Hi,
I'm a final year under-grad who is finishing up with her studies and is planning to start on her career.
I am interested to start investing for retirement and is also keen to purchase an insurance policy. Is there any advice for a young person starting out?
REPLY
Please read this FAQ on Financial Planning for the Young. Wish you all the best in your career.
Tuesday, August 14, 2007
Learn about life annuity
According to a newspaper report, the government is considering to make life annuity compulsory.
You can learn about the life annuity by reading this FAQ.
The CPF now pays an attractive interest of 4% on its retirement account. It is better to keep your money in the retirement account. You can invest in a life annuity with your non-CPF savings.
You can learn about the life annuity by reading this FAQ.
The CPF now pays an attractive interest of 4% on its retirement account. It is better to keep your money in the retirement account. You can invest in a life annuity with your non-CPF savings.
Continue your existing critical illness policy
Hi Mr Tan
In your blog, you said that the premium for a critical illness policy is 10 times of a term insurance policy. I took a critical illness (living) policy two years ago. Do you advise me to cancel it, and change to a term policy?
REPLY:
The living policy combines the coverage and savings for the future. You can get a cash value from the living policy if you terminate it in the future. You can break even, i.e. get back more than the premiums paid after about 15 years. If you keep it longer, you can get a modest return of about 2 to 3% per annum.
If you have already taken a living policy, it is better to continue with you, as you can get a modest return (after 20 or 30 years) and free coverage.
If you terminate the living policy in the early years, you will suffer a loss of about half of the premiums that you have paid. This low payout takes into account the high upfront cost of the policy, which has already been incurred.
My advice of taking a term insurance policy, applies to people who have not yet taken up the critical illness policy.
In your blog, you said that the premium for a critical illness policy is 10 times of a term insurance policy. I took a critical illness (living) policy two years ago. Do you advise me to cancel it, and change to a term policy?
REPLY:
The living policy combines the coverage and savings for the future. You can get a cash value from the living policy if you terminate it in the future. You can break even, i.e. get back more than the premiums paid after about 15 years. If you keep it longer, you can get a modest return of about 2 to 3% per annum.
If you have already taken a living policy, it is better to continue with you, as you can get a modest return (after 20 or 30 years) and free coverage.
If you terminate the living policy in the early years, you will suffer a loss of about half of the premiums that you have paid. This low payout takes into account the high upfront cost of the policy, which has already been incurred.
My advice of taking a term insurance policy, applies to people who have not yet taken up the critical illness policy.
Collateralized debt obligations
Source: Wikipedia
Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.
CDOs gain exposure to the credit of a portfolio of fixed income assets and divide the credit risk among different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated).
Losses are applied in reverse order of seniority and so junior tranches offer higher coupons to compensate for the added risk. CDOs serve as an important funding vehicle for portfolio investments in credit-risky fixed income assets.
Market history and growth
First issued in the late 1980s, CDOs emerged a decade later as the fastest growing sector of the asset-backed securities market.
This growth reflects the increasing appeal of CDOs for a growing number of asset managers and investors, which now include insurance companies, mutual fund companies, unit trusts, investment trusts, commercial banks, investment banks, pension fund managers, private banking organizations, other CDOs and structured investment vehicles.
According to the Securities Industry and Financial Markets Association, aggregate global CDO issuance totalled USD $157 billion in 2004, USD $249 billion in 2005, and USD $489 billion in 2006.
Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.
CDOs gain exposure to the credit of a portfolio of fixed income assets and divide the credit risk among different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated).
Losses are applied in reverse order of seniority and so junior tranches offer higher coupons to compensate for the added risk. CDOs serve as an important funding vehicle for portfolio investments in credit-risky fixed income assets.
Market history and growth
First issued in the late 1980s, CDOs emerged a decade later as the fastest growing sector of the asset-backed securities market.
This growth reflects the increasing appeal of CDOs for a growing number of asset managers and investors, which now include insurance companies, mutual fund companies, unit trusts, investment trusts, commercial banks, investment banks, pension fund managers, private banking organizations, other CDOs and structured investment vehicles.
According to the Securities Industry and Financial Markets Association, aggregate global CDO issuance totalled USD $157 billion in 2004, USD $249 billion in 2005, and USD $489 billion in 2006.
Asset backed securities
Asset-backed securities, called ABS, are bonds or notes backed by financial assets.
Typically these assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans, manufactured-housing contracts and home-equity loans.
ABS differ from most other kinds of bonds in that their creditworthiness (which is at the triple-A level for more than 90% of outstanding issues) derives from sources other than the paying ability of the originator of the underlying assets.
Financial institutions that originate loans (including banks, credit card providers, auto finance companies and consumer finance companies) turn their loans into marketable securities through a process known as securitization.
The loan originators are commonly referred to as the issuers of ABS, but in fact they are the sponsors, not the direct issuers, of these securities.
These financial institutions sell pools of loans to a special-purpose vehicle (SPV), whose sole function is to buy such assets in order to securitize them.
The SPV, which is usually a corporation, then sells them to a trust. The trust repackages the loans as interest-bearing securities and actually issues them.
The “true sale” of the loans by the sponsor to the SPV provides “bankruptcy remoteness,” insulating the trust from the sponsor.
The securities, which are sold to investors by the investment banks that underwrite them, are “credit-enhanced” with one or more forms of extra protection — whether internal, external or both.
ABS constitute a relatively new but fast-growing segment of the debt market. The first ABS were issued in 1985; in that year, the market for publicly offered ABS issues was $1.2 billion. In 2003, issuance totaled a new record of $479.4 billion.
It is estimated that a total of over $2.6 trillion of ABS were issued from 1985 through 2003
Typically these assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans, manufactured-housing contracts and home-equity loans.
ABS differ from most other kinds of bonds in that their creditworthiness (which is at the triple-A level for more than 90% of outstanding issues) derives from sources other than the paying ability of the originator of the underlying assets.
Financial institutions that originate loans (including banks, credit card providers, auto finance companies and consumer finance companies) turn their loans into marketable securities through a process known as securitization.
The loan originators are commonly referred to as the issuers of ABS, but in fact they are the sponsors, not the direct issuers, of these securities.
These financial institutions sell pools of loans to a special-purpose vehicle (SPV), whose sole function is to buy such assets in order to securitize them.
The SPV, which is usually a corporation, then sells them to a trust. The trust repackages the loans as interest-bearing securities and actually issues them.
The “true sale” of the loans by the sponsor to the SPV provides “bankruptcy remoteness,” insulating the trust from the sponsor.
The securities, which are sold to investors by the investment banks that underwrite them, are “credit-enhanced” with one or more forms of extra protection — whether internal, external or both.
ABS constitute a relatively new but fast-growing segment of the debt market. The first ABS were issued in 1985; in that year, the market for publicly offered ABS issues was $1.2 billion. In 2003, issuance totaled a new record of $479.4 billion.
It is estimated that a total of over $2.6 trillion of ABS were issued from 1985 through 2003
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