Tan Kin Lian's Blog: Invest in transparent and fair products

Saturday, November 01, 2008

Invest in transparent and fair products

I advocate straight forward products - equity, bond, currency, deposits - that are transparent and fair to consumers.

It is all right to take risk, such as investing in equity or foreign currency, provided that you get both the upside and downside of the investment.

Here are the methods to reduce risk:
> diversify, i.e. invest in a fund containing many investments
> invest for the long term, to average out the good and bad years

You can reduce the risk (through diversification and long term averaging) and get the higher return from equity or foreign currency.

I advise investors to avoid all types of structured products (e.g. capital guaranteed, credit linked notes, dual currency investments), as they are structured to hide high expenses and profit margins and give a poor return to the investor.

I also advise investors to avoid investing in most types of life insurance products (i.e. whole life, endowment, investment linked policies) for the same reasons (i.e. high charges, poor return to policyholders).

You should avoid all types of investment products (i.e. bank or insurance products) that are marketed to you by sales representatives, as they have high charges to pay the distributor and to make profit for the product creator.

17 comments:

Anonymous said...: Good advice. Thank you Mr. Tan.
Please take care of your health. Sporean need you.; November 01, 2008 9:07 AM
Anonymous said...: Mr Tan,
I have 2 endowment policies which are about half way to maturity. Do u think I should terminate now, and buy a term policy and used whatever surrender amount to buy into some good equities instead?

regards,
lkf; November 01, 2008 10:48 AM
Anonymous said...: Mr Tan, I refer to your comment:

'I also advise investors to avoid investing in most types of life insurance products (i.e. whole life, endowment, investment linked policies) for the same reasons (i.e. high charges, poor return to policyholders)'.

If this is the case, why are the insurance companies continuing to promote such products? Insurance agents are also required to meet monthly/quarterly sales targets.

Regards; November 01, 2008 11:01 AM
Anonymous said...: Most investors were trying to do as you advised. We thought Minibond is a bond, didn't know until now that it is a structured product and not straight forward; November 01, 2008 11:08 AM
siewkhim said...: Kin Lian,

Now you are telling people that you are also an investment guru. What did you get the skill? You only know how to sell lousy par policies to NTUC workers.

During your time as CEO of NTUC Income you never talk about asset share to compute policy values. You still used the old damn cheating method, min SA. Now you are outside and become green eyes because your former independent director took your CEO's job you want to throw the spanner on him.

Look Kin Lian, give the dude a chance to show himself before you screw his ass. You dig Kinny?; November 01, 2008 12:01 PM
zhummmeng said...: After the dust of the minibombs has settled I hope Mr. Tan will start a thread on the 'how to" on insurance products and investment; the pitfalls; and what consumers should expect from their advisers' approach to their needs; the section 27 of the FAA and how important this section is to the consumers; why many consumers are short changed; why traditional par products like whole life and endowment are losing its usefulness and effectiveness as financial planning solutions because of the increasing cost of insurance companies' expenses and high commission to insurance agents.That is why WL and endowment products give poor return and low protection. Cost eats into them and insurance companies are resorting to covering up these weaknesses with rubbish 'extra benefits' to decieve the consumers and there are companies who are increasing the risk of these products without disclosing them. Another trick of the insurance companies is rolling out "NEW' products for their salesmen to promote.It is like appealing to consumers with stock IPOs. REMEMBER , AS LONG COST IS INCREASING THERE IS NO WAY TO DESIGN A BETTER PRODUCT THAN THE LAST PRODUCTS. Compare your old par policies with new policies and check the protection value and cash value and you can see the difference. WHY? cost is the culprit. Are there any other ways to enhance the products? Yes, but the FIs and the salespeople must sacrifce and provide more valued service to cover the gap.
Consumers must be aware these developments.Don't blindly follow the insurance agents who depend on new dubious products to sell to you. There is no such thing as new and better product in life insurance.Every thing is about cost.Pay more you must get more but it is not the case with ALL the products nowadays.; November 01, 2008 12:14 PM
G C said...: Believe me this is the best advise and advise that will never offer to you by any "financial expert" simply the best product for investors may not come with high return to those people who which to offer you the financial advise.

All those complex financial products are NOT SUITABLE TO the ordinary Investors.

G C Tham; November 01, 2008 2:13 PM
Anonymous said...: Do not think ntuc new products are as good as the old ones. Very glaringly are the poor protection and return of these products. They are very low and it takes very long time to even hit 2% which is absolutely indecent.
So donn't blindly jump in. It is not Mr. Tan KL in charge anymore. If he is, you can safely and close 2 eyes to buy any product and you know they are going to be value for money. But NOW? don't be an idiot.The product may have 'revolutionary name' and that is all about it and inside is a rotten core hidden beneath layers of robbish frills passed off as extra benefits which their agents will use to bullshit you .Another is the feature of limited payment which is again another diversion to pander to the 'illerate and clueless consumers' who clamour for shorter payment. This is a clever marketing rubbish to hide the poor value and you must know as so long your protection and return are short changed it is rotten.
Get the agents to disclose FULLY. For those who already bought there is no better time to examine closely to detect the rubbish and cancel them or get refund of premium on ground that you were misrepresented and inappropriateness of recommendation.

MAX; November 01, 2008 2:14 PM
Anonymous said...: I couldnt agree with u more. Hate to say it but the point is this: in any investment there is always the risk. There is a always the risk associated with structured products. This has been emphasised, the brochures clearly mention capital protected as opposed to capital guaranteed (as in savings and FDs). Its a pity that people got burned by putting their lifetime savings. Hope Singaporeans will be more prudent next time.; November 01, 2008 3:10 PM
Anonymous said...: Very true. No wonder the buyers always complaint that they have very miserable returns.

There are so much hidden charges before any benefits go the the buyer.; November 01, 2008 3:54 PM
Anonymous said...: Mr. Tan, I'd like to know your opinion on UNIT TRUSTS. Back in the 1990s when government was encouraging people to use CPF to buy stocks and Unit Trusts, many people got severely burnt in during the Asian Crisis and the aftermath. Stocks were transparent but Unit Trusts are more complicated.; November 01, 2008 5:19 PM
Anonymous said...: I hold exactly view as Mr Tan long ago. HOwever, we still made the most most stuiped investment decisions on minibond. I never want to try any unit trust, bonds funds, captial guaranteed products as I understand they are alwasy take advantage from investors. owever, when a big bank told you minibond was bonds, is direct investment on bonds, no yearly managment fees at all. How could you make a correct decision? Even a chemist can be cheated by toxic milk powder as he did not suspect NTUC will sell toxic food.

What can we do if the world is full of cheating now.; November 01, 2008 5:54 PM
michael said...: I fully agree with this statement -"I advise investors to avoid all types of structured products (e.g. capital guaranteed, credit linked notes, dual currency investments), as they are structured to hide high expenses and profit margins and give a poor return to the investor."

The bank lures your funds and gives you a one time interest in the first year. You never realised any capital gain after that. When the market was at its peak, the investment is still below water. I just can't understand but I do now. Take it as a lesson. :)

Michael; November 01, 2008 10:24 PM
symmetrix said...: Dear Mr Tan KL,

I have 2 questions:-

1. You advocate straightforward currency products, but discourage dual currency investments. Kindly explain the difference pls?

2. I refer to your posting "...I also advise investors to avoid investing in most types of life insurance products (i.e. whole life, endowment, investment linked policies) for the same reasons (i.e. high charges, poor return to policyholders)..."

A whole life policy is meant to provide coverage to one's life. In the unlikely event of anything untoward happenning to him, the beneficiary (normally the insured's family) will get the payout benefit for them to continue their lives. Premiums are generally small (< $1k annually if you start young) but provide death/permanent disability benefit for say $50k or more. There seems to be no investment element here.

I would think that anyone who does NOT purchase such coverage may be irresponsible to his surviving family, especially if he is the sole breadwinner. So why do you discourage such policies? I am puzzled. Pls clarify. Thank you.

VS Lingam; November 01, 2008 10:53 PM
Anonymous said...: VS Lingam,
buying whole life insurance is irresponsible.Why? because you won't have enough of coverage. $50K is only one tenth of what average family needs. Imagine buying $500K of WL will cost $5000. You are also paying more premium when you are young.It contradicts yours, right?
When young the probability of death or dread disease is less than 5% chance but you are paying a lot.
I am not surprised that your idea of insurance is just having an insurance. It doesn't matter what amount. I believe you learned this from ntuc agent or other agents. This is the salesman who sold you the policy, no different from the RMs from the bank. As i have said you need $500K for your dependents, 5 times of your salaries for dread disease and 70% of your income for disability till you are 65 years old. Can you afford them if you buy WL? I don't think so unless you are very well off. You will risk your family future and the insurance agent doesn't care because he makes more money from selling a $50k WL than a $1 million term plan.
This is insurance planning. For $1K a year you can take care of all your needs.Leave it to your insurance agent you are finished. At the funeral wake this agent will come with a cheque of $50K and feeling smug about it that he has done a great and noble job but he doesn't realise he has let down the whole family you leave behind because of his greed and lack of conscience. This is the insurance agent you thought was honest and qualified turns out to be salesman who puts his own interest first.
i don't blame you for having such notion of life insurance and MR. Tan is telling you that these WL and endowment products short change you and are very inefficient products when it comes to risk management.

Jay; November 02, 2008 9:31 AM
Anonymous said...: Dear Mr Tan, I will not buy anymore structured products or anything sold by FI and banks after this lesson. I wished I had seek your advice 2 years ago.
But you also mentioned don't invest in wholelife, endowment, policies, etc. I don't understand what you mean? I had total 8 policies with Income and all bought when you were CEO. Can you explain plse...Henry; November 02, 2008 3:58 PM
Tan Kin Lian said...: Hi Henry,

I also had 15 whole life and endowment policies over the years from NTUC Income. They cover me and my family. These policies offered good bonuses and a fair return on maturity in the past years.

Today, things are different. Income is now run on different principles - quite similar to the other insurance companies. I have decided to cancel a whole life policy, where the bonus has been cut.

I will decide on the other policies later later.; November 02, 2008 4:25 PM