Selecting winning funds

In his book, John Bogle said that it is difficult to select the winning funds.

He analysed 355 funds that existed in 1970. By 2006 (36 years later), the results are:

* 223 funds did not exist anymore (in most cases, the investors left the fund)
* 60 performed worse than market benchmark by more than 1%
* 48 performed within 1% (plus or minus) of benchmark
* 15 performed 1% to 2% better than benchmark
* 9 performed more than 2% better than benchmark

It is difficult to pick the 24 funds out of 355 funds. Most of these funds performed well when they were small. When they became big, their performance dropped.

There is no certainty that these 24 funds will perform well in the future. In fact, it is likely that they will not.

Lesson: invest in low cost, indexed funds.

Repay loan on a HDB flat

Hi Mr Tan,

I've been reading your blog for a few weeks now. I really appreciate that you're sharing your experience.

My father bought a 5 room flat about 10 years ago for over $500k. It is probably worth 300k+ today. He has difficulty to pay the loan. It will take another 25 years to pay off the outstanding loan.

I'm about to graduate from the university. Is there anything I can do to help the situation? We have a few tenants. I'm thinking about moving to a 3 room flat to reduce the loan quantum.

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REPLY:

If your family can afford the repayment, it is better to keep the current flat. If your loan is with HDB, your pay interest at a very low rate.

With the current boom in the property market, there is a chance that the value of the HDB flat can recover. You can sell it later, when the price has recovered.

As you are renting out some rooms, it should give you a good rental to help with the repayment.

Invest in a single premium endowment

Dear Mr Tan,

I'm a working mother. I wanted to buy an insurance policy for my retirement, maybe in 10 years' time. I intend to invest $100,000 using my CPF.

My sister asked me to buy an endowment plan for 10 years. Does NTUC income has such a plan? What would you recommend?

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REPLY:

If you buy an endowment plan using a single premium, you should be able to get a return of 3 to 4% per annum over 10 years from NTUC Income.

I will ask X to send a quotation to you. You can compare it with the plan offered by your sister.

FAQ

Jubilee Series Link Earner Notes

Hi Mr Tan,

Would like to seek your advice on the recently offered Jubilee Series 3 - LinkEarner Notes. Is it a Safe Investment?

A copy of the propectus is attached for your reference. I do not understand the clause "your investment will be secured with portfolio credit-linked notes, (synthetic collateralised debt obligations".

I am on the verge of my retirement. In 9 months times I will be reaching 55 yrs old. I will have some cash from my CPF.

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REPLY:

This is a structured product. I have not found any structured product that make sense to the investor. Please read my FAQ in www.tankinlian.com/faq.

I shall try to look at this product and give you my detailed comments later.

Tip: Never invest in a product that you do not understand.

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ANALYSIS BY LARRY HAVERKAMP

Credit linked notes look to be a good deal on the surface. The drawback is that if interest rates decline, the notes will rise and the company will call them -- (buy them back). Then you are left to invest your cash at a lower interest rate.

Second, most credit linked notes are not a unit trust or ILP -- and therefore do not disclose their expense ratio.

These are the two drawbacks -- (and they are big ones).