Saturday, February 09, 2008

Managing risks

The text-book on risk management says that there are three ways of managing risks, namely:

1. Loss control, i.e. loss prevention and loss reduction
2. Loss financing, i.e. retention, insurance, hedging, transfers
3. Internal risk reduction, e.g. diversification

Retention - set aside a sum of money to meet small or frequent losses, e.g. to pay for visits to the neighbourhood doctor.

Loss prevention - measures taken to reduce the frequency of the loss, e.g. keeping a vehicle in good condition.

Loss reduction - measurs taken to reduce the severity of the loss (if it arises), e.g sprinkler system to reduce the impact of a fire.

Insurance is one way of managing risk. It should be reserved for large and infrequent losses.

Managing your personal risk

What are the key financial risks faced by a young person?

1. Chance of death during the next 30 years: 2%
2. Chance of critical illness during the next 30 years (not resulting in death): 3%
3. Chance of surviving for 30 years without critical illness: 95%

Many people spent too much money insuring against death and critical illness, which has a 5% chance of occurring. They overlook to insure against the 95% chance of suriving for 30 years and NOT HAVING ADEQUATE SAVINGS for retirement.

It is important to allocate savings to earn an adequate rate of return in a diversified, low cost fund. The savings should NOT be invested in a high cost financial product that takes away more thn 50% of the yield.

For the protection against premature death or critical illness, you can buy a decreasing Term insurance policy with a rider to provide a modest amount cover for critical illness.

Critical illness

Dear Mr. Tan,

My annual income is around $50,000. Recently, I was recommended to buy a critical illness policy for $300,000 (to cover six years of earnings), but the premium cost about $600 per month, which takes away 15% of my salary. I cannot afford to pay so much, but I need the coverage. I need critical illness to cover my medical expenses and loss of income due to serious illness. What is your advice?


You can buy a 30 year Decreasing Term policy to cover $300,000 for about 1% of your salary. If you save 10% of your salary and invest it in a diversified low cost fund to earn a good rate of return, you will be able to accumulate more than $300,000 over 30 years. By that time, you do not need any critical illness insurance.

You can cover most of the expenses of critical illness through a Shield policy, or the group insurance policy provided by your employer.

The chance of a critical illness occuring for a young person is very small. If you wish to cover against the occurence at a young age, you can buy a 20 year critical illness rider to cover $50,000 and pay a low premium. After 20 years, you would have accumulated more than sufficient savings to meet any loss of income.

Thsi is more cost effective than spending 15% of your income ona critical illness policy. This policy is costly due to the high commission earned by the agent, and the high charges levied by the insurance company.

Read this FAQ:

Friday, February 08, 2008

Dance: Giselle in the Park

27 to 30 March 2008
Fort Canning Park
Performance from 7.30pm (Gates open from 5pm for picnic party)

Rendezvous with the romantic characters of Giselle under a canopy of stars for an unforgettable and immersive experience of this hauntingly beautiful classical ballet.

Giselle tells the story of a love between a village maiden, Giselle, and a nobleman, Albrecht. Mesmerized by Giselle’s beauty and innocence, Albrecht disguises himself as a peasant and promises eternal love to Giselle despite being betrothed to a Duke’s daughter.

When Giselle discovers his deceit, she loses her mind and dies, turning into a wili (a female spirit). Will Giselle forgive Albrecht for his betrayal or will she seek revenge? Join us as we follow this heart-wrenching love story that is bound to capture the hearts of many.

This special performance of Giselle will also mark the start of SDT’s 20th Anniversary celebrations.

Ticket Prices: $26 (free for children under 6)

Available at:
All SISTIC outlets
SISTIC Hotline: 6348-5555
SISTIC website:
SDT office at 6338-0611 or as well as at the door on performance nights.

Sweet Sixteen tickets at $16 per ticket (SISTIC booking fees applies.) available to all full-time students and NSmen. The label on the ticket will read as “Sweet Sixteen”. Sweet Sixteen tickets will not be available at the door.

ICE - In case of emergency

If we were to be involved in an accident or were taken ill, the people attending on us would have our mobile phone but wouldn't know who to call. Yes, there are hundreds of numbers stored; but which one is the contact person in case of an emergency? Hence this "ICE" (In Case of Emergency) Campaign.

The concept of "ICE" is catching on quickly. It is a method of contact during emergency situations. As cell phones are carried by the majority of the population, all you need to do is store the number of a contact person or persons who should be contacted during emergency under thename "ICE" ( In Case Of Emergency).

The idea was thought up by a paramedic who found that when he went to the scenes of accidents, there were always mobile phones with patients, but they didn't know which number to call. He therefore thought that it would be a good idea if there was a nationally recognized name for this purpose. In an emergency situation, Emergency Service personnel and hospital staff would be able to quickly contact the right person bysimply dialing the number you have stored as "ICE."

For more than one contact name, simply enter ICE 1, ICE 2 and ICE 3 etc. A great idea that will make a difference!

TIP BY TAN KIN LIAN: I used the "duplicate" function in my mobilephone to copy the name of my family members into a new contact, and add ICE in front of their name.

Is it necessary to have an adviser?

Dear Mr. Tan,
Is it necessary for me to have an adviser? Can I buy the right product on my own?

You have two options:

1. Find a good and trustworthy adviser.
2. Be your own adviser, ie "Do-it-yourself".

If you choose to be your own adviser, you need to be educated about the investment and insurance market. You can read the FAQs in my website and the articles from Dr. Money.

You can choose the simple products, such as:
1. Term insurance
2. Diversified, low cost funds
3. Personal accident insurance

Here are some useful links:

You can get an insurance quotation on your own, by calling the insurance company directly.

A good time to invest in REITs?

When REITs (Real Estate Investment Trusts) were first introduced a few years ago, it provided a yield of more than 6%. The yield later dropped to 4%, giving an appreciation of more than 50% in the price of the REIT. The dividend payout also increased, due to higher rental income. This led to a further gain in the REIT.

The price of many REITS have dropped by more than 20% from its recent peak. It is now possible to find a few REITS that yield more than 5%. This is an attractive yield.

If there is an economic slowdown, there is the risk that rental income may drop in the future, and reduce the yield on the REIT. This risk is worth taking. Even if the rental income drops by 20%, the REIT will still be able to give a yield of more than 4%.

I have decided to invest in REITS at this time. (Previously, I found the price to be too high).

Investing in REITS

Mr. Tan,
I am curious abt REIT. While I understand what they are, I do not fully appreaciate their risk. How different are they from bonds? Are they riskier than bonds? What are the chances of a REIT paying less dividends in later years. Can a REIT go bust?


A bond gives a guaranteed interest payment and returns the principal at the end of the term. A REIT pays out a dividend depending on the net rental income of the properties that are held by the trust, and does not have a redemption date.

Investing in a REIT is like investing in the underlying properties. All the investors of the REIT collectively own the underlying properties in their respective shares.

The rental income is expected to change with economic situation and the supply and demand of properties. The dividend paid by the REIT is expected to fluctuate in the same manner. Over the long term, rental income is expected to increase with inflation and economic growth.

The risk of investing in a REIT is low. It is like investing in a property that you have paid in full. Even if the rental income comes down, you will still get some income.

A REIT may have some risk, if it borrows money (i.e. leveraging) to invest in the underlying assets. A leverage REIT has to pay the interest on the borrowed money, before paying the net income to the investors. In Singapore, the REITS are allowed to borrow up to only a low percentage (maybe 30%) of the asset value, so the leveraging is low. The risk is also low.

Shopping Mall or MRT station

Dear Mr. Tan,
Is it all right to buy insurance from an agent outside a shopping mall or MRT station? They promote new products and offer some freebies.

It depends on whether the products give good value. You should buy a product that meets the following criteria:

1. You understand the product
2. It meets your needs
3. It offers fair terms, compared to similar products in the market.
4. You can get an independent view to evaluate your decision.

When you buy from an sales person in a crowded place, you are not likely to be able to achieve the above criteria. You can take some information from the sales person, but you should not buy on the spot.

Do not be distracted by "freebies". They take your attention away from the key features (e.g. the cost) of the underlying product.

Make sure that you know the key features of similar products in the market, before you buy. This ensures that you get good value. It may take some effort, but it will save you a lot of hidden cost.

You should try the "independent view". If you speak to your spouse or friend about the product that you intend to buy, you will be surprised to learn about the "gap" in your knowledge of the product. This reflects an incomplete understanding. This is a warning sign that you should avoid the product.

Gong Xi Fa Cai.

Choose a good adviser

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 to get help to get an adviser who is attached to the company of your choice. Eg. you want one who is representing NTUC.


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?


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

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?

Read this FAQ:

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. "

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.


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?


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:

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?


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:,4136,154148,00.html

More articles from Dr. Money:

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.

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".

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?


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:

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:,4136,153456,00.html

More articles:

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.

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?


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.

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?

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?

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.

Bangkok Skywalk

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).

Invest CPF ordinary account in STI ETF

Mr. Tan,
What is an easy way to invest CPF ordinary account in the STI ETF?


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:

And DollarDex

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.

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!


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:

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?


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:

It is better to invest in a straight forward foreign currency deposit:

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:

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).

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 ?

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:

Monday, February 04, 2008

REITS with good yield and low price

Here are some REITS with good yields and low price to book ratio:

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?


You can read my general tips in this FAQ:

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?


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.


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?


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?


Read this FAQ and see if it answer your question:

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?


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.


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:

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.

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:

Sunday, February 03, 2008


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.


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.

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.


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?


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:

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.

Blog Archive