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

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

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.

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.

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.

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.

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."

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

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.

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.

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.

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.

Safari Park near Puncak

Do we look alike? Posing with a wild animal. Next, a friendly parrot.

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/

$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!

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

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.

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

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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

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?"

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.

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.

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.

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.

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

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.

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.

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?

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.

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

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

Critical Illness Cover

Dear Mr Tan,

I would like to ask, why did you say $50,000 is enough for critical illness policy?
Let say if i am really hit by one of the illness which is insured by the policy, will $50,000 be really suffice for medical fee and hospitalisation?

REPLY

I expect most people to have a Medishield plan that will cover most of the cost of medical care.

I advice people to avoid over-insuring and pay too much premium on high cost insurance products. They should have more savings for their retirement.

Read this FAQ:
http://www.tankinlian.com/faq/choice.html

If you have adequate savings, you can use part of your savings to meet the unexpected medical expenses (instead of relying on high cost insurance).

Safari Park near Puncak

I visited the Safari Park near Puncak, outside of Jakarta. I was surprised at the high quality of the park. The visitors drive through the safari park in their vehicles. The animals were allowed to roam freely. They are in good health and well taken care of. The visitors can feed the animals with carrots.

Structured Products invested in subprime CDOs

Hi Mr Tan,

I need your advice. Last year, I invested $50,000 in the Pinnacle Notes which will mature in 2012. Will the US subprime mortages affect this product? Can you advice on the risk involved in this product ?

REPLY

I am not familiar with the actual investments of this product. I understand that some structured products were invested in Collaterialised Debt Obligations (CDOs) which comprise of these subprime mortgages.

I suggest that you ask this question to the issuing bank. I am interested to know their answer as well.

Bear Market

We are now in a severe bear market. The stockmarket around the world has dropped more than 20% from its recent peak. The drop can be 5% a day. It can drop a few days in a row.

This is the work of hedge funds. When the market is weak, they sell in large volumes, causing weak holders to panic and sell their holdings. There are no buyers, so the drop is severe. Later, the hedge funds will bear back their short positions at the depressed prices and make a profit. It has happened on many occasions in past years, during bear markets.

Long term investors should not worry. This short term massive selling last a few days and will stabilise or recover. In fact, this is a good opportunity to buy stocks at extremely depressed prices.

See a financial adviser

Some visitors to my blog sent detailed information about their personal financial matters and asked for my advice. I am not able to spend time to provide detailed personal advice on specific investments that suit their needs.

If you are in this situation, I suggest the following approach:

1. Read the FAQs in my blog and website and be educated about the financial matters
2. Find a financial adviser whom you can trust (i.e. someone you know or recommended to you)
3. Get the financial adviser to advise on your personal investments for a fee.
4. Ask the financial adviser to disclose the commission that they earn on the products that you buy.

Goal: to achieve $1.2 million in 25 years

Hi Mr. Tan,

I target to accumulate $1.2m in 25 years time. I now save $18,000 a year in insurance premiums. I wish to increase it to $24,000. My savings in CPF is capped at $17,000 a year. How can I make my savings grow faster?

REPLY:

If you save $24,000 a year and invest to earn an average of 5% per annum, you will get $1.14 million at the end of 25 years. Your savings of $17,000 in insurance policies probably earns for you a return of 3% per annum (just a guess). This will accumulate to only $0.65 million in 25 years time.

You can make your savings grow faster by earning a higher rate of return in a diversified, low cost, equity fund. You may wish to consider terminating some of your insurance policies, and investing the premium to earn a higher return.

Read this FAQ:http://www.tankinlian.com/faq/savings.html

However, you have to bear in mind that $1.2 million in 25 years time is worth only $0.73 million in real terms, if you discount for inflation at 2% per annum.

Logic Quiz B1

Can you solve this logic quiz?

There are four houses with different colours in a row. Each occupant keeps a different pet and drinks a different beverage.

1. The person who drinks beer lives to the left of the person who keeps cat.
2. The grey house is to the left of the blue house.
3. The purple house is occupied by the scientist.
4. The salesman keeps bird.
5. The green house is next to the person who drinks wine.
6. The scientist lives to the left of the person who drinks tea.
7. The accountant lives to the left of the manager.
8. The person who keeps hamster lives to the left of the person who keeps fish.
9. The purple house is the second house.

You can find the answer here
http://www.tankinlian.com/logicquiz/answer.html#B1

Here are more quizzes at three levels:
http://www.tankinlian.com/logicquiz/quiz.html#B1

And you can download the teaser to share with your friends:
http://www.tankinlian.com/downloads/Logic_Quiz_Teaser.pdf

Secret of the Amazing Numbers

It is time for me to share the secret of the Amazing Numbers. After your friend has selected the cards (that contain the selected Number), you add the first number of the selected cards to get a total (which is the selected Number).

For example, if your friends chose the cards with the starting numbers of 1, 8 and 16, the selected Number is 1+8+16 = 25. The Number 25 appears in these three cards and not in any of the other cards.

The starting numbers of the 7 cards are in multiples of 2, i.e. 1, 2, 4, 8, 16, 32, 64. Any Number can be formed by adding from these starting numbers. The Number 25, is formed by adding 16 + 8 + 1. Hence, this Number appears only in these three cards.

You can take my Amazing Numbers and make the 7 cards to amaze your friends!

Puncak - hill resort near Jakarta

I stayed at a villa near Puncak, which is a popular holiday resort outside of Jakarta. According to Wikipedia, Puncak is only 390 m above sea level, but it is quite cool and pleasant.

I found the landscape from the villa to be magnificent. I could see three large mountains in the distance, with beautiful white clouds below the peaks. I gave a great feeling about the wonders of nature.

Lawyer's Joke: Contempt of court

The lawyer was quite fed up with the judge, who was constantly ruling against him. He collected his papers and was about to leave the court.

The judge asked the lawyer, "Are you trying to show your contempt for this court?"

The lawyer replied, "No, your Honour. I am trying to conceal it!"

Books on financial planning

Dear Mr. Tan,

I am new in investments. Can you recommend a good book or financial blogs?

REPLY

There are many books on financial planning and investments available in the market. They are good in theory, but will probably have the following disadvantages:

a) They do not cover the situation in Singapore
b) They teach the theory and avoid the practical issues that are faced by real people.

I am not able to recommend any good books. Perhaps, the other readers of my blog can suggest some good ones?

I suggest that you read the following:

My blog: www.tankinlian.blogspot.com
My website, under the section Ask Mr Tan: www.tankinlian.com/faq
Dr Money's articles: http://www.tankinlian.com/drmoney/

Continue existing policies

Dear Mr. Tan

I would like to thank you for your generousity in time and advice for everyone. Your blog has been an eye-opener for me.

I would like to seek your advice on my family's insurance needs. Finance has been tight for us. We have 3 regular premium ILPs that were bought 7 years ago. We are thinking of stopping the ILPs and buying a Term insurance.

My agent has suggested that we buy a life insurance policy. Do you think that this is a good idea?

REPLY

For the three ILP policies, can you find out the following:

1. What percentage of the monthly premium is invested from now onwards (i.e. after the policy has passed 7 years).
2. What are the deductions from the monthly premium to cover the policy expenses and mortality charges?
3. What is the annual charge on the investment fund?
4. What is the spread on investing each premium into the fund?

Quite likely, you have passed the period of high upfront charges. If this is the case, it is better to keep the ILP policies as an investment for the future.

I do not recommend a new ILP policy, as it incurs high upfront charges. But, if you have already incurred it in past years, it is better to continue with the policy.

I suggest that you buy a decreasing Term insurance to cover 5 years of your earnings, reducing over a period of 20 years. Do not buy the whole life policy.

You can read the FAQs here:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/ilp.html

Investing for the future

Hi Mr. Tan,

I am concerned that my savings for the future will be eroded away by inflation and that the yields in the CPFOA may not keep up with inflation.

I am considering putting some savings into UOB Growthpath 2040 fund and also the Combined Fund by NTUC Income. It seems that doing a regular ILP incurs high costs. I am thinking of putting some money in both funds over the next few months. What are your views?

Thanks for the advise on your website. It is sad that insurance agents put a lot of pressure on customers. I almost signed up an ILP with a friend only to realise of the high upfront costs, and also the relatively high annual charge of 1.5%. I was advised to put money in single country funds that are 'hot' economies. I decided to cancel the policy within the 14days grace period. I cannot afford to lose up to 18 months in upfront costs at this early stage of life.

I checked with another agent and was told that not all the information on DR Money's website is true about insurance.

REPLY:

You can read this FAQ about investments:
http://www.tankinlian.com/faq/savings.html

I am not able to give you specific views about the UOB fund. If you wish to invest in the Combined Fund from NTUC Income, you can invest through the Flexi Link policy, where the charges are much lower than a regular ILP.

You did right to cancel the high cost ILP policy. Your savings should be for your future, and not for the earnings of the insurance agent.

Dr Money's advice on insurance is sound. It may not be 100% accurate. My advice is not 100% accurate either. But, they are useful for consumers.

Low risk investment

Dear Mr. Tan,

I learnt from your website from reading mypaper. I'm a nerd when it comes to financial management. Apart from savings account, I know nothing much about investments. I'm not a high risk taker, but would like to know how to go about low-risk investments.

Are there any articles, websites or books to recommend for beginners? I heard that T-bill is a low-risk investment but I've no idea how to go about doing that.

Recently, I've also heard that an insurer is offering a sort of Fixed Deposit, which offers higher interest than banks. Is it trust worthy?

I'm in my mid-30s and wish to invest $50,000 for my retirement or my son's education fund. What is your advice?

REPLY

I suggest that you read this FAQ. It should contain the answers that you need.
http://www.tankinlian.com/faq/savings.html

Amazing Numbers

A few people have written to ask for my permission to use my amazing numbers to play with their friends. They are most welcomed. I asked them to make 7 cards using the amazing numbers.

I have just visited an insurance company in Indonesia. Their managers are amazed at the numbers and wish to print the amazing numbers cards to give to their clients.

What are the amazing numbers? Try it:
http://www.tankinlian.com/amazing/index.html

Migrating to Term insurance

Dear Mr. Tan,

I bought the NTUC I-young policies for my two sons at $100 annual premium for a coverage of $50,000. The policies will lapse upon the age of 29. Should I switch to a Term insurance policy, as mentioned in your blog, for an annual premium of $100 to $300 for a coverage of about $150,000 or stick to I-young? Your learned advice is much appreciated.

REPLY

Both options are suitable. When your sons are ready to buy their own Term insurance, they can buy a Term insurance for about 5 years of their income, and discontinue the iYoung policy. In the meantime, the iYoung will serve them well.

How to get started in investing

Dear Mr. Tan,

Thank you for providing this wonderful resource and for making investment and insurance products so much easier to understand.

Now I am very keen to get my money to work harder. The question is, can you please teach me how to get started? How do I buy a unit trust or an indexed fund?

REPLY

You can read the FAQ in my website, www.tankinlian.com/faq

Financial Blogs

Dear Mr. Tan,

Hope all is well with you. Your last update on your blog was 14th. Jan today is 18th. I am sure many readers like me who visit your blog everyday must be missing your posts (like I am).

By the way, I like reading Doc money's writings but they come out just once or twice in a while. Can you suggest any Singapore specific useful financial websites or blogs (apart from those already listed on your right panel) where real good, sound info is given like you and Doc money give.

REPLY:

I have been in Jakarta for the past few days, and have some difficulty in getting Internet connection. You can read my blog and Dr Money's articles. I am not aware of other good blogs on financial matters.

Investing in the Singapore market

Dear Mr. Tan,

A few weeks ago, you suggested that a good time to invest in the Singapore market is at the level of 3,000 to 3,300.

The Singapore index is now about 3,100, but there is the risk of a recession in America. Is it safe to invest at the current level?

REPLY

If you are investing for the long term, it is all right to invest at the current level (in my view). The market has dropped by more than 20% from its peak at 3,850. You may not be able to catch the bottom, so it is better to start investing. If you are unsure, you can invest in three tranches over the next there months.

If you are investing a monthly sum, it is all right to invest now. You can invest in the STI tracker fund, or the Combined Fund from NTUC Income (through the Flexi Link policy).

Updating my blog

A few visitors have observed that I was not updating my blog for the past few days.

I was away in Jakarta from Tuesday to Saturday. It was difficult for me to get access to the Internet. The Internet connection from the hotel was slow and expensive. I have just returned.

Means Testing

Mr. Tan,

What are your views about means-testing?

REPLY

It is a lot of work, all lot of uncertainty, for quite negligble savings. The Minister for Health said that the subsidy will be reduced from 80% to 65%. The savings to the government is only 15%.

Most people who uses the C wards are likely to be the older and poorer people. Those who are affluent are most likely using the A or B wards. Those covered by employers will use the higher class wards anyway.

I hope that the Minister will drop this idea. It is not worth the trouble.

Low cost funds

Dear Mr. Tan,

How can I buy low cost funds in Singapore?

REPLY

You have the following options:

1. Buy the STI or other ETF (exchange traded funds) through a stockbroker
2. Buy the Combined Fund from NTUC Income, investing through the Flexi-link policy.

Science & Technology & Singapore

Much of what Singapore is today is due to our ability to apply Science & Technology to our lives.

Dr. Lee Kum Tatt, as founder chairmen of Singapore Science Council, Singapore Institute of Standards and Industrial Research (SISIR) and a Senior Member of Singapore Polytechnic Board of Governors etc. ( 1950’s – 1980’s) contributed much to building the science and technology infrastructure in Singapore in the early days.

For those who are interested in how some of Singapore policies on science and technology are formulated and implemented, including what not to do, read the articles in Lee Kum Tatt's blog to learn how he did what he did.

www.leekumtatt.blogspot.com

Direction signs at MRT stations

A commuter approached me outside Yio Chu Kang MRT station. She wanted to know where to get a bus to go to Techpoint. She asked if it was bus service 70 (as she had checked the street directory), and where is the bus stop?

I took out the Public Transport Guide which I usually carry with me. It was indeed service 70 and indicated the nearest stop to Techpoint.

However, the commuter had walked in the wrong direction and is quite far away from the bus stop. She was not able to get clear direction from the other people.

I find the direction signs in our MRT stations to be inadequate. It is also difficult for someone to get useful directions, if they are not familiar with the bus services.

Be educated about financial matters

Dear Mr. Tan,

My daughter who has recently started work, was approached by an insurance agent from X at MacDonalds. The agent gave a long sales talk to my daughter. She was not clear about what the product was, and was coerced into buying the policy.

I told her to cancel the policy, as a large part of her hard earned money will be used to pay commission to the agent. I advised her to read your blog and understand insurance and investments better, before she make this type of financial decision.

REPLY

Many young people have been approached in this manner. In many cases, the agent who sells them the policy was their friend or classmate.

It is true that they will waste their hard earned money buying the wrong, expensive product that gives a poor return.

It is better for them to buy Term insurance or personal accident insurance first. They can accumulate their savings in the bank account and decide later on how to invest it.

Motor insurance joke

Prosecutor to defendant accused of reckless driving, "Is it true that you knocked down five people this year?"

Defendent: "No. I only knocked down four people. One of them was the same person that I knocked down twice."

Lawyer's joke

A man was being sued for returning a borrowed lawn mower in a damaged condition.

His lawyer told the court, "I will prove my client's innocence in the following ways: Firstly, he never borrowed the lawn mower. Secondly, the lawn mower was already damaged when be borrowed it. Thirdly, the lawn mower was in perfect condition when he returned it. "

Joke: Some lawyer can argue any point in a convincing manner.

Index Fund or ETF?

Mr Tan,

Should I invest in an Exchange Traded Fund and an Index Fund? Both funds track an index.

http://stquote.sgx.com/live/st/STETF.asp http://www.lioncapital.com.sg/default.asp?action=category&ID=24&order=rank&sort=asc&limit=0

REPLY

If you are investing for the long term (and not trading for the short term), it is better to buy an indexed fund, as it is based on the net asset value of the fund at the end of the day. You do not have to worry about trading based on the actual price fluctuation during the day.

Post Hospital Expenses

Dear Mr. Tan,

I agreed with Ministry of Health that there is no Medi-crisis at the macro level. My family members have been treated in public hospitals, and the charges are affordable.

But we face a financial crisis at the micro level, in meeting the post-hospital expenses covering the following:

Taxi Fare/Ambulance
Consultation Fee
Laboratory Test Scan
Meal at Hospital Foodcourt
Medicine
Food suppliment

The total cost for each medical appointment is more than $200 (not counting loss of productivity). This has to be multiplied by the number of visits over the years for two elderly persons.

Each retiree gets only $297 a month from the CPF savings.

Decreasing Term

Dear Mr . Tan,

I am 25 years old. Should I take a 40 year Decreasing Term or a 20 year policy and renew it at the end of 20 years?

REPLY

You should take a Decreasing Term for 40 years. It should cover the duration of your expected working career.

If you take a Decreasing Term for 20 years and wish to renew it at the end of 20 years, the renewal is subject to your health condition at that time. The premium will be based on your age at that time, and will be much higher.

This arrangement is not suitable, as the sum insured under the Decreasing Term will reduce during each period of 20 years.

A Message by George Carlin

The paradox of our time in history is that we have taller buildings but shorter tempers, wider freeways , but narrower viewpoints.

We spend more, but have less, we buy more, but enjoy less. We have bigger houses and smaller families, more conveniences, but less time. We have more degrees but less sense, more knowledge, but less judgment, more experts, yet more problems, more medicine, but less wellness.

We drink too much, smoke too much, spend too recklessly, laugh too little, drive too fast, get too angry, stay up too late, get up too tired, read too little, watch TV too much, and pray too seldom.
We have multiplied our possessions, but reduced our values. We talk too much, love too seldom, and hate too often.

We've learned how to make a living, but not a life. We've added years to life not life to years. We've been all the way to the moon and back, but have trouble crossing the street to meet a new neighbor. We conquered outer space but not inner space. We've done larger things, but not better things.

We've cleaned up the air, but polluted the soul. We've conquered the atom, but not our prejudice. We write more, but learn less. We plan more, but accomplish less. We've learned to rush, but not to wait. We build more computers to hold more information, to produce more copies than ever, but we communicate less and less.

These are the times of fast foods and slow digestion, big men and small character, steep profits and shallow relationships. These are the days of two incomes but more divorce, fancier houses, but broken homes.

These are days of quick trips, disposable diapers, throw away morality, overweight bodies, and pills that do everything from cheer, to quiet, to kill. It is a time when there is much in the showroom window and nothing in the stock room. A time when technology can bring this letter to you, and a time when you can choose either to share this insight, or to just hit delete...

Remember; spend some time with your loved ones, because they are not going to be around forever. Remember, say a kind word to someone who looks up to you in awe, because that little person soon will grow up and leave your side. Remember, to give a warm hug to the one next to you, because that is the only treasure you can give with your heart and it doesn't cost a cent.

Remember, to say, "I love you" to your partner and your loved ones, but most of all mean it. A kiss and an embrace will mend hurt when it comes from deep inside of you. Remember to hold hands and cherish the moment for someday that person will not be there again. Give time to love, give time to speak! And give time to share the precious thoughts in your mind.

AND ALWAYS REMEMBER:

Life is not measured by the number of breaths we take, but by themoments that take our breath away.

George Carlin

Crisis in health care?

Do we have a crisis in health-care?

Read the articles in Today paper:

a) Article by Stanley Jeremiah – Medisave, Medishield, Medi-Crisis?
http://www.todayonline.com/articles/230532.asp

b) Article by Alex Har – Medi-Debate: Why I’m Optimistic
http://www.todayonline.com/articles/231761.asp

c) Letter by Karen Tan, M of Health – We can be proud of 3M
http://www.todayonline.com/articles/231791.asp

Some points to ponder:

a) Do we have a medical insurance crisis?

b) Many people have several medical insurance policies. They are over lapping, duplicative and wasteful. Do you agree?

c) Medishield has Deductible and Co-insurance to encourage people to use medical services carefully. This is negated by offering a rider to cover these items. It makes the system more complex and costly to administer. Do you agree?

d) What is portable medical insurance? How can we get more people to be insured under a portable insurance policy?

Time to enter the market?

Hi Mr Tan,

Is it a good time to enter the market? Should I wait and see, since the market is expected to be volatile in 2008? This is the first time I am investing in unit thrust, so not too sure. I hope to seek your advice.

REPLY:

It depends on whether you are investing a large lump sum or a small monthly sum.

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Hide! Here Comes the Insurance Guy

http://www.kevinquinley.com/nlstory.cfm?ID=565&NLID=2231

The Envelope, please … the Top Risk Management Book of the Year … By Kevin M. Quinley CPCU, ARM AIC, AIM, ARe Hide! Here Comes the Insurance Guy by Rick Vassar, iUniverse, 2006, 196 pp., $17.95

Author, risk manager and consultant Rick Vassar has penned an illuminating primer on insurance and risk management in his book, "Hide! Here Comes the Insurance Guy."

The title is a take-off on the notion that, for most people, meeting with an insurance person or discussing coverage is as much fun as a root canal or proctological exam. Part of his theme is that most companies have risks that are overseen by someone whose title is not "Risk Manager."

Most companies do not have risk managers; you need to have a pretty big insurance budget to justify that as a full-time position. No company vies to be paying so much in insurance premium that they spotlight the problem by having a full-time individual to tend to it. Nevertheless, all companies have risks and need to manage it.

For these risk managers without title or formal portfolio, Vassar's book – perhaps the best risk management book of the year even without that phrase in the title -- is an indispensable primer and guide. Reading and heeding his advice will save businesses much money, frustration and Excedrin-consumption.

Vassar divides his book into three main sections. Part I discusses business strategies to even the playing field between policyholders and insurance companies. Part II walks through the major basic forms of insurance coverage for most any business. Part III rounds out with a useful; glossary and index. Vassar's focus is practical and hands-on, leavened with a self-deprecating sense of humor.

Did I say "humor"? Yes, though few comedy clubs are likely to feature an Open Mike night for insurance reps, Vassar takes the human antipathy toward insurance and turns it into a source of mirth and amusement. So run -- but don't hide - and get your copy of "Hide! Here Comes the Insurance Guy." Get out from under the desk. Leave the closet and face your fears. Insurance and risk management may not be fun (though they are occasionally funny), but Rick Vassar has come as close to anyone in blending sharp wit with money saving risk management insights.

Amazing Numbers - on cards

I showed the Amazing Numbers, printed on cards, to several people during lunch. They were amazed at my ability to guess the number that they picked.

When I showed them the secret, the were even more amazed. They asked me, "How did you generate the numbers on the cards".

Can you guess the secret? Do you know how I generated the numbers?

http://www.tankinlian.com/amazing/index.html

I have decided to make 1,000 sets of cards to be sold at a modest price or given away.

Lesson in Money Management

Someone sent this message to his daughter. He asked me to share it.
-------------------------------------------------------------------

Many Singaporean work hard and earn a lot of money in year 1990's and early 2000's. Under Goh Chok Tong policy, he encouraged investment. A lot of CPF money and personal saving just gone to the sea. Why?

Sale person make a lot of commission and they don't have a heart (conscience). The commission alone can buy at least one condo within a short time. The sales person does not risk their life, like engineer yet enjoy life. Are you working for sales person?

You better read this Blog and Dr Money's article to protect your hard earned money :

http://www.tankinlian.blogspot.com/
http://newpaper.asia1.com.sg/columnists/story/0,4136,150939,00.html?

The blog and articles are updated every day/week. It does not matter if you don't understand the technical term, just go through it. When you need to make a decision later , you know where to find infomation.

Last few days, Lee Kuan Yew advised people NOT TO TAKE RISK. This is a lesson learnt after so many years.

REPLY

My advice to people who visit my blog is to invest in low cost, diversified equity fund for the long term. By investing for the long term, the investor will average the good and bad years and get an average return that is better than the return from safe investments.

The advise is different from your view of "do not take risk". Do you agree with my advice?

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Term Insurance to age 90

Dear Mr. Tan,

What are your views about buying Term insurance to age 90 and above? The agent said that the premium rate is lower than whole life policy.

REPLY

It is much cheaper to buy Term insurance to age 65 or 70 (rather than age 90). After that age, you do not need any life insurance, as you have retired from work.

If you need life insurance beyond age 70, it is better to buy a whole life insurance (rather than life-time Term insurance), as the whole life policy accumulates cash value. The life-time Term insurance is cheaper as it forfeits the cash value when you terminate the policy. There is a chance that you may terminate it by oversight, and suffer a loss.

Private Credit Counselling Service

Dear Sir

I need some advice from you. I have some credit debts amounting to $X from various banks. They are demanding for payment. All the facilities has been cancelled for the past two years, but the amount keeps snow balling.

I am selling flat and will be able to pay off most of the debts when the sale is completed in a few many months time.

I approached a private credit counselling company to get their assistance to work out an instalment plan with the banks. They wrote letters to the banks on my behalf using my name, and charged me a fee. I am not sure if this is the correct approach.

REPLY:

I am not familiar with the business practice of these private credit counselling service.

Maybe, you can talk to the bank directly and see if they can reduce the interest charged on the delayed payment. Alternatively, you can approach this non-profit organisation:
http://www.ccs.org.sg/help.html

Charges under a investment linked policy

Dear Mr. Tan,

I am confused about the many charges under an investment-linked policy. The insurance agent does not explain them clearly to me. I am now stuck with these high charges. Can I get out of them?

REPLY

It is better to buy a low cost Term insurance, to provide the life insurance protection. You should invest in a unit trust or an investment fund with low upfront or annual charges.

If you invest in an investment-linked policy, make sure that 100% of your premium is invested and that the only charges are the initial spread (which should not exceed 3%). Make sure that the annual charges of the fund is less than 1.5%.

A good example is the Combined Fund from NTUC Income, which you can buy through the Flexi-link plan.

You should avoid the regular premium investment linked plan as it has another layer of charges that can take away 15 to 21 months of your savings (with a few exceptions).

You can read the following FAQ to understand the charges in an ILP:
http://www.tankinlian.com/faq/ilp.html

Insure big loss with small chance of occurring

1. Buy insurance to cover the big lossses, which has a small chance of occuring. For example, total destruction of a property due to fire, or a major accident. You can insure the risks where the chance of occuring is less than 1% in a year.

2. Pay small losses out of your savings, eg deductible under a medical insurance or motor insurance policy. Do not insure these small losses. It is costly, as you have to pay a loading to cover the expenses of the insurance company. It is also a hassle for you to make a small claim.

3. Buy low cost insurance just to cover the risk. It does not matter that you do not get any return, provided that the cost is less than 5% of a similar "investment product".

4. Do not invest in an insurance policy, as the return is low (due to the expenses). It is better to invest separately in a transparent, low cost product.

Medical insurance for Pensioner

Dear Mr. Tan,

I am a pensioner and currently working. I am entitle for class A wards but hve to pay 15% of the total medical bill each time I visit a doctor. Is it necessary for me to take up the Medishield plan?

REPLY:

I assume that you will continue to enjoy the medical benefit provided by the Governmetn after your retire from work and that it will continue to be provided to you for your lifetime.

If this is the case, there is no need for you to buy Medishield. There is no point in paying the premium for a medical cover where you only need to insure for 15% of the total cost. If you are hospitalised, you can pay the 15% from your Medisave account, or even from cash. It is likely to be quite small anyway.

Tips on financial planning

1. Here are my tips on financial planning.

2. Have adequate life insurance to cover your life. Insure for 5 to 10 years of your income. This ensures that, if anything happens to you, your family will have adequate financial security.

3. Buy decreasing Term insurance over 20 or 30 years. The premium rate is affordable. It should take less than 1% of your earnings. This is better than whole life, endowment or critical illness insurance.

4. Save 10% to 15% of your salary and invest in a low cost, diversified investment fund. You can earn an attractive return over the long term. The savings can be used for emergencies (including paying medical bills) and for your long term needs (such as education for your child or for your own retirement needs).

5. Do not buy financial products (including life insurance policies) where there are high charges that is taken away from your savings.

6. You can insure your children under Medishield. It will take care of the larger bills. The smaller bills can be paid from your Medisave account, or from your savings plan.

7. Do not buy life insurance policies for your children, as they do not provide a good return (due to high charges). It is better for you to save and get a high return from your investment fund. You can use the money for their education or transfer the savings to them when they start their own family.

8. Your children can take their own life insurance policies when they start to work. At that time, they should buy low cost insurance and save in a low cost investment fund.

Get adequate life insurance on your life first

Dear Mr. Tan,

1. You advised me to have medical insurance for my daughter and to save in an investment linked plan with low charges. Do I need to buy other insurance for her, such as a critical illness policy?

Reply: There is no need to buy the critical illness plan. She can buy it later, when she starts to work.

2. When is the appropriate time to buy living insurance? If I buy living insurance, does it mean that I have to terminate the Medishield?

Reply: If you buy critical illness insurance, you do not need to terminate Medishield. They cover different types of expenses.

3. I only have living insurance coverage of 30K. Is this adequate? Do I need to buy a life insurance so that my family's financial needs are covered if something happens to me?

Reply: You should have adequate insurance on your life. Buy a decreasing Term insurance to cover up to 5 years of your income. Your priority is to have adequate insurance on your life. Do not worry about life insurance for your child at this time.

Read this FAQ: http://www.tankinlian.com/faq/choice.html

Late notification of an motor accident

Dear Mr Tan

A few months ago, my friend was involved in a minor accident. He bumped into the back of another vehicle. He contacted his insurance agent and furnished the necessary details to the insurer upon being contacted by the solicitor who was acting on behalf of the claiming party.

He was informed by them a few days ago that the claim will not be entertained, as he had failed to make a report within 2 days of the accident. Is there any guideline on what would be a reasonable notification period?

REPLY

Under a motor insurance policy, the insured person is required to notify the insurance company within a stated period (usually 1 or 2 days) of any accident that may lead to a claim.

If both parties agree not to make a claim, then there is no need to make this report. In this particular case, it appears that the other party must have made a report and wish to claim against your friend.

I suggest that your friend should speak to his insurance company and get their advice on how to handle this claim. The insurance company should assist their customer in such matters.

If the insurance company does not provide reasonable assistance, your friend can lodge a complaint with FIDRec:
http://www.fidrec.com.sg/website/faq.html">http://www.fidrec.com.sg/website/faq.html

Whole life policies

Hi, Mr. Tan,

I have two whole life which I bought in 1994 and 1995. I am now a pensioner. Should I continue with the policies? I wish to convert them into a life annuity, but I was told that it is not possible. The return from buying insurance is not very encouraging as the returns have been revised downwards in the past years.

REPLY:

You can ask the insurance company to quote the cash value of each policy as follows:

a) if you terminate the policy now
b) if you terminate the policy in 5 years time
c) premium payable for the next 5 years
d) if you temrinate the policy in 10 years time
e) premium payable for the next 10 years

You can make a better decision when these figures are available. You can show me the figures and we can decide together on which option is best for you.

Read this FAQ:
http://www.tankinlian.com/faq/exist.html

American Humour

Humour #1

The people who don't like Hillary Clinton said, "We don't want Hill and Bill back into the White House".

Humour #2

During the days of the Cold War, an American told a Russian, "In America, we have free speech. I can go to the White House and tell President Johnson - President, I don't like the way that you are running America".

The Russian said, "I can do the same in Russia".

American was surprised. "You mean you can go into the Kremlin and said the same to President Breshnez?"

Russian replied, "Of course, I can go into the Kremlin and tell President Breshnev - Comrade President, I don't like the way that President Johnson is running America!"

Primary election in the USA

I am watching the primary election in the USA with great interest.

1. It is interesting to see how the Americans select their candidate for the Presidential election in November. It reflects democracy at its best.

2. Will America select, for the very first time, a woman President or a black President? Or will the Republicans (white, male candidate) win again?

Mortality charge under a ILP

Dear Mr. Tan,

I have $300,000 coverage under an investment-linked plan. The mortality charges are about the same as for a Term insurance policy from the same company. Should I continue with the coverage under this policy?

Reply:

You can ask for a quotation on Term insurance (based on your current age and remaining duration) from a few other companies and compare it with the mortality charge that your current policy.

If the difference in premium is quite small, you should continue with the coverage under your policy. If the difference is large, then you can consider making a switch.

Read this FAQ:
http://www.tankinlian.com/faq/termd.html

Insurance for a child born premature

Dear Mr. Tan,

Do I really need whole life policy for my three year old son who was born premature?

Most insurance company hesitate to take his insurance proposal. Company X offered a whole life policy with premium paid for 20 years. I am concerned that in future, he may have problem getting policy on his own, due to his past history. I know that based on insurance needs, he only needs medical coverage now.

Reply:

My understanding is that the highest risk for a premature baby is during the first month and there is a smaller risk during the first year. After one year, the risk should be quite small.

There is no need to insure your son now. When he becomes an adult, he should be able to get life insurance on his own. By that time, I hope that he will buy Term insurance and invest the difference in a low cost fund.

It may be a good idea for you to make additional savings for him. Invest in a low cost equity fund for the next 20 years. It can accumulate to a large amount of savings (compared to the whole life policy).

Premature birth

From Wikipedia, the free encyclopedia

Premature birth is the birth of a baby before the standard period of pregnancy is completed. In most systems of human pregnancy, prematurity is considered to occur when the baby is born sooner than 37 weeks after the beginning of the last menstrual period (LMP).

Approximately 12 percent of babies in the United States are born prematurely each year.

The shorter the term of pregnancy, the greater the risks of complications. Infants born prematurely have an increased risk of death in the first year of life (infant mortality), with most of that occurring in the first month of life (neonatal mortality).

Prematurely born infants are also at greater risk for developing serious health problems such as cerebral palsy, chronic lung disease, gastrointestinal problems, mental retardation, vision or hearing loss and are more susceptible to developing depression as teenagers.

In developed countries premature infants are usually cared for in a Neonatal Intensive Care Unit (NICU).

Some of the complications related to prematurity are not apparent until years after the birth. For example, children who were born prematurely have a higher likelihood of having behavioral problems, delays in motor development, and difficulties in school. Specifically these problems can be described as being within the executive domain and have been speculated to arise due to decreased myelinization of the frontal lobes. Throughout life they are more likely to require services provided by physical therapists, occupational therapists, or speech therapists.

For more details, read:
http://en.wikipedia.org/wiki/Premature_birth

Congenital disorder

Most health insurance excludes congenital disorder. What is a congenital disorder? Here is a description from Wikipedia.

A congenital disorder is any medical condition that is present at birth. However, a congenital disorder can be recognized before birth (prenatally), at birth, years later, or never.

The term congenital does not imply or exclude a genetic cause. Congenital disorders can be a result of genetic abnormalities, the intrauterine environment, a mixture of both, errors of morphogenesis, or unknown factors.

Congenital conditions can be referred to as diseases, defects, disorders, anomalies, or simply genetic differences or uncomfortable. The usage overlaps, but also involves a value judgement as to the harmfulness of the condition. In particular, people may disagree as to whether a specific physical anomaly should be considered a birth defect or a normal variation.

A congenital disorder can have trivial or grave consequences. The most severe, such as anencephaly, are incompatible with life. Others, such as congenital tumors, vary from causing stillbirth to requiring fetal intervention or special delivery procedures such as the EXIT procedure, to needing surgery in the neonatal period.

The most common congenital tumor is teratoma. Congenital physical anomalies (birth defects) are a leading cause of death in early infancy, accounting for the deaths of nearly 2 out every 1000 infants in the United States.

"Congenital disorders" is a broad category that includes a variety of conditions. Congenital disorders include minor physical anomalies (e.g., a birthmark), severe malformations of single systems (e.g., congenital heart disease or dysmelia), and combinations of abnormalities affecting several parts of the body. Congenital defects of metabolism are also considered congenital disorders.

For more details:
http://en.wikipedia.org/wiki/Congenital

Improve the Singapore MRT system

I am impressed with the following features of the Taipei MRT system:

a) Good signage
b) Helpful staff
c) Short waiting time
d) Easy to get a seat, even during busy hours

These are conditions that are easy for Singapore MRT to achieve, even though the system is older. What cannot be done through hardware can be achieved through software.

What is needed to get the Singapore system to be less crowded?

Operate more trains. The waiting time for trains during off-peak period is now between 5 to 8 minutes. If the waiting time is reduced by 1 or 2 minutes, the capacity can be increased by 25%. This will impose a small increase in operating cost but a big reduction in waiting time and 25% more people can have a seat.

I accept that during peak hours, our MRT trains are already operating at full capacity. But, we can make the system more comfortable during the off-peak hours, like in Taipei.

Public Transport Guide

The Public Transport Guide is sold in Popular Bookstores for $6.42. I wish to share this story on its usefulness.

I have to attend a 1 day event at Ulu Pandan CC today. I have the choice to drive there as I live quite far away. This means paying parking charges for 1 day.

I decided to try MRT but was not sure about how to get there. I looked at the Public Transport Guide and select page 6 (Queenstown). I guessed that the nearest MRT station was Buona Vista. Indeed it was. From there, the guide indicated that I could take bus 92 to my destination.

I found that the distance from the station to the destination. was quite short, so I have the option to walk the last leg.

The advantages of this Public Transport Guide are:

a) It also acts as a street directory
b) It is easy to locate he bus service
c) It is light and can be easily carried

I have suggested to LTA to display a map in each MRT station and bus stop showing the street directory and bus stops within 3 km. I hope that they will take my suggestion. It will be convenient for commuters who do not have the street directory with them.

Some people are not familiar with using a street directory. They can ask for advise from another person at the station or bus stop.

Insuring a risk

If you face a risk with possible losses ranging from $0 to $10,000 and an expected loss of $500, will you pay $700 to insure the risk?

The answer should be "yes". Although the expected loss is $500, the actual loss can be as high as $10,000.

The difference of $200 (about 30% of $700) represents the cost of providing the insurance protection. It goes to cover the marketing, underwriting and claim processing cost of the insurance company. An expense margin of 30% is fair, in the case of an insurance contract that provide indemnity for losses. For a competitively priced insurance, the ratio of losses to premiums should be around 70%.

In the case of a life insurance contract that accumulate savings for the future, the expense ratio should be much lower, say from 5% to 10%.

Secret Formula

Do you know the secret formula for the Amazing Number puzzle?

http://www.tankinlian.com/amazing/index.html

High charges on regular premium ILP

Hi Mr. Tan,

I've just realised to my horror that I've tied myself down to a useless investment product - a regular ILP. This is with X. My monthly premium is $100.

I have been paying premiums for the past two years. The value of the investments is only about $600. If I surrender the policy, this is what I'll get back. Should I continue? Will this investment ever even break-even?

REPLY

You have incurred most of the upfront expenses already. From now on, most of your premium will be invested. What you have spent in high charges in the past should be written off. I suggest that you keep this ILP policy.

Lesson: Avoid regular premium ILP. The charges are too high. 18 months of the premium has been taken away to pay commission and marketing expenses.

Rejection of medical claim - congenital condition

Dear Mr. Tan,

I have taken medical insurance for my daughter since she was a baby. There was no claim for more than 10 years.

Recently, we discovered that she was suffering from a serious medical condition. The insurance company X rejected the claim as the medical condition was congenital. We feel that this is most unfair. What is your advice?

REPLY

I suggest that you bring this this matter up to the senior management of X. You can point out that this illness was discovered more than 10 years after the policy was taken up. Due to the long lapse of time, it may not be fair for them to apply the congenital clause.

Perhaps you can ask them to get their doctor to certify that the illness is really congenital and should be excluded.

If they do not give you a satisfactory explanation, you can lodge a complaint with the Financial Dispute Resolution Center: http://www.fidrec.com.sg/website/faq.html

I wish to extend my sympathies on your predicament, first on this unexpected illness and second on the rejection of the claim. I hope that the senior management of X will take a sympathetic view. I wish you all the best.

Sudoku Challenge - Preliminary Round

The preliminary round of Sudoku Challenge (for people 40 and over) was held at Bishan Community Club on 6 January. A total of about 130 people participated in the two sessions. They spent about 25 to 60 minutes to complete 5 Sudoku puzzles.

The top 16 winners have been identified. They will take part in the Finals to be held at Suntec City on 13 January.

The public is invited to watch this event. There will be other mind games which are being held at the same time. There is also an exhibition.