How to get a good return with low risk

Many people look for a good return with low risk. As they are not familiar with investing, they rely on a financial adviser. But that is usually a bad approach.

Why?

The financial adviser has to earn a living. They give their advice and earn a commission on the financial product that is sold to the retail investor. The commission and the profit margin of the financial institution reduces the yield of the investor.

Worse, the financial product may instead by risky. The investor could lose a large part of the investment.

Here are some recent examples:

a) The retail investors in the preference shares and perpetual securities could stand to lose nearly 90% of their investment in what was perceived to be a safe investment in a national strategic asset (i.e. desalination plant).

b) Many retail investors bought dual currency investments recommended by bank officers. Some have lost all of their investment - due to leverage, i.e. borrowing money to increase the investment.

What can retail investors invest in safely?

I suggest the following:

a) Buy government bonds and be prepared to accept a yield of around 2%
b) Keep the money in the CPF special account and earn 4% (but the money is locked up for retirement)
c) Invest in the index fund for the long term - and do not worry about the market fluctuation. The risk is reduced through diversification.

To understand more about investing in the index fund, join FISCA as a member and attend the talk on financial planning.

Tan Kin Lian

https://fisca.sg/ArticleDisplay.aspx?ID=630

How did this retiree lose 95.5% of her investment?

A retiree invested $250,000 with a bank. She lost 95.5% of the investment. The value of her investment is now $11,200. What type of investment is this?

PERPETUAL SECURITIES?
Some people speculated that she bought the Hyflux Perpetual Securities. However, these securities are now not traded. It does not lose 95.5% of the value. There is no market now, as the shares and bonds are suspended. The indicative value of the bonds show a drop of 52%.

DUAL CURRENCY INVESTMENTS?
She could have invested the $250,000 in dual currency investments. If she did, how could she have lost 95.5%? Even if the reference currency had dropped 20%, she would have lost only 20%. She also had the choice of holding the reference currency and hope that it would rebound some time in the future.

What actually happened?
https://fisca.sg/ArticleDisplay.aspx?ID=629

Investing on leverage

GLOBAL FINANCIAL CRISIS
Sometimes during 2009, a retired couple approached me. They had invested $200,000 with a local bank and had lost $100,000 during the Global Financial Crisis.

I learned that they were long time customers of that bank and had been advised by the bank's relationship management to invest in dual currency investment.

The bank offered them a loan of 4 times of their invested sum. They were able to invest in dual currency investment for $1 million. This comprised their capital of $200,000 plus $800,000 in borrowed money.

https://tklcloud.com/Feedback/feedback2.aspx?id=1100

Lost 95.5% of investment of $250,000

A retiree invested $250,000 with a bank. She lost 95.5% of the investment. The value of her investment is now $11,200.

What type of investment is this?

PERPETUAL SECURITIES?
DUAL CURRENCY INVESTMENT?

Find out the answer here:
https://fisca.sg/ArticleDisplay.aspx?ID=629

High risk of investing in Dual Currency Investments

Over the past years, many people have lost a lot of money on dual currency investments.

These are sold by the banks that they trusted.

I suspect that it is still being sold, and that people are still losing large fortunes.

I have written about this type of investments and the high risk over the years.

You can read them here:
https://fisca.sg/Article.aspx?Keyword=dual%20currency

What is your experience with dual currency deposit?

I asked this question in The Wisdom of the Crowd - What is your experience with dual currency deposit?

75% of those who voted said that they have never heard of this type of investment. The remaining 25% have mixed views.

See the breakdown of the votes in
http://www.wisdomofthecrowd.sg/chart.aspx?ID=486

What is your experience with dual currency deposit?What is your experience with dual currency deposit?

Give your vote in
www.wisdomofthecrowd.sg

Avoid dual currency investment

When I visited a bank to place a fixed deposit, the relationship manager tried to sell a dual currency investment to me. I declined. I know that this is a very bad product. I know of some people who lost hundred of thousand dollars in this investment. I wonder why it is still being sold.

What is wrong with this product?

Learn about why it is a bad product from the losses suffered by some people. They never knew what hit them, until it is too late.

http://www.fisca.sg/ArticleDisplay.aspx?ID=558

Risky to buy insurance through the bank counters

Dear Mr. Tan
In your talk on 3 Feb, will you touch on buying insurance products through banks. I was told that some of the products are quite bad and were wrongly sold to the bank customers.

REPLY
Yes. I will touch on this topic too. I will share some cases of bad products that have been sold to customers. In some cases, the relationship manager was recruited recently and was giving the marketing pitch taught by the trainers. They don't know that they were giving the wrong information to customers.

I will also talk about the dual currency investments. They are being sold quite actively. These are risky product, but the RMs were not aware about the risk. They think the risk is small, but it is not really the case.

There are still a few places remaining for the talk. Register now. Remember to pay for the talk by credit card or Paypal within one day. If not, the registration will be cancelled to give the place to other participants

http://www.fisca.sg/event_det.aspx?id=17

Never invest with borrowed money

Someone posted an investment in a unit trust where the bank is willing to lend money at a low interest rate to increase the investment.

I gave my view and advice: NEVER INVEST WITH BORROWED MONEY

Let me share this real story. A retired teacher went to a bank and was recommend to invest $200,000 in a dual currency investment. It gave a return of about 5% per annum but in the event that the invested currency drops, the investor has to convert into that currency. He was told that he could hold on to that currency and wait for it to recover.

The bank offered him a loan of $800,000 at a low interest rate. He could earn 5% and pay interest at 1.5%, keeping the difference at a profit.

During a crisis, the invested currency dropped 10% within a few days. He lost $100,000 on his total investment of $1 million (i.e. the original $200,000 plus the borrowed money of $800,000).

The bank asked him to top up $100,000. As he was not able to, they liquidated the investment, leaving him with a loss of $100,000 from his original $200,000.

If he did not take the loan of $800,000, his loss would only be $20,000 (i.e. 10% of $200,000) and he could afford to wait for the invested currency to recover. He did not have to liquidated the investment.

I have always advised investors - NEVER INVEST WITH BORROWED MONEY. You can invest your own money and hold it for the long term. It will recover. But when you invest with borrowed money, you cannot take the loss and have to liquidate at a bad time.

Bad for investors

I have added the opinion of two knowledgeable people about why dual currency investment (DCI) is bad for investors. They are good for the banks because they make the profit from the losses by their customers.

Read about how it works here:
http://www.fisca.sg/ArticleDisplay.aspx?ID=525

Taking bets with dual currency investment (DCI)

Hi Kinlian

I have come across some of your articles online regarding DCIs and I just have a few questions regarding the mechanics of how it works.

Suppose I have $100,000 SGD (base currency) and the DCI is for USD. The DCI offers a higher interest rate of 3% becasue they are compensating me for the naked put on USD i just sold to them. I was just curious about how the volatility of the USD exchange rate affect how attractive this investment is compared to a FD of let's say 1.5% SGD?

I get that with higher volatility, a DCI is less attractive since upsides are capped. However, I can't seem to reconcile this with the formulae I learnt in my derivatives module. I know volatility affects the price of an option but I don't understand how a higher or a lower price for the option affects my potential returns on the DCI.

Would love to hear your opinion on this issue.

Reply
I have no idea how the complicated formula works.  I do not trust any complicated scheme.

I know that the real expert, who are paid a lot of money for the financial institution, have to earn their high income by giving more profit to their employers.

That profit must come from ordinary investors who try to take bets against the financial institution on the products created by these institutions.

Dual currency investment is risky

It is highly risky to invest in dual currency investment. Many investors are not aware of this risk. Mr. Tan explains why it is risky.

http://fisca.sg/Info/379

Avoid Dual Currency Investment - it is a form of financial terrorism

From time to time, some unwary customers invested in a Dual Currency Investment. They did not realize the high risk. They were mis-advised by the bank relationship manager who recommended the DCI to them.

I wrote this article to explain the DCI. I encourage consumers to read it to understand it. After understanding it, most sensible consumers will avoid the DCI like terrorism.

http://www.tankinlian.com/PDF/660

Investor lost 20% of family wealth on Dual Currency Investment

Hi Mr Tan,

I just want to share with the readers that I have suffered 20% loss of my family's wealth via DCI investment. We just want to make good use of money by earning a conservative interest yield and the banker had effectively helped us made a loss! 

Our original fund is SGD later converted to AUD and then converted to USD. Double whammy with SGD and USD currency sliding down. You will see that the banker will stick to the same pitch. Keep on investing USD. The currency will rise up sooner or later. The banker of mine even dared to say that the USD currency will go up to 1.45. This is a dangerous message. Exactly your advice. 

The banker said we are not losing your base fund. Just keep it as AUD and USD until the currencies rise. This is all bullshit. Now, we are stuck with USD and earning no interest rate. This is a long term investment loss in value and in time. Please don't invest in DCI unless you are economics/market savvy yourself and is able to take risk. 

Whatever on Dual Currency Investment

Avoid Dual Currency Investments

Hi, Tan:

Thank you for your article on DCI posted on the internet.  That is indeed very insightful.  

Could you kindly educate me on the in-depth of DCI?  For am interested but would like to minimized the risk.  Am a very conservative invester - will never go for margin for am a firm believer of 'living within your means and to bless others when opportunity arise'.

REPLY

My advice is to avoid it altogether. Don't waste your time trying to figure out the complexities. 

If you want to learn how to invest to get a good return, and manage the risk, attend the FISCA talk on financial planning, www.fisca.sg/events

Give a prompt reply

I make it a point to give a prompt reply to any question that is addressed to me personally, i.e. not part of a spam mail.

I received an email on behalf of a project group of students in SMU asking for explanation about the dual currency investment. I gave a reply immediately to two questions and also enclose my FAQ on this subject. The recipient must have been surprised at the prompt reply. She replied, "Thank you very much".

I reply with what I know. Even if I do not have the ready answer, it is quite easy for me to search for it in my website or in the Internet, using Google. If I do not have the answer to some questions, I will still give a reply to the questions that I know. A partial reply is better than no reply.

I want to encourage people to give a prompt reply, instead of ignoring an e-mail that is sent personally. My comment also apply to our ministers. Although they are busy, they do have an army of assistants who can give a proper reply, not just an insincere acknowledgement or worse - ignore it entirely! Our leaders need to set a good example in courtesy and the proper behavior.

How investors lost money on dual currency investments

Many risk averse investors were not aware that they were taking much higher risk in investing in dual currency investments - compared to shares and foreign currencies - and were not given the higher yield for the risk. Here are three real stories of how people fared in this type of investment.


This article is reserved for FISCA members only. You can view the article at the Information tab of the FISCA website. There are articles in the website that can be viewed by the public, i.e. non-members.


The FISCA website can be accessed directly at  www.fisca.sg. Click on the tabs to access the different functions in the website.

More people will fall into the same trap

I received a desperate plea for help from an widow who lost a lot of money on failed investments made on the advice of the relationship manager of a bank. The victim was advised to invest in dual currency and other linked products on the assurance that they were "safe". The bad advice was given in spite of her constant reminder to the relationship manager that she did not want to take risk!

I gave this reply to her.

I have come across many cases that are similar to yours. It is indeed very sad that our Government allowed this type of environment to continue for so long and does not step in to check the abuse.
The only way for a victim to get justice is to take the case to court. Here the odds are overwhelming. It is costly to fight against the big legal firms engaged by the bank. Furthermore, the court tend to apply the law rigidly and hold the victim responsible for signing away their rights in the forms that were given to them by the bank.
Another avenue is to write to the newspaper, but many victims prefer to be anonymous.
Due to these reasons, these cases are not publicized and more people fall into the trap over the years .
Are you willing to consider what needs to be done, i.e. to take the case to court or to write to the newspaper?

I wish to write this word of advice to all readers of my blog. Do not invest in complex financial products, especially those that are being sold to you by financial advisers or relationship managers. Many of these advisers might be ignorant of the risks of these products themselves, so they may be honest in telling you that they are safe (and they are mistaken!). They work for the banks that you have trusted for many years, but regrettably, the bank does not wish to take the responsibility for the bad advice and failed investments.

Please help to pass this message to your friends, so that they can avoid making the same mistake.

Be educated on financial matters

Hi Mr. Tan,


Its been a pleasure reading your blog this evening. I've been looking for some investment advice and found your explanation on dual currency investment, which I've admire its simplicity and transparency.

I've got some extra cash in US dollar 50K which are kept in a bank for several year with low yield. With the rate of the inflation nowadays, I feel that that value is depreciating and I'd like to invest on some banking products or instruments which will provide good yield with a medium risk to cover the inflation within 3-5 yrs.

Will you be able to advice me and pretend if its you're money. What will you do? What will be the best option of investment right now in Singapore and amidst this EU crisis?

REPLY
Read this
http://tankinlian.com/Redirect.aspx?PK=6e81acf4a41c102e93b20d62c2a6f8e8