Useful to have a financial or insurance adviser

I suggest the following approach for the ordinary lay person:

* learn about the basic aspects of financial planning (eg read my FAQs)
* use a low cost financial or insurance adviser

The adviser who can help you to make the best decision for your circumstances. If you do not take up a lot of their time, they can give you the advice for a low fee or to earn a modest rate of commission. For example, the advisers from NTUC Income falls into this category. By using the adviser, you can save a lot of time, and make a better decision.

For example, I can buy shares through the internet. But, I find it useful to go through a stockbroker. The fees have now come down to 0.3% (down from 1% a few years ago). I find it to be a fair rate of commission for the time spent by the stockbroker.

Future return depends on your entry level

I saw a study by Plexus Asset Managmeent. It looked at the P/E ratios of the S&P 500 index for each year from 1871 to 2006 and calculates the average ten-year forward real return.

Here is the findings

Average     Average 
P/E ratio   10 year return
8.5          11.0% p.a
12.0          8.1% p.a
15.0          6.1% p.a.
17.6          5.7% p.a.
21.6          3.2% p.a.

Lesson: Your future return depends on your entry level. If you invest in the stockmarket now (at P/E ratio of about 18 times), the likely real return over the next 10 years is 5.7% p.a. (and not the high return of past years).

Free and independent advice

COMMENT POSTED IN MY BLOG:

Don't you think it's good we have Mr Tan here dispensing his free and independent advice in financial matters?

Why should financial advisors get a fee? From Mr. Tan free unbiased recommenation, you can get free independent financial advice at NTUC's business centre, and still get your financial plan implemented. There is no fee.

Just imagine if the rest like the banks and insurers follow the leadership of NTUC, would it be great cost savings for the consumers? In fact, I don't see any flaw in this business model at all. Free advice, low cost plans, zero fees.