Shield plan to supplement employer's medical benefit

Dear Mr Tan

I am working in a Stat Board and am covered under the CCS scheme. The medical bill is taken care of in the proportion of 85% (employer) and 15% (employee). For my dependents, it will be 60% (employer) 40% (employee).

Q1. Should I take a Shield Plan in addition to the medical benefit ?

Reply: I suggest that you and your family take the Medishield plan from CPF, instead of a private Shield plan. The premium should be quite low for young people.

Q2. Should I buy a lower plan, as I do not mind a lower grade ward in Restructured Hospital?

Reply: The MediShield plan from CPF is adequate. It is the lowest cost plan.

Q3. Is the Moratorium Underwriting offered by Aviva is good ?

Reply: Can you give me more details about this feature? I am not familiar with it. More improtantly, will Aviva accept you under the moratorium underwriting when you retire from work and do not have any Shield plan previously?

Q4. How do you compare Aviva's Shield Plan which offer free cover for children if both parents are insured with them, as compared to that offered by NTUC Income's and say Prudential ?

Reply: I do not have details about these covers. Generally, I find that there is no need for the parent to buy a private Shield plan, if they are covered by their employer.

Q5. The CCS medical benefit will not go with me when I leave service with the Stat Board. I need a personal medical plan to take care of the uncertainty.

Reply: If you have a Medishield plan, it will cover you when you leave your current employer. If you are healthy, you can upgrade to a more expensive plan at that time. If not, you can continue with your Medishield plan. Medishield covers B2 ward and is quite acceptable for most people, even for me.

Q6. If I have my own Shield Plan, should I request to convert to the MSO medical scheme where employer pays me a certain % of my salary as medical benefit ?

Reply: It is a good idea to convert to the MSO medical scheme. How much is the additional contribution to the CPF by the employer? I hope that this is an adequate sum.

Multi Level Marketing

Dear Mr. Tan,

What is your comments on the financial model of Sunshine Empire?

I was approached by one agent early this year asking me to join. I find it difficult to believe the returns after listening about the business model. I did not invest.

My good friend, who was very smart in school, invested recently. When news broke of MAS warning, I had a discussion with him on the flaw of the financial scheme, but he insisted that it was no different from other investments.

The thing that troubled me a lot is that sometimes smart people can have very naive view of financial, maybe out of the greed of a good return. Or maybe is it really that there is nothing different between Sunshine Empire and other financial schemes?

REPLY:

I am not familiar with the business model of Sunshine Empire. Can you send some brief details to me?

Generally, I avoid all investment schemes of this kind. I do not spend time to listen to the sales talk.

Investing in New Zealand Dollars

Which is better?

Option 1: Invest in NZD for 1 month and earn 7.7% per annum. If NZD appreciate, you earn the appreciation. If it falls, you suffer the loss.

Option 2: Invest in a Dual Currency deposit and earn 8.0% per annum. If NZD appreciate, the bank keeps the appreciation. If it falls, you suffer the loss.

I decided on option 1. Here is my calculation.

I assume:

1) Chance of appreciation: 30%, average gain 1%. Expected gain 0.3%
2) Chance of depreciation: 70%, average loss 1%. Expected loss 0.7%
3) The difference of 0.4% for 1 month is 4.8% for 1 year, which is the difference in interest rate between NZD and SGD

If NZD depreciates, I suffer a loss in both cases.

If NZD appreciates,
- under option 1, I get an additional 0.3% for 1 month
- under option 2, I get an additional 0.025% for 1 month (i.e 1/12th of 0.3%)

Why does option 2 give such a poor return for the risk (i.e 0.25% instead of 0.3%)? I suspect that the bank keeps the difference.

Dual Currency Investment - My Experience

I wanted to place a fixed deposit in New Zealand Dollars to enjoy a higher interest rate.

The relationship manager of the bank tried to get me to invest in a Dual Currency Deposit. She wanted to get the currency specialist to see me and explain the product.

There was no need for a visit. I was able to find the description of the product from the website. Here are the key facts.

Basically, it offers a slightly higher interest rate, but on maturity I get the weaker of the two currencies.

By earning a slightly higher interest rate, I forego any appreciation in the New Zealand dollar. On the other hand, if this currency drops, I have to bear the entire loss.

I decided against the Dual Currency deposit. I prefer to have a lower interest rate and enjoy the full impact of any appreciation in the currency (while taking the loss on a depreciation).

Here is the explanatory note:

Dual Currency Plus is not a deposit but an investment product. With Dual Currency Plus, the principal sum and returns are repayable either in the currency in which the investment is made (“base currency”) or an alternative currency (“linked currency”) at maturity. Early withdrawal of Dual Currency Plus is not permitted. Dual Currency Plus is inherently speculative in nature and carries risks. In particular, foreign currency market movements are unpredictable.

If the proceeds at maturity are paid in the linked currency (as opposed to the base currency), there is a possibility that you will suffer a loss on your principal sum when compared with the amount of the base currency initially invested.

As your investment is denominated in a foreign currency, you are advised to consider the impact of any foreign exchange risk on the net returns of your investment. Foreign exchange controls may be imposed by the country issuing the foreign currency from time to time and may delay or prevent the repayment of principal amount to you.

Capital guaranteed product

If you want your capital to be guaranteed, it is better to buy government bonds. You can get about 18% in total over 5 years.

If you buy any structured product that is "capital guaranteed", you are likely to get a return of less than 10% over 5 years. The cost of structuring and marketing the product will take away up to 10% in total, leaving you with a smaller return.

In most cases, the product issuer will invest a major portion of the money in government bonds or similar instruments to avoid take a risk exposure.

The "structuring" does not improve the product. It adds to the high cost, and is deducted from your return.

Many investors in these types of structured product have obtained a poor return over the past seven years.

If you are offered any capital guaranteed product, ask a few questions, such as:

1. How does the issuer invest the money?
2. What is the charges taken away to structure and market the product?
3. What is the chance of earning a higher return, and what is the amount of the higher return?

When you get the honest answers to these questions, you will realise that the product does not give any value to the investor.

Dubai Metro

From Wikipedia

The Dubai Metro will be a driverless, fully automated metro network under construction in Dubai, United Arab Emirates.

The network will have two third rail collection system powered lines that will both run underground in the city center and on elevated viaducts elsewhere on double tracks.

The first phase of the network is being built by Dubai Rapid Link (DURL) Consortium which comprises Japanese companies including Mitsubishi Heavy Industries, Mitsubishi Corporation, Obayashi Corporation, Kajima Corporation and the Turkish company Yapi Merkezi.

The Dubai Metro will be operated by the Dubai Road and Transport Authority. The Dubai Metro system will be the longest fully automated rail system in the world. Completion of the first section of the system is projected for 2009.

Plans for the Dubai Metro began under the directive of Dubai Ruler Sheikh Mohammed bin Rashid Al Maktoum who expected Dubai's other projects to attract 15 million visitors by 2010. This combined with Dubai's rapidly growing population expected to reach 3 million by 2017 and severe traffic congestion necessitated the building of an urban rail system to provide additional capacity to public transportation, relieve motor traffic, and provide infrastructure for additional development.

In July 2005 a design and build Contract was awarded to a consortium known as Dubai Rail Link (DURL) that is made up of Japanese companies including Mitsubishi Heavy Industries, Mitsubishi Corporation, Obayashi Corporation, Kajima Corporation and Yapi Merkezi of Turkey.

The first phase (worth AED 15.5 billion\ US$4.2 billion) covering 35-kilometers of the proposed network, including the Red Line between Salahuddin Road and the American University in Dubai and the Green Line from the Qussais 2 to Jeddaf 1, is to be completed by May 2009.

Extensions to both routes are included in the second phase, which is now expected to be functional by 2010.

Dubai Municipality Public Transport Department projects to carry 1.2 million passengers on an average day, 27,000 passengers per hour for each line, and 355 million passengers per year once both lines are fully operational. Bus routes and stops will be organised around the backbone provided by the rail system.

When completed, Dubai Metro will have a total of 70 kilometres (43.5 miles) of lines, and 42 stations (including 9 underground stations). It is estimated that it will comprise 12 % of the total trips in Dubai. Taxi stations and park-and-ride facilities will be included in key Metro stations. Trained wardens will accompany passengers on the Dubai Metro system to help with emergencies.

Dubai Metro network
There are four lines which use 99 five-car trains each 75-meters long with seats for 400 passengers:

Red Line: 50-kilometre (31-mile) line with 35 stations from Jebel Ali Port, the American University in Dubai, through the city centre, and to the Airport Free Zone.

Green Line: 20-kilometre (12.4-mile) line with 22 stations from Festival City, through the city centre, Dubai International Airport Terminals 1 and 3, and to Rashidiya.

Blue Line: 47-kilometre line along Emirates Road, exact route currently unknown.

Purple Line: 49-kilometre line along Al Khail Road, meant to be an express route between Dubai International Airport and Dubai World Central International Airport.

Rail Transit system in Dubai

Dubai is building a rail transit system, similar to our MRT. It will be ready in 2009. It will run from along Sheik Zayed Road, which is the main road in the modern part of Dubai. In most parts of the system, the rail will be above ground. This is less costly and faster to build.

Postal service in Dubai

In Dubai, each person rents a post box at the post office. Mail is delivered to the postbox. The owner has to collect his mail from the post box.

This appears to be a common system in the UK. People visit the post office to collect their mail.

In Singapore, we are used to mail being delivered to our residential address.

Value of financial advice

Dear Mr. Tan,

In your view, are the commissions paid to insurance agents too high? What is the situation in other countries? Please be frank.

REPLY

In some countries, the financial adviser helps the customer to achieve significant savings from income tax or estate duty. To qualify for these savings, the customer has to meet certain requirements. These are complicated for the ordinary person. They need the professional advice of the financial adviser.

Although the financial adviser earns a large commission, the customer still achieves a net saving from the savings in income tax or the higher return from investing their savings in the life insurance or investment product.

A good example are the tax incentives given to encourage people to save for their retirement, such as superannuantion funds in Australia or the 401k in America.

This type of tax savings is not available in Singapore.

As the financial adviser is not able to create any tax saving for the customer or give other tangible value, it is important that the commissions should be kept low.

In my view, the customer is better off by investing in large, well diversified, low cost funds.

ADDITIONAL NOTE:

In Malaysia and Indonesia, the commission rates are about 30% to 50% lower than similar products sold in Singapore. These limits are set by the authority to ensure that the products offer fair value to the consumers.

In my view, the commission rates in Singapore are too high. In the case of NTUC Income, the commission rates are lower than the market - so their products provide relatively better value to the customer.

Public transport in Dubai

I visited the Deira City Center Mall.

I wanted to take a taxi to return to my hotel. The taxi queue was long. I asked the shop attendant how long it I had to wait in the queue. She estimated 30 minutes.

I went to look for an alternative. I wanted to take a bus or shuttle that will take me to another location. I might be easier to find a taxi from there. Several people could not give me the direction to the bus stop.

I returned to the taxi queue. I finally managed to get into a taxi after waiting in the queue for over 1 hour.

The public transport in Dubai is inadequate. It is difficult to get a taxi and buses are hardly used. Most people depend on a car, and the roads are congested.

A good time to invest in the stock market

Hi Mr. Tan,

The stockmarket has corrected. When is a good time to invest in the stockmarket? At what level?

REPLY

It is difficult to pick the bottom. Some people think that it is all right to invest when the market has dropped 10% from its peak. Based on this formula, the right level is 3,500 on the Straits Times Index. I prefer to wait for it to drop further to around 3,300 on the ST Index.

Poor return to policyholder

A friend told me about the business model operated successfully by a life insurance company in Singapore.

1. They paid high commission to the insurance agent. They organise sales contests and provide attractive prizes such as overseas trips and motivational activities.

2. The high marketing cost are added to the product. They use high projection to make the product look attractive to the consumer. These projections are "not guaranteed".

3. Their agents are well trained to highlight the marketing points of the products. They are trained to brush aside the negative aspects, under the technique called "overcome objections".

4. After the customer buys the product, they are locked into it for 20 to 30 years. They have incurred the upfront cost and can only get out by suffering a large loss. The policyholder get a poor return.

5. This company has successfuly applied the same marketing model and made a lot of profit in several Asian countries.

Guaranteed return plus bonus

Someone asked me, "How is it possible for an insurance company to guarantee a return of 2% on its product, and give bonus on top of it"? Can it invest all of its funds to earn 8% of which 2% is guaranteed and the remainder is not guaranteed?

Can the Central Provident Fund operate on this model in paying its interest rate?

Here is my reply:

1. When the insurance company guarantee a return of 2%, it will invest 70% of its funds in government securities to earn 3.5% (the current rate). The remaining 30% will be invested in equities to earn an average of (say) 7% per annum. The average return on the fund is likely to be 4.5%.

2. After deducting about 1% to cover its expenses and profit, the insurance product can give a return of about 3.5%.

3. It is not possible for the insurance company to give a guarantee of 2% and invest all of its funds in equity to earn 7%.

Lesson: If you wish to get a good return, you have to take the risk and invest in an equity fund. If you invest for the long term, say 10 years or longer, you can average out the return over good and bad years.

If you wish to have a guaranteed return, you can get at best a return of between 2% to 4%. It may be better to invest in government bonds to earn close to 3.5%.

Policy with annual payout

Dear Mr Tan,

An agent wanted to sell me a life insurance product with an annual payout. Is this a good product?

MY REPLY

When you pay this type of product which is offered by several insurance companies, you are paying two premiums:

1. $x is used to provide the death and maturity benefit, like an endowment policy
2. $y is being used to provide the annual payout back to you.

The problem is that the agent earns a high rate of commission on the $y and you actually get back less than $y from the second year onwards. The $y completely disappears from the first year.

It is better for the policyholder to pay $x for the endowment policy (and get a return of 3% to 4% per annum) and save the $y in a bank account. At least you get the $y back every year, with interest at say 1%. This provides better liquidity and flexibility.

Alternatively, you can invest the $y in a unit trust and take your risk and reward.

Dubai - work around the clock

I woke up at 3 am Dubai time. There is a time difference of 4 hours, so it is 7 a.m. in Singapore.

I went to the hotel lobby to access the wireless internet. I was surprised to find that the lobby was brightly lighted and that several people were busy with work. It seems to be in the evening hours, rather than the early morning. Dubai never sleeps!

In my hotel, there were many workers from mainland China providing front line service. They speak English well. Previously, these jobs were filled by workers from India or the Philippines.

Avoid abusive comments

Someone has been posting abusive comments against insurance agents and the Revosave product. I have blocked more than 1 dozen of these comments during the past few days.

I will only allow comments expressed that shows respect to other people.

Regulation of financial products

VIEW POSTED IN MY BLOG

There are two sides of a coin and it's not always fair to say that this company or product or agent is bad or good without considering the context where the event took place.

By the way, since MAS is the regulatory body, if such practices are not condoned, how come never shut them down?

MY REPLY:

For the past five years or more, the regulator (i.e. MAS) has taken the approach that the product issuer is required to disclose certain specific details of the product. Each consumer should take his or her own financial decision.

This has led to the following situation:

1. Many financial institutions design products that offer poor value to the consumer.
2. The life insurance or structured product is disclosed in a document that cover 30 to 100 pages.
3. The document is difficult to understand, even for an expert.
4. The agent who markets the product makes a verbal summary that is different from the written document. The customer is misled, but does not have any evidence.

Many consumers invested billions of dollars in these types of products that make huge profits to the distributors and issuers, but give a poor return to the consumer. My friend said that ten of thousands consumers have been "taken for a ride".

I hope that the regulator will review its approach and ensure that the financial products are fair to consumers. It is difficult for a lay person to be able to look through the complex product and know about its drawbacks.

On my part, I will do my best to educate the consumers, by writing in this blog. .

Simplified taxi fares

Recently, there were press reports about over-charging by taxi drivers preying on tourists. This will give a bad image of the taxi service in Singapore.

The source of this problem is the de-regulated taxi fares. The differing fare structures and many surcharges are confusing to the public. This allows bad taxi drivers to exploit the situation.

We have to adopt a regulated, simplified fare structure. I suggest the following:

1. Have a higher flag down fare (say $3.50) and an increase (say 10%) in the charge based on distance. Allow the fare to increase according to time, if the taxi is caught in a traffic jam.

2. Abolish the surcharge on peak hours and for ERP. Allow the taxi driver to pay a flat daily fee (say $20) and avoid paying any ERP charges.

3. Reduce the taxi call charge to $1. This will help to cover some of the cost, but should not be a source of profit to the taxi driver. It makes more efficient use of the taxis.

The basic fare can be adjusted to ensure that there is a balance between supply and demand for taxis. It should cover the operating cost of the taxi and offer a fairly attractive earnings to the taxi driver.

Autumn in Dubai

I am now in Dubai. It is approaching autumn. The weather is like Singapore, but slightly cooler. Many people are not aware that Dubai is in the temperate zone, and has four seasons. It is very hot in the summer, and can be quite pleasant in winter.

Singapore Banks

Dear Mr Tan,

Many of the banks in America are reporting big write-downs on their credit portfolios, in the billions of dollars. Will this situation apply to Singapore banks?

REPLY

I recall that the Singapore banks had acted earlier and made provision for the write-down on their collaterialised debt obligations. The bank stocks are now trading at 10% to 15% below their recent peak.

I have seen some recommendations from stockbrokers that the banks represent good value at the current level.

However, it is difficult to know if there will be further write offs.

Investing your CPF savings

Dear Mr Tan,

If I remembered correctly, PM Lee Hsien Loong once mentioned on Budget 2007 that the CPF interest gained over time would have been better off if we were to leave our money in CPF account instead of using it for our own investment.

PM Lee said that applies to majority of CPF accounts in Singapore. The goverment must have gotten statistics from the CPF board to prove the statement. Is that true?

REPLY

I do not recall him making this statement, and the context in which it was made.

Personally, I think that it is better to invest in a large, well diversified, low cost fund comprised of global equity.

When the stockmarket has corrected, it may be a good time to make this investment.

Ride out the fall in the stockmarket

Dear Mr Tan



Earlier this year, when the stockmarket was going up, I made some profit by selling the stocks that have gained in value.



With the drop in the stockmarket, I am now holding on to some stocks that have shown some losses. Should I sell the stocks? Will they drop further?



REPLY



If you have invested in blue chips with good fundmentals, you can keep the stocks and wait for their values to recover.



However, you have to bear in mind that some of these stocks have earnings that were partly contributed by the boom conditions. With the excess earnings are removed, these stocks may be over-valued. You may have to consider to sell the over-priced stocks.

Insurance for a child with Down syndrome

Hello Mr. Tan,

My youngest daugther has Down Syndrome. She attends normal mainstream school and has no congenital medical condition. We would like to plan for her future investment, especially when we are not around with her. Can you advise what insurance plan/life policy are available in Singapore or even overseas country?

REPLY

I suggest that you buy a fixed term annuity for your daughter. You can pay a single premium, and she will receive a monthly sum for a fixed number of years, say for 20 or 30 years. Your doctor can probably advise what is a suitable term based on her life expectancy.

As this is a fixed term annuity, the payment will continue to be made for the fixed term, regardless of the survival status.

You will probably find it difficult to get medical insurance to cover her medical expenses.

Insurance agent start a new business

Dear Mr Tan Kin Lian,

In 1990's, lot of Great Eastern agents left the insurance company. In 2004, my Income agent left for starting his Insurance business. This year, my Manulife agent also left for starting her own Insurance business.

Why these peoples left insurance company during his/her career and economic peak period? Are they suffered from lost of commission? What was actually happened?

REPLY

For the insurance agent who left to start a new business, they have made their calculation. They expect to earn more from the new business, which can compensate for the loss of renewal commission. Perhaps the renewal commission is quite small.

Loan for HDB Resale Property

Hi Mr Tan,

I enjoy reading your blog as it provide me with knowledge on insurance, investment, current affairs, etc.

I would like to consult you on a CPF matter. My wife and I have $230,00 in our CPF and $20,000 already invested in unit trust.

We decided to buy our next HDB flat in the resale market. The flat cost 400k and we are entitle to HDB con loan of 2.6% per annum.

Should I let HDB deduct all of our CPF or should Itake out $40,000 to invest in unit trust?

REPLY

I think it is better as much as possible from the HDB loan and to invest your CPF savings in unit trust (which should earn more than 2.6% per annum).

If you do not wish to take the risk from equity at this time (when the market is high), you can invest in bonds and earn say 3.5% return (i.e. better than 2.6% interest on HDB loan).

You have to invest your money first, before you apply for the HDB loan, as they will take away all of your available balance.

Problem with high profile charities

Hi Mr Tan,

What are your views about the problems with our high profile charities? First NKF. Now Ren Ci. Is it due to weak corporate governance in Singapore?

REPLY

I think that the problem is wider. In both cases, the charities are raising a lot of money compared to the number of their direct beneficiaries.

Perhaps, Singaporeans are not so discerning and are too generous in contributing to high profile causes?

Low interest rate in Singapore

Dear Mr Tan,

Singapore bank deposit interest rates are, except for some short periods, mostly very low for the past years. I read that it is the 2nd lowest in the world after Japan. Many years ago, the rates were much more decent than now.

However, property, mortgage and loan rates, and more recently inflation, are high.

The low deposit rates are also affecting CPF interest rates which are pegged to it. It also discourages saving and also lures people to try those investment schemes (scams?) promising high rates.

Is it due to a huge influx of foreign money that depress the rates? Or what other likely causes and what will be the future trend of the rates?

I think the issues are not simple but I hope you can share some views and analysis on this in your blog.

REPLY

I agree with you on the following points:

1. Interest rate is too low in Singapore
2. It lures people to investment schemes (scams) that promise high returns.
3. It is probably due to the influx of foreign funds.

Some investment analysts said that the Singapore dollar could be used to fund the "carry trade", similar to the Japanese yen. So far, this has not happened. We have to keep a watch on this possible development.

Top up in an Ideal plan

Hi Mr Tan,

I had an ideal plan with monthly payment of $400. If I had a lump sum payment of $5000, do you think it would be beneficial to top up this amount to the ideal plan?

I am currently also looking at Revosave. I am thinking of having a monthly premium of $250 for 15 years. The idea of cashback annually meet my objective - saving and able to use the amount after the 2nd year.

However, the comments I read so far are not really impressive. What would be your advise.

REPLY

You should check with NTUC Income about the topping up in the Ideal plan. If the topping up is made as a single premium, then you incur the upfront charge of 3.5% only. You should check if they can give you a bonus to reduce this upfront charge. If not, it is all right to make this investment.

It is better to invest in the Ideal plan, rather than through Revosave, as the charges are much lower.

Payment by Mobile Phone

The Infocomm Development Authority is trying to encourage people to use their mobile phone for small payment. This is similar to the system used in Japan.

I wish to suggest an easier way.

Many people already carry an ez-Link card. It is better to use ez-Link to make small payments. There is no need to put a chip in the mobile phone, when the chip is already in ez-Link.

Topping up the ez-Link card is quite easy. Anyway, the user only tops up the card once or twice a month.

The challenge is to get many retail establishments to provide payment through ez-Link. MacDonalds have taken this step. We need to get 1,000 to 5,000 establishments to adopt this mode of payment.

At present, the cost to the retail establishment is an issue. If this form of payment can reduce their cost or increase their business, they will be keen to adopt it.

Let us focus on this challenge, instead of finding the chip to install in the mobile phone.

Public Transport needs to be improved

A few people have commented that the public transport in Singapore is not satisfactory and needs to be improved.

I agree.

I find that driving is not easy either, due to our congested roads and high ERP and parking charges.

Here is my interim solution:

1. I take MRT as far as possible
2. I carry the "Public Transport Guide" which shows the bus stops and services. This helps me to find a bus that takes me to the nearest MRT station or from the station to my destination.

I have suggested to SMRT to display a map showing all the bus stops within 2 km of a station and the bus services at these stops. This will help commuters to find a bus for the last leg of the journey.

I hope that the Land Transport Authority will introduce feeder buses to bring commuters to the nearest MRT station.

Note: I bought the Public Tranport Guide from Popular Bookstore and paid $6.11. It is called Signapore Public Transport Guide 2007/8. It is quite handly and is about 25% of the thickness of a normal street directly.

Congested Roads

I had to meet someone for lunch at Holland Village and attend an afternoon conference at National University of Singapore.

As public transport was not convenient, I decided to drive to these two locations. It turned out to be a bad idea.

The roads to Holland Village was congested, due to many road works. I had trouble to find a parking space.

The journey from the university to my home took more than 1 hour. The traffic was heavy as it was after office hours. The traffic crawled at a slow pace for a long distance, due to a small accident in Farrer Road. It was stressful.

Lesson: It would have been better for me to take public transport.

Anticipation Policy

Anonymous posting in my blog:

While many who frequent Mr Tan's blog is slamming Revosave, I happened to chance upon a similar insurance product from Income's website called Anticipation Policy. This product pays regular cash coupons every 3 years. Isn't this a product that Mr Tan would say isn't good for the consumer? Ironically, this product was designed while Mr Tan was the CEO. Perhaps Mr Tan could explain this irony.

REPLY:

The Anticipation policy was designed 20 years ago. It had a payout every 3 years (not 1 year).

At the time that it was introduced, it gave a yield that was quite attractive. When the yield on the Anticipation policy dropped due to a reduction in the bonus rate, the sale of this plan was no longer promoted.

In today's environment, this plan is not suitable, due to its high cost and low yield.

Left or right brain?

Do you use your left or right brain more?

Take this test.

http://www.news.com.au/heraldsun/story/0,21985,22556281-661,00.html

Many people see the dancer turning clockwise. The paper said that they are using the right brain.

Can you control your brain to see the dancer turning anti-clockwise?

After that, you can take the Logic9 (Sudoku) test. Try solving the puzzle with flowers (not numbers).

www.tankinlian.com/logic9

Housing 6.5 million people

In this article, I suggest a way for Singapore to house 6.5 million people without facing the problem of congested roads.


http://www.tankinlian.com/articles/housing.html


We have to encourage people to work near their homes, or move their homes closer to their place of work.


Do you agree with this suggestion?

Use knowledge and experience

My friend worked for many years as a claims manager for a Japanese insurance company.

He retired at age 62. The Japanese company re-engaged him to be an auditor to audit the underwriting and claims transactions. He earns a lower salary compared to his previous job, but he is happy to continue to be productive.

As he is familiar with the insurance operations, his knowledge and experience is put to good use. He can do a more effective job compared to an internal auditor who is an accountant.

I applaud the Japanese. They know how to put knowledge and experience to good use. I hope that Singapore companies can learn from the Japanese.

Refinancing credit card borrowings

Some young people spend too much money using their credit cards. They accumulated a lot of debts and had to pay high interest on the borrowings.

This is one way to get out of this heavy interest burden. You can approach your cooperative society to take a loan to pay off the credit card debt. The interest payable on the loan from the cooperative is at a modest rate, less than one third of the rate charged by the banks.

Be honest. Tell your cooperative society about your credit card debt. Assure them that you will make a genuine attempt to clear off the debt in installments, and that you will not borrow again on the credit card.

If you have a steady job and a good income, your cooperative society should be willing to help you.

You may be able to approach another bank to refinance the debt at a lower rate of interest. Some banks are keen to provide this assistance to acquire you as their customer.

Encourage tourists to stay a few days longer

My friend told me this story about how he encouraged his friends from Australia to stay a few days longer in Singapore.

1. He asked them to visit the Bird Park. It is the best in the world. His friends like to see the many variety of birds, all in one place.

2. He encouraged them to take the MRT train, especially the portion that runs above the ground, ie, the North South Line after Bishan station. On the MRT journey, the can view many HDB estates in Singapore and also the green spaces in the northern part of Singapore (i.e. Kranji).

Rush hour on the MRT train

I took the MRT train to town at 8 am this morning (i.e. rush hour). The train comes at 2 minutes interval. The train was crowded, but not packed. I had to stand all the way, but it is fairly comfortable. I like our MRT train, even during rush hour.

Business Practice of Insurance Company - Another View

VIEW POSTED IN MY BOG

Business models usually evolved and got copied from one company to another. I would like to offer my view to mr. tan's observations:

1. From some friends of mine in a sales department of a networking equipment company, a pharmaceutical company, a software company, they told me that it is very common to have attractive prizes such as overseas trips and motivational activities as incentives, aside from high commission and bonuses that they get from selling the products.

2. With regards to "projections" - isn't projections are what they are meant to be - projections? if anyone tell you that projections are "guaranteed", then better inform MAS immediately. No, better still, if you can tell me which company can guaranteed 100% something in 20 years time, I will invest in it myself.

3. Most people in the sales line will meet objections and rejections. This happens in any industry. Unless you are naturally thick-skinned, you have to learn how to manage them or else how are you going to give your solutions to people. In particular to the insurance industry, where many people do not plan for their own future or unexpected demise, you got to learn how to overcome objections in order to help them help themselves.

4. I think every product serves a need. it is not fair to compare a product of yesterday with a new product today. A good fund yesterday may be a lousy fund today even though same performance. Why? because our expectations have risen. I know some MNCs who practice this model of eliminating staff whose performance levels falls below 5% relative to the performance of his/her peers. That means, every year sure must lay off some people. When a person buys a product, it was intended to serve a purpose and as long as the original purpose is achieved, it is should be ok. That's why people must know that buying insurance is not a one time thing. he/she must always buy new one whenever there are new needs to be addressed.

5. It is better for the company to make profits than to make losses. The questions should be - are the profits channeled back as more bonus for clients, training of advisors and creating more value-added solutions to consumers? Let's not be hypocritical - if you are buying equities or bonds, don't you want the companies that are linked to them to be profitable and sustainable companies?

Come on, if I buy a product from Income, I also want the company to be profitable and have money to improve the quality of the advisors and come up with innovative products.

There are two sides of a coin and it's not always fair to say that this company or product or agent is bad or good without considering the context where the event took place. By the way, since MAS is the regulatory body, if such practices are not condoned, how come never shut them down?

Evaluate a study loan

Dear Mr Tan,

I wish to sign for a part-time one year degree course. I have to borrow 50% of the course fee of $15,000.

Here are the terms offered by three organisations. Which is better?

Loan 1:
Rates of Interest per Annum: 4.50%
Maximum repayment period: 12 or 24 months
Loan 2:
Interest Rates: 5.350% p.a. on monthly rest.
Monthly instalment is computed based on loan amount and is fixed throughout the loan period.
Loan 3:
Interest rate: 5.58% p.a. (3.88% for Postgraduate Education Financing)
Enjoy easy repayment period of up to 6 years

REPLY

You should ask each of the body to quote to you the amount that you have to pay each month on the same basis, i.e.

Amount of loan $7,500
Repayment to start from (specify the date)
Number of repayments, 12, 18 or 24 months
Amount of repayment
Other charges, if any:

It is difficult to compare the interest rate alone, as there are many ways of calculating them. It is best that you ask them to give you the specific monthly installments, so that you can make a simple and direct comparison.

You can also decide on the repayment period, based on your personal budget.

Investing in foreign currency time deposit

Hi Mr Tan,

I like to ask about Foreign Currency Time Deposits.What are the risks involved if I put my money in Foreign Currency Time Deposits?

REPLY

The risk is in the currency exchange rate. For example, if you put $10,000 in New Zealand dollars for 1 year to earn 7% interest (compared to 2% in fixed deposit in S$), you will earn 5% more in the interest for 1 year.

At the end of 1 year, you may find that the NZ$ has depreciated by 5% against the S$, in which case, you will be okay.

If NZ$ depreciates by more than 5%, then you will lose on the NZ$ deposit. If NZ$ depreciates by less than 5%, you will still be better off, by investing in NZ$ deposit.

If NZ$ appreciates against the S$, you will get double benefit, first from the higher interest rate (i.e. difference of 5%) and second from the higher exchange rate.

The challenge is to know what is the likely trend of the NZ$. No one can help you to make this decision.

The currency experts do not know, especially in 1 year's time. I do not know.

If you study the trend of NZ$ over the past few years, you will find that it has the potential to move up or down 10% within a short period.

Good luck.

Diversify your risk globally

Dear Mr Tan Kin Lian,

A senior person said the Singapore may survive for 2 to 3 weeks should an military invasion occur. We can not rule out this possiblity.

May I seek your opinion on what would be the impact to the Singpaore dollars
invested in insurance company (e.g. NTUC Income).

MY REPLY:

I have no idea about what the impact would be.

Perhaps, in the globalised world, you should invest some of your money in a global equity fund. This will help to diversify your risk.

Risky to invest in Gold ETF at current level?

Mr Tan

This is another scheme that is good for stock brokers and the SGX. Not sure if good for CPF members.

Tempt CPF members with enough tantalizing stories and they will surely dig into their retirement savings to have a quick and good punt. No wonder many of them retire poor.

I see no fiduciary considerations underlying all of these wonderful things being offered to the "market".

LETTER FROM SGX

Dear Member,

Please be informed that with effect from 6 November 2007 (trade date), the
Gold ETF (Stock name: GLD 10US$) will be CPFIS-OA approved and investors
are able to use their CPF monies to trade the Gold ETF. The stock is
denominated in US$.

Low wage for cleaners

I met a school principal. He told me that his school has outsourced the cleaning to contractors.

To win the contract, the contractor had to bid a low price. He engaged cleaners and paid them a low salary. The salary for a cleaner used to be above $700 per month and has since dropped to below $700 on the renewal of the contract. He found out the low salary by talking to the cleaning woman.

The contractor declared the base salary as $300 monthly for contribution to the Central Provident Fund. At this salary, the cleaner will have very little savings for their retirement.

Lesson: The outsourcing of cleaning work to contractors is depressing the wages of the cleaners.

Power of the Internet

Many people are still not aware about the power of the Internet.

I gave a talk in Bishan Community Club to teach the attendees about how to play Sudoku. I had to give some history about this game.

I use Google search and typed in the key words "Sudoku" and "history". It gave several links which provided much more than I needed for my talk.

It is amazing.

Right time to buy a property?

Dear Mr Tan :

I really enjoy reading your blog - it offers practical advise and alternate views which sometimes is so obvious. We are influenced by other people around us and does not see the alternative options.

I have been working in Singapore for about 15 years, and recently became a citizen. I have been renting a property and the rental will seen be increased sharply. I have about $500,000 in my CPF and liquid investments.

I am interested in buying a permanent home. What is your opinion in this matter? I do not qualify for a new HDB flat. Should I buy resale HBD?

REPLY

I am not really familair with this matter. I wonder if it will help for you to visit HDB and talk to the officer there?

Generally, I think that HDB resale represents a good investment, as there is a large pool of people who are willing to sell, to move to another new HDB property. So, you should get a reasonable price.

Perhaps, if you talk to a property agent and get some quotes of what are available, you may be able to make a better decision. If you have some possible offers, you can ask me to help you make an analysis.

Excessive charges on ILP

Dear Mr Tan,

I bought an Investment Link Product in 2001 and made an investment of $1,000. This investment has is being depleted by the monthly charges. If I wish to make a partial withdrawal, I have to incur a charge of almost 40%.

When I bought the ILP, I was only 19. Can the policy contract be binding on me? I was not informed that the investment would be subject to the fee deduction and the withdrawal charge.

When I asked the adviser, he said he did not know that the fees would be deducted from the investment. I am bearing the brunt of his negligence. Does it mean that as long as the clause is in the contract there is no duty for him to advise me personally?

Thank you Mr Tan, I really really appreciate your help.

REPLY:

I suggest that you ask the insurance company to give you a statement for the past 6 years, showing the amount that you have invested, and the charges that are taken out each year (indicating the type of charge).

This statement should show what you can get now, if you cancel the investment. If you pass the statement to me, I will try to see if the charges are reasonable or excessive.

You should also get a written statement from the adviser that he was not aware about the withdrawal charge, and that he did not advise you about it. If you have this statement, you may have a chance to get the insurance company to allow you to make the withdrawal without this withdrawal charge.

Cooperative Housing in North America

In Singapore, we are familiar with the condominium type of ownership. Each owner has the ownership of a specific unit in the condominium and contributes towards the common upkeep of the condominium.

This type of property ownership is also popular in many countries, including North America.

There is a slightly different kind of ownership found in Canada and a few states in USA, especially New York. It is called cooperative housing. Each owner owns a share of the entire project, and has the right to live in a unit. The owner does not own the specific residential unit.

There are some advantages in this type of ownership:

1. The ownership of the cooperative is similar to equity. It can be transferred more easily, without the high cost associated with a property.
2. The management corporation has more control over the upkeep of the cooperative housing.
3. It helps to strengthen the community bond among the residents of the housing project.

I hope that this new type of ownership can be made available in Singapore.

More about cooperative housing:
http://en.wikipedia.org/wiki/Housing_cooperative

Next Step for a NS Man

Good afternoon Mr Tan,

I just happened to came to your blog and started to read about the posts that you posted. I think it gives good information for the public.

I am currently serving National Service. I have been reading a lot about financial planning. I hope that I can manage my money better. Is there any advise for teenager like me to deal with our money besides saving and putting it in the fixed deposits?

Thanks a lot for your guildance.

REPLY

You can read this FAQ
http://www.tankinlian.com/faq/fptips.html

And more FAQs at: http://www.tankinlian.com/faq/

All the best for your future.

Importance of low cost product

If you invest $5,000 yearly for 20 years and earn 5% per annum, you will get $165,000 on maturity.

If you pay an annual premium of $5,000 into an endowment policy, your gain of $65,000 may be reduced by about 50%. You will get a maturity benefit close to $132,000 giving you a net return of 2.7% per annum.

Where does the remaining $33,000 of the gain goes to? The likely component are:

* marketing and other expenses: $20,000
* cost of insurance: $6,500
* profit to the insurance company: $6,500
* total $33,000

Most insurance companies have high expenses, especially in paying commission to the agent. If you choose a company that have lower expenses, you can save $5,000 to $10,000 and get a higher return.

If you buy term insurance (about 5% of the premium) and invest the remaining 95% in a low cost, diversified fund, you can save on a large part of the $26,500. You have to invest in a low cost fund, so that most of the return will go back to you, and not to the fund manager.

Note: The maturity amount is not guaranteed as it depends on the actual return from the investments over the next 20 years.

Double coverage for medical insurance

Dear Mr Tan,

I am insured for group medical by my company. An insurance agent advised me to buy a Shield plan from his company so that I can continue to get coverage after I leave this employer. I read your previous posting that this is double coverage. What should I do?

Which company offer the best Shield plan? Is it NTUC, AIA or Avivia? What is your advice?

REPLY

If you buy a Shield plan on top of the medical insurance provided by your employer, you are paying the full premium for the Shield plan for partial or no coverage, as most of the medical cost can be met from the employer's plan.

Here are two better options for the employee:

1) Ask your employer to buy a Shield plan. This allows allows you to continue the plan on your own when you leave your employer, i.e. the plan is portable. As the Shield plan has a deductible, you can ask the employer to buy the rider to cover it. If the total cost to the employer is higher than the group plan, you can volunteer to pay a portion of the total cost.

2) Ask your employer to stop the group plan and contibute the premium to your Medisave account. You can pay for your own Shield plan using the Medisave.

Both options avoid the wastage of double coverage and reduces the cost to the employer and employee.

I am not familiar with the coverage and premium charged on the Shield plans by the various insurance companies. I am not able to comment on the plan that is best for you.

Give a fair return to the policyholder

Dear Mr Tan,

I am a regular visitor to your blog, which I find it quite informative. You have been advocating "Buy Term and Invest the rest".

Are you also saying that there is no need for one to buy whole life or endowment policies as they do not yield better returns?

If I extrapolate, does it mean that on hindsight, when you were CEO of Income, products such as Living Policies should not have been sold? I hope to see your response to this issue in your blog.

REPLY

1. NTUC Income launched its Combined Funds in 2003. I have been actively promoting these products under its Flexi-Link and Ideal plans. These investment products have low charges and give good value to the policyholder. The insurance protection can be bought seprately through term insurance. Most of my personal savings are in these products.

2. The Endowment and Living policies from NTUC Income give a fairly satisfactory return ,due to lower commission rates,. The return is higher than similar products from other insurance companies. They are suitable for policyholders who prefer to have the discipline of regular savings.

3. For most young people, who needs flexibility in their savings, "buy term and invest the difference" is a better choice. The investment should be made in large, well diversified, low cost funds. The Combined Fund from NTUC Income meet this criteria. Another option is the STI Exchange Traded Fund.

4. I have always upheld the principle that a insurance product must be designed to give a fair return to the policyholder, while leaving a fair margin to pay the expenses to market and manage the product. During my tenure, I kept the expense low, so that the policyholders can get a fairly attractive return for their long term savings.

Free look period

Dear Mr Tan,

Recently, I bought the Revosave after meeting a NTUC agent in a shopping mall. She was very persuasive and told me all the good features of the insurance policy. I signed for the policy.

Later, my friend told me that the return on this policy is poor, compared to other products from NTUC. I want to cancel the policy. What is your advice?

REPLY

If you have bought the policy within the last 14 days, which is the free look period, you can ask to cancel the policy and get a full refund.

The return on this policy is about 2% to 3%. It is lower than the return on an ordinary endowment policy, which should give about 4% p.a. Due to the annual payout under this policy, the period of investment is short. After deducting the commission payable to the agent, the return to the policyholder is quite low.

Journey on upper deck of bus

I visited a friend at his office in Bedok. To home by MRT, I have to take the train from Bedok to City Hall and change to another train to Yio Chu Kang. From there, I can take a bus to my home. I expect the trains to be crowded, as it was 5 pm.

I search the public tranport guide and found that there is a bus service 25 from Bedok Interchange to Ang Mo Kio Interchange. From there, I could change to another bus to my home.

I had a pleasant ride from Bedok to Ang Mo Kio on a comfortable seat on the upper deck of the bus. I had a good view of Singapore. The bus was not crowded.

Lesson: It is now quite easy for me to move around Singapore on the public transport, with I carry the guide with me.

A bus journey with a transfer

I was invited to a dinner at Concourse Building in Beach Road.

I decided to take a bus from my home. There is no direct bus. I went to the Transit Link website and used its Bus Journey Planner.

I entered my starting and ending bus stops. It displayed the best route for me. I had to take service 857 for 4 stops to Bendemeer Road and change to service 107 for 8 stops to Jalan Sultan.

It was quite convenient and easy. As it was during the busy period, I had to stand on the first part of the journey. I had a seat for the second part.

This is the first time that I have taken a bus journey with a transfer. It was quite easy with a little preparation. The service provided by Transit Link was useful.

BIGe from Aviva

Mr. Tan

I cannot understand how come Aviva BIGe can guaranteed interest of 3.5% without sales charges and withdrawal fees wherelse not other institution can offer that. Is there any "catch" that I overlook on this product?

REPLY

Aviva only guarantees 3.5% for 3 months. Thereafter, they have the right to reduce the interest rate (subject to a minimum of 2.5%).

Although they have to pay out 3.5%, they are able to invest in the stockmarket to earn a much higher return. They are taking some risk, but it can be covered by their risk capital.

I think that they probably invest a portion of their funds in the stockmarket to earn a higher return. This is also a good way for them to build up a base of customers for their other products. They only offer this facility on CPF savings, as the saving for most members are quite modest.

Unit Trust and ILP

Hi Kin Lian,

I have been reading your blog articles and found them to be useful. May I ask your expert advice on the following:

(1) What is the difference between buying unit trusts from insurance companies (i.e. investment link products) versus buying from banks? It appears that many people are buying ILP as the insurance agents are peddaling these products. The banks don't peddale these products because unit trusts are not their lifeblood.

Reply: For lump sum investments, the difference between ILP (from insurance company) and unit trust (from a bank) is quite small. The upfront charge is between 2.5% to 5%. The annual charge is similar.

For monthly investments, the ILP imposes an additional charge which can take up up to 18 months of the premium. Most of the charge goes to pay the commission of the insurance agent. There is no similar charge from unit trust.

(2) Is it worthwhile to pay for a financial adviser from a wealth company (not insurance company) to take care of our investment funds? Should I decide by myself?

Reply: For most people, it is better to choose a large, well diversified, low cost fund and invest for the long term, i.e. 10 years or longer. In this case, you do not need a financial adviser to advise you on when to buy or sell.

The additional charge impose by the financial adviser can take away an additional 0.5% to 1% a year. Read this FAQ:

http://www.tankinlian.com/faq/fptips.html

When to buy a Life Annuity?

Hi Mr Tan,

Thanks for the link to your FAQ. Very informative and good.
http://www.tankinlian.com/faq/life.html

I hope you can advise on the following questions, as the insurance adviser may not give truthful answers.

1. What is estimated total annual cost (distributing, commission, fund management fee, profit, etc) in term of % of invested sum ?

Reply: I estimate the expenses, when spread over the years, to be less than 1% per year.

2. Better to buy early (age 50) or late (age 70) ?

Reply: Perhaps at 65.

3. Is it a good time to buy when interest rate peak ?

Reply: Yes.

Increase in ERP charges

The ERP (electronic road pricing) charges will be increased again.

It will cost $6.50 in ERP charges to drive from Ang Mo Kio to the city. That is a lot of money. You have to pay the high charges for parking your car as well. And it is no fun to drive in a congested road.

Taking a taxi is also expensive. You have to pay the taxi fare, a lot of surcharges, including the ERP charges.

What is the solution?

1. Learn to take public transport, like the bus or MRT
2. It is comfortable, even when it is crowded
3. It is relatively inexpensive.
4. Buy a ez-Link card and travel around Singapore. Use it on the MRT, bus or LRT. You will get familiar with the system.
5. Visit the Transit Link website and try the Bus Journey planner.

Intra town travel

From Wikipedia:

The concept of having rail lines which could bring people from door to door without requiring the use of road-clogging buses was much favoured by the government transport planners, especially with the increased emphasis on a rail-based public transport network.

For intra town travel, LRTs were favoured over buses because trains run on dedicated elevated guideways, bypassing any traffic congestion and traffic lights on the roads, and does not add to road traffic. Train arrival and departure times are also almost guaranteed this way.

It is also cleaner as the trains are electrically powered, and therefore lessens the effects of air pollution.

MY OBSERVATION:

It is useful to have a LRT system in our busy towns, where the roads are congested, perhaps Tampines and Toa Payoh?

Ride on Bukit Panjang LRT

I took a ride on the Bukit Panjang LRT.

It was a pleasant experience. The fare is about 80 cents, similar to a bus fare. The waiting time for a train is about 3 minutes. Each LRT station has lifts and staircase. I find the service to be satisfactory. Well done to SMRT.

I met a friend. He told me that he like the LRT service. According to him, the only drawback is that the train had to make some sharp turns at certain parts of the journey. I was not aware about any inconvenience.

I find that the LRT train occupies only half of the platform. A full length train will have twice the capacity. More people can be encouraged to take the LRT.

Views of Light Rail Transport

I posted my experience on travelling on the Light Rail Transport (LRT) in Sengkang.

I received the following comments from other users:

1. The distance between LRT stops is longer than between bus stops
2. It is tiring to climb up and down the stairs to the LRT stations
3. The LRT service in Choa Chu Kang is inefficient and slow
4. It is expensive to travel by LRT.

I did some further research and found the following:

1. The average distance between LRT stops is about 0.65 km, compared to 0.4 km for bus stops. For more developed areas, the distrance is similar to bus stops.
2. LRT stations are provided with lifts and stairs.
3. The fare for LRT is about the same as for a feeder bus. It cost about 66 to 88 cents, depending on distance.

It is costly to build the infrastructure for the LRT system. We need to use it more fully. We need to get more people educated about using the LRT in the towns that are served by it.

Tips on Buying Insurance

Insurance to buy:

1. Insure the potentially large loss, with a small chance of occurence. For example, the total loss of a property or vehicle or a large liability claim.

2. Compare the premium rates charged by different insurance companies for the same insurance product. Competition helps you to get a lower price.

3. Buy a product where the total claims paid by the insurance company represent at least 65% of the premium. You are getting a fair deal.

Insurance to avoid:

4. Do not insure a small loss that you can afford to pay from your savings, such as the Deductible on a medical insurance plan or the Excess on a motor insurance claim.

5. Do not buy any product that is designed to be different and are not comparable to other products in the market. It allows the insurance company to charge a higher premium, relative to the claim.

6. Avoid a product where the features are too complicated, and you are not able to determine the expected claim ratio.

Invest in a large, well diversified, low cost equity fund

Dear Mr Tan

You advised to invest in equities for 10 years or longer. Is there a risk that, at the end of 10 years, the fund will still show a loss for the period? In the past, I have invested in some funds for more than 10 years and still showed a loss.

REPLY:

There is a chance that you may suffer a loss, but the chance is quite small.

You should invest in a large, well diversified, low-cost fund for 10 years or longer. Preferably, the fund should be invested to follow the market benchmark.

Since 1980, there has never been a period of 10 years when the Singapore equity market (as reflected by the Straits Times Index) shown a loss. For some periods, the average return is higher and for other periods, they are lower.

Over the past 20 years, the average return on Singapore equities is 9.2% per annum (including reinvestment of dividends). The average return on global funds for the same period is 7.7%, after conversion to Singapore dollars.

If, at the end of 10 years, the market is weak and produces a low average return, you have the choice of waiting a few more years for the market to recover to get a higher return.

If you invest in a small fund that is not well diversified, your fund may perform worse than the market, due to poor stock selection by the fund manager. You may suffer a loss for the 10 years period. If your selected fund incurs a high expense ratio, it will also give a lower return than the market.

Lesson: Invest in a large, well diversified, low cost equity fund for a period of 10 years or longer. This will reduce your risk and give you a better return

Easy and difficult way to handle a simple matter

I own 1,000 shares but lost the share certificate 10 years ago. I wish to transfer the shares to the Central Depository.

1. Easy way (but not implemented)

I sign a declaration that my share certificate was lost for 10 years. The share registrar accept my statement and transfer the register them with the Central Depository, based on the company's share register.

2. Difficult way (which was the current practice)

I have to sign a declaration before commissioner of oath
I have to sign an indemnity and find a bank or insurance company to provide a counter indemnity
I have to apply to the share registrar to issue a new share certificate
I have to bring the certificate to the Singapore Exchange
I have to visit the stamp duty office and pay the stamp duty

Total of 5 tips and about $400 in expenses.

3. Life in Singapore can be complicated and costly. Businesses and government departments are more interested to make money from every activity. They do not care about the unncessary burden to the public.

Lesson about structured products

1. Do not invest in structured products, such as swing fund or vitamin account.
2. The hidden cost is high.
3. You are locked in for a long period of 5 years or longer
4. You get a poor return, of less than 1% per year
5. You would have earned much more by investing in government bonds

Vitamin Account

I found the following information on the Vitamin account from the bank's website:

With the Vitamin Account, you'll enjoy:
4% quick payout after 3 months
Annual potential payouts
Unique Immune-15 Effect to potentially improve your immunity against market risk

Vitamin Account is a 6-year equity-linked structured deposit. The Bank will return you 100% of your principal amount if you maintain Vitamin Account till maturity or upon early redemption by the Bank.

Meanwhile, you should ensure that you have sufficient liquid assets during the 6-year investment period. Early withdrawal by you may result in you receiving substantially less than the principal amount invested.

From Year 2 onwards, when the potential payout rate for the year is 3% or more, the Bank will redeem your investment early. You will receive 5% bonus payout and your full principal amount. There will be no other potential payout.

What is 1 million dollars?

Remember Buangkok station? The operator did not wish to open the station during the intial period, as there were not sufficient commuters. They estimated that it would cost $1 million a year to operate the station. Residents living around the station were furious to see the station closed. They put up a "white elephant" sign.

Is $1 million a lot of money? It is a lot of money, if we measure the time taken for a working person to earn this sum. It is quite little, for many people who paid several million dollars to buy an expensive apartment in town.

I recall this joke.

Someone asked, "God, what is one million years to you". God replied, "To me, it is like one second".

He asked again, "God, what is one trillion dollars to you?" God replied, "To me, it is like one cent".

He though of a great idea. He asked again, "God, can you send just one cent to me?".

There was a slight pause. Then, God replied, "Of course. In a second!".

Payout under Vitamin Account

Dear Mr Tan

I invested $X with a local bank for over 5 years under its Vitamin account. Recently, I received a letter announcing a payount of this "Equity-Linked Structured Deposit Tranche A".

It calculates the payout to be as follows:

The average of the annual returns of all 18 shares is 1.9782%
The average is 1.9782/18 = 0.1099%

The letter indicated that they are crediting my principal plus .1099% (indicated as the 2nd payout amount) into my bank account on the maturity date.

What is my total return from this investment?

REPLY

I am not familiar with the terms of this structured product. There appears to be a 1st payout that was made earlier. Can you find out the amount of this first payout, so that your total return can be calculated?

Hassle in writing a cheque

I had a lot of trouble in writing a cheque payable to the share registrar. I had to issue 4 separate cheques and mail them to the registrar. They were caused by minor mistakes on my part, but the banking system and the share registrar refused to be flexible.

The mistakes were:

Cheque 1: I write 15 cents in the "words" section instead of 50 cents.
Cheque 2: I write Lim + Associates intead of Lim Associates
Cheque 3: I overwrite the month 09 over 07

The amount of the cheque was only $270.50.

For these minor mistakes, the front line staff refused to accept the cheque or to call me to correct the mistake over the telephone. They were very firm in rejecting the cheque and asked to send a new cheque to replace it.

Nowadays, people can transact millions of dollars by a telephone call. Yet, our archaic banking practices refused to accept a minor mistake of less than $1 on a cheque. They act inflexibly, and disregard the expense and trouble to their customer.

If I find a bank that is willing to be flexible, they can get my business.

Registering my share certificate

I hold 1,000 shares of a company and has been receiving dividends for more than 10 years. As I lost of certificate many years ago, the shares were not registerd in the Central Depository.

To transfer my shares to the Central Depository, the share registrar required me to:

1. Sign a statement before a commission of oath
2. Sign an indemnity
3. Get the indemnity counter signed by a bank or insurance company
4. Pay a fee of $270

I have to make several trips and spend a lot of expenses and fees.

The new certificate is issued by the share registrar after a few weeks.

I had to go to Singapore Exchange to register the shares. At the counter, the staff was told to go to another office in Bugis Junction to get a certain form, pay stamp duty and bring it back to Singapore Exchange.

I lost my temper. I asked to speak to the manager. He was not available.

Is there a better way? Of course! The share registrar could register my shares with the Central Depository after I have signed the declaration and paid the fees.

These two parties, namely the share registrar and the Singapore Exchange, made me spend so much unnecessary time and expenses over a simple matter. They do not seem to care about how much trouble they cause to me.

Protection under a ILP policy

Dear Mr Tan,

I bought ILP 1 year ago. I heard the charges will be getting higher as growing older. I plan to use it as a investment. When I get old, I will withdraw all the amount and left a minimum of 1k inside. I heard from my agent the protection will value will will be there if I don't draw out all the money. Any advice regarding this matters?

REPLY

It depends on your ILP contract. You have to confirm this matter with the insurance company, in case the agent is mistaken (which I believe is the case). The insurance company is unlikely to leave this type of loophole for the benefit of the customer.

Unncessary trouble and expenses

I lost a share certificate 10 years ago. I was registered as the shareholder in the company's books. As I did not have the certificate, I could not transfer the share to the Central Depository of the Singapore Exchange.

Recently, I decided to apply for a new certificate to be issued, so that it can be tranferred to the Central Depository.

I faced a lot of trouble, time and expenses in handling this simple matter. It is so wasteful and quite uncecessary.

It is due to the inconsiderate procedures and requirements of the banks, share registrar and the Singapore Exchange. I shall describe my experience in more detail in later postings.

My experience shows the ugly side of Singapore behaviour. Many organisations are so keen to reduce their cost and make more profits, that they add a lot of trouble and expenses to the consumer. Nobody seems to care!

My first ride on LRT (Light Rail Transport)

I took my first ride on the LRT today. I took the MRT (NE line) to Sengkang Station and changed to the LRT. I took the East Loop and the West Loop.

It was a pleasant ride, and allowed me to view the entire Sengkang estate from an elevated level.

The LRT is a good system. I hope that it will be built in more towns in Singapore, including the old towns.

With a good public transport system, more people can do without a private car. This will reduce congestion on the roads and reduce the need for more car parks. It is a hassle to drive on congested roads and to find a parking space.

Question on Financial Advice from Indonesia

Dear Mr. Tan,

Since you have good knowledge about insurance and investment, especially mutual fund, i'd like to ask for you advise related to insurance and investment.

Let's say I have only a free Rp500,000 per month and I don't have any insurance nor investment. I want to buy an insurance to cover me from death, critical illness and accident. I also want to buy an investment. What would you say for my case?

I am a single male aged X working for a private company. I have parents already retired, and 3 brothers and sisters (1 working and 2 studying).

REPLY:

You can read this FAQ
http://www.tankinlian.com/faq/fptips.html

I hope that it gives you guidance to make a decision.

Infinity Funds

Someone sent the following facts to me, about the there Infinity funds available from Fundsupermart.

I understand that these funds are managed by Vanguard and that charges are less than 0.3%. The local distributor add other charges that bring the expense ratio to about 1.1%.

In my view, an expense ratio of more than 1% is high for an indexed fund. I hope that the distributor can bring down the expense ratio.

INFINITY GLOBAL STOCK INDEX
Fundsupermart's Discounted Initial Sales Charge: 1.0 %
Annual Management Charge: 0.48 %
Annual Management Charge (Mother Fund): 0.29 %
Annual Expense Ratio * 1.17%
Website:
http://www.fundsupermart.com/main/fundinfo/viewFund.svdo?sedolnumber=370281

INFINITY EUROPEAN STOCK INDEX
Fundsupermart's Discounted Initial Sales Charge: 1.0 %
Annual Management Charge: 0.48 %
Annual Management Charge (Mother Fund): 0.29 %
Transaction Fee: 0.2%
Annual Expense Ratio: 1.13%
Website:
http://www.fundsupermart.com/main/fundinfo/viewFund.svdo?sedolnumber=370282

INFINITY US 500 STOCK INDEX
Fundsupermart's Discounted Initial Sales Charge: 1.0 %
Annual Management Charge: 0.48 %
Annual Management Charge (Mother Fund): 0.23 %
Annual Expense Ratio: 1.09%
Website:
http://www.fundsupermart.com/main/fundinfo/viewFund.svdo?sedolnumber=370283

Negative return over 10 years?

Dear Mr Tan,

When you say long term, what is the time-frame? Is it possible, say after 10 years, the value drops below than the current value?

REPLY

It is possible, but extremely unlikely.

If you look at any period of 10 years in the past, I do not think that you will this situation. Even if the unlikely event happens, you can wait for a few more years for the market to recover.

Remember, if the market continues to go down over 10 years, it will be spell disaster for the economic and financial system. In that case, other investments will perform poorly as well.

COMMENT FROM AN EXPERT

In Singapore, since 1980, there has never been a 10-year period when the stock market has realised negative returns.

Avoid being judgemental

Many people have the habit of being judgemental. They like to declare another person's view to be right, wrong, good or bad.

I avoid being judgemental. I recognise that there are many views. Each view is suitable for its set of circumstances.

I can express my views, without having to pass judgement on other people's views. I state my views and explain my reasons. I leave it to other people to decide if they wish to accept or ignore my view.

I hope that more people can express their views without being judgemental or critical. They should avoid being engaged in personal attacks.

Shower system for a hotel room

I had stayed in many hotels around the world. Most of them have hot and cold water system in the bathroom that are not easy to use. They forget that the hotel guests are usually visiting their hotel for the first time.

One frequent problem is that, if you have just used the soap, you are not able to turn the knob of the taps.

Recently, I visited the Conrad Hotel in Brussels. It has a user-friendly system for hot and cold water. You use one control to decide on the temperature of the water and a separate control for the volume of the water, i.e. to turn on and off.

Photos of Huangshan, China

Earlier this year, I visited Huangshan in China. I took some photos. They were lying in my digital camera, as I did not have the software to transfer them into my computer.

I learned later, that I could remove the SD card (which contains the photos) and copy them into my notebook computer (which has a SD card reader). It is as easy as using a thumb drive.

What makes a great school?

Read Dr Lee Kum Tatt's views in his blog.

www.leekumtatt.blogspot.com

Balance flexibility and security

In a TV interview, an elderly person said that a life annuity locks up his money. He prefers to keep the money in an account, so that he has the flexibility to use it to meet special needs.

Here are my views.

1. You can aim for flexibility, if you have more than adequate funds to last beyond your lifetime.

2. If you have limited savings, it is important that your limited funds be spread throughout your lifetime. This can be done through a life annuity.

3. If you spend your lifetime savings too quickly or make some bad investments, you may deplete your savings and have nothing left to live on.

4. With limited savings, you should use 80% to buy a life annuity and keep the remaining 20% as a flexible source of money to drawn down for your special needs.

Low Cost Funds

Dear Mr Tan

What low cost funds do you recommend? How do I invest in them?

REPLY

I suggest the following:

1. STI Exchange Traded Fund - through the Singapore Exchange
2. Combined Fund from NTUC Income - through an adviser or the business center
3. Money market fund from NTUC Income - through an adviser or the business center
4. BIGe from Aviva

NTUC Income Business Center ... see Link 9 on the right
http://www.income.com.sg/businesscentre/

Aviva
http://www.aviva-singapore.com.sg/

If I know of other low cost funds, I shall put them in this blog. So far, the choice is rather limited.

Life annuity or money market fund?

Hi Mr Tan,

Currently, which offer better investment yield ? Money market fund or annuity (lifetime with
immediate drawdown and no refund). Please give the name of the fund or annuity.

REPLY

The life annuity provides a higher return as it is invested in long term investments, which give a higher return than short term investments innvested by the money market fund.

You can read this FAQ

http://www.tankinlian.com/faq/life.html

I suggest that you talk to an insurance adviser (call an adviser listed in my blog) or talk to a salaried consultant at the NTUC Income Business Center.

Prompt and fair settlement of claims

Hi Mr Tan

I have some question need to ask u regarding making a claim at NTUC insurance. I have heard my friend said NTUC income making a claim is quite troublesome and have a lot of procedue taking sometimes. I mean those policy which family member is dead. Isit true?

REPLY

This statement is not true. The insurance agents from other companies spread these lies, so that the customers will pay a higher premium to buy the insurance policy from their company. This has been happening for 30 years.

NTUC Income has a policy on prompt and fair settlement of claims. There were many claims that were paid without hassle by NTUC Income. Similar claims from other companies took much longer to settle.

When should I sell?

Dear Mr Tan

I had bought a Greatlink Growth Plan using my S10K cpf money in 2000. Today, it is valued at 26k. Now, the question is when should I sell it?

REPLY.

If you are investing for the long term, you can keep the investment. If you are investing for the short time, now is a good time to sell.

Excessive charge by bank on credit card

COMMENT POSTED IN MY BLOG:

The bank did the right thing by informing customers early and proper disclosures.

Consumers also have their own responsibility in managing their own cash flow. What the banks did was to create convenience for consumers so that they do not have to carry large amounts of cash and at some places, enjoy discounts and rebates.

If they did not set up the framework, consumers would still be carrying large bundles of cash with them all the time.

If you are expecting everything to come without cost, then you have to carry your own bank with you all the time.

Banks do not owe consumers a living. If consumers make use of their services, please expect to pay.

I have never been late in my credit card payment - even with banks where I do not have a GIRO arrangement. Why? It is simple - I make sure honour the rules, and am not tardy nor procrastinate my payment.

Perhaps consumers can consider practicing not delaying payment and avoid unnecessary penalties.

REPLY:

It is all right for the bank to incur a charge to cover its actual cost of handling the late payment. I believe that the cost should be less than $5. It is not correct for the bank to levy an excessive charge (just like imposing a fine) and make a profit on it.

Already, the bank is making a profit on the following:

1. Charge paid by the merchant
2. Annual fee for the credit card (although it is usually waived)
3. Interet on late payment.

I am worried that many businesses are aiming to increase their profit all the time, and they adopt are willing to business practices that are unfair to consumers. I urge consumers to reject these types of business practices.

Guarantee of 4% per annum?

Dear Mr Tan,

Does the insurance company guarantee at least 4% long term? It may not be realised even after waiting for the long term, right? Or do you based the 4% on past performance and think future will be the same?

REPLY:

The fund or insurance company does not provide this guarantee of 4% return.

If you are investing over a period of 10 years or longer in equities, you are likely to get an average of more than 4% per year, based on past records.

For some periods, the average return can be higher, e.g. close to 8% per year. For other periods, it may be lower, i.e. closer to 4% per year.

Take the investment risk and get a better return. Invest for 10 years or more, so that you can average out the good and bad years.

Invest in a large, well diversified, low cost fund, so that most of the return are given to you (and not taken away as expenses and charges).

I am quite confident that the return in the future will be higher than other types of investments. I am making most of my personal investment in this type of fund.

How to avoid over-insurance

Mr Tan,

Can you give some tips on how to avoid over-insurance? How much is adequate? How much is excessive?

REPLY:

You have to distinguish between the following:

* insurance - to protect against loss of earnings or to pay for expenses
* investment - to get an attractive return on your savings

If it is for insurance only, you should spend not more than 2% of your income. If you annual income is $40,000, you should spend not more than $800 to cover for the insurance of your life, medical expenses and your home and for your family members. (You may have to pay more, if you wish to insure your car).

If you buy insurance as a form of investment, you must look at the return. For long term investment, you must aim for a return of at least 4%.

If you are paying 10% of your earnings as insurance premium (and many people are), and you get a return of les than 2% per annum on your insurance policy, then you are getting a poor deal.

This is why I advise to buy term and invest the difference. Read this FAQ:

http://www.tankinlian.com/faq/fptips.html

Letter from Lawyer Claiming for the Other Party

Dear Mr Tan,

I receive a threatening letter from a lawyer acting for the other driver involved in an accident a few months ago. I have reported the accident to my insurance company. It is a minor accident.

Why did the insurance company fail to settle this claim with the other party? What should I do?

REPLY:

You can give a reply to the lawyer to tell them to make their claim directly against your insurance company. At the same time, you can pass the lawyer's letter to your insurance company to handle.

It is wrong for the lawyer to sent the letter to you, especially as they can lodge it with your insurance company. Some lawyers, acting on a third party claim, use this approach to intimidate the public.

Perhaps you should make a complaint to the Law Society against this type of behaviour.

Learning Powerpoint

In the past, I send the key points of my paper to a colleague to create a powerpoint.

Recently, I had to create some powerpoint myself, as my former colleague was not available. I had to learn how to use Powerpoint.

I asked an expert to show me how to create my powerpoint slides. It was quite easy to use. After a few minutes, I am able to create the slides. But they are just basic slides with words (in different sizes, fonts and colours).

I will still use an artist to do the touch-ups, add the effects and nice pictures.

Lesson: There are still many interesting things to learn, even for someone of my age.

Search for information from the internet

I use the Google search to access information through the internet. It is easy to use and works extremely well.

Here are some examples of my search:

* CPF Minimum Sum
* La Vie En Rose (title of a song)
* O Sole Mio (title of a song)
* Euthanasia
* CPF contribution
* Transit Link (name of company)

The Google search return a list of title that matches the search. If all the words match, the item appears at the time. If some words match, it appear lower down.

I use this to search for information that is needed to research for my articles in my blog or to send to newspapers.

High cost of borrowing

Here are some tips, which I hope will be helpful to the young people.

Many people are not aware about the high cost of borrowing. They may not be aware that they are borrowing at all.

Buying a product on 12 or 24 months of "interest free" installments is actually borrowing. If you pay cash, you can easily a 5% or 10% discount on the price.

What is the borrowing cost, over a 24 month period?

If you pay interest at 1% per month, the total payment over 24 months is an additional 12%. If you pay interest at 2% per month (i.e. the rate the credit cards normally charged on rolled over balances), you will pay an additional 27%.

If the merchant that gives you "interest free installment" incurs an interest cost of 1% per month (i.e. the cost of funds provided by the financing company), this merchant will give you a cash discount of up to 12% on the product.

You can negotiate for this cash discount. The merchant has probably added this financing cost to the cost of the product.

Suppose you like something now, and does not have the cash to pay for it?

My advice. Start to save now for the things that you may need in the future. By paying cash, you can save up to 12% to 24% on the financing cost of the product. It is a lot of money to save.

Here is another option. Ask yourself? Do you really need to buy that product now? Can you save first and buy it 2 years later?

By that time, the product will come down in price and you save on the financing cost as well. You will get double benefit! You may also get a better product, as products are being improved all the time.

Tips on how to play Sudoku (Logic9)

90% of people in Singapore are still not familiar with Sudoku, although it has appeared in the newspapers for two years.

Those who are familiar with this puzzle work on it every day. It keeps the mind alert.

I have four tips to help you solve Sudoku puzzles at all levels, including the difficult (four star) puzzles.

It can be found in this webpage:

http://project.bestsimulation.sg/logic9v4/tips.asp

It takes only TEN minutes to learn the four tips. You can practice on the puzzles. You will be an expert within 2 weeks.

Try it.

Individual Home Delivery

The retail cooperatives in Japan has successfully operated a system of individual home delivery of groceries for more than 20 years.

It operates as follows:

* the customer places an order
* the groceries are delivered to their homes at specified times

It works well for the following:

* special products (e.g. organic) not available from the supermarkets
* heavy items
* for busy customers

Several businesses have tried to provide this service in Singapore. It does not seem to work well. What are the reasons?

Monthly withdrawals from Growth Combined Fund

A policyholder had about 47,500 units units of the Growth Combined Fund with a value of $87,700.

She wished to make monthly withdrawal of $400 opr $500 from this fund. Assuming that the investment grows at 5% per annum, the money will last as follows

monthly withdrawal $400 - total of 45.7 years
monthly withdrawal $500 - total of 25.6 years

By increasing the payount by 25% (from $400 to $500), the payout period is reduced by 44%. It could be due to the effect of a shorter period of compounding.

The policyholder was happy with the return on the Growth Combined Fund, and the long period for which the payout is projected to be available. She thinks that this scheme is suitable for retirees.