Some people sent questions to me, asking me for guidance. I sense that they are quite ignorant on financial matters, and do not seem to make the effort to learn the basic knowledge. They only expect other people to give them the answer. This is dangerous and unfair.
At the least, they should read my book, Practical Guide on Financial Planning. It gives them a good background to ask sensible questions. I hope that they will take this important step - before they send their questions to me.
Saturday, November 20, 2010
Business Times: UBS takes on couple in $9m lawsuit
Published in Business Times
Husband and wife, who have been private banking clients, countersue
By MICHELLE QUAH
The Singapore arm of Swiss bank UBS AG is taking two of its private banking clients to court, on the grounds that the couple owes the bank some S$9 million.
The couple, Ng Kok Keong and wife Yow Sin May, have filed a counterclaim - saying that their money was lost as a result of the 'grossly negligent' behaviour of their relationship manager, Lily See. They are seeking damages, in addition to what they have claimed they had lost.
Read the full story in BT website (free after 6 pm)
http://www.businesstimes.com.sg/sub/news/story/0,4574,413973,00.html?
More Singapore stories in this portal:
http://www.easyapps.sg/SGEP/Latest.aspx
My comments
Reading the facts of this case, I get the impression that the investments were made in leveraged dual currency contracts. I have warned investors to avoid these type of contracts. Read this article.
Husband and wife, who have been private banking clients, countersue
By MICHELLE QUAH
The Singapore arm of Swiss bank UBS AG is taking two of its private banking clients to court, on the grounds that the couple owes the bank some S$9 million.
The couple, Ng Kok Keong and wife Yow Sin May, have filed a counterclaim - saying that their money was lost as a result of the 'grossly negligent' behaviour of their relationship manager, Lily See. They are seeking damages, in addition to what they have claimed they had lost.
Read the full story in BT website (free after 6 pm)
http://www.businesstimes.com.sg/sub/news/story/0,4574,413973,00.html?
More Singapore stories in this portal:
http://www.easyapps.sg/SGEP/Latest.aspx
My comments
Reading the facts of this case, I get the impression that the investments were made in leveraged dual currency contracts. I have warned investors to avoid these type of contracts. Read this article.
Large increase in membership of FISCA
There was a large increase in membership of FISCA during the past two weeks (about 30 new members). This was probably due to my letter, published in the Straits Times on term insurance, whole life insurance and investment linked policies, and to the interest in the FISCA's analysis on the DBS preference shares, which was posted in the FISCA website (for member's only).
You can join FISCA (www.fisca.sg) and attend the educational talks at a discounted price for members. FISCA now offers 4 separate talks. Wow!
You can join FISCA (www.fisca.sg) and attend the educational talks at a discounted price for members. FISCA now offers 4 separate talks. Wow!
Garrett Goh's original letter
Garrett Goh has sent me his original letter (see below) that was sent to the Straits Times. The Straits Times editor published an edited version.
TO: Straits Times (for publication on ST Forums)
I refer to the ongoing discussion on insurance products (Lim Pueh Joo, "Investment-linked policy works best for me", Straits Times, Nov 19), specifically to address the “advantages” of investment-linked policies (ILP).
Mdm Lim is technically correct in that once the term insurance period ends, renewal premiums will be costly if a person develops a medical condition. However, she has failed to understand that purchasers of term insurance are not looking to renew their policy at the end of their term. Buying term insurance is only half of the strategy. One should not forget about the other part, where advocates of term insurance will save and invest the difference between the premiums of a comparable ILP policy and term policy. As written in my earlier letter, for an insurance coverage of $500,000 for a mid-20s male, this sum is about $8000/yr. Assuming that this difference of $8000/yr is invested in low-cost investment instruments and grows at a moderate 5% per annum for the next 40 years (till retirement age), the accumulated "cash value" will be $1,000,000. Consumers who buy term insurance and invest the difference will very likely be able to accumulate their own "cash value" by the time the term policy expires, and this self-accumulated "cash value" will be at least equivalent if not greater than the insurance coverage purchased. Having a personal "cash value" is also more advantageous, because one can claim one's own money without restrictions like adhering to the strict definitions of 30 critical illness.
I am pleased that Mdm Lim has found her ILP returns to be good. However, I would advise her to make an appropriate comparison before jumping to conclusions. It is well known that ILP introduce many additional fees that increase their effective expense ratio. Low cost investment products have an expense ratio of about 0.50%, which is much lower than the ILP expense ratio that may be around 2.0% or higher. The high ILP expense ratio will be detrimental to her financial health in the long term. Using the above hypothetical scenario (which assumes a gross 5% returns per annum), if a consumer were to save and invest the $8000/yr difference for the next 40 years, the ILP investor would accumulate a cash value of about $600,000 versus the DIY investor's cash value of about $850,000. Personally, I find the idea of giving the insurance company a quarter million dollars a total rip off. ILPs only appear to be a win-win situation because consumers are not well educated about the cheaper alternatives out there.
Garrett Goh
TO: Straits Times (for publication on ST Forums)
I refer to the ongoing discussion on insurance products (Lim Pueh Joo, "Investment-linked policy works best for me", Straits Times, Nov 19), specifically to address the “advantages” of investment-linked policies (ILP).
Mdm Lim is technically correct in that once the term insurance period ends, renewal premiums will be costly if a person develops a medical condition. However, she has failed to understand that purchasers of term insurance are not looking to renew their policy at the end of their term. Buying term insurance is only half of the strategy. One should not forget about the other part, where advocates of term insurance will save and invest the difference between the premiums of a comparable ILP policy and term policy. As written in my earlier letter, for an insurance coverage of $500,000 for a mid-20s male, this sum is about $8000/yr. Assuming that this difference of $8000/yr is invested in low-cost investment instruments and grows at a moderate 5% per annum for the next 40 years (till retirement age), the accumulated "cash value" will be $1,000,000. Consumers who buy term insurance and invest the difference will very likely be able to accumulate their own "cash value" by the time the term policy expires, and this self-accumulated "cash value" will be at least equivalent if not greater than the insurance coverage purchased. Having a personal "cash value" is also more advantageous, because one can claim one's own money without restrictions like adhering to the strict definitions of 30 critical illness.
I am pleased that Mdm Lim has found her ILP returns to be good. However, I would advise her to make an appropriate comparison before jumping to conclusions. It is well known that ILP introduce many additional fees that increase their effective expense ratio. Low cost investment products have an expense ratio of about 0.50%, which is much lower than the ILP expense ratio that may be around 2.0% or higher. The high ILP expense ratio will be detrimental to her financial health in the long term. Using the above hypothetical scenario (which assumes a gross 5% returns per annum), if a consumer were to save and invest the $8000/yr difference for the next 40 years, the ILP investor would accumulate a cash value of about $600,000 versus the DIY investor's cash value of about $850,000. Personally, I find the idea of giving the insurance company a quarter million dollars a total rip off. ILPs only appear to be a win-win situation because consumers are not well educated about the cheaper alternatives out there.
Garrett Goh
Garrett Goh: Strategy behind buying term insurance
Published in Straits Times Online Forum
I REFER to the ongoing discussion on insurance products (Madam Lim Pueh Joo, "Investment-linked policy works best for me"; yesterday), specifically to address the "advantages" of investment-linked policies (ILP).
Madam Lim is technically correct in that once the term insurance period ends, renewal premiums will be costly if a person develops a medical condition.
However, purchasers of term insurance are not looking to renew their policies at the end of their terms.
Buying term insurance is only half of the strategy. Advocates of term insurance will save and invest the difference between the premiums of a comparable ILP policy and term policy.
Consumers who buy term insurance and invest the difference will very likely be able to accumulate their own "cash value" by the time the term policy expires.
This self-accumulated "cash value" will be at least equivalent to, if not greater than, the insurance coverage purchased.
Having a personal "cash value" is also more advantageous,because one can claim one's own money without restrictions, such as adhering to the strict definitions of 30 critical illnesses.
It is well known that ILP policies introduce many additional fees that increase their effective expense ratio.
Low-cost investment products have an expense ratio of about 0.5 per cent,
which is much lower than the ILP expense ratio. The latter may be around 2 per cent or higher. ILPs appear to be a win-win situation only because consumers are not well educated about the cheaper alternatives out there.
Garrett Goh
http://www.straitstimes.com/STForum/OnlineStory/STIStory_605149.html
I REFER to the ongoing discussion on insurance products (Madam Lim Pueh Joo, "Investment-linked policy works best for me"; yesterday), specifically to address the "advantages" of investment-linked policies (ILP).
Madam Lim is technically correct in that once the term insurance period ends, renewal premiums will be costly if a person develops a medical condition.
However, purchasers of term insurance are not looking to renew their policies at the end of their terms.
Buying term insurance is only half of the strategy. Advocates of term insurance will save and invest the difference between the premiums of a comparable ILP policy and term policy.
Consumers who buy term insurance and invest the difference will very likely be able to accumulate their own "cash value" by the time the term policy expires.
This self-accumulated "cash value" will be at least equivalent to, if not greater than, the insurance coverage purchased.
Having a personal "cash value" is also more advantageous,because one can claim one's own money without restrictions, such as adhering to the strict definitions of 30 critical illnesses.
It is well known that ILP policies introduce many additional fees that increase their effective expense ratio.
Low-cost investment products have an expense ratio of about 0.5 per cent,
which is much lower than the ILP expense ratio. The latter may be around 2 per cent or higher. ILPs appear to be a win-win situation only because consumers are not well educated about the cheaper alternatives out there.
Garrett Goh
http://www.straitstimes.com/STForum/OnlineStory/STIStory_605149.html
Motor claims - protect consumer who make third party claim
Printed in Straits Times Forum page
We agree with Mr Tam Ah Hock ('Protect consumers'; Nov 10) that the insurer of an illegally modified vehicle that caused the accident should pay the third-party claim.
After paying the claim, the insurer can seek to recover the loss from its policyholder, if the policyholder had breached its conditions. This should be a separate matter between the insurer and its insured and should not affect the third-party claimant.
The insurer is not acting fairly by refusing to consider a claim from the third party on the grounds of a breach of policy condition. It is hard for the third party to sue an uninsured owner, as the owner may not be able to pay.
The current law should be amended to extend compulsory insurance coverage to damage of third-party vehicles.
The insurer should also be required to pay compensation to third parties, regardless of a policy breach by the insured. This will protect third parties but leave the insurer free to seek recovery of the loss from its insured.
At present, most owners buy at least third-party insurance to cover injury and property damage. The change to the law will not cause hardship to consumers.
MR TAN KIN LIAN,
President, Financial Services Consumers Association
http://www.straitstimes.com/STForum/Story/STIStory_605227.html
We agree with Mr Tam Ah Hock ('Protect consumers'; Nov 10) that the insurer of an illegally modified vehicle that caused the accident should pay the third-party claim.
After paying the claim, the insurer can seek to recover the loss from its policyholder, if the policyholder had breached its conditions. This should be a separate matter between the insurer and its insured and should not affect the third-party claimant.
The insurer is not acting fairly by refusing to consider a claim from the third party on the grounds of a breach of policy condition. It is hard for the third party to sue an uninsured owner, as the owner may not be able to pay.
The current law should be amended to extend compulsory insurance coverage to damage of third-party vehicles.
The insurer should also be required to pay compensation to third parties, regardless of a policy breach by the insured. This will protect third parties but leave the insurer free to seek recovery of the loss from its insured.
At present, most owners buy at least third-party insurance to cover injury and property damage. The change to the law will not cause hardship to consumers.
MR TAN KIN LIAN,
President, Financial Services Consumers Association
http://www.straitstimes.com/STForum/Story/STIStory_605227.html
Friday, November 19, 2010
Motor insurance premium
The General Insurance Association said that motor insurance premium will increase more slowly next year, after a 19% increase in 2009 and 10% increase in 2010.
http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1094436/1/.html
They do not seem to know that these increases are much higher than inflation rate.
http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1094436/1/.html
They do not seem to know that these increases are much higher than inflation rate.
Why Investment Linked Policy make a bad investment
Read this article, by a consumer who realized that he / she has been conned by the agent.
Myths about Private Shield
This article explains some myths about Private Shield that cause many people to be spending a lot of money wastefully.
Election is coming - read SGEP
The general election is coming. There is a news report about the high growth rate of the economy. But, economic growth is good for some people and bad for others who are at stagnant income and not able to keep up with the cost of living.
Read about these issues in the Singapore General Election portal (SGEP), It is updated daily with relevant news from the local media, international media and the blogs. Keep a bookmark to visit SGEP daily. Or, add it to your RSS feed.
Read about these issues in the Singapore General Election portal (SGEP), It is updated daily with relevant news from the local media, international media and the blogs. Keep a bookmark to visit SGEP daily. Or, add it to your RSS feed.
Lim Pueh Joo: Investment-linked policy works best for me
Letter published in Straits Times Online Forum
Nov 19, 2010
MR TAN Kim Lian's line of thought ("Why only term insurance plans make sense now"; Monday) continues to perplex.
MR TAN Kim Lian's line of thought ("Why only term insurance plans make sense now"; Monday) continues to perplex.
He assumes term insurance is sufficient because it is low cost and gives the highest cover per dollar. This can be dangerous. Never decide based on price alone.
Term insurance is low cost but it may not be cheap in the long term. Once the insurance period ends, underwriting is required for renewal. If a person develops a medical condition before renewal, that no insurance company will accept, the person will be uninsurable for life. Also, if a person loses his job and cannot pay the premium when due, the cover terminates.
With whole life and investment-linked policies, there are usually cash reserves to automatically tide over the non-payment of premiums for some time when the policyholder is unable to pay.
I have different policies from various insurance companies for my family. My best policy is my investment-linked one. Not only does it give better returns than projected in spite of the different financial crises over the years, but it also gives me the flexibility to vary the premiums and cover through my different life stages.
I am also aware the insurance company made more money, but who cares when it is a win-win situation. We should be thankful that there are now more life insurance choices for people with different needs.
Lim Pueh Joo (Madam)
http://www.straitstimes.com/STForum/OnlineStory/STIStory_604763.htmlView this letter in Wordle
Update
I have sent my reply to this letter. I hope that the Straits Times will published it. I also hope that some of my readers will write a reply to this letter from Mdm Lim.
Read this article:
Investment-linked policy - the good and bad
www.tankinlian.com/latest.aspx
Thursday, November 18, 2010
Medical insurance for elderly people
Dear Mr.Tan,
I enjoy reading your blog as I get to learn many useful knowledge from you.
May I seek your advice. I intend to buy health shield for my parents who are not working for anyone.
My mum is a housewife and my dad is doing manual work with no insurance. The yearly cost for one person is about $800+ as they are above 61 years old. If health shield is not advisable, what are the other alternatives?
REPLY
t is better to buy Medishield, as the premium is about half to one third of Private Shield and the co-payment is lower. For elderly people, it is better to be treated in subsidised ward (B2) rather than in higher ward.
I am personally insured under Medishield, as I do not want to pay 2 to 3 times the premium for private Shield. Read this FAQ:
The premium for Private Shield will increase sharply as your parents pass the 70 and 80 year bracket. It can be 2 to 3 times of the current premium.
Here are the premium for Medishield:
Buy 2 get 1 free
A few titles are available at a discount of 33.3%, i.e. buy 2 get 1 free. You can join with your friends to buy these book, i.e. financial planning, intelligence quiz, etc. You can share the discount. You can also buy the bundle and present them as gifts. Go to www.tankinlian.com/ishop.
Ask Mr. Tan - Low cost investment fund
This article explains how you can invest in a low cost investment fund in Singapore. It also covers the issues of liquidity, diversification and its use as a retirement fund.
www.tankinlian.com/ask.aspx (search for Low Cost Investment Fund)
www.tankinlian.com/ask.aspx (search for Low Cost Investment Fund)
Wednesday, November 17, 2010
Pretty good for Government work
Warren Buffett said "thanks" to the US Government for acting with courage to tackle the financial crisis:
http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=1&emc=eta1
What an excellent letter from a great person!
.
http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=1&emc=eta1
What an excellent letter from a great person!
.
Shape Quiz (bundle of 10 minipaks)
Enjoy a discount of 25% when you order 10 mini-paks for $15 (usual price $20). Great as a game for children's party. Also, to give away as a gift. www.tankinlian.com/ishop.
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Intelligence Quiz - vol 1, 2 and 3 (bundle)
This bundle of 3 books - vol 1, 2 and 3, is now available at a discount of 33.3%. You pay for 2 books and get the 3rd book free. It is a logic puzzle based on the famous puzzle created by Dr. Albert Einstein, the most famous scientist of all times.
Order at www.tankinlian.com/ishop.
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Order at www.tankinlian.com/ishop.
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Wisdom on How to Live Life (Book 3)
Humans being the most intelligent species and having lived on Earth for thousands of years, we are yet nowhere near to a life of peace, love, joy and harmony. This book contains a story of a young man, Tom, who had a fourth conversation with Guru Harry. This is a continuation of their first three conversations which are contained in the books “Wisdom on How to Live Life” and “Wisdom on How to Live Life (Book 2)”. Guru Harry epitomizes someone from a spiritual society who offers a way of living which can lead to peace, love, joy and harmony.
Through this fourth conversation, Tom learnt that (1) why we should live our lives according to our wishes, (2) why it is better to have morality than money, (3) why somebody who did ten good deeds is better than another who did one hundred good deeds and one bad deed, (4) what is the negative response we need to prepare for when we do good, (5) why life is getting harder and harder, (6) why it is better to solve problems with spiritual solutions than physical solutions, (7) why there is so much fear on Earth, (8) why it is better to believe that there is no heaven, (9) why masters do not directly bring heaven to Earth, and (10) how to build a loving society.
More information about the book can be found on the websitehttp://wisdomlife.page4.me/
The book can be ordered here.
Author: Dr. Tommy Wong
USB Charger
I bought this USB charger from a shop in Queen Street for $15. It allows me to charge many mobile devices. I have charged by Android phone, iPod and Flip video-cam using both electricity and laptop. It worked without any problem.
I have approached the supplier to buy a bulk order. I can sell it for $12 per unit ($10 for order of 3 or more units). If you are interested, please reply to this survey. http://www.surveymonkey.com/s/YYDFXJT. If there is sufficient demand, I will place the order.
I have approached the supplier to buy a bulk order. I can sell it for $12 per unit ($10 for order of 3 or more units). If you are interested, please reply to this survey. http://www.surveymonkey.com/s/YYDFXJT. If there is sufficient demand, I will place the order.
Articles in SGEP
Is Singapore heading in the right direction? What changes do you like to see in Singapore? Read the articles that are collated in the Singapore General Election Portal.
SCMP:Bank officer charged over minibond investments
http://www.lbv.org.hk/content/
A bank customer service officer appeared in Eastern Court yesterday accused of inducing five customers to invest HK$1.26 million in Lehman Brothers' minibonds.
Chan Lai-ha, 51, did not enter pleas to five charges of fraudulently or recklessly inducing others to invest money. The case is adjourned to December 1 for transfer proceedings to the District Court.
The minibonds, issued or guaranteed by the US bank which collapsed in September 2008, are a type of high-risk, credit-linked derivative - a financial instrument that derives its value from an underlying security.
On March 17, 2004, Chan allegedly induced Stephen Wong Man-ka to invest US$50,000 in Minibonds Series 9 by claiming that he would not suffer any loss of the principal amount, and that the investment did not carry any economic risk of loss. By making similar claims, she allegedly induced Ip Man-ye and Leung Chu-pang to invest HK$200,000 in Minibonds Series 15 on December 28, 2004.
On March 9, 2005, and December 1, 2007, she allegedly induced Ip to invest US$10,000, and Huyhn Tu-chau to invest HK$400,000.
The fifth charge alleges that Chan, on February 1, 2006, induced Li Ruilan to invest HK$200,000 in Minibonds Series 35, by claiming that the issuers of the product were the following - HSBC Bank, Hutchison Whampoa, the MTR Corporation, the People's Republic of China, Standard Chartered Bank, Sun Hung Kai Properties and Swire Pacific.
Chan is also accused of telling Li that in the unlikely event of a credit event occurring, she would only suffer a loss of a portion of the principal invested. Each offence carries a maximum penalty of HK$1 million in fine and seven years in jail.
A bank customer service officer appeared in Eastern Court yesterday accused of inducing five customers to invest HK$1.26 million in Lehman Brothers' minibonds.
Chan Lai-ha, 51, did not enter pleas to five charges of fraudulently or recklessly inducing others to invest money. The case is adjourned to December 1 for transfer proceedings to the District Court.
The minibonds, issued or guaranteed by the US bank which collapsed in September 2008, are a type of high-risk, credit-linked derivative - a financial instrument that derives its value from an underlying security.
On March 17, 2004, Chan allegedly induced Stephen Wong Man-ka to invest US$50,000 in Minibonds Series 9 by claiming that he would not suffer any loss of the principal amount, and that the investment did not carry any economic risk of loss. By making similar claims, she allegedly induced Ip Man-ye and Leung Chu-pang to invest HK$200,000 in Minibonds Series 15 on December 28, 2004.
On March 9, 2005, and December 1, 2007, she allegedly induced Ip to invest US$10,000, and Huyhn Tu-chau to invest HK$400,000.
The fifth charge alleges that Chan, on February 1, 2006, induced Li Ruilan to invest HK$200,000 in Minibonds Series 35, by claiming that the issuers of the product were the following - HSBC Bank, Hutchison Whampoa, the MTR Corporation, the People's Republic of China, Standard Chartered Bank, Sun Hung Kai Properties and Swire Pacific.
Chan is also accused of telling Li that in the unlikely event of a credit event occurring, she would only suffer a loss of a portion of the principal invested. Each offence carries a maximum penalty of HK$1 million in fine and seven years in jail.
Living on accumulated savings - DIY
This article explains how a retiree, with adequate savings, can invest in a low cost investment fund and make monthly withdrawals for living expenses. There is no need to suffer a large deduction from the accumulated savings by investing in a life annuity.
http://tankinlian.com/admin/file.aspx?id=283
John Bogle - Investing in indexed fund
Why it is bad to pick a high cost, actively managed fund:
Why it is better to pick a low cost indexed fund
Investors look backward to pick the good funds, but they will be wrong.
http://www.youtube.com/watch?v=QAui2s6dPi4
Why it is better to pick a low cost indexed fund
Investors look backward to pick the good funds, but they will be wrong.
http://www.youtube.com/watch?v=QAui2s6dPi4
Dave Ramsey on Life Insurance I
Truth about life insurance investing
http://www.youtube.com/watch?v=KCD7dgT17Rg&feature=related
Many people have a long term need for life insurance ....
http://www.youtube.com/watch?v=C7VOZnJy7lE&feature=related
http://www.youtube.com/watch?v=KCD7dgT17Rg&feature=related
Many people have a long term need for life insurance ....
http://www.youtube.com/watch?v=C7VOZnJy7lE&feature=related
Suze Orman - Life Insurance is a bad investment
Here is Suze orman's view about life insurance as an investment. It is a bad investment.
http://www.youtube.com/watch?v=6vnN9liFWaE
Suze Orman said that life insurance is bad for consumers, because of the high commission and other charges. Actually, it is not so bad in America, as there are tax advantages to offset the high charges. There is no tax advantage in Singapore, so life insurance is exceptionally bad in Singapore. It is made worse by the high deductions that are probably higher than in America.
Is a life insurance agent helping consumers by selling them a bad product? What type of friend is this?
http://www.youtube.com/watch?v=6vnN9liFWaE
Suze Orman said that life insurance is bad for consumers, because of the high commission and other charges. Actually, it is not so bad in America, as there are tax advantages to offset the high charges. There is no tax advantage in Singapore, so life insurance is exceptionally bad in Singapore. It is made worse by the high deductions that are probably higher than in America.
Is a life insurance agent helping consumers by selling them a bad product? What type of friend is this?
Tuesday, November 16, 2010
FISCA talk - Insuring your Financial Security
Here is the powerpoint of the talk. It will replace the previous title "Consumer Guide to Insurance". The talk will be made available in December or January. Those who are interested to attend this talk are asked to give their particulars in this survey. Those who have registered for the previous title need not register again, as the topics are quite similar.
FISCA Talk on Financial Planning
I have changed the powerpoint for my talk on Financial Planning. The new outline is set out here. The next talk will be held on Saturday 4 December at 3 to 6 pm. Register here. This talk may still be of interest to FISCA members who attended the talk previously, as there is new content.http://tankinlian.com/admin/file.aspx?id=282
Costly rider to cover critical illness
A consumer bought an investment linked policy with an annual premium of $1,200. He insured for critical illness rider for $50,000. He found that the cost of the rider increases as he grows older and will exceed the premium at age 60. The cash value will start to decrease.
I advised the consumer to consider if he needs the critical illness rider at age 60, as his accumulated saving may be more than the sum assured. He can terminate the rider and save on the high cost that is deducted from his savings. He decided to terminate the policy and buy a private Shield to cover the cost of the critical illness.
I advised the consumer to consider if he needs the critical illness rider at age 60, as his accumulated saving may be more than the sum assured. He can terminate the rider and save on the high cost that is deducted from his savings. He decided to terminate the policy and buy a private Shield to cover the cost of the critical illness.
Financial Calcuation with Excel
The Excel spreadsheet has excellent formulas to make financial calculations. They are available under the Formula tab >> Financial.
You can use the following formulas
FV - future value
PV - present value
NPER - number of period
RATE- interest rate
PMT - amount of yearly payment
Type - 1 (pay at beginning of year), 0 (pay at end of year) and 0.5 (may monthly throughout the year).
It allows you to find out the FV or PV of a single payment or a stream of regular payments, or to calculate the yield or number of periods.
When you attend my talk on financial planning or insuring your financial secruity, I will demonstrate how to use these formulas (for people who are not familiar).
Tan Kin Lian
You can use the following formulas
FV - future value
PV - present value
NPER - number of period
RATE- interest rate
PMT - amount of yearly payment
Type - 1 (pay at beginning of year), 0 (pay at end of year) and 0.5 (may monthly throughout the year).
It allows you to find out the FV or PV of a single payment or a stream of regular payments, or to calculate the yield or number of periods.
When you attend my talk on financial planning or insuring your financial secruity, I will demonstrate how to use these formulas (for people who are not familiar).
Tan Kin Lian
Choose a good life insurance company
You can recognize a good life insurance company as follows:
Be educated - so that you can recognize a good company and a bad one, a good policy and a bad one, a good adviser and a bad one.
- Provides a service to you to manage your long term investment and risk
- Charge you a fair fee for the service
- Gives you a fair return, after deducting the fee
- Helps you to achieve your goal, i.e. better yield and risk management
A bad insurance company takes advantage of your ignorance and takes away a large amount of your accumulated savings, i.e. fleece the consumer.
Be educated - so that you can recognize a good company and a bad one, a good policy and a bad one, a good adviser and a bad one.
Educational Talks
If you remain trusting and ignorant, you will be ripped off, sooner or later. And you deserve it (sorry to be blunt)!
If you remain trusting and ignorant, you will be ripped off, sooner or later. And you deserve it (sorry to be blunt)!
Tan Kin Lian
Living on your accumulated savings
In my book, Practical Guide on Financial Planning, I educate consumer on the option to keep their accumulated savings in a low cost investment fund and withdraw the money regularly to meet their living expenses. Although the market value of the fund may be volatile, it does not matter to a long term investor, as long as the underlying shares are in good quality companies.
The investor can just earn the dividend on the shares (which is about 3% per annum). If the dividend is not sufficient, the investor can sell some units every few months to supplement the dividends. If this is managed well, the fund should be able to last the lifetime and leave a balance to be beneficiaries.
Assume that the accumulated saving at retirement is $500,000 and the retiree needs to $2,000 a month to spend. Here is the balance of the accumulated savings at the end of 25 years (by which time, the retiree will be 90 years old), assuming that the fund earns a net yield of 4%, 5% and 6% (inclusive of dividend):
Balance after 25 years
Yield
4% $293,436
5% $490,455
6% $750,182
You can do the same calculation with an Excel spreadsheet.
There is no need to invest in a life annuity, if you have sufficient savings to last for your lifetime. The advantage of a low cost investment fund are:
The investor can just earn the dividend on the shares (which is about 3% per annum). If the dividend is not sufficient, the investor can sell some units every few months to supplement the dividends. If this is managed well, the fund should be able to last the lifetime and leave a balance to be beneficiaries.
Assume that the accumulated saving at retirement is $500,000 and the retiree needs to $2,000 a month to spend. Here is the balance of the accumulated savings at the end of 25 years (by which time, the retiree will be 90 years old), assuming that the fund earns a net yield of 4%, 5% and 6% (inclusive of dividend):
Balance after 25 years
Yield
4% $293,436
5% $490,455
6% $750,182
You can do the same calculation with an Excel spreadsheet.
There is no need to invest in a life annuity, if you have sufficient savings to last for your lifetime. The advantage of a low cost investment fund are:
- Avoid the high deduction taken away by the insurance company (a lot of money!!)
- Earn a higher yield (better than a life annuity)
- Greater flexibility - to meet unexpected needs
The disadvantage is the perceived investment risk. You can manage it by diversification (e.g. in an indexed fund), investing for the long term (to average out the good and bad years) and by being educated (e.g. buy my book and attend the educational talks by FISCA).
Tan Kin Lian
Suzy Orman - Cash value and Term Life Insurance
Suzy Orman talks about whole life and term life insurance. She explain why a whole life policy is not suitable for children. Watch this video.
Poor deal from a life annuity
A consumer was given a proposal to pay a large annual premium for 5 years, keep the money until age 65 and withdraw an annual payment for life. The benefit illustration was confusing, even to me. I was not sure if this is a life annuity or withdrawal from an accumulation account.
I asked the consumer to use Excel and do the same projection, if he invested the money on his own to earn 3%, 4% and 5% in a low cost investment fund. He found that the DIY option gave him a large balance at age 91 - which is significantly higher than shown in the benefit illustration. The simple calculation gave an obvious answer to him - he should invest on his own.
He asked, "where do I get a low cost investment fund?" I recommended the STI ETF available on the Singapore Exchange (SGX). The investment risk can be managed by diversification (in this single fund) and investing for the long term to average out the good and bad year. This is explained in my book on financial planning (available at www.tankinlian.com/ishop).
This simple advice could save the consumer several hundred thousand dollars! Do not buy a bad financial product (or life insurance policy) that can take away so much of your accumulated savings. You can DIY.
Tan Kin Lian
I asked the consumer to use Excel and do the same projection, if he invested the money on his own to earn 3%, 4% and 5% in a low cost investment fund. He found that the DIY option gave him a large balance at age 91 - which is significantly higher than shown in the benefit illustration. The simple calculation gave an obvious answer to him - he should invest on his own.
He asked, "where do I get a low cost investment fund?" I recommended the STI ETF available on the Singapore Exchange (SGX). The investment risk can be managed by diversification (in this single fund) and investing for the long term to average out the good and bad year. This is explained in my book on financial planning (available at www.tankinlian.com/ishop).
This simple advice could save the consumer several hundred thousand dollars! Do not buy a bad financial product (or life insurance policy) that can take away so much of your accumulated savings. You can DIY.
Tan Kin Lian
Economic Growth and Equity
Should we pursue economic growth or equity? These are not conflicting goals. They are complementary. We can achieve sustainable economic growth through equitable distribution of the economic output. Read my views in this article.
Monday, November 15, 2010
Donation to FISCA
Several people have approached me for advice and guidance. I have to spend time to educate them. In some cases, my guidance is able to save them several tens or hundred of thousand dollars.
I like to ask these people to make a donation to FISCA in return for the guidance, if you find it to be valuable. Make any amount that you feel to be appropriate. Read this FAQ: http://tankinlian.com/admin/file.aspx?id=182
Your donation will help to pay volunteers who have to spend time to educate consumers in avoiding bad investment decisions. Do be generous and fair.
Tan Kin Lian
I like to ask these people to make a donation to FISCA in return for the guidance, if you find it to be valuable. Make any amount that you feel to be appropriate. Read this FAQ: http://tankinlian.com/admin/file.aspx?id=182
Your donation will help to pay volunteers who have to spend time to educate consumers in avoiding bad investment decisions. Do be generous and fair.
Tan Kin Lian
Suzy Orman on Life Insurance
Suzy Orman is a financial adviser who appears on CBNC Life on Sunday. She appeared in several videos posted in Youtube. She gave sensible advice about life insurance. Watch this video.
Existing life insurance policies - continue or terminate?
Many people who learned that their life insurance policy gives a poor yield asked me, "Should I continue or terminate the policy?"
I asked them to study this FAQ and do the calculations.
I asked them to study this FAQ and do the calculations.
33.3% discount on Financial Planning book
There were several orders for the 3-copy bundle of my financial planning book, which is available at a 33.3% discount. Three people can join together to buy the book and enjoy the discounted price of $8 per copy, i.e. $24 for 3 copies). You can also buy 3 copies and give 2 away to your children or friends.
This book helps them to plan better for their financial future and get a better yield on their long term savings.
This book helps them to plan better for their financial future and get a better yield on their long term savings.
Why only term insurance plans make sense now
Published in the Straits Times Forum page
MR GIDEON Lee ('Buyers, not agents, decide the products they want'; last Friday) asked why I am advocating term insurance when the insurance cooperative that I headed had been selling whole-life and investment-linked policies for 30 years.
During my time, the whole-life and endowment policies were sold with distribution costs that were much lower than comparable products in the market. The effect of deduction was about 20 per cent over 25 years, compared to the 40 per cent for most policies today.
In the past, the cooperative also distributed high rates of bonuses out of the surplus, giving a high yield to policyholders on these old policies.
The letter writer quotes the example of a term insurance premium that charges $200 a month. This is an exaggeration. A young person can buy $300,000 in sum assured under the Singapore Armed Forces (SAF) group insurance scheme and pay only $38.40 a month. This is available to SAF soldiers and operationally ready national servicemen, and their spouses. To buy this amount of protection under a whole-life or unit-linked policy, the consumer usually has to pay a premium that is 10 to 20 times higher.
Some dishonest agents deliberately quote a higher cost for term insurance to persuade the consumer to buy the alternative policy that charges a higher premium and pays a fatter commission.
Mr Lee said correctly that the distribution cost is not paid entirely as commission to the agent. Part of it is paid to the agent's manager and spent on lavish overseas trips and other sales incentives. Regardless of how the money is spent, the consumer does have to pay the total distribution cost.
The writer said the commission is given for selling the product and not for advice. If this is the case, why are these people called financial advisers, consultants or other impressive names and not life insurance salesmen?
The writer is wrong in saying that I am advocating a one-size-fits-all solution. My aim is to educate consumers
to invest their savings in a low-cost investment fund, rather than a life insurance policy, to earn a better long-term yield and achieve greater flexibility.
Tan Kin Lian
http://www.straitstimes.com/STForum/Story/STIStory_603264.html
My guidance on how to invest savings in a low cost investment fund, and why this is more flexible to meet the changing needs of consumers is explained in my book, Practical Guide on Financial Planning, available here.
MR GIDEON Lee ('Buyers, not agents, decide the products they want'; last Friday) asked why I am advocating term insurance when the insurance cooperative that I headed had been selling whole-life and investment-linked policies for 30 years.
During my time, the whole-life and endowment policies were sold with distribution costs that were much lower than comparable products in the market. The effect of deduction was about 20 per cent over 25 years, compared to the 40 per cent for most policies today.
In the past, the cooperative also distributed high rates of bonuses out of the surplus, giving a high yield to policyholders on these old policies.
The letter writer quotes the example of a term insurance premium that charges $200 a month. This is an exaggeration. A young person can buy $300,000 in sum assured under the Singapore Armed Forces (SAF) group insurance scheme and pay only $38.40 a month. This is available to SAF soldiers and operationally ready national servicemen, and their spouses. To buy this amount of protection under a whole-life or unit-linked policy, the consumer usually has to pay a premium that is 10 to 20 times higher.
Some dishonest agents deliberately quote a higher cost for term insurance to persuade the consumer to buy the alternative policy that charges a higher premium and pays a fatter commission.
Mr Lee said correctly that the distribution cost is not paid entirely as commission to the agent. Part of it is paid to the agent's manager and spent on lavish overseas trips and other sales incentives. Regardless of how the money is spent, the consumer does have to pay the total distribution cost.
The writer said the commission is given for selling the product and not for advice. If this is the case, why are these people called financial advisers, consultants or other impressive names and not life insurance salesmen?
The writer is wrong in saying that I am advocating a one-size-fits-all solution. My aim is to educate consumers
to invest their savings in a low-cost investment fund, rather than a life insurance policy, to earn a better long-term yield and achieve greater flexibility.
Tan Kin Lian
http://www.straitstimes.com/STForum/Story/STIStory_603264.html
My guidance on how to invest savings in a low cost investment fund, and why this is more flexible to meet the changing needs of consumers is explained in my book, Practical Guide on Financial Planning, available here.
Misconceptions about insurance
Published in Straits Times Online Forum
I REFER to the ongoing discussion on insurance products (Mr Gideon Lee, "Buyers, not agents, decide the products they want..."; Nov 5), and would like to highlight some misconceptions.
Whole-life policies that "give back" the premium come with higher price tags. For a young healthy male who is just starting his career, a coverage of $500,000 for term insurance costs around $2,000 a year, whereas a whole-life policy with the same coverage could cost around $10,000 a year.
The difference in the premiums between the term and whole-life policy is invested by the insurance company and a significant portion is pocketed by the company before the remainder is returned to the customer.
Whole-life insurance policies provide only the illusion of "giving back" some of the premium paid. It is akin to pulling money from your right pocket, taking some of that for myself, and putting the remaining amount back in your left pocket.
I simply do not see how this is a good deal when consumers can pocket the difference, save and invest the money by themselves. The claim that many customers prefer a policy that "gives them" something at the end shows their lack of understanding of the purpose of insurance - that it is meant for protection against catastrophic effects and not for savings. So one should not expect anything back if the catastrophic event does not occur.
Garrett Goh
http://www.straitstimes.com/STForum/OnlineStory/STIStory_603220.html
I REFER to the ongoing discussion on insurance products (Mr Gideon Lee, "Buyers, not agents, decide the products they want..."; Nov 5), and would like to highlight some misconceptions.
Whole-life policies that "give back" the premium come with higher price tags. For a young healthy male who is just starting his career, a coverage of $500,000 for term insurance costs around $2,000 a year, whereas a whole-life policy with the same coverage could cost around $10,000 a year.
The difference in the premiums between the term and whole-life policy is invested by the insurance company and a significant portion is pocketed by the company before the remainder is returned to the customer.
Whole-life insurance policies provide only the illusion of "giving back" some of the premium paid. It is akin to pulling money from your right pocket, taking some of that for myself, and putting the remaining amount back in your left pocket.
I simply do not see how this is a good deal when consumers can pocket the difference, save and invest the money by themselves. The claim that many customers prefer a policy that "gives them" something at the end shows their lack of understanding of the purpose of insurance - that it is meant for protection against catastrophic effects and not for savings. So one should not expect anything back if the catastrophic event does not occur.
Garrett Goh
http://www.straitstimes.com/STForum/OnlineStory/STIStory_603220.html
Noisy carnival at Bishan
Posted at request of Huang HW
I live in front of Bishan Active Park. Carnivals and other activities are very often held on week-ends on this field. Every-time this happens, the noise is unbearable. I take my family out to avoid the noise.
My limit was really reached on Sunday(15 Nov 2010). The duration and magnitude of the noise was not particularly bad but I have two children, one having an 'O' level paper on Monday (15 Nov) and another in the midst of taking the 'A' levels.
How can my children prepare for their examinations. Many of you may be suggesting complaining to the police or my MP. But the event is LivEnabled@the Park officiated by a Minister Lim!
To add insult to injury, I can hear load knocking noises as they are clearing the site as I am writing this. Its now 40 minutes past mid-night!
Can somebody help!
Huang HW
CNA report
I live in front of Bishan Active Park. Carnivals and other activities are very often held on week-ends on this field. Every-time this happens, the noise is unbearable. I take my family out to avoid the noise.
My limit was really reached on Sunday(15 Nov 2010). The duration and magnitude of the noise was not particularly bad but I have two children, one having an 'O' level paper on Monday (15 Nov) and another in the midst of taking the 'A' levels.
How can my children prepare for their examinations. Many of you may be suggesting complaining to the police or my MP. But the event is LivEnabled@the Park officiated by a Minister Lim!
To add insult to injury, I can hear load knocking noises as they are clearing the site as I am writing this. Its now 40 minutes past mid-night!
Can somebody help!
Huang HW
CNA report
Sunday, November 14, 2010
Interesting articles in SGEP
There are a few interesting articles in SGEP. One is an explanation about Quantitative Easing and why it will not work and the day of reckoning will come. This is important for investors to study.
There are also some postings about election platform entitled "Its about You" and the quality candidates that will be contesting the election from the Singapore Democratic Party.
General Election Portal.
There are also some postings about election platform entitled "Its about You" and the quality candidates that will be contesting the election from the Singapore Democratic Party.
General Election Portal.
Get a Fair Deal
Here are some tips on how to get a fair deal on your insurance - what to look out for, and what to avoid.
Vitamin Account (6 year SGD equity linked structured deposit)
A customer invested $40,000 in the vitamin account in 2005. She received a payout of 4% in the first year and no subsequent payout. Five years have passed. The deposit will mature in one year's time. if there is no further payout (which is likely), the total return is 4% for 6 years or 0.66% per year. This is a poor yield for an investor who locked up the money for 6 years.
In the past, many investors have received a poor yield on various tranches of capital guaranteed structured products. I usually advice investors to avoid structured products. The can get a better yield on government bonds or a low cost investment fund.
Learn bow to get a better yield. Attend the talk on financial planning held on 4 December. Register here.
In the past, many investors have received a poor yield on various tranches of capital guaranteed structured products. I usually advice investors to avoid structured products. The can get a better yield on government bonds or a low cost investment fund.
Learn bow to get a better yield. Attend the talk on financial planning held on 4 December. Register here.
Be prudent in buying insurance
You should be prudent in buying the insurance that are really necessary and the coverage is clearly described. Do not spend money on unnecessary insurance or suffer the pain of seeing your claim rejected due to non-disclosure or misunderstanding the terms of the coverage.
www.tankinlian.com/latest.aspx
www.tankinlian.com/latest.aspx
FISCA analysis of DBS preference shares
FISCA members can refer to a brief analysis of the DBS preference shares in the FISCA website
(www.fisca.sg) under FiSCA members corner > FiSCA Evaluated Products. This is only available to FISCA members who have logged in. It is a brief analysis made by an expert who went through the 117 page document. I will write a fuller explanation later.
(www.fisca.sg) under FiSCA members corner > FiSCA Evaluated Products. This is only available to FISCA members who have logged in. It is a brief analysis made by an expert who went through the 117 page document. I will write a fuller explanation later.
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