Saturday, October 08, 2011

Financial planning test

How much do you know about financial planning? You can do this test.

The economic collapse

Financial Planning Tool and Handbook

You can use this financial planning tool to carry out a projection of your savings and investment yield, net of inflation. This tool helps you to make the right decision for your future. You can read the handbook here.

Unemployment insurance in USA

Unemployment insurance in USA is managed by the states through the state trust funds. Here is a glimpse of what is happening.
..... spending on unemployment benefits fell by 24%, as fewer claims were filed and a temporary $25 weekly increase in benefits expired.
At the same time, businesses paid $12 billion more in unemployment insurance taxes in 2011. Many states have raised unemployment taxes on companies to replenish their depleted UI trust funds.
My view: An alternative to unemployment insurance is for the state to offer a low cost interest loan to unemployed people. They have to pay back the loan, but it will be at a low interest rate (and not the high rate of interest charged by the banks). Some of the loans will have to be written off, but a large part can be recovered from the lenders when they find their jobs in an economic recovery, or when they sell off their house in the future.

Beware of a new type of motor insurance scam

Here is a new type of motor insurance scams that target motorists - and not the insurance companies.

Mr X's car was hit by a van. He reported to an reporting centre. An agent of the workshop approached him and told him that the workshop can handle his third party claim - so that he does not need to lose his No Claim Bonus. Mr. X agreed and sign a few forms given by the workshop.

Six months later, the workshop told him that they could not proceed with the third party claim as the other party had a witness that Mr. X had turned into is lane. The workshop asked Mr. X to pay for the repairs at about twice of the estimated cost. If Mr. X did not pay, the workshop would get a lawyer to sue him. It seemed that the forms signed by Mr. X gave this legal right to the workshop.

Mr. X approached his insurance company to handle the claim, but the insurance company refused - as Mr. X did not meet the policy condition of getting his own insurance company to handle the repair in the first place.

Mr. X is now in a dilemma - having to pay for a claim that should be covered by the insurance policy and now having to pay for twice of the actual cost. Mr. X suspected that the workshop was acting fraudulently and was targeting him in the first place.

Lesson - always leave it to your insurance company to handle the repairs. Do not try to save on your No Claim Discount. It is not worth the unexpected trouble.

Unstable employment and fall in fertility

Lucky Tan wrote this article about the impact of unstable employment on the fertility rate. When people are unsure about their employment, they are reluctant to get married and start a family. In my view, the situation is worse in Singapore than in other countries, so we have one of the lowest birth rate in the world. This is a key reason why the measures taken by the Government to boost the birth rate during the past 25 years have failed to produce the desired results - as they do not address the underlying causes - the unstable employment and increasing cost of living. 

Friday, October 07, 2011

Affordability of housing

IMF figures show that a 70 square meter home in Beijing costs about 20 times the average annual household disposable income, quadruple the national ratio and almost seven times higher than in the United States. Definition: Disposable income is total personal income minus personal current taxes.  

Word Power Vol 1

This is the soft copy of the book. It gives exercises to allow you to improve your vocabulary. It contains 80 puzzles of 20 words each. You can record the time taken to solve each puzzle and the number of correct words.    By carrying out the fun exercises regularly, you can learn more words.

Deceptive practices and hidden fees

President Obama has criticized the bad practices of the banks on deceptive practices and hidden fees. He faced an uphill battle to get the reforms to pass through the US Congress due to the strong lobby of the large banks. I hope that he will get the strong support of the American people.

Means testing is bureaucratic and difficult

Jack Welch wants to introduce means-testing for entitlement to welfare benefits. I do not like this approach. It is better to give the same entitle to everybody, based on age, and to tax those who are well off at a higher rate to pay for the benefits.

It is bureaucratic and costly to implement means-testing, and it can have unfair results. We only need to see how it is being implemented in Singapore. The means testing is based on many criteria, such as income, type of residence, etc. Some retirees - who are not well off - found that they are staying in a landed property bought many decades ago, but are excluded from some government subsidy.

Thursday, October 06, 2011

Retirement - Canada vs Singapore

Wing Lee Cheong, a Singaporean who has migrated to Canada, share this story about retirement in Canada, compared to Singapore. He said that retirement is not scary - it can be fun! He wants Singaporeans to be able to enjoy life!

Pinnacle Notes Class Action

The US lawyers told me that the a hearing was held on 28 Sept 2011 on whether the case should be heard in US Court. The judges have not given their decision yet. The lawyer will keep me posted when a decision is made. For Pinnacle Note investors, keep your fingers crossed!

Salute to a visionary

Steve Jobs has passed away. Here is my salute to a visionary.

Orbituary to Steve Jobs.
10 ways Steve Jobs changed the world.

Website - make passive income

Hi Mr Tan,

I came across your blog after reading your book - Get value from Your Life
Insurance. I think the book is very informative and has given me more
insights into insurance planning. I also like your posts on your website
about investments and personal finance in general, very informative. I am
also very passionate about personal finance as you can see on my website.

If you don't mind, we can exchange links. My website is about Making
Passive Income. Check it out at

If you are ok, I will place your link on my website and you can place my
link on your site too. I think your blog is very beneficial to readers
from all walks of life.


Top 20 blue chips

I asked my stock broker for the top 20 blue chips in Singapore, showing the fall from the recent market highs and the dividend yield. The results are shown here. I shall be investing in the blue chips with high dividend yields, especially if they have shown a drop of more than 20% from the recent high. It should give good value for the long term investor.

Wednesday, October 05, 2011

Avoid synthetic ETFs

There are two types of ETFs - physical and synthetic ETFs. Physical ETFs are invested in the underlying shares. Synthetic ETFs are invested in derivatives to mimic the index returns. 

Investors should avoid the synthetic ETFs. Some issuers take the cash and replace them with illquid, hard to value products as collaterals. If the investors rush to liquidate their positions, the issuers might not be able to raise enough cash to pay off the investors. The synthetic ETFs also face the counter party risk where the other party to the derivatives may not be able to honour their obligation.

The Straits Times Index ETFs marketed by SPDR and DBS are physical ETFs - which do not have the risk of the synthetic ETFs.

Read this article.

Forex trading courses

I have received a report that some people have paid several thousand dollars to attend a forex trading course on the expectation that they can learn some trading techniques to make money. Most of these people earn up losing money on the trading activities. And they are too shy to admit that they have made a big mistake in entering into this line.

If you have been misled into paying money for the course, and you have proof of the mis-representation, e.g. the trainer has told a lie about the profit made by other traders using his technique or about his past trading experience, you can recover your fees through the small claims court. See this past case.

Test your vocabulary

Test your vocabulary by rearranging the letters to form the correct words that fit the definitions.

Word Power 2-1
Word Power 2-2

I will be launching a new book that has the scrambled words at various levels, suitable for primary and secondary students.

Please give your views on whether this type of exercise can help the student to learn more words and if it is interesting and fun to attract their attention. I have organised the book to have 80 puzzles of 20 words each, in order of difficulty. It allows the student to record the time taken to solve each puzzle and also the number of words that are obtained correctly.

Request for assistance

If you need my assistance, you have to submit a report based on the following:

Mis-selling of financial product
Insurance claim

Warren Buffett and US economy

Warren Buffet said that all the businesses under the Berkshire Hathaway group are booming, except for those connected with the housing market. This means that the US economy is expected to rebound and do well. It is worth watching. Read this report.

Invest in foreign currency

If you find that interest rate is too low in Singapore and you wish to earn a higher interest rate by investing in foreign currency, e.g. Australian dollar, you should be aware of the following:
  • You have to bear the risk of currency fluctuation
  • You have to incur the cost of converting your Singapore dollars to the foreign currency and to convert back to Singapore dollars on maturity
After you take these factors into account, it is better to avoid investing in foreign currencies. But if you still wish to consider it, you should read this FAQ.

My preference is to invest in blue chip shares, REITS or the STI ETF. You can find shares that give an attractive dividend yield of 3% or higher and enjoy the benefit of capital appreciation. Although these shares may be risky in the short term, the risk is reduced considerably for a long term investor. These concepts are explained in the FISCA workshop on financial planning. Register here


Bravo to the New York Attorney General

The New York Attorney General is active in looking after the interest of ordinary people. If they find evidence that a bank has been defrauding its customers, it is ready to take legal action on behalf of the people. It recognizes that the AG office is really the lawyer for the people, and not just for the Government. Read this report.

I hope that our AG office in Singapore and the Minister for Law will recognize that it has a duty to the people of Singapore to uphold justice and to protect the interest of ordinary people when there is suspicion that the business enterprises are set up to defraud the people, e.g. collecting deposits with the likelihood of folding up or designing financial or investment contracts that are unfair to consumers. If they need financial expertise they can cooperate with the Monetary Authority of Singapore.

It is not reasonable to expect that the ordinary people can afford to engage lawyers to pursue civil actions against these business enterprises. Many cases need to be investigated, and ordinary people do not have the resources or the power to carry out the investigation.


Financial Planning Workshop

Register early for this workshop.  Do not wait until the last minute, as the workshop will be cancelled if there is insufficient response.

Due to the high cost of booking the venue, we have to cancel a talk if there is insufficient response within one week of the talk. Do not wait until the last minute to register, if you are interested for the talk to be conducted.

The talk on life insurance scheduled earlier had to be cancelled due to insufficient response. After the talk was cancelled, a few people wrote to me to ask about how to register for the talk. If they had registered earlier, we would have continued the talk.

Tuesday, October 04, 2011

Profit without tax

It seems that large companies lobby for a tax holiday but does not help to protect jobs.

A trade war in the horizon?

Will there be a trade war? Here is an event that may lead to this disastrous outcome. Some analysts think that the US government and China will work out a solution to avoid a trade war. But in a conflict, nothing can be taken for granted. Things can go wrong. 

Creating employment in a recession

Read this article. It is a dilemma faced by governments. They have a budget deficit and has to reduce spending by laying off workers. But it is difficult for the workers to find jobs in a recession. The workers will receive unemployment benefits for a short period, but the benefits will run out after a while, and they may still be unemployed.

In a recession, there will not reduced demand for goods and services, as those who are still employed will cut down their own spending. Small businesses will not employ the excess workers. It is difficult for the unemployed workers to start their own business, due to lack of funding, lack of credit and lack of business. It is a vicious cycle.

The solution to a recession is for the government to employ more people, and not to lay them off. These people can be used to provide the public goods and services, that are needed by the population at large, in health, education, security, infrastructure and other useful activities. The government needs the money to pay for these services, and it has to come from taxation of those who are employed and those who are well off.

The people who are employed by the public sector do not need to be paid high wages. They only need to be paid enough to get by. When the economy recovers, they can find better paying jobs in the private sector. In the meantime, they should be kept usefully employed.

The advanced countries are now suffering from the current economic system - low taxation, wide income gap, globalisation, high unemployment and budget deficits. The current system is not sustainable. The leaders need the courage to change the system - but the challenges are really big.

Tan Kin Lian

Improve the public transport system

The Minister of Transport, Lui Tuck Yew, has announced that the quota for increase in motor vehicles will be reduced from the current 1.5% per annum, but will state the exact figure at a later date.

I agree with this decision to reduce the growth in vehicle population. In fact, I believe that we already have too many vehicles in Singapore - judging from the congestion on our roads and the difficulty in finding parking spaces at the homes, workplaces, shopping malls and other destinations.  It is appropriate to start reducing the vehicle population, e.g. by not allowing some of the expiring permits to be replaced, but I do not think that the Government will take this step.

More important, we need to improve public transport, especially the local transport that brings commuters from their homes to the MRT stations or bus terminus. This can be done by issuing licences for local bus and taxi services that operate within a town. These services can be exempted from taxies and other fees, so that the cost to commuters will be kept low through competition. It will also provide employment opportunities for older people who have a driving licence.

I have written about these ideas in this paper on local transport and also in another paper on the public transport system. I have sent the papers to Minister Lui, but he had replied to me at that time that he is too busy to study them. I have not heard from him since.

Many people have to buy cars due to difficulty in getting public transport, especially if there do not live close to the MRT station. If there is a good system of affordable and convenient local transport, they may be willing to forego the expense of owning and using a private car,

Tan Kin Lian

Monday, October 03, 2011

How modern economics have failed us

This is an excellent article which explains that modern economics did not follow the teachings of Adam Smith. It has been allowed to stray from from the what the free market should be - i.e. freedom with responsibility. It explained how the financial sector made a lot of profit through excessive speculation and did not add any value in the process. Modern economics have operated on wrong principles and lack of morality.

Eckhart Tolle’s saying and Tommy Wong’s books

Eckhart Tolle said “Do you need more knowledge? Is more information going to save the world, or faster computers, more scientific or intellectual analysis? Is it not wisdom that humanity needs most at this time?

Looking for wisdom? Read Dr. Tommy Wong’s books “Wisdom on How to Live Life”.

Tommy Wong’s books can be ordered here.

Solving the shortage of nurses

Hi Mr Tan,
There is a problem but isn't there any "localised" solution;

Who is bold enough to initiate mandatory National Service Nurses programme?  If no policy maker is willing to initiate NS for female, then perhaps tapping on the NS guys to be NS nurses might be better than tapping on FTs.  Cheers.


Tell the truth

Politicians should tell the truth and not mislead the public by controlling the flow of information. Who wrote this article? Kishore Mahubani, Dean of LKY School.

Sunday, October 02, 2011

Word Power - test your vocabulary

Test for vocabulary by rearranging the letters on the left to form the correct word that fits the definition on the right.

Occupy Wall Street

There is a growing group of people in America who are demonstrating against the greed of Wall Street and politicians .... " yet its two weeks of noisy occupation has lured a sturdily faithful and fervent constituency willing to express discontentment with what they feel is an inequitable financial system until, well, whenever." 

To keep or terminate an existing life insurance policy?

I have been asked quite often on whether a specific life insurance policy taken previously should be terminated for its low yield. The right approach is to calculate the yield on the policy for the next (say) five years and to compare this yield with the yield from alternative investments, e.g. an ETF or a REIT.

This paper explains how to calculate the yield on a life insurance policy. Although a life insurance policy gives a poor yield for its entire duration, most of the expenses are deducted upfront. After the initial loss is written of, the running yield on the policy may be quite acceptable, e.g. close to 4% per annum. In most cases, it is better to continue the existing policy (although the consumers should have avoided it in the first place). 

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