We have gone through several years of low interest rate. This has produced the following:
* high stock prices
* high property prices
* high bond prices
Interest rate is expected to increase globally, due to inflation. When it happens, you can expect the following:
* drop in asset prices (stock, property, bonds)
* higher interest on bank deposits and money market funds
Lesson: do not lock your investments in high asset prices, if possible. Have some money in short term deposits, so that you can benefit from the increase in interest rate (if and when it happens).
Tuesday, July 10, 2007
Generic drugs
Extracted from Consumer Magazine
The discover of a new drug is given a patent for 20 years. After expiry, other manufacturers can make the same drug under a different brand name. If you know the generic name of the drug, you can buy the generic brand (instead of the original brand) at a lower cost.
The discover of a new drug is given a patent for 20 years. After expiry, other manufacturers can make the same drug under a different brand name. If you know the generic name of the drug, you can buy the generic brand (instead of the original brand) at a lower cost.
Generic name Proprietary name General use
Paracetamol Panadol pain and fever
Diclofenac sodium Voltaren pain and swelling
Mefenamic acid Ponstan "
Chlorphenamine Piriton runny nose, rashes, itch, allergy
Loratadine Clarityne "
Cetirizine Zyrtec "
Cimetidine Tagamet gastric, heartburn, stomach ulcer
Omeprazole Losec "
Glocosamine Viartril-S joint supplement
Amoxicillin Augmentin antibiotic
Isotretinoin Roaccutane acne
Atenolol Tenormin high blood pressure
Prazosin Minipress "
Nifedipine Adalat LA high blood pressure, angina
Frusemide Lasix diuretic
Simvastatin Zocor cholesterol
Different types of Fat (in food)
Summary of article "The FAT Truth" in Consumer Magazine.
Fat helps the body to absorb vitamin A, D, E and K. Fat provides essential fatty acids to control blood clot and inflammation.
Monounsaturated fats: found in vegetable oils (olive, peanut, avocdo, canola) and nuts (cashew, almond, peanuts). Lower LDL (bad cholesterol).
Polyunsaturated fats: found in vegetable oils (corn, sunflower, soybeans, safflower) and nuts (walnut). Lower LDL (bad cholesterol) and HDL (good cholesterol).
Omega 3 fats: found in fish (salmon,tuna, mackerel, sardine, trout). Reduce blood clotting and lower risk of blockage, heart attack, stroke.
Trans fat: food manufacturers use a process to turn liquid fat into trans fat, to increase the shelf life of food. Increase LDL and lower HDL.
Best type of fat: monounsaturatedm, omega 3.
Worse type: trans fat.
Fat helps the body to absorb vitamin A, D, E and K. Fat provides essential fatty acids to control blood clot and inflammation.
Monounsaturated fats: found in vegetable oils (olive, peanut, avocdo, canola) and nuts (cashew, almond, peanuts). Lower LDL (bad cholesterol).
Polyunsaturated fats: found in vegetable oils (corn, sunflower, soybeans, safflower) and nuts (walnut). Lower LDL (bad cholesterol) and HDL (good cholesterol).
Omega 3 fats: found in fish (salmon,tuna, mackerel, sardine, trout). Reduce blood clotting and lower risk of blockage, heart attack, stroke.
Trans fat: food manufacturers use a process to turn liquid fat into trans fat, to increase the shelf life of food. Increase LDL and lower HDL.
Best type of fat: monounsaturatedm, omega 3.
Worse type: trans fat.
High distribution cost
Larry Haverkamp wrote an article entitled "Not Everyone Needs Life Insurance" in the Consumer Magazine, a publication of the Consumer Association.
He has this joke: "High distribution costs are needed to compensate agents for the difficult job of selling insurance with high distribution costs". (This is a vicious cycle).
My view: It is possible to sell life insurance with lower distribution cost, and reduce the premium for consumers. This will lead to more sales for the agents.
He has this joke: "High distribution costs are needed to compensate agents for the difficult job of selling insurance with high distribution costs". (This is a vicious cycle).
My view: It is possible to sell life insurance with lower distribution cost, and reduce the premium for consumers. This will lead to more sales for the agents.
Structured products in a bear market?
Dear Mr Tan,
I have read your negative comments on structured products. Are these products suitable in a bear market? It offers protection against losses, and the chance to make a gain.
---------------------
REPLY:
If you do not wish to take risk in a bear market, you should invest in government bonds and earn about 3% per year. You can get 15% in 5 years.
If you invest in a structured product, you will get less than 15%, because the expenses to design and market the product can take away about 10% of the capital. This will leave you with a net gain of 5%. As you are speculating on this product, your real gain can be from 0% to perhaps 20% (but the chance of getting a high gain is small).
I am not aware of any situation (including a bear market) where a costly structured product gives value to the investor.
I have read your negative comments on structured products. Are these products suitable in a bear market? It offers protection against losses, and the chance to make a gain.
---------------------
REPLY:
If you do not wish to take risk in a bear market, you should invest in government bonds and earn about 3% per year. You can get 15% in 5 years.
If you invest in a structured product, you will get less than 15%, because the expenses to design and market the product can take away about 10% of the capital. This will leave you with a net gain of 5%. As you are speculating on this product, your real gain can be from 0% to perhaps 20% (but the chance of getting a high gain is small).
I am not aware of any situation (including a bear market) where a costly structured product gives value to the investor.
Computing a claim on a hospital bill
Hi Mr Tan,
What is the deductible under a medical insurance plan? Why are there so many items deducted from my hospital bill? The amount that I can claim is only a part of the full bill?
-----------------------------------------------------
REPLY:
The amount that can be claimed may (depending on your insurance plan), be subject to the following limits:
* limit based on the specific item, such as surgery fees or each day of stay in hospital
* deductible, i.e. the first part of the bill that is paid by you (before you can claim on the difference)
* co-insurance, i.e. the portion of the bill (in excess of the deductible) that you have to bear.
Most Shield plans have a deductible (the amount depends on the class of ward) and a co-insurance of 10% or 15%. These requirements are required by the Ministry of Health and is intended to require the consumer to share in part of the bill (so that they can play a part to minimise the hospital bill).
This is how a hospital bill is calculated, to arrive at the claimable amount.
1. First, the individual items are scrutinised to remove any excess over the specific limit (e.g. for surgery or hospital services) or items that are not covered
2. Next, the deductible is taken away
3. Finally, the co-insurance is taken away from the rest of the bill
Here is an example:
Hospital bill: $6,500
Non claimable items: $500
Deductible: $1,000
Co-insurance: 10%
Claimable amount (before co-insurance) = $6,500 - $500 - $1,000 = $5,000
Claimable amount (after co-insurance) = $5,000 less 10% = $4,500
Many consumers find it the calculation to be too complicated. I agree with this view. It will be better for the claim to be simplified.
What is the deductible under a medical insurance plan? Why are there so many items deducted from my hospital bill? The amount that I can claim is only a part of the full bill?
-----------------------------------------------------
REPLY:
The amount that can be claimed may (depending on your insurance plan), be subject to the following limits:
* limit based on the specific item, such as surgery fees or each day of stay in hospital
* deductible, i.e. the first part of the bill that is paid by you (before you can claim on the difference)
* co-insurance, i.e. the portion of the bill (in excess of the deductible) that you have to bear.
Most Shield plans have a deductible (the amount depends on the class of ward) and a co-insurance of 10% or 15%. These requirements are required by the Ministry of Health and is intended to require the consumer to share in part of the bill (so that they can play a part to minimise the hospital bill).
This is how a hospital bill is calculated, to arrive at the claimable amount.
1. First, the individual items are scrutinised to remove any excess over the specific limit (e.g. for surgery or hospital services) or items that are not covered
2. Next, the deductible is taken away
3. Finally, the co-insurance is taken away from the rest of the bill
Here is an example:
Hospital bill: $6,500
Non claimable items: $500
Deductible: $1,000
Co-insurance: 10%
Claimable amount (before co-insurance) = $6,500 - $500 - $1,000 = $5,000
Claimable amount (after co-insurance) = $5,000 less 10% = $4,500
Many consumers find it the calculation to be too complicated. I agree with this view. It will be better for the claim to be simplified.
Guaranteed renewable health insurance
Dear Mr Tan,
If I buy a health insurance policy, and I made a few claims, can the insurance company refuse to renew my policy at the end of the year?
---------------------------
REPLY:
If the policy is a yearly renewable policy, the insurance company can refuse to renew your policy at the end of the period of insurance (ie one year), if you have made a few claims and is suffering from a chronic illness.
If you have a policy which guarantees renewal (regardless of your health condition), than the insurance company has to honour this promise. On renewal, you will not be loaded due to your health condition, but you may have to pay a higher premium based on your age.
Most of the shield plans in the market have this guaranteed renewability feature. However, the premium rate is higher than a policy does not provide this guarantee (i.e. insurance company can refuse to renew it).
For peace of mind, you should buy a policy that is "guaranteed renewable" up to a certain age, or for a lifetime.
If I buy a health insurance policy, and I made a few claims, can the insurance company refuse to renew my policy at the end of the year?
---------------------------
REPLY:
If the policy is a yearly renewable policy, the insurance company can refuse to renew your policy at the end of the period of insurance (ie one year), if you have made a few claims and is suffering from a chronic illness.
If you have a policy which guarantees renewal (regardless of your health condition), than the insurance company has to honour this promise. On renewal, you will not be loaded due to your health condition, but you may have to pay a higher premium based on your age.
Most of the shield plans in the market have this guaranteed renewability feature. However, the premium rate is higher than a policy does not provide this guarantee (i.e. insurance company can refuse to renew it).
For peace of mind, you should buy a policy that is "guaranteed renewable" up to a certain age, or for a lifetime.
Poor return on capital guaranteed products
Dear Mr Tan
It seems that most of the capital guaranteed product has given a poor return to their investors. Why is this the case?
--------------------------------------------
REPLY:
Due to the low interest rate, a risk free product earns about 3% per annum. To give a capital guarantee, the product issuer (ie bank) has to invest about 85% of the capital to provide the principal at the end of 5 years.
Of the remaining 15%, the marketing expenses and fees taken by the banks probably amount to 10%. This leaves only 5% to be invested in options or stock indices to give the return.
There is very little return that you can expect from an investment of about 5%. Sometimes, the option expired without any return. Sometimes, it gives a modest return, maybe 10% or 15% in total for 5 year. The chance of getting a high return (more than 15%) is small.
It seems that most of the capital guaranteed product has given a poor return to their investors. Why is this the case?
--------------------------------------------
REPLY:
Due to the low interest rate, a risk free product earns about 3% per annum. To give a capital guarantee, the product issuer (ie bank) has to invest about 85% of the capital to provide the principal at the end of 5 years.
Of the remaining 15%, the marketing expenses and fees taken by the banks probably amount to 10%. This leaves only 5% to be invested in options or stock indices to give the return.
There is very little return that you can expect from an investment of about 5%. Sometimes, the option expired without any return. Sometimes, it gives a modest return, maybe 10% or 15% in total for 5 year. The chance of getting a high return (more than 15%) is small.
Give good value to customers
I have decided to remove the name of the bank that issued or marketed a specific structured product that has proved to be unsatisfactory for their customers. I do not give any negative connotation to the reputation of the banks. (So far, they have not taken up any issue with me on this matter.)
I wish to highlight the bad experience, so that the public can be educated about the unsatisfactory features of most structured products. I want to educate them to invest in straight forward financial products.
I hope that the financial institutions (ie banks and insurance companies) will also learn from the experience and offer good value products to their customers.
I wish to highlight the bad experience, so that the public can be educated about the unsatisfactory features of most structured products. I want to educate them to invest in straight forward financial products.
I hope that the financial institutions (ie banks and insurance companies) will also learn from the experience and offer good value products to their customers.
Interest rate linked structured deposit
Dear Mr. Tan,
I learn a lot of finance knowledge from your website. I wish to share my experience on the following structured product:
Name of product: Interest Rate-Linked Structured Deposit (10yrs-2yrs SWAP rate >0.8 based)
Amount invested: SGD 20000
Period of investment: 5 years
What is your return on maturity? Only 3.2% for the first year, then zero return for the following years.
Why was this product unsatisfactory?
The salesman told me that at least get 3.2% yearly. (Originally, we wanted to open a fixed deposit at about 2%). He said that the bank will return the principal between 2 – 3 years. When we asked to withdraw after 6 months, they told me there is a penalty above 1%.
When I asked on how to check the swap rate daily, they asked us to call their hotline. We had to wait a long time to get a reply.
------------------------------
REPLY:
Thank you for sharing your experience. It is better to invest in a straight forward fixed deposit, rather than a complicated product.
I learn a lot of finance knowledge from your website. I wish to share my experience on the following structured product:
Name of product: Interest Rate-Linked Structured Deposit (10yrs-2yrs SWAP rate >0.8 based)
Amount invested: SGD 20000
Period of investment: 5 years
What is your return on maturity? Only 3.2% for the first year, then zero return for the following years.
Why was this product unsatisfactory?
The salesman told me that at least get 3.2% yearly. (Originally, we wanted to open a fixed deposit at about 2%). He said that the bank will return the principal between 2 – 3 years. When we asked to withdraw after 6 months, they told me there is a penalty above 1%.
When I asked on how to check the swap rate daily, they asked us to call their hotline. We had to wait a long time to get a reply.
------------------------------
REPLY:
Thank you for sharing your experience. It is better to invest in a straight forward fixed deposit, rather than a complicated product.
Subscribe to:
Posts (Atom)