Posted in my blog (and edited by me):
Your adviser plays a VERY IMPORTANT part in the advisory process. It is make or break for your financial future.
A poor and wobbly start and you never achieve your goals.That is the reason why many CPF members still licking their wounds from losses because they never got a qualified and competent adviser in the first place. What they got was a salesman who sold them funds but didn't guide and advise on the investment.
Similarly why many people are still under insured is because they got salesmen and women to advise on their insurance. You be surprised that insurance planning is not about selling you a policy and your concerns and fears will go away and you will get peace of mind. It is about getting all your needs addressed.
This is also the conscience of the advisers plays a key role. Check your insurance. I bet you have a load of whole life, limited premium and endowment. Tally them up to see if you have enough despite paying so much premium. What is the point of paying so much premium and yet you have so big a gap.
Do you know why this blog promotes 'buy Term and invest the rest'? It is because there is great concern for you; to educate you so that you will not be bluffed by insurance salesmen; also to let you know this is the best approach to take care of your protection and wealth accumulation efficiently and effectively.
Straight forward and simple, plain vanilla products. If you have a good qualified adviser he or she can help you to achieve your goals because they guide you all the way and not abandon you after a sale is made like the insurance salesmen.
Remember to choose a good adviser. If you do not have one you can go to www.fpas.org.sg to get help to get an adviser who is attached to the company of your choice. Eg. you want one who is representing NTUC.
Z
Friday, February 08, 2008
Dividend paid from a Fund
Mr, Tan,
For the STI ETF, what happens when a dividend is declared? How is it distributed to the investors?
I have the same query about the NTUC Combined Fund which i recently bought - what happens to the dividends declared on the shares held by the funds? Do these dividends increase the value of my investments?
REPLY
The STI ETF declares a dividend every six months. Currently, the dividend paid out represents about 3% of the value of the assets. It is the average dividend paid by the underlying shares.
When the dividend is paid, the net asset value of the fund will drop by this amount. The share price will drop slightly to reflect this payment. After that, the share price should increase, in line with the underlying value of the shares..
In the case of the NTUC Income Combined Fund, there is no dividend payment. The dividends that are received on the underlying shares are re-invested. The price of this fund will increase due to the growth of the underlying shares and the dividends that have been received.
If you wish to receive a payout of (say) 5% from the from the Combined Fund, you can encash 5% of the units that you hold. As the underlying value of the shares is expected to grow by more than 5% (on average), the value of your investments should remain intact. You have the choice of deciding on the amount that you wish to encash each year.
For the STI ETF, what happens when a dividend is declared? How is it distributed to the investors?
I have the same query about the NTUC Combined Fund which i recently bought - what happens to the dividends declared on the shares held by the funds? Do these dividends increase the value of my investments?
REPLY
The STI ETF declares a dividend every six months. Currently, the dividend paid out represents about 3% of the value of the assets. It is the average dividend paid by the underlying shares.
When the dividend is paid, the net asset value of the fund will drop by this amount. The share price will drop slightly to reflect this payment. After that, the share price should increase, in line with the underlying value of the shares..
In the case of the NTUC Income Combined Fund, there is no dividend payment. The dividends that are received on the underlying shares are re-invested. The price of this fund will increase due to the growth of the underlying shares and the dividends that have been received.
If you wish to receive a payout of (say) 5% from the from the Combined Fund, you can encash 5% of the units that you hold. As the underlying value of the shares is expected to grow by more than 5% (on average), the value of your investments should remain intact. You have the choice of deciding on the amount that you wish to encash each year.
First Anniversary of this Blog
Dear Mr. Tan,
Wishing you Gong Xi Fa Cai and best of health. Thanks for all the financial advice and education. You have some 200,000 visitors to your blog on the first anniversary of your blog i.e. 8 Feb 2008 . It is a great achievement !!
Best regards
YH
Wishing you Gong Xi Fa Cai and best of health. Thanks for all the financial advice and education. You have some 200,000 visitors to your blog on the first anniversary of your blog i.e. 8 Feb 2008 . It is a great achievement !!
Best regards
YH
Thursday, February 07, 2008
Motor insurance claim
Dear Mr. Tan,
I met with an accident yesterday. It was a small accident. Should I make an insurance claim or try to settle it privately?
REPLY
Read this FAQ:
http://www.tankinlian.com/articles/traffic.html
I met with an accident yesterday. It was a small accident. Should I make an insurance claim or try to settle it privately?
REPLY
Read this FAQ:
http://www.tankinlian.com/articles/traffic.html
Joke - Make a Will
A young doctor and a young lawyer have just set up in private practice. They met in the street one day and the doctor said, "Great news! I have just got my first patient."
"Congratulations", said the lawyer. "When you've got him to the point that he wants to make a will, let me know and I will go and see him. "
"Congratulations", said the lawyer. "When you've got him to the point that he wants to make a will, let me know and I will go and see him. "
Keep invested in STI ETF
Hi Mr. Tan,
I have $90,000 invested in STI ETF. It was slowly accumulated through POEMS Share Builders Plan over the last few years.
Should I sell the ETF and buy individual blue-chip shares? Will it results in more savings over the long-term? Will selling all the shares in one go have any effects on the selling price?
Looking forward to your reply.
REPLY
It is better to keep you STI ETF. It is professionally managed, well diversified. You do not have to worry about collecting dividends, subscribing to rights issues, etc. These are taken care for you. The expense ratio of 0.3% is small.
I have $90,000 invested in STI ETF. It was slowly accumulated through POEMS Share Builders Plan over the last few years.
Should I sell the ETF and buy individual blue-chip shares? Will it results in more savings over the long-term? Will selling all the shares in one go have any effects on the selling price?
Looking forward to your reply.
REPLY
It is better to keep you STI ETF. It is professionally managed, well diversified. You do not have to worry about collecting dividends, subscribing to rights issues, etc. These are taken care for you. The expense ratio of 0.3% is small.
Higher cost of Vivolife
Dear Mr. Tan,
An NTUC agent approached me to sell the new Vivolife product. The return from this product is lower than a similar product that was being discontinued.
The agent claimed that the commission is not significantly different. Why is the return from the so much lower?
REPLY
I am not familiar with the new product. My understanding is that the charges are higher to cover the following:
a) Higher commission to the agent
b) Higher advertising expenses
c) Higher profit margin
d) Cost of the additional benefits (or frills).
I suspect that the yield for the period of premium payment could be quite low. You should ask the agent to compute the yield, based on the cash value at the end of this period. If the net yield(after deducting all the costs) is still more than 3%, you can invest in this product.
If not, it is better for you to follow the advise in this FAQ:
http://www.tankinlian.com/faq/savings.html
Gong Xi Fa Cai.
An NTUC agent approached me to sell the new Vivolife product. The return from this product is lower than a similar product that was being discontinued.
The agent claimed that the commission is not significantly different. Why is the return from the so much lower?
REPLY
I am not familiar with the new product. My understanding is that the charges are higher to cover the following:
a) Higher commission to the agent
b) Higher advertising expenses
c) Higher profit margin
d) Cost of the additional benefits (or frills).
I suspect that the yield for the period of premium payment could be quite low. You should ask the agent to compute the yield, based on the cash value at the end of this period. If the net yield(after deducting all the costs) is still more than 3%, you can invest in this product.
If not, it is better for you to follow the advise in this FAQ:
http://www.tankinlian.com/faq/savings.html
Gong Xi Fa Cai.
Future for Financial Advisers
Mr. Tan,
Can I say that the days of an insurance adviser is numbered because:
1) An insurance adviser is highly unlikely to transact several term a day as each plan will be for very long term. The adviser have to look for the next person for planning.
2) Commission is low especially for Term insurances. It is difficult and take a lot of time to plan and convince the next person to the Term insurance. The adviser eventually get paid peanuts for the vast amount of time taken.
3) Next comes the emergence of index funds which pay low sales charge and no wrap fees. Adviser may even not earn a single cent to introduce these funds.
4) There is also no guideline on how much an adviser is worth for his time and advice. If the public view an adviser time as $10/hour, how many hours must an adviser works to compensate for his business cost? Is it possible for him to get 10 customers a day in order to earn that $100/day. Is meeting that 10 customers day considered as efficient?
5) Financial planner is different from other professional such as doctors and lawyers. People look for them when they are seriously sick or need legal advice. People don't usually think they will need a Financial planner due to their low urgency towards financial planning.
Financial Advisers took great pains to gain hybrid knowledge ranging from Insurance, Investments, Tax, Estate, CPF, Retirement, etc. They also keep updated on all the changes and investment climate.
Do you think that it is fair that advisers should always get lower paid than other professionals?Should the public get all the advices for free and then buy the cheapest term insurance and ETFs and they pay peanuts to the agent?
In your opinion, do you think that if there are no proper framework protecting the advisers in term of compensation scheme, a too drastic change in the benefit towards the public will kill many good advisers which may subsequently result in more social problem?
REPLY
I am optimistic of the future for a new type of financial adviser who provides good value for the client. The client will look for a trusted financial adviser, just as a patient will look for a good and trusted doctor.
The consumer will pay a fair rate of remuneration for the advice and help in making the transaction. The adviser can earn a good level of income by working efficiently and spreading his remuneration over a large number of clients (i.e. keep the cost low for the customer).
Can the new model give a living for many financial advisers? I believe so. There are so many people that need good advice. Many advisers are needed to educate and give good advice to these people.
In the economy, we need many teachers, many doctors, many nurses, many preachers. They do good work to serve the entire population. We also need many financial advisers to do their good work.
Gong Xi Fa Cai.
Can I say that the days of an insurance adviser is numbered because:
1) An insurance adviser is highly unlikely to transact several term a day as each plan will be for very long term. The adviser have to look for the next person for planning.
2) Commission is low especially for Term insurances. It is difficult and take a lot of time to plan and convince the next person to the Term insurance. The adviser eventually get paid peanuts for the vast amount of time taken.
3) Next comes the emergence of index funds which pay low sales charge and no wrap fees. Adviser may even not earn a single cent to introduce these funds.
4) There is also no guideline on how much an adviser is worth for his time and advice. If the public view an adviser time as $10/hour, how many hours must an adviser works to compensate for his business cost? Is it possible for him to get 10 customers a day in order to earn that $100/day. Is meeting that 10 customers day considered as efficient?
5) Financial planner is different from other professional such as doctors and lawyers. People look for them when they are seriously sick or need legal advice. People don't usually think they will need a Financial planner due to their low urgency towards financial planning.
Financial Advisers took great pains to gain hybrid knowledge ranging from Insurance, Investments, Tax, Estate, CPF, Retirement, etc. They also keep updated on all the changes and investment climate.
Do you think that it is fair that advisers should always get lower paid than other professionals?Should the public get all the advices for free and then buy the cheapest term insurance and ETFs and they pay peanuts to the agent?
In your opinion, do you think that if there are no proper framework protecting the advisers in term of compensation scheme, a too drastic change in the benefit towards the public will kill many good advisers which may subsequently result in more social problem?
REPLY
I am optimistic of the future for a new type of financial adviser who provides good value for the client. The client will look for a trusted financial adviser, just as a patient will look for a good and trusted doctor.
The consumer will pay a fair rate of remuneration for the advice and help in making the transaction. The adviser can earn a good level of income by working efficiently and spreading his remuneration over a large number of clients (i.e. keep the cost low for the customer).
Can the new model give a living for many financial advisers? I believe so. There are so many people that need good advice. Many advisers are needed to educate and give good advice to these people.
In the economy, we need many teachers, many doctors, many nurses, many preachers. They do good work to serve the entire population. We also need many financial advisers to do their good work.
Gong Xi Fa Cai.
Medishield: Cheap and Good
Read this article from Dr. Money, published in the New Paper. It explains how to keep the cost of health care low. It also advises on insuring under Medishield:
http://newpaper.asia1.com.sg/columnists/story/0,4136,154148,00.html
More articles from Dr. Money:
http://www.tankinlian.com/drmoney/
Gong Xi Fa Cai.
http://newpaper.asia1.com.sg/columnists/story/0,4136,154148,00.html
More articles from Dr. Money:
http://www.tankinlian.com/drmoney/
Gong Xi Fa Cai.
Wednesday, February 06, 2008
Actuary Joke: Walk half the distance
A mathematician and actuary are in a room. There is a pretty girl at the other end of the room. It takes 10 seconds to walk half the distance to the girl, another 10 seconds to walk half the remaining distance, another 10 seconds to walk half the remaining distance, and so on. How long will it take to reach the girl?
The mathematician replied ... "I will never reach the girl. No matter where I am, there is a distance and it takes 10 seconds to walk half of that distance."
What did the actuary say? .... Remember, the actuary is a practical person.
The mathematician replied ... "I will never reach the girl. No matter where I am, there is a distance and it takes 10 seconds to walk half of that distance."
What did the actuary say? .... Remember, the actuary is a practical person.
Boosting the US economy
The US Government intends to spend USD 150 billion to boost the economy. President Bush and the Republicans like most of the money to be given as tax rebates in the hands of tax payers to spend. The Democrats prefer the money to be spent by the Government to benefit the people.
Which is better?
Surveys have shown that most people will not spend the tax rebate. Instead, they will keep it as their savings. This will not have the impact of boosting the economy.
The Republications argued that individuals know how to spend their money. They do not like other people, such as the Government, to decide how to spend the money.
Generally, I prefer the Democrat's approach. Certain expenditure have to be decided by the Government, e.g. invest in infrastructure, welfare for the poor, or to boost the economy. This is more likely to be effective, compared to leaving it "to the market".
Which is better?
Surveys have shown that most people will not spend the tax rebate. Instead, they will keep it as their savings. This will not have the impact of boosting the economy.
The Republications argued that individuals know how to spend their money. They do not like other people, such as the Government, to decide how to spend the money.
Generally, I prefer the Democrat's approach. Certain expenditure have to be decided by the Government, e.g. invest in infrastructure, welfare for the poor, or to boost the economy. This is more likely to be effective, compared to leaving it "to the market".
Changes to CPF Investment Scheme
Dear Mr. Tan,
From 1 April 2008, there are some restrictions on investing CPF money in financial products. My insurance agent advise me to invest before the deadline. Is this a good move?
REPLY
If you keep your money in CPF, you can earn 2.5% + 1% bonus on ordinary account or 4% + 1% on special account. This is a good rate of return.
Most life insurance products offer a lower return, in spite of a slightly higher risk. This is due to the high charges taken away by the insurance company to pay agent's commision and for their profit margin.
If you wish to invest your ordinary account, you should select a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you are not sure, it is better to keep your money in the CPF and enjoy a fairly attractive interest rate, with the bonus.
Read this article from Dr Money:
http://newpaper.asia1.com.sg/columnists/story/0,4136,153456,00.html
More articles:
http://www.tankinlian.com/drmoney/
From 1 April 2008, there are some restrictions on investing CPF money in financial products. My insurance agent advise me to invest before the deadline. Is this a good move?
REPLY
If you keep your money in CPF, you can earn 2.5% + 1% bonus on ordinary account or 4% + 1% on special account. This is a good rate of return.
Most life insurance products offer a lower return, in spite of a slightly higher risk. This is due to the high charges taken away by the insurance company to pay agent's commision and for their profit margin.
If you wish to invest your ordinary account, you should select a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you are not sure, it is better to keep your money in the CPF and enjoy a fairly attractive interest rate, with the bonus.
Read this article from Dr Money:
http://newpaper.asia1.com.sg/columnists/story/0,4136,153456,00.html
More articles:
http://www.tankinlian.com/drmoney/
Agent plays an important role
The agent (e.g. stockbroker, property, insurance) can play an important role in the new economy. They can help the customer to assess information, give advice and handle the transactions.
I communicate with my stockbroker by e-mail, mobile phone and SMS. I ask for information and also make transactions (to buy or sell shares or other securities). The stockbroker can ask his colleagues in the research department to get the information that I need.
I pay a brokerage of 0.3% on the shares that are transacted. This is much lower than the initial spread of 3% to 5% that is charged by unit trust and insurance funds.
I hope that the insurance industry and the agents can be as efficient as the stockbroking industry, and offer their products at lower cost to the customers.
I communicate with my stockbroker by e-mail, mobile phone and SMS. I ask for information and also make transactions (to buy or sell shares or other securities). The stockbroker can ask his colleagues in the research department to get the information that I need.
I pay a brokerage of 0.3% on the shares that are transacted. This is much lower than the initial spread of 3% to 5% that is charged by unit trust and insurance funds.
I hope that the insurance industry and the agents can be as efficient as the stockbroking industry, and offer their products at lower cost to the customers.
Government bonds and endowment
Mr. Tan,
What is the difference between investing in a single premium endowment for 10 years and buying a government bond for the same period? Which is better?
REPLY
The net yield in both cases should be quite similar, i.e. around 3.5% per annum.
The endowment provides some life insurance cover (but this is really quite insignificant). A part of the return is not guaranteed, so the actual return may be slightly higher or lower, depending on the future bonuses. If you terminate the policy before maturity, you are likely to suffer a loss.
The government bond gives a guaranteed yield and is risk free. You can sell the government bond at any time, based on its fair market price. There is no penalty. The dividends are paid to you every 6 months (which may or may not be an advantage to some investors).
I prefer government bonds due to its low cost, and its flexibility (i.e. not locked-in).
What is the difference between investing in a single premium endowment for 10 years and buying a government bond for the same period? Which is better?
REPLY
The net yield in both cases should be quite similar, i.e. around 3.5% per annum.
The endowment provides some life insurance cover (but this is really quite insignificant). A part of the return is not guaranteed, so the actual return may be slightly higher or lower, depending on the future bonuses. If you terminate the policy before maturity, you are likely to suffer a loss.
The government bond gives a guaranteed yield and is risk free. You can sell the government bond at any time, based on its fair market price. There is no penalty. The dividends are paid to you every 6 months (which may or may not be an advantage to some investors).
I prefer government bonds due to its low cost, and its flexibility (i.e. not locked-in).
High cost Endowment Policy - Views
Mr. Tan,
Is it possible for an insurance company to offer an endowment policy with low expense charge, so that the return can be 4% or better? I do not mind giving some of the return, as long as it is reasonable, and i still get a good return.
REPLY
It is possible for an insurance company to design an endowment plan that offers a higher return. The customer has to buy this plan directly from the insurance company, as the insurance agent will not sell it, due to low commission. So far, I am not aware of any insurance company willing to offer this "low cost" endowment plan.
Mr. Tan,
I have been studying your figures closely. If I save $500 over 20 years, my total saving is $120,000. the return based on $198,000 is $78,000. If the charges take away $45,000, then I am left with a return of only $33,000. Why should the charges take away nearly 60% of my hard earned return for 20 years?
REPLY
It is correct that the high charges take away more than 50% of the return that you can earn over the next 20 years. It is better to invest in a low cost product, so that most of the return will go back to you. For life insurance protection, you can buy a separate, low cost Term insurance plan.
Mr Tan,
Where can I get yield of 5% if I save $500 a month?
REPLY
If you are investing for the next 20 years, it is likely that you will get a return of 5% per annum on an investment fund. The gross return on the life insurance fund should also give you 5% per annum (my estimate), before deducting expenses.
Is it possible for an insurance company to offer an endowment policy with low expense charge, so that the return can be 4% or better? I do not mind giving some of the return, as long as it is reasonable, and i still get a good return.
REPLY
It is possible for an insurance company to design an endowment plan that offers a higher return. The customer has to buy this plan directly from the insurance company, as the insurance agent will not sell it, due to low commission. So far, I am not aware of any insurance company willing to offer this "low cost" endowment plan.
Mr. Tan,
I have been studying your figures closely. If I save $500 over 20 years, my total saving is $120,000. the return based on $198,000 is $78,000. If the charges take away $45,000, then I am left with a return of only $33,000. Why should the charges take away nearly 60% of my hard earned return for 20 years?
REPLY
It is correct that the high charges take away more than 50% of the return that you can earn over the next 20 years. It is better to invest in a low cost product, so that most of the return will go back to you. For life insurance protection, you can buy a separate, low cost Term insurance plan.
Mr Tan,
Where can I get yield of 5% if I save $500 a month?
REPLY
If you are investing for the next 20 years, it is likely that you will get a return of 5% per annum on an investment fund. The gross return on the life insurance fund should also give you 5% per annum (my estimate), before deducting expenses.
Tuesday, February 05, 2008
CDOs being rated downwards
Collateralized debt obligations may be downgraded as many as five levels as mortgage-related losses force Fitch Ratings to review its criteria for $220 billion of the securities.
The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to guidelines proposed by Fitch today.
CDOs that package high- yield assets may be reduced as many as three levels for the portions first in line for losses.
The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to guidelines proposed by Fitch today.
CDOs that package high- yield assets may be reduced as many as three levels for the portions first in line for losses.
Target of 1,000 visitors a day
My target is to get 1,000 visitors a day. I am still stuck at 750 visitors. Please help me to promote my blog to your friends.
Gong Xi Fa Cai. Wish you prosperity and happiness in the Year of the Rat. (I was borned in the year of the RAT, and will be 60 years old).
Gong Xi Fa Cai. Wish you prosperity and happiness in the Year of the Rat. (I was borned in the year of the RAT, and will be 60 years old).
Invest CPF ordinary account in STI ETF
Mr. Tan,
What is an easy way to invest CPF ordinary account in the STI ETF?
REPLY
From CPF website: The CPF Investment Scheme (CPFIS) gives members the opportunity to invest their CPF savings to enhance their retirement funds. Members may invest all available balance in their Ordinary Account (OA) and Special Account (SA) in professionally-managed products such as fixed deposits (FDs), Singapore Government bonds and treasury bills, Statutory Board bonds, annuities, endowment insurance policies, investment-linked insurance products (ILPs), unit trusts, and exchange traded funds (ETFs).
How to invest?
1) Open a CPF Investment account with any Major 4 Banks (Bring CPFstatement & IC)
2) Check CPF the amount can be invested.
3) Open an acct with the Broking House ( If you do not have one )
4) Instruct Remisier/Dealer to Buy under CPF
You can also refer to this website to see the service provided by UOB:
http://www.uob.com.sg/pages/personal/investments/finplanning/cpfinvestment.html
And DollarDex
http://www.dollardex.com/sg/index.cfm?current=../contents/cpfisoa&contentID=1020
What is an easy way to invest CPF ordinary account in the STI ETF?
REPLY
From CPF website: The CPF Investment Scheme (CPFIS) gives members the opportunity to invest their CPF savings to enhance their retirement funds. Members may invest all available balance in their Ordinary Account (OA) and Special Account (SA) in professionally-managed products such as fixed deposits (FDs), Singapore Government bonds and treasury bills, Statutory Board bonds, annuities, endowment insurance policies, investment-linked insurance products (ILPs), unit trusts, and exchange traded funds (ETFs).
How to invest?
1) Open a CPF Investment account with any Major 4 Banks (Bring CPFstatement & IC)
2) Check CPF the amount can be invested.
3) Open an acct with the Broking House ( If you do not have one )
4) Instruct Remisier/Dealer to Buy under CPF
You can also refer to this website to see the service provided by UOB:
http://www.uob.com.sg/pages/personal/investments/finplanning/cpfinvestment.html
And DollarDex
http://www.dollardex.com/sg/index.cfm?current=../contents/cpfisoa&contentID=1020
Travel by BMW
Singaporeans travel by BMW using “bus, MRT, walk”. To promote, the Government plans to:
a) Build more MRT lines over the nexlt 15 years in Singapore.
b) Introduce more feeder services
I wish to suggest a further leg to this strategy:
c) Make it practical for people to walk to and from the MRT station.
My proposal is:
d) Build elevated, shaded walkways from MRT stations to cover a distance of approximately 1 km to reach different neighbourhoods.
e) Make it possible for people to climb once and use the walkway to reach the MRT station, crossing many roads.
f) It will be comfortable to walk on the elevated walkway as it is shaded from the sun and rain.
g) This will also encourage people to walk to the nearby town center, market, school or bus terminus.
In Taipei, there is an elevated walkway (the local called it the Skywalk) that crosses many roads in the Taipei City Government disrict. It is well used.
It may be costly to build the elevated walkways, but if can be considered as being part of the total cost of the MRT line. The incremental cost of the walkway is probably less than 5%. It can be justified, if it encourages more people living in the nearby areas to use the MRT system.
Perhaps, a pilot project can be done to build this elevated walkway in one town, e.g. Ang Mo Kio, to test its feasibility? If successful, it can be implemented in the other towns.
a) Build more MRT lines over the nexlt 15 years in Singapore.
b) Introduce more feeder services
I wish to suggest a further leg to this strategy:
c) Make it practical for people to walk to and from the MRT station.
My proposal is:
d) Build elevated, shaded walkways from MRT stations to cover a distance of approximately 1 km to reach different neighbourhoods.
e) Make it possible for people to climb once and use the walkway to reach the MRT station, crossing many roads.
f) It will be comfortable to walk on the elevated walkway as it is shaded from the sun and rain.
g) This will also encourage people to walk to the nearby town center, market, school or bus terminus.
In Taipei, there is an elevated walkway (the local called it the Skywalk) that crosses many roads in the Taipei City Government disrict. It is well used.
It may be costly to build the elevated walkways, but if can be considered as being part of the total cost of the MRT line. The incremental cost of the walkway is probably less than 5%. It can be justified, if it encourages more people living in the nearby areas to use the MRT system.
Perhaps, a pilot project can be done to build this elevated walkway in one town, e.g. Ang Mo Kio, to test its feasibility? If successful, it can be implemented in the other towns.
Useful information
Hi Mr Tan,
Thank you for providing such informative information on your blog. I really do appreciate your kindness with all my heart.
I wish I have such knowledge since the day I started working. It is not too late as usually but one is not able to turn back the clock on those lost time.
I just want to wish you and your loved ones a very Happy, Healthy and Wealthy Rat Year! All the best for the forthcoming new year!
V
Thank you for providing such informative information on your blog. I really do appreciate your kindness with all my heart.
I wish I have such knowledge since the day I started working. It is not too late as usually but one is not able to turn back the clock on those lost time.
I just want to wish you and your loved ones a very Happy, Healthy and Wealthy Rat Year! All the best for the forthcoming new year!
V
High cost Endowment Policy
If you save $500 a month over 20 years, and earn an average yield of 5%, you should get a maturity sum of $198,000.
If you put this money in an endowment policy (or a variation of this policy), you get suffer a loss of 20% or more, depending on the expense and other charges taken away by the insurance company. These charges can reduce your yield by 2% or 2.5%.
Here are the figures:
Where did the 23% (ie $45,000) go? They are used to pay the following:
a) Commission to the agent
b) Advertising
c) Expenses and profit of the insurance company
d) Mortality charges
How much does the mortality charge cost, if you buy Decreasing Term insurance to provide the same amount of protection?
The mortality charge should cost less than 2%. The remaining 21% is spent on high expenses and charges.
Lesson: An endowment policy provides good value if the mortality and expense charges is not more than 10% of the premium.
If you put this money in an endowment policy (or a variation of this policy), you get suffer a loss of 20% or more, depending on the expense and other charges taken away by the insurance company. These charges can reduce your yield by 2% or 2.5%.
Here are the figures:
Net Maturity Total
Yield charges
5.0% $198,000 Nil 0%
4.0% $179,000 $19,000 10%
3.0% $161,000 $37,000 19%
2.5% $153,000 $45,000 23%
Where did the 23% (ie $45,000) go? They are used to pay the following:
a) Commission to the agent
b) Advertising
c) Expenses and profit of the insurance company
d) Mortality charges
How much does the mortality charge cost, if you buy Decreasing Term insurance to provide the same amount of protection?
The mortality charge should cost less than 2%. The remaining 21% is spent on high expenses and charges.
Lesson: An endowment policy provides good value if the mortality and expense charges is not more than 10% of the premium.
Dual currency investment (or deposit)
Dear Mr. Tan,
Recently, I wanted to invest in Australian deposit (to enjoy a higher interest rate). The relationship manager recommended a Dual Currency deposit to me. It gives me a higher interest rate, but on maturity I am given my money back in Singapore dollars or Australian dollars, depending on the exchange rate at that time. Is this a good investment?
REPLY
I advise against this type of structured product. Although you get a slightly higher interest rate, you are exposed to the risk of a loss (in case the Australian currency depreciates). You do not get the benefit of any gain in this currency.
This is explained in more detail in this FAQ:
http://www.tankinlian.com/faq/duali.html
It is better to invest in a straight forward foreign currency deposit:
http://www.tankinlian.com/faq/foreign.html
Recently, I wanted to invest in Australian deposit (to enjoy a higher interest rate). The relationship manager recommended a Dual Currency deposit to me. It gives me a higher interest rate, but on maturity I am given my money back in Singapore dollars or Australian dollars, depending on the exchange rate at that time. Is this a good investment?
REPLY
I advise against this type of structured product. Although you get a slightly higher interest rate, you are exposed to the risk of a loss (in case the Australian currency depreciates). You do not get the benefit of any gain in this currency.
This is explained in more detail in this FAQ:
http://www.tankinlian.com/faq/duali.html
It is better to invest in a straight forward foreign currency deposit:
http://www.tankinlian.com/faq/foreign.html
Another perspective
Why did NTUC Income sell endowment and whole life policies during my time as CEO? Here is a view expressed in another blog:
http://www.indextown.com/archives/2007/12/08/mr-tan-kin-lians-blog/
http://www.indextown.com/archives/2007/12/08/mr-tan-kin-lians-blog/
Lower upfront cost
Earlier this week, I wanted to put additional investment in the Combined Fund of NTUC Income. through my Flexi-link policy. I was told that the upfront spread for new investment was 3%.
I decided to look for an alternative investment. I finally made my additional investment in the following:
a) Buy 8 blue chip shares and REIT in the stockmarket (for some diversification)
b) Invest in the STI exchange traded fund
The upfront cost of my investment is only 0.3% (in brokerage fee). This is one-tenth of the cost of investing in the Combined Fund.
A comparison of the annual fees is:
a) Combined Fund - 0.9%
b) STI ETF - 0.3%
c) Blue chip shares - Nil
Lesson: If you have a large amount to invest, you can buy a few shares directly. If you have a smaller sum, you can invest in the STI exchange traded fund (for diversification and low cost).
I decided to look for an alternative investment. I finally made my additional investment in the following:
a) Buy 8 blue chip shares and REIT in the stockmarket (for some diversification)
b) Invest in the STI exchange traded fund
The upfront cost of my investment is only 0.3% (in brokerage fee). This is one-tenth of the cost of investing in the Combined Fund.
A comparison of the annual fees is:
a) Combined Fund - 0.9%
b) STI ETF - 0.3%
c) Blue chip shares - Nil
Lesson: If you have a large amount to invest, you can buy a few shares directly. If you have a smaller sum, you can invest in the STI exchange traded fund (for diversification and low cost).
Minibond Series 35
Dear Mr. Tan,
Please give your advice about minibond series 35, issuer Pacific International limited. The notes have a AAA rate, it means the lowest risk to invest ?
REPLY:
Sorry, I am not able to advice you on this investment.
You have to be careful about the AAA rating. Some CDO (collaterised debt obligations comprising of subprime mortgages) have AAA rating and are found to be of poor quality. I am not sure if the investments of this fund fall in this category.
My general views about structured products (not specifically related to this product) are set out in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
Please give your advice about minibond series 35, issuer Pacific International limited. The notes have a AAA rate, it means the lowest risk to invest ?
REPLY:
Sorry, I am not able to advice you on this investment.
You have to be careful about the AAA rating. Some CDO (collaterised debt obligations comprising of subprime mortgages) have AAA rating and are found to be of poor quality. I am not sure if the investments of this fund fall in this category.
My general views about structured products (not specifically related to this product) are set out in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
Monday, February 04, 2008
REITS with good yield and low price
Here are some REITS with good yields and low price to book ratio:
A P/BR ratio less than 1.0 means that the price is lower than the book value of the assets. Some of the prices have moved over the past few days. (Note: I have personally invested or plan to invest in some of these REITS).
Price Dividend P/BR
31/1 yield
Allco REIT 0.67 11.7% 0.42
Mapletree REIT 0.93 7.9% 1.10
McQuarie Prime 1.05 7.0% 0.91
Suntec REIT 1.50 6.7% 0.73
K-REIT 1.46 6.5% 0.73
A P/BR ratio less than 1.0 means that the price is lower than the book value of the assets. Some of the prices have moved over the past few days. (Note: I have personally invested or plan to invest in some of these REITS).
Buying a Shield plan
Dear Mr. Tan,
Do you have any advice on how to choose between the various Medishield plans offered by CPF and the insurance companies? Which is better choice?
REPLY
You can read my general tips in this FAQ:
http://www.tankinlian.com/faq/shield.html
Do you have any advice on how to choose between the various Medishield plans offered by CPF and the insurance companies? Which is better choice?
REPLY
You can read my general tips in this FAQ:
http://www.tankinlian.com/faq/shield.html
Higher productivity in insurance sales
Mr. Tan,
It seems from your postings, that you are against insurance agents. If there are no insurance agents, how will the insurance company get its sales?
REPLY
I am in favour of insurance agents who play a useful role by offering good value products to customers for a fair rate of commission.
I am against insurance agents who explot consumers by offering poor value products, so that they can earn a high rate of commission. They are trained to find ways of pushing these products to a unsuspecting consumer.
I hope that the selling of insurance can achieve the same level of productivity as the selling of shares. The commission rate earned by stockbrokers has reduced by 70% in recent years. The stockbrokers are able to make an adequate income on a reduced rate of commission by working more efficiently and by handling a larger volume of sales. They are able to bring down the transaction cost for consumers.
It is possible for insurance agents to find a more efficient way of marketing and similar value to consumers.
If insurance companies offer good value products, consumers will buy the insurance products willingly. There is no need for insurance agents to spend a lot of time to push these products to them.
It seems from your postings, that you are against insurance agents. If there are no insurance agents, how will the insurance company get its sales?
REPLY
I am in favour of insurance agents who play a useful role by offering good value products to customers for a fair rate of commission.
I am against insurance agents who explot consumers by offering poor value products, so that they can earn a high rate of commission. They are trained to find ways of pushing these products to a unsuspecting consumer.
I hope that the selling of insurance can achieve the same level of productivity as the selling of shares. The commission rate earned by stockbrokers has reduced by 70% in recent years. The stockbrokers are able to make an adequate income on a reduced rate of commission by working more efficiently and by handling a larger volume of sales. They are able to bring down the transaction cost for consumers.
It is possible for insurance agents to find a more efficient way of marketing and similar value to consumers.
If insurance companies offer good value products, consumers will buy the insurance products willingly. There is no need for insurance agents to spend a lot of time to push these products to them.
Selecting Blue Chips
Dear Mr. Tan,
In your blog, you mentioned to select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. I wish to ask which are the 5 companies you feel has greatest value and potential? I understand this is in your perosnal capacity and that you are actually doing me a favour if you reply.
REPLY
I assume that, in a perfect market, the prices of each share reflects its future profitability. You only need to be concerned with:
a) Buying blue chip shares - as they are more stable
b) Have a certain degree of diversification.
I do not have any insight into which of the 30 shares in the STI index that I should invest it. I just chose one from each sector, say bank, property, conglomerate, media, transport.
In your blog, you mentioned to select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. I wish to ask which are the 5 companies you feel has greatest value and potential? I understand this is in your perosnal capacity and that you are actually doing me a favour if you reply.
REPLY
I assume that, in a perfect market, the prices of each share reflects its future profitability. You only need to be concerned with:
a) Buying blue chip shares - as they are more stable
b) Have a certain degree of diversification.
I do not have any insight into which of the 30 shares in the STI index that I should invest it. I just chose one from each sector, say bank, property, conglomerate, media, transport.
Divident yield on STI Exchange Traded Fund
Dear Mr. Tan,
Does the STI Exchange Traded Fund pay out a dividend? Is the dividend yield good?
REPLY
My stockbroker has confirmed that the STI ETF gives a dividend every six months. The total dividend for the past year is 10 cents, representing about a 3% yield on the current share price of $3.20.
Apart from the dividend yield, you should be able to enjoy an appreciation in the share price, as it tracks the STI index.
Does the STI Exchange Traded Fund pay out a dividend? Is the dividend yield good?
REPLY
My stockbroker has confirmed that the STI ETF gives a dividend every six months. The total dividend for the past year is 10 cents, representing about a 3% yield on the current share price of $3.20.
Apart from the dividend yield, you should be able to enjoy an appreciation in the share price, as it tracks the STI index.
Redeem whole life policy?
Hi Mr. Tan,
I had bought a whole life policy in 2000 covering sum assured OF $50,000. I'm paying about $850 per annum. It going to break even in about 1 year's time. Is it advisable to redemn the policy and buy a term policy instead?
REPLY
Read this FAQ and see if it answer your question:
http://www.tankinlian.com/faq/exist.html
I had bought a whole life policy in 2000 covering sum assured OF $50,000. I'm paying about $850 per annum. It going to break even in about 1 year's time. Is it advisable to redemn the policy and buy a term policy instead?
REPLY
Read this FAQ and see if it answer your question:
http://www.tankinlian.com/faq/exist.html
Call and Put Options
Dear Mr. Tan,
I need your advise on how to purchase Options (ETF) for STI index. If I buy OPTIONS, is it subjected to PUT/CALL ? If I invest regularly for 20-30 years, can I buy OPTIONS that do not expire? Is there any difference between buying Options thru broker & via ONLINE website?
REPLY
I am not able to advise on short term investments, such as options. Generally, options are costly and are intended for short term speculation or hedging. All options have an expiry date that is usually three months. It is not suitable as a long term investment.
Generally, you should avoid investing in financial products that you are not familiar with.
I need your advise on how to purchase Options (ETF) for STI index. If I buy OPTIONS, is it subjected to PUT/CALL ? If I invest regularly for 20-30 years, can I buy OPTIONS that do not expire? Is there any difference between buying Options thru broker & via ONLINE website?
REPLY
I am not able to advise on short term investments, such as options. Generally, options are costly and are intended for short term speculation or hedging. All options have an expiry date that is usually three months. It is not suitable as a long term investment.
Generally, you should avoid investing in financial products that you are not familiar with.
Single Premium Endowment
Hi Mr. Tan,
What is single premiun endownmwnt insurance plan? Should I invest in this policy? Is it safe to invest my retirement fund in The Big-e plan paying 2.75%, better than CPF board rate of 2.5%.
Interest rate is dropping everywhere, despite of the high inlation rate this year (estimated 6%)
Recently, I lost money in the stock market, so I had decided to park my emergency fund in a safe investment.
REPLY
A single premium endowment gives you a return of about 3% to 4%, but your money has to be invested (i.e. locked in) for the entire duration of 10 to 15 years. If you withdraw early, you are likely to suffer a penalty. It also offers some modest life insurance cover.
The difference between BIGe and CPF is only 0.25%, it is better to keep your money in CPF. If possible, transfer your savings from ordinary account (0.25%) to the special acount (4% + 1%) to earn a higher interest rate.
If you wish to have a better return, you can invest for the long term. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
What is single premiun endownmwnt insurance plan? Should I invest in this policy? Is it safe to invest my retirement fund in The Big-e plan paying 2.75%, better than CPF board rate of 2.5%.
Interest rate is dropping everywhere, despite of the high inlation rate this year (estimated 6%)
Recently, I lost money in the stock market, so I had decided to park my emergency fund in a safe investment.
REPLY
A single premium endowment gives you a return of about 3% to 4%, but your money has to be invested (i.e. locked in) for the entire duration of 10 to 15 years. If you withdraw early, you are likely to suffer a penalty. It also offers some modest life insurance cover.
The difference between BIGe and CPF is only 0.25%, it is better to keep your money in CPF. If possible, transfer your savings from ordinary account (0.25%) to the special acount (4% + 1%) to earn a higher interest rate.
If you wish to have a better return, you can invest for the long term. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Questionable sales practices
Over the years, and in many countries, they have been lots of consumer complaints on the sales practices of:
a) used car dealers
b) insurance agents
c) property agents
Here are the underlying causes of this problem:
a) the sales person is paid a commission on the sale
b) if they do not make any sale, they do not earn any commission
c) it is difficult to make a sale in a competitive market
d) some have to resort to questionable practices to close the sale
e) the products are non-standard
f) there is lack of consumer information
Some organisations try to solve this problem by setting standards of professional practices. But, this is difficult to achieve, due to the inherent conflict, and the need to close a sale in a competitive market.
Here are tips for consumers:
a) Do not buy from a sales person who approach you
b) Do some research to understand the product
c) Get price comparison of similar products
d) Ask questions to get answers that can be compared easily
e) Get an independent person to help you to make the decision.
All the best.
a) used car dealers
b) insurance agents
c) property agents
Here are the underlying causes of this problem:
a) the sales person is paid a commission on the sale
b) if they do not make any sale, they do not earn any commission
c) it is difficult to make a sale in a competitive market
d) some have to resort to questionable practices to close the sale
e) the products are non-standard
f) there is lack of consumer information
Some organisations try to solve this problem by setting standards of professional practices. But, this is difficult to achieve, due to the inherent conflict, and the need to close a sale in a competitive market.
Here are tips for consumers:
a) Do not buy from a sales person who approach you
b) Do some research to understand the product
c) Get price comparison of similar products
d) Ask questions to get answers that can be compared easily
e) Get an independent person to help you to make the decision.
All the best.
Save in a period of inflation
A young person made this argument, "What is the point of saving when prices will increase next year. It is better to spend now."
Here are my views:
1. Do not spend on unnecessary and expensive things.
2. If more people curtail their spending, prices will come down
3. You can invest your savings in equities and properties, to earn a return that beats inflation
4. Invest in a low-cost fund to achieve diversification. It also allow you invest in small amounts.
Inflation is caused by too many people spending too much in the fear of increasing prices in the future.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Here are my views:
1. Do not spend on unnecessary and expensive things.
2. If more people curtail their spending, prices will come down
3. You can invest your savings in equities and properties, to earn a return that beats inflation
4. Invest in a low-cost fund to achieve diversification. It also allow you invest in small amounts.
Inflation is caused by too many people spending too much in the fear of increasing prices in the future.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Sunday, February 03, 2008
MediShield
Medishield is a medical insurance scheme operated by Central Provident Fund. It pays 80% to 90% of hospital bills above $1,000/ $1,500. It covers daily charges up to $250 per day ($500 for intensive care) and up to certain limits for surgery, implants, radiosurgery and outpatients.
There is an option for you to buy a private Shield plan (instead of MediShield) to get higher coverage. You have to pay a higher premium.
There is an option for you to buy a private Shield plan (instead of MediShield) to get higher coverage. You have to pay a higher premium.
Medisave
Medisave is a sub-account in your CPF account. Workers up to 35 years contribute 6.5% of their wages into the Medisave account (subject to a limit). Older workers contribute a higher porportion of their wages. The balance in the Medisave account earns interest at 4% (plus 1% bonus, subject to a cap).
The Medisave account can be used for paying hospital bills, certain outpatient expenses and for medical insurance.
The Medisave account can be used for paying hospital bills, certain outpatient expenses and for medical insurance.
Use Medisave sparingly
Many people like to use their Medisave savings, whenever they have the opportunity, e.g. to pay the hospital bills or buy expensive medical insurance.
I wish to make this suggestion: if you can afford to pay your hospital bill by cash, it is better to pay cash and keep your Medisave intact.
Why?
Your money in the Medisave account will earn interest at 4% plus 1% (for the first $20,000). This is much higher than the interest that you can earn on fixed deposit. It is better to keep your money in Medisave to earn a higher rate of interest.
When your Medisave exceeds the cap, it will be transferred into your special and ordinary account. It can be withdrawn when you reach age 55, if you wish to use the money. If not, you can keep it in the retirement account and earn 4% plus 1%.
Lesson: Keep your money in Medisave to earn a higher rate of interest. Do not withdraw it, unless you have no other way to pay your hospital bills. Do not overspend on your medical insurance.
I wish to make this suggestion: if you can afford to pay your hospital bill by cash, it is better to pay cash and keep your Medisave intact.
Why?
Your money in the Medisave account will earn interest at 4% plus 1% (for the first $20,000). This is much higher than the interest that you can earn on fixed deposit. It is better to keep your money in Medisave to earn a higher rate of interest.
When your Medisave exceeds the cap, it will be transferred into your special and ordinary account. It can be withdrawn when you reach age 55, if you wish to use the money. If not, you can keep it in the retirement account and earn 4% plus 1%.
Lesson: Keep your money in Medisave to earn a higher rate of interest. Do not withdraw it, unless you have no other way to pay your hospital bills. Do not overspend on your medical insurance.
Medishield and Eldershield
Dear Mr. Tan,
What is the difference between MediShield and Eldershield? For an individual at the age of 50, does it make sense to insure to the maximum in these two plan?
REPLY
Medishield pays for most of the hospital expenses above a certain sum.
Eldershield pays a monthly income of $400 for a period of up to 72 months, if the insured is incapacited to an extent that he or she is not able to carry out several activities that are needed for daily living. This benefits helps to pay part of the cost of nursing care.
It is better to insure for the basic coverage. Do not over-insure, as you will be paying a higher premium. You need to keep some of your savings to meet the higher premiums when you grow older.
What is the difference between MediShield and Eldershield? For an individual at the age of 50, does it make sense to insure to the maximum in these two plan?
REPLY
Medishield pays for most of the hospital expenses above a certain sum.
Eldershield pays a monthly income of $400 for a period of up to 72 months, if the insured is incapacited to an extent that he or she is not able to carry out several activities that are needed for daily living. This benefits helps to pay part of the cost of nursing care.
It is better to insure for the basic coverage. Do not over-insure, as you will be paying a higher premium. You need to keep some of your savings to meet the higher premiums when you grow older.
Savings for the short term and long term
From your monthly income, you have to pay the expenses. You should keep the remainder as savings for the future.
For the short term savings, you have to keep in a savings or current account. You may have to make certain large payments during the year, for example, expenses for the start of the school year, payment of taxes, etc. This can come out of your bank account.
You can set aside a part of your savings for the long term. This should be invested to earn a high rate of return, e.g. in an investment fund. As the flow of your future savings is uncertain, you should avoid investing in an inflexible financial contract that have a large upfront charge or imposes a penalty on early termination.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
For the short term savings, you have to keep in a savings or current account. You may have to make certain large payments during the year, for example, expenses for the start of the school year, payment of taxes, etc. This can come out of your bank account.
You can set aside a part of your savings for the long term. This should be invested to earn a high rate of return, e.g. in an investment fund. As the flow of your future savings is uncertain, you should avoid investing in an inflexible financial contract that have a large upfront charge or imposes a penalty on early termination.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Impressions of Kuala Lumpur
I visited Kuala Lumpur on 1 February on the inaugural flight of Jetstar Asia. I was surprised that there is no need to complete any immigration and customs form. The authorities have recently dispensed with this requirement. It was quite easy to clear through the formalities. Wow!
I hope that more countries will make life more enjoyable and simpler for the traveller.
I stayed one night at Genting Highlands and another night in Kuala Lumpur (at Bukit Bintang). This area is like Orchard Road in Singapore. It is busy and exciting. Several of the five star hotels in the area belong to the Starhill Group. (I wonder if Starhill is the translation of Bukit Bintang?)
Traffic is bad in Bukit Bintang, but I was told that this was due to the festive season. Otherwise, my stay in Kuala Lumpur is enjoyable.
I hope that more countries will make life more enjoyable and simpler for the traveller.
I stayed one night at Genting Highlands and another night in Kuala Lumpur (at Bukit Bintang). This area is like Orchard Road in Singapore. It is busy and exciting. Several of the five star hotels in the area belong to the Starhill Group. (I wonder if Starhill is the translation of Bukit Bintang?)
Traffic is bad in Bukit Bintang, but I was told that this was due to the festive season. Otherwise, my stay in Kuala Lumpur is enjoyable.
Friday, February 01, 2008
Keep your savings in your personal insurance policy
A mother bought an endowement policy in the name of her son. The policy matured recently and a cheque was delivered to the home. The son was under custody for drug rehabilation.
The mother was worried that if the maturity money is credited into the son's account, he will use it to buy drugs.
But she is stuck. The money legally belonged to the son, even though she paid the premium over the years. The mother is poor, and actually need the money for her own use.
Lesson: It is better to keep savings in your own name, and not in the name of your children. You can use the money for their education or other suitable purchase at a future date. If you buy the policy in the name of your child, you will lose control of the money.
The mother was worried that if the maturity money is credited into the son's account, he will use it to buy drugs.
But she is stuck. The money legally belonged to the son, even though she paid the premium over the years. The mother is poor, and actually need the money for her own use.
Lesson: It is better to keep savings in your own name, and not in the name of your children. You can use the money for their education or other suitable purchase at a future date. If you buy the policy in the name of your child, you will lose control of the money.
Invest on your own
If you invest on your own in the stock exchange, you can reduce your expenses considerably. If you buy shares or the exchange traded fund, you pay a brokerage of 0.3%. There is no annual fee.
If you are not sure about the shares to select, invest in the STI exchange traded fund. It is invested mainly in about 30 Singapore blue chips that make up the ST index. This gives you diversification.
1,000 STI ETF will cost you abotu $3,200 now. If you are investing your monthly savings, you may have to wait for 1 year to accumulate sufficient savings to buy 1,000 shares.
You can offer a price between the buy and sell price quoted on the exchange. Your order will stand in the queue, waiting for someone to sell to you. If you are keen to buy immediately, you can pay a higher price to match the sell price on the board.
If you have a large sum to invest (say $100,000 or more), you can select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. This will give you some degree of diversification. It is like creating your own portfolio.
You will need to open an account with a stockbroker and a CDP account.
If you are not sure about the shares to select, invest in the STI exchange traded fund. It is invested mainly in about 30 Singapore blue chips that make up the ST index. This gives you diversification.
1,000 STI ETF will cost you abotu $3,200 now. If you are investing your monthly savings, you may have to wait for 1 year to accumulate sufficient savings to buy 1,000 shares.
You can offer a price between the buy and sell price quoted on the exchange. Your order will stand in the queue, waiting for someone to sell to you. If you are keen to buy immediately, you can pay a higher price to match the sell price on the board.
If you have a large sum to invest (say $100,000 or more), you can select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. This will give you some degree of diversification. It is like creating your own portfolio.
You will need to open an account with a stockbroker and a CDP account.
Real Estate Investment Trust (REIT)
The share prices of the Real Estate Investment Trusts (REIT) are now about 20% below its recent peaks. The yields on many REITS now range from an an attractive level, from 5% to 8%. Rentals on the properties owned by the REITS are expected to remain strong over the next few years, giving support to the high yield. This is an attractive class of investment.
Thursday, January 31, 2008
Tribute to Mohideen Gany
My dear friend, Mohideen Gany, passed away peacefully this afternoon. He was among the top sales producers of NTUC Income during the initial years.
At that time, the commission paid on the sale of life insurance policies was extremely low (less than one fifth of the level today). He and several dedicated union officials worked hard during their spare time to promote the business of NTUC Income.
I have known Mohideen Gany as a very close friend for the past 30 years. I called him Anneh (elder brother).
I visited Mohideen Gany in hospital last week. I visited him in his home yesterday after his discharge. Although he was very sick and in pain, he was still alert and gave me a happy smile when he know of my visit.
I shall miss a great friend.
At that time, the commission paid on the sale of life insurance policies was extremely low (less than one fifth of the level today). He and several dedicated union officials worked hard during their spare time to promote the business of NTUC Income.
I have known Mohideen Gany as a very close friend for the past 30 years. I called him Anneh (elder brother).
I visited Mohideen Gany in hospital last week. I visited him in his home yesterday after his discharge. Although he was very sick and in pain, he was still alert and gave me a happy smile when he know of my visit.
I shall miss a great friend.
Actuary joke: Feeling comfortable
The actuary says, "If you put one foot in the oven and another foot in the freezer, your average body temperature will be quite comfortable".
Joke: Criminal lawyer
"Do you have a criminal lawyer in this town?"
"Well, we are pretty sure we do but we haven't been able to prove it yet."
"Well, we are pretty sure we do but we haven't been able to prove it yet."
NTUC Growth Fund
Dear Mr. Tan,
I have invested in NTUC Growth fund. I saw that this fund's past performance is very good, outperformed most global balanced fund on the market. However, this is also during the period when you are CEO of NTUC.
I am not sure whether I would continue my regular savings plan on this fund any more since the new managment does not do many good things for the customers nowadays. I worried about this fund's future performance. Also, information of all NTUC fund doesn't seem to be trasparent to customers, we cannot download annual report and prospectus like most other fund.
After some research, I found that there is one fund from UOB UOB Growthpath series which has its major holding on index fund. Althought this fund's performance doesn't seem to be as good as NTUC Growth fund, but the index component keep this fund's ER as low as 1.17%.
I would like to seek your opinions on investing long term on this fund in stead of NTUC growth fund.
REPLY
I am not familiar with the UOB Growthpath series. But, from what you have described, it looks like a good fund.
The Growth Fund from NTUC Income should continue to be a good fund, as it is well diversified, actively managed (by external fund managers) and has a low expense ratio.
If you have any issue with the access to information from the website, you can bring it to the attention of the management of NTUC Income.
I have invested in NTUC Growth fund. I saw that this fund's past performance is very good, outperformed most global balanced fund on the market. However, this is also during the period when you are CEO of NTUC.
I am not sure whether I would continue my regular savings plan on this fund any more since the new managment does not do many good things for the customers nowadays. I worried about this fund's future performance. Also, information of all NTUC fund doesn't seem to be trasparent to customers, we cannot download annual report and prospectus like most other fund.
After some research, I found that there is one fund from UOB UOB Growthpath series which has its major holding on index fund. Althought this fund's performance doesn't seem to be as good as NTUC Growth fund, but the index component keep this fund's ER as low as 1.17%.
I would like to seek your opinions on investing long term on this fund in stead of NTUC growth fund.
REPLY
I am not familiar with the UOB Growthpath series. But, from what you have described, it looks like a good fund.
The Growth Fund from NTUC Income should continue to be a good fund, as it is well diversified, actively managed (by external fund managers) and has a low expense ratio.
If you have any issue with the access to information from the website, you can bring it to the attention of the management of NTUC Income.
Vivolife
Dear Mr, Tan,
I am looking at the product by Income, the Vivolife. How would you rate this product?
REPLY
Please read the various comments (from me and other people) about this product in my blog:
http://www.tankinlian.blogspot.com/
My advise is "Buy Term insurance and invest the difference".
Read this FAQ
http://www.tankinlian.com/faq/savings.html
I am looking at the product by Income, the Vivolife. How would you rate this product?
REPLY
Please read the various comments (from me and other people) about this product in my blog:
http://www.tankinlian.blogspot.com/
My advise is "Buy Term insurance and invest the difference".
Read this FAQ
http://www.tankinlian.com/faq/savings.html
Selling profitable products
Mr. Tan,
Was the NTUC Income Limited Premium Whole Life introduced when you were still CEO of Income? If yes, can you give a comment why you allow such a bad product to be launched when you were in office?
Is it because while in office, you have to ensure good revenue for the company and hence has to sell PROFITABLE product? If so, how can the public be very sure that your new "campaign" against your own company is not due to some hidden agenda? (Not particularly to this product)
When you were in office, why did you allow your company to sell endowments, whole life to the public and have the agent earn a big commission? You should have eliminated all participating products and fire all your agents. Can you explain?
I like to bring to your reminder that your insurance agents were responsible in bringing Income to this level of success. Without them,you cannot never have achieved what you had achieved. Do not forget that your success was due to the hardwork of many AGENTS for without sales, you will have no salary when you were CEO.
For your information, I was not and I am not a NTUC Income agent.
REPLY
I have covered this point on a few occasions in the past.
During my time, the Income agents sell products at a modest level of commission and were able to bring products at lower cost to the customers. This was an efficient means of marketing at that time.
The endowment and whole life policies sold in the past gave much better value to the policyholders compared to similar products in the market.
During my time, I was not concerned about selling PROFITABLE products, because most of the profits go back to the policyholders. I was only concerned about offering products that serve the needs of the policyholders and are fairly priced.
In today's environment, there are more efficient ways for customers to take care of their financial future. I recommend that they buy Term insurance and invest the difference.
Agents can continue to make a living by acting honestly, giving good advice, in the interest of the consumer. Do not exploit the ignorance of the consumer.
Was the NTUC Income Limited Premium Whole Life introduced when you were still CEO of Income? If yes, can you give a comment why you allow such a bad product to be launched when you were in office?
Is it because while in office, you have to ensure good revenue for the company and hence has to sell PROFITABLE product? If so, how can the public be very sure that your new "campaign" against your own company is not due to some hidden agenda? (Not particularly to this product)
When you were in office, why did you allow your company to sell endowments, whole life to the public and have the agent earn a big commission? You should have eliminated all participating products and fire all your agents. Can you explain?
I like to bring to your reminder that your insurance agents were responsible in bringing Income to this level of success. Without them,you cannot never have achieved what you had achieved. Do not forget that your success was due to the hardwork of many AGENTS for without sales, you will have no salary when you were CEO.
For your information, I was not and I am not a NTUC Income agent.
REPLY
I have covered this point on a few occasions in the past.
During my time, the Income agents sell products at a modest level of commission and were able to bring products at lower cost to the customers. This was an efficient means of marketing at that time.
The endowment and whole life policies sold in the past gave much better value to the policyholders compared to similar products in the market.
During my time, I was not concerned about selling PROFITABLE products, because most of the profits go back to the policyholders. I was only concerned about offering products that serve the needs of the policyholders and are fairly priced.
In today's environment, there are more efficient ways for customers to take care of their financial future. I recommend that they buy Term insurance and invest the difference.
Agents can continue to make a living by acting honestly, giving good advice, in the interest of the consumer. Do not exploit the ignorance of the consumer.
Policy will soon be withdrawn
Dear Mr. Tan,
A NTUC agent is trying to sell my the Limited Premium Whole Life policy. He said that this policy will soon be withdrawn and replaced by a new policy that offers lower return to the policyholder. He asked me to sign before the deadline. Please advise me.
REPLY
You should compare each policy on its own merits. What is the cost of insurance? What is the return? Is there a better option to get the coverage? Do not buy a policy just because it will soon be withdrawn.
Generally, a whole life policy provides a poor return, due to the high upfront expenses. The insurance agent wants to sell this policy, to earn a higher commission.
It is better to buy Term insurance and invest the difference. Read this FAQ
http://www.tankinlian.com/faq/savings.html
A NTUC agent is trying to sell my the Limited Premium Whole Life policy. He said that this policy will soon be withdrawn and replaced by a new policy that offers lower return to the policyholder. He asked me to sign before the deadline. Please advise me.
REPLY
You should compare each policy on its own merits. What is the cost of insurance? What is the return? Is there a better option to get the coverage? Do not buy a policy just because it will soon be withdrawn.
Generally, a whole life policy provides a poor return, due to the high upfront expenses. The insurance agent wants to sell this policy, to earn a higher commission.
It is better to buy Term insurance and invest the difference. Read this FAQ
http://www.tankinlian.com/faq/savings.html
Wednesday, January 30, 2008
Payment of claims
Dear Mr. Tan,
I am planning to get two policies from Income. I heard alot of negative feedbacks from friends and insurance agents about the difficulty of claiming the payout. One friend mentioned that her relative did not get the gaurantee payout as printed on the insurance form.
Do you have any comments about this? Particularly about the difficulty of making claims from Ntuc Income....now tt you are no longer working in Income... I thinkyour comments would be fair and just.
REPLY
Agents from other insurance companies have been passing this message "difficult to claim from NTUC Income" for the 30 years or longer. This is totally untrue, but the agents felt that this was the only way to turn customers away from the better value products offered by NTUC Income.
There were many instances where NTUC Income was the first to pay a claim, way before similar claims were paid by other insurance companies. NTUC Income practiced prompt and fair settlement of claims. I believe that the pro-customer claim practice continues today.
Wish you all the best.
I am planning to get two policies from Income. I heard alot of negative feedbacks from friends and insurance agents about the difficulty of claiming the payout. One friend mentioned that her relative did not get the gaurantee payout as printed on the insurance form.
Do you have any comments about this? Particularly about the difficulty of making claims from Ntuc Income....now tt you are no longer working in Income... I thinkyour comments would be fair and just.
REPLY
Agents from other insurance companies have been passing this message "difficult to claim from NTUC Income" for the 30 years or longer. This is totally untrue, but the agents felt that this was the only way to turn customers away from the better value products offered by NTUC Income.
There were many instances where NTUC Income was the first to pay a claim, way before similar claims were paid by other insurance companies. NTUC Income practiced prompt and fair settlement of claims. I believe that the pro-customer claim practice continues today.
Wish you all the best.
CPF Medishield
CPF MediShield is being revised. It will cover a wider range of treatment and cover an average of 80% of hospital bills (increased from the current 60%). The premium will be increased by an average of $10 a month.
For most people, CPF Medishield (after the revision) is better than the Shield plans offered by private insurers for the following reasons:
1. Saving of about 15% of premium in marketing expenses (incurred by private insurers).
2. Saving of about 15% to 25% in the profit margin of private insurers
The potential saving in insuring with CPF Medishield could be 30% to 40% for the same type of coverage.
As most of the medical expenses will be incurred when one gets old, and the cost is likely to escalate due to age and inflation, it is important to choose a cost effective medical insurance plan, such as Medishield.
For most people, CPF Medishield (after the revision) is better than the Shield plans offered by private insurers for the following reasons:
1. Saving of about 15% of premium in marketing expenses (incurred by private insurers).
2. Saving of about 15% to 25% in the profit margin of private insurers
The potential saving in insuring with CPF Medishield could be 30% to 40% for the same type of coverage.
As most of the medical expenses will be incurred when one gets old, and the cost is likely to escalate due to age and inflation, it is important to choose a cost effective medical insurance plan, such as Medishield.
Global warming
China is having its most severe winter in many years. The climate in many parts of the world is going through severe changes. I believe that this is caused by global warming.
Actuary joke - Definition of an actuary?
Someone asked for a joke about the actuary. Here it is:
... An actuary is a person who passes as an expert on the basis of his prolific ability to produce an infinite variety of incomprehensible figures calculated with micrometric precision from the vaguest of assumptions based on debatable evidence from inconclusive data derived by persons of doubtful reliability, for the sole purpose of confusing an already hopelessly befuddled group of persons who never read the statistics anyway.
Explanation: Some actuaries are highly thereotical and get carried away with numbers. I hope that most actuaries are practical, and are able to explain difficult concepts in simple terms.
... An actuary is a person who passes as an expert on the basis of his prolific ability to produce an infinite variety of incomprehensible figures calculated with micrometric precision from the vaguest of assumptions based on debatable evidence from inconclusive data derived by persons of doubtful reliability, for the sole purpose of confusing an already hopelessly befuddled group of persons who never read the statistics anyway.
Explanation: Some actuaries are highly thereotical and get carried away with numbers. I hope that most actuaries are practical, and are able to explain difficult concepts in simple terms.
Tuesday, January 29, 2008
Exchange Traded Funds
Mr. Tan,
I enjoy reading your blog as it gives me a very rational and unbiased view of the investment products available . You mentioned indexed funds and ETF's as low cost funds.
I know of examples of ETF e.g. the STI ETF and Lyxxor ETF's. What are the examples of indexed funds available and how do I purchase them.
REPLY
You can buy the ETFs from the Singapore Exchange, through a stockbroker.
Visit this website:
http://esite.sgx.com/live/st/STETF.asp
I enjoy reading your blog as it gives me a very rational and unbiased view of the investment products available . You mentioned indexed funds and ETF's as low cost funds.
I know of examples of ETF e.g. the STI ETF and Lyxxor ETF's. What are the examples of indexed funds available and how do I purchase them.
REPLY
You can buy the ETFs from the Singapore Exchange, through a stockbroker.
Visit this website:
http://esite.sgx.com/live/st/STETF.asp
Quotation for Term Insurance
My friend carried out a survey to get a quotation for a Term insurance plan by calling the hotline of the life insurance companies. Here are his findings:
1. Prompt response:
Within same day: TM Asia, AXA, Great Eastern
Within two working days: UOB, Income, Prudential, Aviva
2. Ease of getting a quotation:
Verbal, Email (with printed quote): UOB, TM Asia, Great Eastern
Email (no printed quote): Aviva
Verbal: AXA, Income, Prudential
3. Most competitive rates:
Top 4 (ranked): UOB/Aviva (tie), TM Asia, Income
Here are the telephone numbers to call:
http://www.tankinlian.com/faq/termd.html
1. Prompt response:
Within same day: TM Asia, AXA, Great Eastern
Within two working days: UOB, Income, Prudential, Aviva
2. Ease of getting a quotation:
Verbal, Email (with printed quote): UOB, TM Asia, Great Eastern
Email (no printed quote): Aviva
Verbal: AXA, Income, Prudential
3. Most competitive rates:
Top 4 (ranked): UOB/Aviva (tie), TM Asia, Income
Here are the telephone numbers to call:
http://www.tankinlian.com/faq/termd.html
Inflation and investment
Dear Mr. Tan,
Inflation is expected to increase to 5% in 2008. Interest rate remains very low, less than 2%. The stockmarket is volatile. How should we invest our money to be protected against inflation?
REPLY
The high rate of inflation is caused by temporary factors, i.e. the large increase in oil price and the increase in GST. I hope that it will return to a low level from next year.
If you are investing for the long term, it is better to invest in an investment fund with at least 50% in equities. It is likely to give a return that is higher than inflation in the future. (My estimate is 6% over the long term.)
The global stockmarket has corrected from its high level. While it may remain volatile in the short term, the current level represents fair value, as it is a discount of 20% from the recent peak.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Inflation is expected to increase to 5% in 2008. Interest rate remains very low, less than 2%. The stockmarket is volatile. How should we invest our money to be protected against inflation?
REPLY
The high rate of inflation is caused by temporary factors, i.e. the large increase in oil price and the increase in GST. I hope that it will return to a low level from next year.
If you are investing for the long term, it is better to invest in an investment fund with at least 50% in equities. It is likely to give a return that is higher than inflation in the future. (My estimate is 6% over the long term.)
The global stockmarket has corrected from its high level. While it may remain volatile in the short term, the current level represents fair value, as it is a discount of 20% from the recent peak.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Avoid High Charges on your ILP
Dear Mr. Tan,
I've been approached to invest in an AIA ILP recently. I understand that I may need to pay for mortality charges should I decide to buy it. Are the rates are the same for all insurers? Any website that I can go to compare them? Pls advise.
REPLY
You can compare the mortality charges with the Term insurance rates set out in this FAQ: http://www.tankinlian.com/faq/term.html
More importantly, you have to make sure that you are not paying a large upfront charge on your investment?
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
I've been approached to invest in an AIA ILP recently. I understand that I may need to pay for mortality charges should I decide to buy it. Are the rates are the same for all insurers? Any website that I can go to compare them? Pls advise.
REPLY
You can compare the mortality charges with the Term insurance rates set out in this FAQ: http://www.tankinlian.com/faq/term.html
More importantly, you have to make sure that you are not paying a large upfront charge on your investment?
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
Vitamin Account
Dear Mr. Tan,
I have invested $X in the Vitamin account from a large local bank for the past 2 over years. I received a total payout of 4.1% to date, and the value of my investment is now 89.5% only. This means that I will lose more than 6% if I withdraw my investment now. Instead of getting a positive return for the past two over years, I get a negative return.
I made this investment because it is principal protected, but I did not realize that I will have to suffer a loss if I withdraw early. Looks like I will have to be stuck with this bad investment until the maturity date.
REPLY
Many people have invested in this product, and they are now stuck. Some have decided to withdraw their money and take a loss.
I understand that the return is quite low. If the return is more than 3%, the bank has the right to redeem the investment. If the return is negative (as is the case now), the customer is stuck for 5 or 6 years.
This does not appear to be fair. Perhaps you can complain to the Monetary Authority of Singapore.
I have invested $X in the Vitamin account from a large local bank for the past 2 over years. I received a total payout of 4.1% to date, and the value of my investment is now 89.5% only. This means that I will lose more than 6% if I withdraw my investment now. Instead of getting a positive return for the past two over years, I get a negative return.
I made this investment because it is principal protected, but I did not realize that I will have to suffer a loss if I withdraw early. Looks like I will have to be stuck with this bad investment until the maturity date.
REPLY
Many people have invested in this product, and they are now stuck. Some have decided to withdraw their money and take a loss.
I understand that the return is quite low. If the return is more than 3%, the bank has the right to redeem the investment. If the return is negative (as is the case now), the customer is stuck for 5 or 6 years.
This does not appear to be fair. Perhaps you can complain to the Monetary Authority of Singapore.
Insure large risks with low probability
Buy insurance only for large losses with low probability of occurrence, such as death or disability by accidents, or total loss of a house by fire or a major traffic accident. Do not insure for small losses that occur quite frequently, such as short term sickness.
The best way to provide for loss of income and medical expenses due to short term sickness is through your personal savings. If you have adequate savings, you can use them for emergency.
As a rule of thumb, you should insure for an event that may occur only once in 5 years or longer. If it occurs more frequently than five years, you can fund it through your savings.
The best way to provide for loss of income and medical expenses due to short term sickness is through your personal savings. If you have adequate savings, you can use them for emergency.
As a rule of thumb, you should insure for an event that may occur only once in 5 years or longer. If it occurs more frequently than five years, you can fund it through your savings.
Housing loan on floating interest rate
Dear Mr. Tan,
I need your advice. My current housing loan interest rate is about 4.5%. Should I re-price it now on floating rate basis SIBOR + 1.25%, or wait a few months later?
I read that SIBOR will be much lower in middle of the year. If I sign on now, the SIBOR rate will be locked it at the current rate (i.e below 2%) for next one year.
REPLY:
Currently, you are paying 4.5%. The locked in rate for the next 1 year will be less than 3.25%. So, you are benefiting from the difference in interest rate. After one year, you will be on fully floating interest rate.
I think that you should switch now, rather than wait for a drop in SIBOR rate. I am not able to predict the short term trend in interest rate, so I am not able to help you on your timing decision.
I need your advice. My current housing loan interest rate is about 4.5%. Should I re-price it now on floating rate basis SIBOR + 1.25%, or wait a few months later?
I read that SIBOR will be much lower in middle of the year. If I sign on now, the SIBOR rate will be locked it at the current rate (i.e below 2%) for next one year.
REPLY:
Currently, you are paying 4.5%. The locked in rate for the next 1 year will be less than 3.25%. So, you are benefiting from the difference in interest rate. After one year, you will be on fully floating interest rate.
I think that you should switch now, rather than wait for a drop in SIBOR rate. I am not able to predict the short term trend in interest rate, so I am not able to help you on your timing decision.
Monday, January 28, 2008
Medical insurance exclude "pre-existing conditions"
Dear Mr. Tan,
I work in a small company. Recently, my company engaged a broker to place our employee insurance. The group medical insurance arranged by the new broker excludes "pre-existing illness". Many employees had their existing medical conditions excluded, when they were covered by the previous medical insurance scheme. How can we get covered for these conditions?
REPLY
Under normal circumstance, the "pre-existing condition" should only exclude the serious conditions. It should not exclude the minor conditions. It is the broker's duty to get the best coverage for your company.
If the broker is not able to arrange a better coverage, it is better for the company to give a cash sum to each employee, so that the employee can buy a personal Shield plan. This Shield plan will continue even after the employee leaves the company or retires from work. This is the concept of "portable" medical insurance.
I work in a small company. Recently, my company engaged a broker to place our employee insurance. The group medical insurance arranged by the new broker excludes "pre-existing illness". Many employees had their existing medical conditions excluded, when they were covered by the previous medical insurance scheme. How can we get covered for these conditions?
REPLY
Under normal circumstance, the "pre-existing condition" should only exclude the serious conditions. It should not exclude the minor conditions. It is the broker's duty to get the best coverage for your company.
If the broker is not able to arrange a better coverage, it is better for the company to give a cash sum to each employee, so that the employee can buy a personal Shield plan. This Shield plan will continue even after the employee leaves the company or retires from work. This is the concept of "portable" medical insurance.
Lawyer Joke
A man showed a lawyer and $50 note and ask him whether, in his opinion, it was genuine. The lawyer examined the note and said, "It seems perfectly genuine to me. "
He then placed the note in his pocket and said, "My minimum fee for advice is $70, so if you just let me have another $20, that will finalise the matter."
He then placed the note in his pocket and said, "My minimum fee for advice is $70, so if you just let me have another $20, that will finalise the matter."
Sunday, January 27, 2008
Logic Quiz was great fun
I received this message from my American friend,
Kin Lian: I concluded the Einstein quiz and it was great fun. I glanced at your method and picked up an important hint, so I can't say I did it all on my own - but I was headed in the right direction. I've also done your "four house" quizzes, which were quite enjoyable. I will try the fives and sixes after that. They really are a lot of fun and keep the mind spinning!!
Here is the link to the Logic Quiz (also Einstein's quiz):
http://www.tankinlian.com/logicquiz/index.html
Kin Lian: I concluded the Einstein quiz and it was great fun. I glanced at your method and picked up an important hint, so I can't say I did it all on my own - but I was headed in the right direction. I've also done your "four house" quizzes, which were quite enjoyable. I will try the fives and sixes after that. They really are a lot of fun and keep the mind spinning!!
Here is the link to the Logic Quiz (also Einstein's quiz):
http://www.tankinlian.com/logicquiz/index.html
Insurance on a landed property
Dear Mr. Tan,
I recently bought a landed property for $1.5 million. Do I need to buy fire insurance for the entire sum? If I insure for a lower sum , can I claim up to the amount that I have insured for?
REPLY
You only need to insure for the replacement cost of the building, excluding the cost of the land. For a landed property in Singapore, the land cost is higher than the building cost, so you only need to insure for about half of the purchase price. A good rule of thumb is to multiply the build in area of your house by (say) $200 to $300 psf, depending on the quality of finishes.
If you insure for less than the replacement cost, you are considered to be the co-insurer for the uninsured portion. For example, if the replacement cost is $800,000 and you insure for only $600,000, you are deemed to be the co-insurer for the remaining $200,000, i.e. 25% of the property. In the event of a loss, you can only claim for only 75% of the loss.
Make sure that your property insurance cover fire and other perils, such as lightning, explosion, collision, windstorm, bulgary, flood and natural disasters.
I recently bought a landed property for $1.5 million. Do I need to buy fire insurance for the entire sum? If I insure for a lower sum , can I claim up to the amount that I have insured for?
REPLY
You only need to insure for the replacement cost of the building, excluding the cost of the land. For a landed property in Singapore, the land cost is higher than the building cost, so you only need to insure for about half of the purchase price. A good rule of thumb is to multiply the build in area of your house by (say) $200 to $300 psf, depending on the quality of finishes.
If you insure for less than the replacement cost, you are considered to be the co-insurer for the uninsured portion. For example, if the replacement cost is $800,000 and you insure for only $600,000, you are deemed to be the co-insurer for the remaining $200,000, i.e. 25% of the property. In the event of a loss, you can only claim for only 75% of the loss.
Make sure that your property insurance cover fire and other perils, such as lightning, explosion, collision, windstorm, bulgary, flood and natural disasters.
Saturday, January 26, 2008
Ask for a clear explanation
Dear Mr. Tan,
An insurance agent from X has been urging me to buy unit trusts using the fund from my Special Account. Should I take the risk to invest $10k now that the market is low.
REPLY
I think it is the responsibility of the agent to give you the appropriate advice. Do not buy from the agent, if he is not able to give you a clear and convincing explanation.
An insurance agent from X has been urging me to buy unit trusts using the fund from my Special Account. Should I take the risk to invest $10k now that the market is low.
REPLY
I think it is the responsibility of the agent to give you the appropriate advice. Do not buy from the agent, if he is not able to give you a clear and convincing explanation.
Ask the agent for an explanation
Hi Mr Tan,
I received a quote from my agent for the following:
Hospital Surgical $305
Enhanced Incomeshield $67
Why does the Hospital Surgical cost so much more than Enhanced Incomeshield?
REPLY
I suggest that you ask the agent to explain the reason for the difference in premium. It is the agent's job. Do not be shy to ask for a clear explanation.
I received a quote from my agent for the following:
Hospital Surgical $305
Enhanced Incomeshield $67
Why does the Hospital Surgical cost so much more than Enhanced Incomeshield?
REPLY
I suggest that you ask the agent to explain the reason for the difference in premium. It is the agent's job. Do not be shy to ask for a clear explanation.
Invest in ETF
Dear Mr. Tan,
I would like to invest in ETF over a period 10 years. Is it a good time to do it now?
REPLY
I think that this is a good time, even though there is still some uncertainty. The market has corrected to a satisfactory level. If you wish to invest a large sum, break it into three portions to be invested over the next three months.
I observed that during the past few days, the spread in the STI ETF has narrowed down to less than 1%. It is a fair spread.
I would like to invest in ETF over a period 10 years. Is it a good time to do it now?
REPLY
I think that this is a good time, even though there is still some uncertainty. The market has corrected to a satisfactory level. If you wish to invest a large sum, break it into three portions to be invested over the next three months.
I observed that during the past few days, the spread in the STI ETF has narrowed down to less than 1%. It is a fair spread.
Riding the highs and the lows
Read Dr. Money's article in The New Paper:
http://newpaper.asia1.com.sg/columnists/story/0,4136,152156,00.html
Dr. Money advises you on how to invest for the long term, and how to make a budget so that you have some savings to invest.
More articles here:
http://www.tankinlian.com/drmoney/
http://newpaper.asia1.com.sg/columnists/story/0,4136,152156,00.html
Dr. Money advises you on how to invest for the long term, and how to make a budget so that you have some savings to invest.
More articles here:
http://www.tankinlian.com/drmoney/
$1 million or a car?
Someone told me that he has to spend about $1,500 a month towards the cost of his car. It comprises of the following:
Loan installment: $800
Petrol: $300
Insurance and repairs: $150
ERP and parking charges: $250
If he spends $150 a month on public transport (including the occasional use of taxi) and save the remaining $1,350 a month in an investment fund to earn 5% per annum over the next 30 years, how much will be get?
Be ready for a shock.
It is $1 million dollars!
Loan installment: $800
Petrol: $300
Insurance and repairs: $150
ERP and parking charges: $250
If he spends $150 a month on public transport (including the occasional use of taxi) and save the remaining $1,350 a month in an investment fund to earn 5% per annum over the next 30 years, how much will be get?
Be ready for a shock.
It is $1 million dollars!
Higher Motor Insurance Premiums
I met a union leader. He complained that the motor insurance premium charged by his current insurer is no longer competitive.
I advised him to call a few insurance companies and get the best quote. The numbers are shown in this FAQ:
http://www.tankinlian.com/faq/motord.html
I advised him to call a few insurance companies and get the best quote. The numbers are shown in this FAQ:
http://www.tankinlian.com/faq/motord.html
Friday, January 25, 2008
Stay invested for the long term
Hi, Mr Tan,
Today (22 Jan) the stock market has dropped to 2776 index if it drop further should I sell away my shares. I am worry about it. please reply. Thanks.
Dear M
If you are investing for the long term (say 10 years or more), it is better to stay invested. The market will stabilise and recover, maybe in a few months time. If you sell now, you are likely to miss the next rebound of the stockmarket. Wish you all the best.
Hi, Mr. Tan,
Thank you for your advise on 22 Jan. Lucky I did not sell off my shares. I am still watching closely on it. Do you think will the market slide down again. I read from newspaper some investor said it might slide further again. What is your opinion?
By the way, thanks and regards.
Dear M,
I do not know the answer. But for my own shares, I will keep fully invested. It does not matter if it comes down, as I am investing for the long term. I believe that it will appreciate over time.
Today (22 Jan) the stock market has dropped to 2776 index if it drop further should I sell away my shares. I am worry about it. please reply. Thanks.
Dear M
If you are investing for the long term (say 10 years or more), it is better to stay invested. The market will stabilise and recover, maybe in a few months time. If you sell now, you are likely to miss the next rebound of the stockmarket. Wish you all the best.
Hi, Mr. Tan,
Thank you for your advise on 22 Jan. Lucky I did not sell off my shares. I am still watching closely on it. Do you think will the market slide down again. I read from newspaper some investor said it might slide further again. What is your opinion?
By the way, thanks and regards.
Dear M,
I do not know the answer. But for my own shares, I will keep fully invested. It does not matter if it comes down, as I am investing for the long term. I believe that it will appreciate over time.
Higher cost products
Dear Mr. Tan,
I read several comments in your blog from other people, that the new products launched by NTUC Income pays higher commission and gives a poorer return to the policyholder. Is this true?
REPLY
I believe that the new products incurs higher marketing expenses, including agent's commission.
Generally, most of the products in the market are high cost and give a poor return to the policyholder. Many products have "special features" that are really of not much use to the policyholder. It distracts the policyholder from the low return given by these products.
It is better to buy Term insurance and invest the difference. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I read several comments in your blog from other people, that the new products launched by NTUC Income pays higher commission and gives a poorer return to the policyholder. Is this true?
REPLY
I believe that the new products incurs higher marketing expenses, including agent's commission.
Generally, most of the products in the market are high cost and give a poor return to the policyholder. Many products have "special features" that are really of not much use to the policyholder. It distracts the policyholder from the low return given by these products.
It is better to buy Term insurance and invest the difference. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Living Benefit
Hi Mr Tan,
I currently have the Living Policy and an IncomeShield policy. I am planning to cancel the living policy and get a pesonal accident insurance and i-term from NTUC Income. I understand that i-term does not provide coverage for critical illness. May I know if there is any affordable insurance for critical illness?
REPLY
You can buy the Living Benefit under the Family Insurance plan. It is similar to Term insurance, but covers critical illness as well.
You can ask their business center to give you a quote, and compare it with the benchmark premium shown here:
http://www.tankinlian.com/faq/choice.html
I currently have the Living Policy and an IncomeShield policy. I am planning to cancel the living policy and get a pesonal accident insurance and i-term from NTUC Income. I understand that i-term does not provide coverage for critical illness. May I know if there is any affordable insurance for critical illness?
REPLY
You can buy the Living Benefit under the Family Insurance plan. It is similar to Term insurance, but covers critical illness as well.
You can ask their business center to give you a quote, and compare it with the benchmark premium shown here:
http://www.tankinlian.com/faq/choice.html
Avoid these financial products
Dear Mr. Tan,
I read your FAQ on Investing Your Savings. You advice to avoid the following products:
a) Difficult to understand
b) Lacks transparency
c) Lock you for a long period
d) Imposes a penalty on termination
e) Lacks flexibility
It seems that most life insurance products fit into this description. Is it correct?
REPLY
The financial products that fit into this description are:
a) Most life insurance products
b) Most structured products (which locks you for 3, 5 or more years).
Read this FAQ to find out about other options to invest your savings:
http://www.tankinlian.com/faq/savings.html
I read your FAQ on Investing Your Savings. You advice to avoid the following products:
a) Difficult to understand
b) Lacks transparency
c) Lock you for a long period
d) Imposes a penalty on termination
e) Lacks flexibility
It seems that most life insurance products fit into this description. Is it correct?
REPLY
The financial products that fit into this description are:
a) Most life insurance products
b) Most structured products (which locks you for 3, 5 or more years).
Read this FAQ to find out about other options to invest your savings:
http://www.tankinlian.com/faq/savings.html
Whole life premium payable for 10 years
Dear Mr. Tan,
I have been offered the following product:
Plan: Whole life, premium payable for 10 years only
My age: 37
Sum insured: $25,000
Monthly premium: $100
Estimated cash value at end of 10 years: 9,800
Estimated cash value at age 65: $29,000
Is this good for me?
REPLY:
Here is another alternative, ie buy Term and invest the difference:
a) Buy 10 year Term insurance to cover $25,000: annual premium of $40.
b) Invest the balance ($100 X 12 - 40) over 10 years to earn 4% per annum: estimated $13,900.
c) Keep the $13,900 invested at 4% for another 18 years to age 65: estimated $28,100.
The projected cash value of the whole life policy after 10 years ($9800) is much lower than the alternative ($13,900).
The projected cash value at age 65 (i.e. $29,000) looks quite attractive, compared to the alternative ($28,100). However, you have to find out what portion is guaranteed and what portion is non-guaranteed.
If you compare the projected cash value after 10 years ($9,800) with the cash value after 28 years ($29,000), the insurance company is assuming a yield of 6.2% over the 18 years. I find this projection to be too optimistic.
I have used 4% to project the yield on the investment fund. This is not guaranteed, but is quite conservative. There is a good chance that you can earn a higher return, say 5% p.a. This will give much better projected values.
I prefer to buy Term and invest the difference in a low cost, diversified fund.
Read these FAQ:
http://www.tankinlian.com/faq/term.html
http://www.tankinlian.com/faq/savings.html
All the best in your decision.
I have been offered the following product:
Plan: Whole life, premium payable for 10 years only
My age: 37
Sum insured: $25,000
Monthly premium: $100
Estimated cash value at end of 10 years: 9,800
Estimated cash value at age 65: $29,000
Is this good for me?
REPLY:
Here is another alternative, ie buy Term and invest the difference:
a) Buy 10 year Term insurance to cover $25,000: annual premium of $40.
b) Invest the balance ($100 X 12 - 40) over 10 years to earn 4% per annum: estimated $13,900.
c) Keep the $13,900 invested at 4% for another 18 years to age 65: estimated $28,100.
The projected cash value of the whole life policy after 10 years ($9800) is much lower than the alternative ($13,900).
The projected cash value at age 65 (i.e. $29,000) looks quite attractive, compared to the alternative ($28,100). However, you have to find out what portion is guaranteed and what portion is non-guaranteed.
If you compare the projected cash value after 10 years ($9,800) with the cash value after 28 years ($29,000), the insurance company is assuming a yield of 6.2% over the 18 years. I find this projection to be too optimistic.
I have used 4% to project the yield on the investment fund. This is not guaranteed, but is quite conservative. There is a good chance that you can earn a higher return, say 5% p.a. This will give much better projected values.
I prefer to buy Term and invest the difference in a low cost, diversified fund.
Read these FAQ:
http://www.tankinlian.com/faq/term.html
http://www.tankinlian.com/faq/savings.html
All the best in your decision.
Personal accident by telemarketing
Hi Mr. Tan,
I received a call from my agent. She is offering this limited promotion personal accident policy to selected clients. Currently, I have a Prime Life policy with them. She is offering me a personal accident policy: $36/mth for $200k, $29/mth for $100k.
With additional benefits like cash rebate per year around 1 month of the premium. I am currently schooling and will only be entering the workforce 3 years down the road.What do you think?
REPLY
The plan offered by the agent will cost about $319 (after rebate) for $100,000 cover. It is too expensive. A similar personal accident policy, available from NTUC Income and a few other insurers, will cost you only $72 a year (applicable to a student).
Read this FAQ:
http://www.tankinlian.com/faq/pa.html
Lesson: Avoid buying a product straight away from a commissioned agent. Always compare with similar products in the market before you buy.
I received a call from my agent. She is offering this limited promotion personal accident policy to selected clients. Currently, I have a Prime Life policy with them. She is offering me a personal accident policy: $36/mth for $200k, $29/mth for $100k.
With additional benefits like cash rebate per year around 1 month of the premium. I am currently schooling and will only be entering the workforce 3 years down the road.What do you think?
REPLY
The plan offered by the agent will cost about $319 (after rebate) for $100,000 cover. It is too expensive. A similar personal accident policy, available from NTUC Income and a few other insurers, will cost you only $72 a year (applicable to a student).
Read this FAQ:
http://www.tankinlian.com/faq/pa.html
Lesson: Avoid buying a product straight away from a commissioned agent. Always compare with similar products in the market before you buy.
Low cost Endowment and Whole Life policies
Dear Mr. Tan,
Is it possible to find an endowment or whole l ife policy with low cost? For example, some unit trusts have no upfront load and low expense ratios, but others have high loads and charges. Is there a similar situation for life insurance policies?
REPLY
Technically, it is possible for an insurance company to design an endowment or whole life policy with no-load, i.e. no commission payable to the agent.
As there is no agent to sell the product, the insurance company will have to find a way to get people to buy the product directly from them. Alternatively, they have to incur advertising cost to make the product known to the potential customers.
To my knowledge, no insurance company has tried to design a product in this manner. But, it is technically possible.
At present, most endowment and whole life products in the market give a net return of about 2.5%. The investment return is about 5%, but 2.5% is deducted to pay agent's commission and other expenses.
If the customer is willing to buy the product directly, they should be able to get an average return of 3.5% on these products, as only 1.5% is needed to cover the other expenses, including advertising. The advantages of endowment and whole life policies is that there is a capital guarantee.
Is it possible to find an endowment or whole l ife policy with low cost? For example, some unit trusts have no upfront load and low expense ratios, but others have high loads and charges. Is there a similar situation for life insurance policies?
REPLY
Technically, it is possible for an insurance company to design an endowment or whole life policy with no-load, i.e. no commission payable to the agent.
As there is no agent to sell the product, the insurance company will have to find a way to get people to buy the product directly from them. Alternatively, they have to incur advertising cost to make the product known to the potential customers.
To my knowledge, no insurance company has tried to design a product in this manner. But, it is technically possible.
At present, most endowment and whole life products in the market give a net return of about 2.5%. The investment return is about 5%, but 2.5% is deducted to pay agent's commission and other expenses.
If the customer is willing to buy the product directly, they should be able to get an average return of 3.5% on these products, as only 1.5% is needed to cover the other expenses, including advertising. The advantages of endowment and whole life policies is that there is a capital guarantee.
Investing through the ETF
Dear Mr. Tan,
I read your blog about investing in the STI ETF. Can I ask you the following questions?
1. What is the difference between investing in a unit trust and an ETF?
Reply: When you buy or sell a unit trust, the price is based on the Net Asset Value at the end of the day, plus a spread (if applicable). If buy buy or sell a ETF, the price is based on the actual price that has been traded. You need to offer an attractive price that the other party is willing to trade with you.
2. The liquidity for the ETF is low. The difference between the buy and sell price is high. What price should I buy? Will there be someone else willing to transact with me at my price?
Reply: You should offer a price between the buy and sell price quoted in the exchange. For example, if the prices are 3.00 and 3.08, you should offer a price at 3.04. If you keen to buy, you can offer 3.05. Similarly, if you are keen to sell, you can offer 3.03. You may be able to find another party willing to trade with you at that price. This will help to create the interest and liquidity in the market.
I read your blog about investing in the STI ETF. Can I ask you the following questions?
1. What is the difference between investing in a unit trust and an ETF?
Reply: When you buy or sell a unit trust, the price is based on the Net Asset Value at the end of the day, plus a spread (if applicable). If buy buy or sell a ETF, the price is based on the actual price that has been traded. You need to offer an attractive price that the other party is willing to trade with you.
2. The liquidity for the ETF is low. The difference between the buy and sell price is high. What price should I buy? Will there be someone else willing to transact with me at my price?
Reply: You should offer a price between the buy and sell price quoted in the exchange. For example, if the prices are 3.00 and 3.08, you should offer a price at 3.04. If you keen to buy, you can offer 3.05. Similarly, if you are keen to sell, you can offer 3.03. You may be able to find another party willing to trade with you at that price. This will help to create the interest and liquidity in the market.
Common Sense Investing - John C Bogle (3)
Here are some more quotes:
Among intermediate-term taxable bond funds, the low-cost index fund is truly a superior performer.
Among long-term tax-exept bond funds, once again, indexing wins.
Among short-term Treasury funds, the lowest cost option wins again.
Among money market funds - surprise! - low cost wins again.
No one would have the temerity to promote a new strategy that has lagged in the past.
The greatest enemy of a good plan is the dream of a prfect plan. Stick to the good plan.
Typical ETF investors have absolutely no idea what relationship their investment return will have to the return earned by the stock market.
A "double whammy": betting on hot sectors (emotions) and paying heavy costs (expenses) are sure to be hazardous to your wealth.
ETFs are an entrepreneur's dream come true. But are they an investor's dream come true?
The majority of investors should be satisfied with the reaonsably good erturn obtainable from a defensive portfolio.
Unsoundly managed funds can product spectacular but largely illusionary profits for a while, followed inevitably by calamitous losses.
The real money in investment will be made not out of buying and selling but of owning and holding securities.
I see no reason why investors should be content with results inferior to those of an indexed fund.
To achieve satisfactory investment results is easier than most people realize.
The two sources of the superior returns of the indexed fund: (1) the broadest possible diversification; and (2) the tiniest possible costs.
No business can forever ignore the interest of its clients.
While an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.
In your Serious Money Account, 50 to 95 percent in classic index funds. In your Funny Money Account, not one penny more than 5 percent.
For all the inevitable uncertainty amidst the externally dense fog surrounding the world of investing, there remains much that we do know.
Among intermediate-term taxable bond funds, the low-cost index fund is truly a superior performer.
Among long-term tax-exept bond funds, once again, indexing wins.
Among short-term Treasury funds, the lowest cost option wins again.
Among money market funds - surprise! - low cost wins again.
No one would have the temerity to promote a new strategy that has lagged in the past.
The greatest enemy of a good plan is the dream of a prfect plan. Stick to the good plan.
Typical ETF investors have absolutely no idea what relationship their investment return will have to the return earned by the stock market.
A "double whammy": betting on hot sectors (emotions) and paying heavy costs (expenses) are sure to be hazardous to your wealth.
ETFs are an entrepreneur's dream come true. But are they an investor's dream come true?
The majority of investors should be satisfied with the reaonsably good erturn obtainable from a defensive portfolio.
Unsoundly managed funds can product spectacular but largely illusionary profits for a while, followed inevitably by calamitous losses.
The real money in investment will be made not out of buying and selling but of owning and holding securities.
I see no reason why investors should be content with results inferior to those of an indexed fund.
To achieve satisfactory investment results is easier than most people realize.
The two sources of the superior returns of the indexed fund: (1) the broadest possible diversification; and (2) the tiniest possible costs.
No business can forever ignore the interest of its clients.
While an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.
In your Serious Money Account, 50 to 95 percent in classic index funds. In your Funny Money Account, not one penny more than 5 percent.
For all the inevitable uncertainty amidst the externally dense fog surrounding the world of investing, there remains much that we do know.
Thursday, January 24, 2008
A taxi without a driver?
How do you like to use a taxi that is automatic, and does not have a driver?
This is possible under the PAT (personal automated transport). The vehicle appears on your call and takes you to your destination (entered into the control panel). It moves along elevated guideways and does not require a driver.
The PAT is similar to the unmanned LRT (light rail transport). The LRT operates on fixed routes and schedule, like a bus. The PAT is like a taxi.
The PAT is now being developed for London Heathrow Airport. It is called ULTra (urban light transport). If successful, we can expect it to be implemented in other cities.
It is costly to set up the infrastructure for a PAT system, but it is less costly than a LRT or MRT line. The operating cost of a PAT should be lower than a taxi, as it does not require a driver. The system can be operated efficiently, as it does not have to cope with taxi drivers trying trying to compete for business.
You pay for the use of the PAT using an electronic card, such as ez-Link. It is similar to paying for the fare for a LRT ride. The fare is paid at the vehicle.
This is possible under the PAT (personal automated transport). The vehicle appears on your call and takes you to your destination (entered into the control panel). It moves along elevated guideways and does not require a driver.
The PAT is similar to the unmanned LRT (light rail transport). The LRT operates on fixed routes and schedule, like a bus. The PAT is like a taxi.
The PAT is now being developed for London Heathrow Airport. It is called ULTra (urban light transport). If successful, we can expect it to be implemented in other cities.
It is costly to set up the infrastructure for a PAT system, but it is less costly than a LRT or MRT line. The operating cost of a PAT should be lower than a taxi, as it does not require a driver. The system can be operated efficiently, as it does not have to cope with taxi drivers trying trying to compete for business.
You pay for the use of the PAT using an electronic card, such as ez-Link. It is similar to paying for the fare for a LRT ride. The fare is paid at the vehicle.
Common Sense Investing - John C Bogle (2)
Here are some more quotes from the book:
Managed mutual funds are astonishing tax inefficient.
Fund returns are devastated by costs, taxes and inflation.
Common sense tells us that we are facing an era of subdued returns in the stock market.
If rational expectations suggest future annual returns of about 7 percent on stocks, what does this imply for returns on equity funds?
Unless the fund industry begins to change, the typical actively managed fund appears to be a singularly unfortunate investment choice.
Only three out of 355 equity funds that started the race in 1970 (i.e less than 1%) have survived and mounted a record of sustained excellence.
Before you rush out to invest in these three funds with such truly remakrable long-term records, think about the next 35 years.
Funds with long serving portfolion managers and records of consistent excellence are the exceptions rather than the rule in the mutual fund industry.
"The first shall be last." And they were.
The stars produced in the mutual fund field are rarely stars; all too often they are comets.
Average return of funds recommended by adviers: 2.9 percent per year. For equity funds purchased directly: 6.6 percent.
The New York Times contest: Funds chose by advisers earned 40 percent less than an index fund.
Index funds endure, while most advisers and funds do not.
Common sense tells us that performance comes and goes, but costs go on forever.
The index fund's risk adjusted return: 194 percent: average managed fund, 154 percent.
All indexed funds are not created equal. One xample: the difference between $122,700 and $99,100.
Your index fund should not be your manager's cash cow. It should be your own cash cow.
In inefficient markets, the most successful managers may achieve unusually large returns. But common sense tells us that for each big success, there must also be a big failure.
Managed mutual funds are astonishing tax inefficient.
Fund returns are devastated by costs, taxes and inflation.
Common sense tells us that we are facing an era of subdued returns in the stock market.
If rational expectations suggest future annual returns of about 7 percent on stocks, what does this imply for returns on equity funds?
Unless the fund industry begins to change, the typical actively managed fund appears to be a singularly unfortunate investment choice.
Only three out of 355 equity funds that started the race in 1970 (i.e less than 1%) have survived and mounted a record of sustained excellence.
Before you rush out to invest in these three funds with such truly remakrable long-term records, think about the next 35 years.
Funds with long serving portfolion managers and records of consistent excellence are the exceptions rather than the rule in the mutual fund industry.
"The first shall be last." And they were.
The stars produced in the mutual fund field are rarely stars; all too often they are comets.
Average return of funds recommended by adviers: 2.9 percent per year. For equity funds purchased directly: 6.6 percent.
The New York Times contest: Funds chose by advisers earned 40 percent less than an index fund.
Index funds endure, while most advisers and funds do not.
Common sense tells us that performance comes and goes, but costs go on forever.
The index fund's risk adjusted return: 194 percent: average managed fund, 154 percent.
All indexed funds are not created equal. One xample: the difference between $122,700 and $99,100.
Your index fund should not be your manager's cash cow. It should be your own cash cow.
In inefficient markets, the most successful managers may achieve unusually large returns. But common sense tells us that for each big success, there must also be a big failure.
Common Sense Investing - John C Bogle
Here are some quotes from the book:
Over time, the aggregate gains made by shareholders must of necessity match the business gains of the company.
It is dangerious ... to apply to the future inductive arguments based on past experience.
Accurately forecasting swings in investor emotions is not possible. But forecasting the long-term economics of investing carries remarkably high odds of success.
The stock market is a giant distraction.
When there are multiple solutions to a problem, choose the simplest one.
The record of the first index mutual funds: $15,000 invested in 1976; value in 2006, $461,771.
It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it.
$10,000 grows to $469,000 ... or $145,400. Where did that $323,600 go?
The miracle of compounding returns is overwhelmedby the tyranny of compounding costs.
Inflamed by heady optimism and greed, and enticed by the wiles of mutual fund marketeers, investors poured their savings into equity fund as the bull market peaks.
When ever-counterproductive investor emotions are played on by ever-counterproductive fund industry promtions, little good is apt to result.
Over time, the aggregate gains made by shareholders must of necessity match the business gains of the company.
It is dangerious ... to apply to the future inductive arguments based on past experience.
Accurately forecasting swings in investor emotions is not possible. But forecasting the long-term economics of investing carries remarkably high odds of success.
The stock market is a giant distraction.
When there are multiple solutions to a problem, choose the simplest one.
The record of the first index mutual funds: $15,000 invested in 1976; value in 2006, $461,771.
It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it.
$10,000 grows to $469,000 ... or $145,400. Where did that $323,600 go?
The miracle of compounding returns is overwhelmedby the tyranny of compounding costs.
Inflamed by heady optimism and greed, and enticed by the wiles of mutual fund marketeers, investors poured their savings into equity fund as the bull market peaks.
When ever-counterproductive investor emotions are played on by ever-counterproductive fund industry promtions, little good is apt to result.
Logic Quiz B2
There are four houses with different colours in a row. Each occupant keeps a different pet and drives a different car.
1. The red house is to the left of the green house.
2. The person who keeps cat lives next to Francis.
3. The person who keeps cat lives to the left of the person who drives Rover.
4. The person who keeps parrot lives to the left of the purple house.
5. George drives Toyota.
6. The person who keeps bird lives to the left of Bobby.
7. The white house is occupied by the person who drives Volvo.
8. The person who keeps parrot lives in the second house.
9. Daniel lives next to the person who keeps hamster.
Question: Who drives Honda?
You can find the answer here
http://www.tankinlian.com/logicquiz/answerb2.html
Here are more quizzes at three levels:
http://www.tankinlian.com/logicquiz/quiz.html#B1
You can download the teaser to share with your friends:
http://www.tankinlian.com/downloads/Logic_Quiz_Teaser.pdf
1. The red house is to the left of the green house.
2. The person who keeps cat lives next to Francis.
3. The person who keeps cat lives to the left of the person who drives Rover.
4. The person who keeps parrot lives to the left of the purple house.
5. George drives Toyota.
6. The person who keeps bird lives to the left of Bobby.
7. The white house is occupied by the person who drives Volvo.
8. The person who keeps parrot lives in the second house.
9. Daniel lives next to the person who keeps hamster.
Question: Who drives Honda?
You can find the answer here
http://www.tankinlian.com/logicquiz/answerb2.html
Here are more quizzes at three levels:
http://www.tankinlian.com/logicquiz/quiz.html#B1
You can download the teaser to share with your friends:
http://www.tankinlian.com/downloads/Logic_Quiz_Teaser.pdf
Wednesday, January 23, 2008
Joke: Black Gowns
"Why do barristers wear black gowns?"
"They first started wearing them in mourning for the death of Queen Anne."
"Why do they still wear them?"
"Well, Queen Anne is still dead, isn't she?"
"They first started wearing them in mourning for the death of Queen Anne."
"Why do they still wear them?"
"Well, Queen Anne is still dead, isn't she?"
Behaviour of a Bear Market
We are now experiencing the behaviour of a bear market. The market falls by several percentage points every day. There is total loss of confidence.
Weak investors and margin traders are being squeezed out. Hedge funds are selling massively. There are virtually no buyers.
The market will rebound, after all of the selling has been done. Long term investors should just sit back and wait for the rebound. At the current level, the market is probably over-sold and is showing less than its fair value.
Weak investors and margin traders are being squeezed out. Hedge funds are selling massively. There are virtually no buyers.
The market will rebound, after all of the selling has been done. Long term investors should just sit back and wait for the rebound. At the current level, the market is probably over-sold and is showing less than its fair value.
Availability of Low Cost Funds
Dear Mr. Tan,
I was reading a commentary somewhere that the state of fund investing in Singapore was reminiscent of a decade ago in the US, with consumers exposed to upfront loads of more than 3% and expense rations of more than 1%.
Why are no load or low expense ratio Index Funds have not gained popularity here? Is it a question of banks/companies not earning enough from such products? ( i.e. Fundsupermart does not sell Index Funds, DollarDex only sells the Lion Capital Infinity US500 Stock Index SGD (feeder fund in the Vanguard® U.S. 500 Stock Index Fund) with 1% commission.
I, for one, would be interested in low cost Index Funds (such as those from Vanguard) pegged to the STI. For some reason, the STI-ETF does not trade at NAV most times, possibly because of high demand?. Can I check if you have made progress towards arranging for such offerings in Singapore?
REPLY
We need to educate the public about low cost Indexed funds, and be comfortable with investing in them. I will try my best to provide this educational service through my blog and website. If there is stronger demand, the banks and Internet portals will be willing to sell these products.
I was reading a commentary somewhere that the state of fund investing in Singapore was reminiscent of a decade ago in the US, with consumers exposed to upfront loads of more than 3% and expense rations of more than 1%.
Why are no load or low expense ratio Index Funds have not gained popularity here? Is it a question of banks/companies not earning enough from such products? ( i.e. Fundsupermart does not sell Index Funds, DollarDex only sells the Lion Capital Infinity US500 Stock Index SGD (feeder fund in the Vanguard® U.S. 500 Stock Index Fund) with 1% commission.
I, for one, would be interested in low cost Index Funds (such as those from Vanguard) pegged to the STI. For some reason, the STI-ETF does not trade at NAV most times, possibly because of high demand?. Can I check if you have made progress towards arranging for such offerings in Singapore?
REPLY
We need to educate the public about low cost Indexed funds, and be comfortable with investing in them. I will try my best to provide this educational service through my blog and website. If there is stronger demand, the banks and Internet portals will be willing to sell these products.
Help the Less Fortunate People
Singapore has gone through many difficult and trying times in its short history. The ones who are hardest hit are the poor, the elderly and the sick and there is only so much the authorities can do for these people.
Luckily we have many volunteers who stepped forward and help in many fields and they made the difference to the lives of these less fortunate folks. In our effluent society there is fear that the numbers of volunteers may shrink because of other priorities.
Dr. & Mrs. Lee Kum Tatt, who have experience working with hundreds of volunteers in their lives, give some insight on how some of the volunteers think and work. If more volunteers can be persuaded to step forward it will be a great help. Given the right environment they are confident that the number of volunteers will not dwindle.
Read their views in their Blog www.leekumtatt.blogspot.com.
Luckily we have many volunteers who stepped forward and help in many fields and they made the difference to the lives of these less fortunate folks. In our effluent society there is fear that the numbers of volunteers may shrink because of other priorities.
Dr. & Mrs. Lee Kum Tatt, who have experience working with hundreds of volunteers in their lives, give some insight on how some of the volunteers think and work. If more volunteers can be persuaded to step forward it will be a great help. Given the right environment they are confident that the number of volunteers will not dwindle.
Read their views in their Blog www.leekumtatt.blogspot.com.
Feeder Services
Dear Mr. Tan,
Earlier, I preferred to have direct bus services. After reading your arguments, I agree that it may be more efficient to have feeder services to bring passengers to the MRT station, provided that the waiting time is short.
However, I have to point out that some feeder services take a long detour before reaching my flat. This is unaccepable. I do not wish to spend time on a long journey.
REPLY
I agree with you. Each feeder service should serve a section of the town and bring the commuters directly to the MRT station or town center. Each town should have two to four feeder services. We may have to use small buses, like the light buses in Hong Kong.
Earlier, I preferred to have direct bus services. After reading your arguments, I agree that it may be more efficient to have feeder services to bring passengers to the MRT station, provided that the waiting time is short.
However, I have to point out that some feeder services take a long detour before reaching my flat. This is unaccepable. I do not wish to spend time on a long journey.
REPLY
I agree with you. Each feeder service should serve a section of the town and bring the commuters directly to the MRT station or town center. Each town should have two to four feeder services. We may have to use small buses, like the light buses in Hong Kong.
Relevant figures for a decision
Dear Mr. Tan,
I bought an Ideal Plan (ID2) six months ago, and have been make regular monthly payments.
After reading your blog about Flexi Link and Ideal policies, I am wondering if I should continue with my plan or if I can switch to the Flexi Link plan now? I hope you can advice me.
REPLY
I suggest that you ask the insurance adviser (agent) or NTUC Income's business center to present the facts for the following two options:
1. Continue with the present ID2 plan
2. Stop the plan now, and move your money to Flexi Link.
Do not be shy about asking them to provide the figures to you, that you can make a decision.
Read this FAQ to understand the different charges:
http://www.tankinlian.com/faq/ilp.html
I bought an Ideal Plan (ID2) six months ago, and have been make regular monthly payments.
After reading your blog about Flexi Link and Ideal policies, I am wondering if I should continue with my plan or if I can switch to the Flexi Link plan now? I hope you can advice me.
REPLY
I suggest that you ask the insurance adviser (agent) or NTUC Income's business center to present the facts for the following two options:
1. Continue with the present ID2 plan
2. Stop the plan now, and move your money to Flexi Link.
Do not be shy about asking them to provide the figures to you, that you can make a decision.
Read this FAQ to understand the different charges:
http://www.tankinlian.com/faq/ilp.html
Cost Plus for public services
The Straits Times has an article about the experience of other cities in awarding the operation of public bus services:
1. Tender system
2. Cost-plus system
The experience of the other cities has been quite clear. The tender system, where the bus services are awarded to the operator that provides the lower cost, leads to deterioration of services.
The cost-plus system leads to a more effiicient service, as the operator is required to meet performance standards which include cost and quality of service. They are not required to take care of factors that are beyond their control, such as fluctuating demand, competition and the cost of oil or wages.
I hope that the cost-plus system is adopted.
1. Tender system
2. Cost-plus system
The experience of the other cities has been quite clear. The tender system, where the bus services are awarded to the operator that provides the lower cost, leads to deterioration of services.
The cost-plus system leads to a more effiicient service, as the operator is required to meet performance standards which include cost and quality of service. They are not required to take care of factors that are beyond their control, such as fluctuating demand, competition and the cost of oil or wages.
I hope that the cost-plus system is adopted.
Revamp of Public Transport System
I like the key measures that have been decided for the revamp of the public transport system, which are:
1. The Land Transport Authority will take over the planning of the routes
2. A hub-and-spoke system will be adopted to reduce the number of bus routes
3. Competition will be introduced for the bus routes
4. The fare will depend on distance and not the number of transfers.
5. Priority will be given to bus lanes.
The current system, which has more direct bus services (with fewer transfers), has its weaknesses - as it is the cause of long waiting time, unreliable services, and overloading of certain services.
The hub-and-spoke system will lead to greater efficiency and better use of the resources and reduce the waiting time, travelling time and cost. I expect the feeder services to be frequent and comfortable.
I hope that the public will get use to more transfers under the hub-and-spoke system. As a user of public transport, I find the transfers to be acceptable.
1. The Land Transport Authority will take over the planning of the routes
2. A hub-and-spoke system will be adopted to reduce the number of bus routes
3. Competition will be introduced for the bus routes
4. The fare will depend on distance and not the number of transfers.
5. Priority will be given to bus lanes.
The current system, which has more direct bus services (with fewer transfers), has its weaknesses - as it is the cause of long waiting time, unreliable services, and overloading of certain services.
The hub-and-spoke system will lead to greater efficiency and better use of the resources and reduce the waiting time, travelling time and cost. I expect the feeder services to be frequent and comfortable.
I hope that the public will get use to more transfers under the hub-and-spoke system. As a user of public transport, I find the transfers to be acceptable.
Tuesday, January 22, 2008
Best premium rates
Dear Sir,
I have been reading your blog for sometime now. I was keen to check with you about how NTUC income policies fare as against other insurance companies for life and medical insurance. Does it make sense to invest in NTUC Income policies as against the MNC's?
REPLY
I suggest that you call the insurance companies directly and ask for their quotes for Term insurance and Medical Insurance.
You can find their contact numbers in this FAQ:
http://www.tankinlian.com/faq/termd.html
Perhaps, you can share the results of your investigation with me?
I have been reading your blog for sometime now. I was keen to check with you about how NTUC income policies fare as against other insurance companies for life and medical insurance. Does it make sense to invest in NTUC Income policies as against the MNC's?
REPLY
I suggest that you call the insurance companies directly and ask for their quotes for Term insurance and Medical Insurance.
You can find their contact numbers in this FAQ:
http://www.tankinlian.com/faq/termd.html
Perhaps, you can share the results of your investigation with me?
Personal Savings for Your Retirement
The attached article was pubished in the Edge Magazine.
http://www.tankinlian.com/articles/savings.html
It contained eight tips:
Tip 1: Do not over-invest in a property using your CPF savings.
Tip 2: Set aside at least 10% of your earnings as personal savings for the future.
Tip 3: Get an attractive rate of return for your personal savings.
Tip 4: Buy a decreasing term insurance plan to cover you up to age 65 years.
Tip 5: Avoid duplicated medical insurance.
Tip 6: Have a budget for your monthly expenses.
Tip 7: Look for an honest adviser to help you to make the financial and insurance decisions.
Tip 8: Be educated about the fundamentals, so that you can make the right decision.
http://www.tankinlian.com/articles/savings.html
It contained eight tips:
Tip 1: Do not over-invest in a property using your CPF savings.
Tip 2: Set aside at least 10% of your earnings as personal savings for the future.
Tip 3: Get an attractive rate of return for your personal savings.
Tip 4: Buy a decreasing term insurance plan to cover you up to age 65 years.
Tip 5: Avoid duplicated medical insurance.
Tip 6: Have a budget for your monthly expenses.
Tip 7: Look for an honest adviser to help you to make the financial and insurance decisions.
Tip 8: Be educated about the fundamentals, so that you can make the right decision.
Personal Accident
Dear Mr. Tan,
I wish to insure for 5 years of my earnings, but I prefer to buy personal accident as it covers injury as well, and not just for death. Can you tell me more about this insurance coverage?
REPLY
You can read this FAQ:
http://www.tankinlian.com/faq/pa.html
I wish to insure for 5 years of my earnings, but I prefer to buy personal accident as it covers injury as well, and not just for death. Can you tell me more about this insurance coverage?
REPLY
You can read this FAQ:
http://www.tankinlian.com/faq/pa.html
Difference between Flexi Link and Ideal plans
Hi Mr. Tan,
I am confused about the Combined funds. It can be invested through Ideal and Flex-link Policy. What's the different between the two?
REPLY:
The Flexi Link is a single premium policy. 100% of the premium is invested, but you suffer a spread of 3.5%.
The Ideal is a regular premium policy. 85% of the premium is invested during the first 3 years, i.e. you suffer a distribution charge of 15% for 3 years. The remaining premium is invested at the same spread of 3.5%.
It is better to invest in the Flexi Link as you avoid the additional 15% charge for 3 years. There are other charges that you have to consider.
You can read this FAQ:
http://www.tankinlian.com/faq/ilp.html
I am confused about the Combined funds. It can be invested through Ideal and Flex-link Policy. What's the different between the two?
REPLY:
The Flexi Link is a single premium policy. 100% of the premium is invested, but you suffer a spread of 3.5%.
The Ideal is a regular premium policy. 85% of the premium is invested during the first 3 years, i.e. you suffer a distribution charge of 15% for 3 years. The remaining premium is invested at the same spread of 3.5%.
It is better to invest in the Flexi Link as you avoid the additional 15% charge for 3 years. There are other charges that you have to consider.
You can read this FAQ:
http://www.tankinlian.com/faq/ilp.html
Subscribe to:
Posts (Atom)