Saturday, October 24, 2009

Mandating health insurance

This article explains the need to pass a law to require every person to be insured, use of community rated premiums and guaranteed issue, i.e. no medical underwriting. This approach is adopted by several countries, e.g. Australia, Germany.

Price chart of land in UK

Dear Mr Tan
I notice that many Singaporeans seem to fail to grasp the problem with land banking. The argument is always that land increase in price and since you own the land you cannot lose.

I have created this chart to explain my case. This is based on real land banking company data. I used a starting plot price of 10,000 UKP in 2006 converted into S$.

The green belt land value is based on land registry data in 2006 The value with planning permission is based on a land banking company estimate of 250% returns adjust by the recent fall in property prices.

I have adjust all prices using both currency and the recent boom and bust in the UK property market. I have made an assupmtion of 5% per annum increase in the value of land from 2011 forward.

Since there are no recorded successes with UK land banking plots I cannot see how any company can make claims for expercted, estimated or anticipated returns on this investment.

You will note according to this graph that in real terms land banking plots have got cheaper since 2006 as the UK currency declined in value. However many land banking companies have increased their UK pound price of their plots so that they still get the same number of Singapore dollars. As an example X increased their plot price from 5600 Pounds to 8000 Pounds in 2008.

Keep your investment fees low

Read this report.

Friday, October 23, 2009

Rechargeable Torchlight with Locator Lamp

My friend saw this torchlight being sold at the airport for $27.50 (inclusive of GST).

It has two important features:
a) rechargeable
b) a locator light to locate the torchlight in the dark
With a torchlight, it is easy to move about the flat or house in the dark - without switching on the main lights. This will be handly in an emergency or power failure.
I have imported a torchlight with these two features and will be selling it for $6.50. Interested buyers can buy them from my office in Ang Mo Kio. This is specially useful for NS men or civil defence personnel.
I will be looking for distributors who are interested to sell the low cost torchlight. Send email to

Guarantee against losses

Back to the old days of guaranteed products. Before investing in these products, make sure that the charges are low and you can get a reasonable yield. Read here.

Spread in betting games

What are the spreads in some of the common betting games, such as 4D, Toto, Big Sweep, horse racing, football betting?

Here are the ways to find out:

a) 4D, Big Sweep. Assume that the operator sell all of the tickets. How much money is collected? How much money is paid out, adding up all the prizes of all the winning tickets. This represents the odds. I believe that the total payout is about 60% to 75% of the total bets. The balance goes towards expenses (e.g. salaries, printing, office, sales commission), taxes (i.e. paid to the Government) and profit to the operator.

b) Toto, horse racing, football betting. You are not able to calculate the bets and prizes from the structure of the betting game as there are some variables that cannot be directly calculated. Here, you can look at the accounts and find out the total amount that is collected from the bets and the total paid out as prizes to the winners.

Which game is best for betting? It depends on whether you are a real gambler (in which case, you choose a game with the highest payout ratio, such as roulette or poker), or whether you are a fun gambler (in which case, you choose a game that you enjoyed most, such as horse racing or football betting).

Tip: Always bet with money that you can afford to lose. Treat it as another form of entertainment. If you can spend $500 on a holiday, and you enjoy spending this amount on a betting game, go and bet - but make sure that the money can give you the enjoyment for a few hours or a day (and not in just a few minutes).

Tan Kin Lian

Fax the Benefit Illustration

Hi Mr Tan,
I have heard very good words about you and I really hope that you can spare some time to advise me on an investment issue.

I have just started working for a while so I can be considered as someone who can take high risk. I bought funds on my own and I want to get a savings plan as to diversify my money.

I came across this Savings Investment Plan by X.
Premium: $1,800/annum
Benefit Illustration based on 9% investment return: On the 11th year, should earn around 13k profit on top of accumulated premium.
Break even is expected between 7 to 9 years.

Although it is non-guaranteed, the agent said that the market prices just keep going up, and stocks prices also, so it is definitely a gain in long term of around 10-20 years.

Agent advised me to take out the earnings and capital on the 11th year (eg, when the prices are good), and keep remaining 1K to continue the plan and go another cycle.

I came around another savings endowment plan which gives a lot lower rate, eg. 11K profit after 15 years.

The Savings Investment Plan is Non-guaranteed at all and depends on the unit's bid prices and economy.

I am quite interested in the projected returns but I worry that it might not even give me enough to break even since it is entirely Non-guaranteed. I have heard some people say that some companies can don't give you any non-guaranteed amount and that will be a disaster.

What do you think about non-guaranteed amounts and how often do you see companies do that? Do you think that it is safe for me to take up this Savings Investment? Or should I just take up a savings endowment plan since I can invest on my own and earn more profits?

Please fax the Benefit Illustration for this policy to me at 64053100.

You should ask the agent to explain the following matters to you:
1) How much is the distribution cost? This is the amount taken away from your savings to pay commission to the agent and other expenses. It should be not more than 50% of the annual premium.
2) What is the "effect of reduction" compared to the accumulated premium (at 5% and 9%) at the end of 25 years. This effect of deduction should not be more than 15% (to give good value to the customer).

Poor customer service in Financial Firms

This report was published in the Business Times two years ago. It is still relevant today. Consumers should avoid investing their savings in financial products that give a poor yield (due to the high commission paid to agents) and get poor customer service.

FISCA Research

A few new investment products have been introduced. Are they good or bad for consumers? What are the risks and charges?

FISCA has got its experts to do an evaluation of these products. The evaluation report will be published in the FISCA internal website, which is accessible only by members through a member login.

If you are interested to access the research, you have to be a member. The annual subscription is $36. You can join through

You will enjoy other useful benefits by being a FISCA member. Most importantly, you can attend the training courses and be educated about financial planning.

Tan Kin Lian

Thursday, October 22, 2009

Difficult to make timing decisions

I am an avid follower of your blog. It has been a source of enlightment that exposed the misleading practice that has been rampant especially in the last decade.

Currently I am in my mid twenty with stable income of a typical young graduates. I have saved approximately $10,000 so far. I am determinded to invest it wisely.

You has been highlighting the benefits of STI ETF which is now my choice due to its diversification and low charges. However recently the price has been rather high on 2600 - 2700 band. I am not sure whether I should buy it now OR wait for the price to go down?

It is difficult to make timing decisions. I am not an expert on this matter.

For my personal investments, I have decided to sell some of my shares, as I expect that the Singapore and global economy has still not solved the underlying problems. I have decided to keep some of my spare money in cash.

Wish you all the best.

Minibond suit in Singapore let by Conrad Campos

22 Oct 2009
SINGAPORE — One of the three defendants in the second class action suit related to botched structured notes has filed its defence against allegations of negligent and fraudulent misrepresentation. The structured notes in question are one of the Minibond Series linked to collapsed United States investment bank Lehman Brothers.

Lehman Brothers Singapore, which was named as the arranger of the now-defunct Minibond Series 2 in a suit backed by 165 investors, refuted claims that the investors were misled by the statements in advertisements, base prospectus and pricing sheets of the notes.

The company is represented by Senior Counsel Andre Yeap and Mr Danny Ong from Rajah & Tann.

The other two defendants are Minibond Ltd, the issuer of the investment, and ABN Amro, one of the nine distributors of the product. They are represented by Shook Lin & Bok and Allen & Gledhill, respectively. The latter is expected to file its defence in about two weeks.

One point of contention in this case is the issue of risks faced by the Minibond investors. Earlier, the plaintiffs alleged that the defendants have perpetuated a “false and misleading” impression that the product’s “primary risk” is with the credit standing of seven companies known as the reference entities (REs).

The reference entities included names like DBS Bank, Standard Chartered Bank and SingTel and these companies form the first layer of the credit-default swaps embedded in the product. This means that the occurrence of default or bankruptcy in any of these seven companies could result in a “credit event” which can potentially cause the Minibonds to become worthless.

However, the plaintiffs — represented by their lawyer Conrad Campos and Company — alleged that the seven REs are, in fact, a “ruse” to induce investors to invest in the Minibonds. The true risk of the product lies with the second layer of underlying securities, made up of collateralised debt obligations, of which there was inadequate disclosure, they claimed.

In its 58-page defence filed on Oct 2, Lehman Singapore maintained that the credit risks related to the REs were indeed the “primary risks” borne by the investors.

In fact, Lehman Singapore claimed that the default or bankruptcy risk of the REs is “at all material times” higher than that of the underlying securities.

If there were indeed misleading representations, Lehman Singapore said that there are documents which had been signed by the plaintiffs which stated that investments were made based on their own independent judgment and appraisal of risks.

Lehman Singapore also alleged that the plaintiffs were negligent on their part such that they contributed partly or wholly to any losses incurred. In response, the plaintiffs said in their filed reply last Friday that returns from Minibond Series 2 were derived from the underlying securities. They also added that this substantiates their claims that these securities carry more risks compared to the seven REs.

As for Lehman Singapore’s point on signed warranties, the plaintiffs countered that the prospectus for the underlying securities was created only after the offer period for the sale of Minibond Series 2 had closed.

Hence, the plaintiffs said that it is “devoid of good faith, common sense and commercial reality” to expect Singapore retail investors to conduct their own investigation and analysis of the underlying securities.

Big swings in currency values

I saw a currency chart of the Euro against the USD. The Euro was at USD1.55 in July 2008. It dropped 20% to USD 1.25 in November (i.e. 4 months). Over the past 11 months, it increased by 20% (on its lower base) to USD 1.50 in October 2009.

Lesson: currency values can swing by 20% within a few months. It is highly volatile and risky.

TKL Financial Planning (draft 5a)

My friend in Jakarta downloaded a copy of my Financial Planning book (draft 5a). He printed it, cut into A5 size and bound the book. It came out quite handy and easy to read. He found it to be useful and practical.

You can download a copy of the book (for free) here. Please give your feedback here. I encourage you to join FISCA as a member and attend their workshops and seminars based on this book.

Writing a will

Dear Sir
Would you also kindly touch on the issue of writing a will? Is it a must to have a will in a family? Isn't it a norm that if something say happen to me, everything will goes to my spouse and kids?

There's a link provided by one of my friends and I am not sure if it's applicable to most of us here in Singapore -

Maybe you can provide the general viewers of your blog some insights into writing a will.

For a person who dies without a will, the estate will be distributed according to the Intestate Law. If the person has a wife and children, one half will be distributed to the surviving spouse and the other half to the children. However, the actual rules are described in this law.

If a person wants to distribute his (or her) estate in a different manner, he has to write a will. A simple will can be written by any person (without a lawyer) and signed by two witnesses who are not beneficiaries or connected to the will. The will has to be kept in a safe place that can be discovered on death.

A person can write a will and change it at any time. It is a good practice to review the will every few years.

Here is my personal tip. Keep enough money for your own use, such as buying a lifetime annuity, and distribute some of your assets to your children earlier, so that they can make better use of the assets. Do not keep too much to be distributed on death.

Tan Kin Lian

Betting - getting the right payout

Gambling is a game of chance. It is fun. Many people enjoy it. A common type of gambling is a bet.

When you bet on an outcome with a friend, you have the choice of taking either side of the bet. You do not have to incur any expense. What one person gains is the loss of the other person.

When you place a bet with a betting house, you have to incur a spread. For example, you may lose $100 when you win the bet but only win $90 when you lose the bet. The spread in this case is 10%. The betting house needs the spread to cover its expenses and to make a profit.

The betting house is ready to take you bet at any time, but the odds may change according to the time that you placed your bet.

When you place a bet on a sporting game, there is the risk that the party that collects the bets may bribe the player towards an outcome that is profitable to that party. This is called "fixing the game" and is a crime. You have to be careful about betting on a game that can be fixed. In that case, you will get less than your fair payout.

When you bet on certain type of games in a casino, you can calculate the actual odds of winning or losing the bet, based on the physical characteristics. For example, the chance of drawing an ace in a pack of cards is 1 in 13. The chance of getting the right number on the roll of a dice is 1 in 6. The chance of picking the right number in a rouletter is 1 in 38 (i.e. 36 numbers plus 0 and 00).

You can pick on any outcome, but the reward for getting it right will be based on the actual odds, less an expense margin.

For example, in roulette, you will win $35 for each $1 that you have bet although the chance of losing is 1 in 37. If there are equal bets on the 36 numbers, the casino will break even on 36 out of 38 cases and win all the entire bets on 2 out of 38 cases. The spread is nearly 5%. This is used to cover the expenses of running the casino and producing a profit.

Note: you should avoid bets where the payout is not fair to the better, or where the spread is higher than the entertainment value.

Tan Kin Lian

Automated gates - a waste of money

Are the automated gates used to check passports a waste of money? Read here.

Wednesday, October 21, 2009

Reduce taxi fares

Here is my suggestion to reduce the taxi fares - reduced wasted time and travelling by making better use of taxi calling.

Gambling and investing

Gambling is a game of chance. You bet a sum of money on a future outcome. You hope that it happens and you win the bet. If it does not happen, you lose the bet.

You can gamble on a game of roulette that has the number 1 to 36. You choose a number and place a bet. If the number appears on the next role, you win a price of 35 times of your bet. If it does not appear, you lose your bet.

You can also gamble on a 4 digit number or the numbers that will appear in Toto. You can also gamble on the Big Sweep and hope that win a large prize if your ticket number is drawn.

When you "invest" in a stock or foreign currency, you are also gambling that the price of the stock or currency will go up and give you a profit. If it goes down and you are not able to hold the position (e.g. if you are on borrowed money), you will have to sell the stock or currency and take a loss. You are actually gambling (or speculating - to use a nice word) on the price of the stock or share.

If you choose a good stock and is prepared to keep it for a long time to earn a share of the future profits, and you do not bother about the price of the stock, you can be considered as "investing" in the stock.

When you gamble, and this includes speculating in financial products, you have to make sure that you are getting a fair payout for your risk of loss. If you have a 1 in 6 chance of winning (and 5 in 6 chance of losing) in a game of dice, you should get a payout of 5 times for winning.

You should avoid structured products where the chance of winning is not transparent to you. You are likely to be given a lower payout than is justified by the risk that you are taking.

I shall write more about calculating the odds (or chance of winning) in a later article.

Tan Kin Lian

A counter staff who said "yes"

I had an unusual encounter with a staff who said "yes" at the check-in counter. It is typical of Singaporeans to say "no". Read the story here.

Tuesday, October 20, 2009

Continue working to stay in good health

It is better to continue working after the normal retirement age, either in a full or part time job, preferably in a familiar job, according to this report.

Income gap in Singapore

Read this article.

A poor deal for consumers on single premium policies

Published in Straits Times Online on 20 October 2009

Recently, I was shown the benefit illustrations for two single premium policies sold by two different insurance companies.

I was surprised to find in both cases that the surrender value on the first year is less than 75% of the single premium and that it would take 8 years or longer for the surrender value to reach the breakeven point, i.e. exceed the amount that has been invested.

Although these policies pay a death benefit that is higher than single premium in the event of death, the cost of this protection should be relatively small and should not require such a large amount to be deducted.

There could be extreme situation where a high surrender penalty is justified, such as a sharp increase in interest rate, but in normal circumstances, this type of penalty and high charges are unfair to consumers.

In both cases, the policyholders were not aware about the implication of locking up a large sum of money for long periods on an investment that gives a rather poor yield. They did not get the proper explanation from the insurance adviser and sought my assistance.

The Monetary Authority of Singapore has asked the board and senior management of financial institutions to be responsible for achieving “fair dealing outcomes” for their customers.

I hope that the MAS would ask the insurance companies that issue this type of product to explain how the product could be considered as being fair to their customers.

Tan Kin Lian

Kallang Paya Lebar Expressway (KPE)

Read my views about the KPE here.

Monday, October 19, 2009

Sudoku - Very Difficult Puzzles

Here is a page containing 4 very difficult Sudoku puzzles. I shall be printing a book of these puzzles, available in soft copy. If you like it, give your particulars here.

CPF Life

Please refer to the explanatory booklets on CPF Life that can be downloaded from the CPF website. It explains how the various options work. If you have any detailed questions, please ask the CPF Board. I can only give general advice about the merits and disadvantages of this scheme.

Wider duty of a lawyer

My friend, who is now attempting the final part of his training to be a lawyer, made this statement, "The duty of a lawyer is to protect the best interest of his client".

I asked him if the lawyer has a duty to uphold the integrity of the legal process. For example, is it all right for a lawyer to act for the client in the following actions?

a) writing a prospectus that is confusing to the public?
b) arranging an investment scheme that defrauds the public?
c) intimidating the public with defamatory action without sufficient grounds?
d) helping the client to draft untrue statements?
e) drafting legal contracts that are unfair to the customers (i.e. possible contravention of the fair trading act)?

My friend found it difficult to answer my questions. The law is not clear on these matters. There are insufficient case history to rely on.

I will be asking the Law Society on these ethical questions. I hope that they can provide some guidance to their members who are practicing lawyers.

Tan Kin Lian

Capital Protected Product - sold in 2002

A customer invested $25,000 in the structured product sold by a local bank in early 2002. After waiting for 5 years, the customer received a return of $25,528. The gain is $528 (i.e 2.1% for 5 years, or 0.4% per year).

The formula used to compute this return is:

(a) 5% for 5 years or
(b) 45% of the smallest absolute performance of 1 stock out of 15 selected stocks.

Among the 15 selected stocks, at least 1 of them showed an absolute loss for the 5 years. So, formula (b) produced nothing.

The investor gets 5% for 5 years under formula (a), but after deducting the sales charge, the net return is only 2.1% for 5 years.

During these 5 years, the return from the 15 stocks is probably 30% or more. The customer gets 2.1%. If the customer had invested directly in the 15 stocks and taken the risk, the return would have been very attractive.

What is the logic of formula (b)? I cannot understand its logic. It seems to me, that it is designed to take advantage of the naive customers.

I cannot understand how the regulators can allow the unsavvy customers from buying into this type of product.

Tan Kin Lian

How the product works

The bank invest about 85% of the money in a low risk bond that will give 100% of the capital guaranteed at the end of 5 years. It uses the remaining 15% for its marketing, purchase an option to give the 45% payout and for its profits. I have no clue how much is the option money, but it is likely to be less than 5%. At least 10% of the invested sum is wasted in expenses and profit for the bank. The chance of striking formula (b) is probably less than 5% anyway.

Advice: Never invest in a structured product that contains non-transparent charges and gambling outcomes where the odds are not disclosed to you.

A lesson in humility

An interesting article about the Chinese Prime Minister, Wen Jiabao.

Sunday, October 18, 2009

RED Portal (20)

Click on the label "RED Portal" on the right to get a list of all the articles on the Real Estate Data. Do your research of the property market before you decide to buy, sell or rent any private property.

Tell your friends about this portal. It provides useful information for consumers.

Public Forum on CPF Life

Venue: Park Mall, Meeting Room level 13 (opposite Dholby Ghaut MRT)
Date: 24 Oct 09 (Sat)
Time: 230 - 530 pm
Interested participants may register at

RED Portal (19) - Latest Transctions

How is the property market moving?

The RED Portal has a new feature. It shows the latest 100 transactions compared with the benchmark price (BMP). It gives an idea on the trend of prices in recent transactions for specific projects.

The transaction date shows the lodging of the caveat which can be between 1 to 3 months from the actual date of the initial negotiation.

Latest transactions.

Benefit Illustration for a Life Insurance Policy

If you have bought a life insurance policy within the last two years and you wish to me give you an analysis, you can send it by fax to me at 64053100.

Guaranteed products

Some people like to have guaranteed products. They may not realise that these products are "guaranteed to lose".

Suppose you buy a product that is guaranteed to give you a yield of 5% over 20 years. Is this a good product?

If there is high inflation in the future, the value of your investment will drop. You are locked into a product with a low yield, compared to the market rates. The issuer of the product makes a big profit.

If interest rate drops to near zero, like in Japan for many years, will you benefit by getting the guaranteed 5%? Maybe not. If the issuer is not able to meet its obligation, they will declare bankrupcy. You lose again.

Do not buy a guaranteed product unless it is backed by a financially strong institution. Do not buy a "guaranteed product" which may be "guaranteed to lose".

This is why I prefer to buy an exchange traded fund of equities and keep it for the long term. It has liquidity, transparency and diversification. It does not provide any guarantee, but is likely to give a better yield than any guaranteed product.

Note on Exchange Traded Fund (ETF)
There are several ETF available in the Singapore Exchange. The most well known is the STI ETF which is intended to track the performance of the Straits Times Index. It offers diversification into several large stocks and has low annual fee of 0.3%. You have to ask your stockbroker about the ETF or attend a briefing organised by SGX.

Postive views about CPF Life

I believe that CPF Life is good for the people. Here are my reasons:

a)It is operated as a mutual scheme. The future payment will reflect the investment yield and mortality experience.
b) The administrative expense is low
c) Most people (except the affluent) will receive a bonus when they join the scheme
d) The interest rate credited to the investments is higher than the market rates.
e) CPF or the Government will not make any profit from the scheme.

Members who buy CPF Life is getting a good deal, much better than any life annuity that can be offered by an insurance company. The view held by some people, that the Government is trying to make money from CPF Life is unfounded.

The non-guaranteed nature of the monthly payout will work better for the members. If there is high inflation in the future, it is likely that a higher payount will be made under CPF Life (as inflation is usually accompanied by higher interest rate).

I hope that readers of my blog will listen to my positive views on CPF Life and not be influenced by the negative views and the distrust.

Tan Kin Lian

The Singapore Model - Where from, where to?

Read this article.

Difference of views

Mr. Tan,
You seem to block opinion that differs from yours. Don't you allow other people to post their differing views

I have to block comments that are potentially defamatory. I suspect that some people may get their own people to put ananymous comments to attack themselves, and then get a lawyer to give me trouble. This is dishonest, but is possible.

There are comments that attack my views. If you wish your comments to be accepted, you have to show respect for my views and be courteous. Do not be abusive or arrogant.

Some people post views for the sake of debating. This causes confusion and is not helpful. My blog is intended to educate people, and is not intended to be a place for academic debate.

Some people want to argue the perceived advantages of their products. Please go to your own company's website to do your marketing.

Finally, those who dislike my views are not required to visit this blog. Goodbye.

Articles in my blog

I post several articles in my blog every day.

A few regular visitors to my blog send articles to me, usually of news clippings from other newspapers on insurance, finance and other issues covered in my blog. If I find them relevant, I post them into my blog with my comments.

Some contributors have a specific purpose. For example, they had bad investments in land banking products and send articles to me to warn others about the bad experience.

Some had a bad opinion about insurance agents. They continue to post comments to attack insurance agents. I find these comments to be unjustified and have blocked many of them.

I write some articles on my own based on my knowledge and research. These articles will usually carry my name.

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