got converted to AUD at 0.90. The exchange rate has now dropped further to 0.816, which makes the unrealized forex loss to US$50K.

What strategy should I take to minimized the loss? Right now, while waiting for the AUD to do better against USD, I have placed my money into a weekly time deposit earning almost 6%p.a.

It is all right to keep the AUD in fixed deposit and earn 6% interest. There is a chance that it will recover, as it has dropped by more than 10%.

If you had invested in the AUD directly, instead of a DCI investment during the past two years, you would have made an exchange gain that is more than the loss that you suffer now. But, if you invested in the DCI, your gain would have been much lower.

I usually advise people to avoid DCI, as the investor is taking the risk of a loss (like you did), it was not able to enjoy the full appreciation (if the currency goes up).

Read this FAQ:

Choice of term or personal accident insurance

Dear Mr. Tan,
I have read your blog and website. Your articles are really helpful to individual investors at the grassroots.

I have term life and personal accident policy. You mentioned that it's reasonable to have sum assumed 5 to 10 times of annual income. Does this ceiling apply to life and personal accident respectively or separately? Should the aggregate sum assumed be taken to make up the ceiling?

If you can afford the premium, you should buy term insurance for the target sum of 5 to 10 years of salary. Term insurance covers death from accidents and illness.

If you with to reduce the cost, you can insure the target sum partly by term insurance and partly by accident.

You should get the quotation of the cost and make your decision based on the figures.

Sunday, September 07, 2008

The New Paper: Truth about Life Insurance Payout,4136,175807,00.html?

Investing in NZD

Dear Mr Tan
What is your opinion of investing in the NZD at this point of time? What are the risks and rewards involved?

Read this FAQ

The NZD has corrected a lot from its high level. This seems to be an attractive level for a new investment.

Another scam: Beware of Push Pockets ...


While the scams are happening in Malaysia , it's a lesson worth noting for anyone of you who loves to travel. Be alert!!

I am sure you all have heard of 'pick pocket'. Now there is a new trend, 'push pocket'.

A few days ago a new type of crime has surfaced in town. It goes something like this:-

Somebody slips a hand-phone into your pocket, sometimes it could be just a wallet with an identity card and a few Ringgit.

A few minutes later, the 'owner' comes up and confronts you, the 'thief'. He makes a big commotion that you stole his stuff.

You, caught unaware, are then pulled aside by the 'owner' for a settlement you are intimidated and threatened that if you do not pay up, the police will be brought in. If you pay up, this 'owner' lets you go. If not, the police are brought in.

Another strange thing is that, there always seems to be a 'witness' to the your 'theft'.

I am told this often happens to foreigners at the Kuala Lumpur International Airport (KLIA) or even at LRT trains. Given that you're 'guilty until proven innocent' as far as the Malaysian police are concerned, I understand some poor people are in jail for these 'offences'.

At the KLIA, the 'owner' throws his hand-phone and wallet with the few Ringgit notes into the luggage trolley of a just arrived passenger. The drama unfolds a few minutes later.

The real culprit has easily convinced our Malaysian police to arrest the real victim (if he has not paid up the 'settlement' demand).

This is a very serious matter.

This is another form of extortionists operating in broad daylight. They are disgusting criminals who will do anything to rob and steal. The sickening part of the whole scenario is that unless you pay the 'quoted settlement' money, they will put you in real trouble by calling the police.

The real culprit gets back his hand-phone and wallet but the real victim (i.e. could be any one of us) is thrown into the police lock up and charged in court.

So do be very careful, otherwise you may end up as a 'thief' as you have no way to prove your innocence.

Hurricanes in USA

The hurricanes have a name, starting with A, B up to Z using female names. After 26 hurricanes, a new series is started with A, B up to Z using male names. The current names are (male) Gustav, Hanna and Ike.

Gustav (which has just passed) was earlier feared to be as bad as Katrina a few years ago, but it finally did not cause much damage.

The names of the hurricanes alternate between male and female names, starting from A followed by B, etc. Here is a list of names of hurricanes:

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