Tan Kin Lian's Blog: Common sense approach towards investment products

Thursday, September 10, 2009

Common sense approach towards investment products

Several people have posted comments that they have lost trust in investment products. They are not impressed with the recent announcement by the Monetary Authority of Singapore in improving the regulatory regime on the sale of investment products. They lost their trust in financial institutions after losing a lot of money on the credit linked notes.

I wish to advise these investors to learn from the lessons from the sad episode. It is important that consumers should be educated. The key lessons are:

a) Invest some time to understand the fundamentals of investing. Join FISCA (Financial Services Consumer Association).

b) Stay away from any product that you do not understand. Although I can be considered a financial expert, I have to stay away from many complex and opaque products, such as dual currency investments, land banking, credit linked notes, time sharing, etc.

c) Use your common sense. Ask a few questions about the financial product. What do I get from the product? How much do I pay? What is the chance of making a profit or a loss? How much do the seller earn by selling the product to me? These are simple questions, but they cannot be answered. Even the seller does not know the answers. So, I stay away from these products.

d) Do not trust the words of any sales person. You need to see any informations stated clearly in writing. If the wordings are not clear, do not accept them.

e) Avoid special invitation to sales seminars. I have received many telephone calls to attend land banking seminars, time shares, property launches, etc. I decline. These events are costly and have to be covered by the commissions earned on the actual sales.

f) Invest in stocks and bonds for the long term. I spread my savings into 20 stocks, chosen for their long term value. I hold them through the cycles of the stock-market. I advised my children, who have smaller sums to invest, to put their savings into a low cost, exchange traded fund.

It is important for ordinary people to learn the fundamentals about long term investments. I have set up FISCA (Financial Services Consumer Association) to meet this need for financial literacy. It will focus primarily on the undertanding of long term savings.

If you remain uneducated about financial literacy, you can stay away from investment products only for a short time. You are likely to fall for the next scam that comes your way. It is better to be financially literate, so that you can understand what to avoid. Take the first step and join FISCA.

Tan Kin Lian

6 comments:

Anonymous said...: Your topic sound like those who lost money does not have common sense. You try to teach them a lesson as an financial expert as u claimed.

Would it be better to improve the topic to "investment tips".; September 10, 2009 10:23 AM
Parka said...: About point e.
Many of the sales pitches are from people hired by the financial product creator. At the end of these sessions, potential investors are advised to read through the prospectus and if interested, sign up at any of the banks.

But who honestly will go read through all the technical details of the prospectus?

Maybe Mr Tan you should run a poll on how many people actually read a prospectus whole and understand it.

--

My advise for people who distrust such passive investment is just go start your own business, which is what I'm doing right now.

Start small, so the risk is small. But the returns in the future will be many times these passive investments.

Mine's actually an online business and I started a year ago with a few hundred dollars. Today, it's generating that same few hundred every month. Tell me which investment will let you earn a few hundred each month with no massive capital tied down for a period of time.

To start your own business is to be self-involved. There's no way you will not know what product you're selling.

Start small. Grow fast.

Everyday an idea, one year later you'll have 365. Just focus on that one good idea out of the bunch.; September 10, 2009 12:25 PM
Anonymous said...: It seems that for those who bought from IFA acting as an "INTRODUCER" for the Sec firms, they still cannot complain to FIDREC. Is it true? Why?
Is such arrangement ("INTRODUCER Agreement") legal? Any one has the answer? Thank you.; September 10, 2009 2:33 PM
A Tan said...: Err I think you should make distinction between savings and investments.

"It will focus primarily on the undertanding of long term SAVINGS." I think you mean "investments".; September 10, 2009 5:30 PM
Anonymous said...: Investment Lesson 1 to 5

http://money.cnn.com/2009/09/09/news/economy/financial_crisis.moneymag/index.htm?postversion=2009090911; September 10, 2009 5:48 PM
Anonymous said...: I think I interpret the word "Common Sense" differently.

It is not a insult or saying the MB investors don't have CS but it is a way to tell potential investors that if you exercise a bit of careful thinking, you can ask or understand the product better.

Most of the problems arises when we pass on this responsibility to FA/RM and depend on their inputs. But FA/RM driving force is commission and of course, some have customers' interest at heart. But again, the later also leads to customers' retention & more future businesses.

If I want to buy a investment product, I will tell myself to use a bit of CS and anyone can do it. You need not be a expert or a qualified FA to ask right questions or understand the product. If you still don't understand after the discussion, then it is best you walk away.

For the case of MB, FA were trained by Lehman Brothers and they walk away thinking it is as safe as a FD and it is a bond. Under this circumstances, to protect yourself, you should ask for a black and white on the claims and keep it together with the prospectus. Also make sure the FI cannot turn around and say that the FA misrepresented and you understand the risk and signed the application after reading the 200 pages prospectus.; September 11, 2009 10:33 AM