Hello Mr Tan
1) I read a lot about the NTUC low cost funds on your blog. Recently, I invested through SRS as follows:-
50% in Growth Fund
50% in Singapore Equities Fund
I decided on this allocation as the stock market is at a low. What is your opinion of this allocation?
Reply: It is okay.
(2) I am not sure about how the fund works. When you say that investors can expect a higher return (say, 5%) over a long period of say, 10 - 20 years, are you referring to the difference between the offer price I pay now, versus the bid price if I should sell at that time?
Reply: This is calculated based on bid to bid price. If you deduct the bid-offer spread, it will reduce the yield by about 3%. If you invest over 10 years, the yield will be reduced by 0.3% (i.e. 3% spread over 10 years). If you invest in the STI ETF, you incur a upfront cost of only 0.3% (instead of 3%).
(3) The Combined Fund is invested as follows, Equities 70%, bonds 30%). Does NTUC Income adjust these allocations based on their experience and how the market is performing, or do I have to monitor myself and do my own switching or balancing? My concern is that I may not know the market well enough to decide on the better allocation.
Reply: NTUC Income keeps the fund invested in the above proportion and does not change the allocation. It is best that you keep invested in the fund, and do not try to make switching beween the funds.
Friday, February 15, 2008
Make regular savings in a low cost fund
Dear Mr, Tan,
I read your blog everyday as I find there is always something new to learn from the questions posed by your readers. I am interested to buy Term insurance with a critical rider.
My financial advisor has advised me that I should get a whole life policy with critical rider as once my Term policy has expired after 30 years, I could still get a critical illness and by then I would have to bear all the treatments myself. Thus a whole life policy makes sense in this case. He further argued that if I would have accumulated enough savings by then but would I want to use my hard earned money to be spent on treatment or be protected for life.
I prefer to take a Shield plan to cover critical illness, and I could invest the difference in plans to get a higher return. Overall this is more cost effective. Could you advise?
REPLY
The insurance adviser want people to buy a whole life policy, as he or she can earn a much higher commission.
My advice is to buy a 30 year Decreasing Term insurance policy and invest the difference. After 30 years, you will have more than sufficient savings for your retirement, medical and other needs (but you must have the discipline to set aside the regular savings). Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I read your blog everyday as I find there is always something new to learn from the questions posed by your readers. I am interested to buy Term insurance with a critical rider.
My financial advisor has advised me that I should get a whole life policy with critical rider as once my Term policy has expired after 30 years, I could still get a critical illness and by then I would have to bear all the treatments myself. Thus a whole life policy makes sense in this case. He further argued that if I would have accumulated enough savings by then but would I want to use my hard earned money to be spent on treatment or be protected for life.
I prefer to take a Shield plan to cover critical illness, and I could invest the difference in plans to get a higher return. Overall this is more cost effective. Could you advise?
REPLY
The insurance adviser want people to buy a whole life policy, as he or she can earn a much higher commission.
My advice is to buy a 30 year Decreasing Term insurance policy and invest the difference. After 30 years, you will have more than sufficient savings for your retirement, medical and other needs (but you must have the discipline to set aside the regular savings). Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Intimidating letter from lawyer
Dear Mr. Tan,
Three months ago, I was involved in an accident with a taxi. I was making a legal U-turn but was hit by the taxi in the opposite direction. It is just a minor accident with a slight band on our bumpers.
I just receid a letter from a lawyer acting on behalf of the taxi driver. Three weeks ago, I received a call from my car insurance company asking me if I can agree to the claims from the taxi driver. I agreed.
In the lawyer's letter, they requested a copy of my IC, insurance schedule and confirmation that I was the driver. The letter was issued based on the presumption in law that the driver was not me. Can I know why this course of action? I have no problem providing them the needed info.
REPLY
It is all right to reply to the lawyer and confirm the identity of the driver. You are not required to send photocopy of NRIC. You can tell them about the identity of your insurance company and ask them the third party lawyer to make the claim directly with them.
If you feel the lawyer is acting in an intimidating way, you can complain to the Law Society.
Three months ago, I was involved in an accident with a taxi. I was making a legal U-turn but was hit by the taxi in the opposite direction. It is just a minor accident with a slight band on our bumpers.
I just receid a letter from a lawyer acting on behalf of the taxi driver. Three weeks ago, I received a call from my car insurance company asking me if I can agree to the claims from the taxi driver. I agreed.
In the lawyer's letter, they requested a copy of my IC, insurance schedule and confirmation that I was the driver. The letter was issued based on the presumption in law that the driver was not me. Can I know why this course of action? I have no problem providing them the needed info.
REPLY
It is all right to reply to the lawyer and confirm the identity of the driver. You are not required to send photocopy of NRIC. You can tell them about the identity of your insurance company and ask them the third party lawyer to make the claim directly with them.
If you feel the lawyer is acting in an intimidating way, you can complain to the Law Society.
Identify the poisoned wine
CAN YOU SOLVE THIS PUZZLE?
A king has 1000 bottles of wine. An assasin tried to poison the wine. The king's guards caught the assasin after he poisoned only one bottle, but they did not know which bottle was poisoned.
It is known however that the poison is so powerful that even a tiny bit of the poisoned wine will kill, and it is known also that the poison will only kill after 24 hours. The king order you, his advisor, to get some of the criminals in the dungeon to test the wines for him. The king expects to find out the result the next day, essentially 24 hours after the testers drink the wine.
Now the simplest way is if 1000 criminals were available, just get them to each drink a little bit from each of the 1000 bottles. Hence, the poisoned bottle will be identified when one particular tester, out of the thousand testers, dies the following day. However, only 10 criminals is imprisoned in the dungeon on that particular day!
Is there a way to identify the poisoned bottle by the following day using only 10 testers? What is the method?"
A king has 1000 bottles of wine. An assasin tried to poison the wine. The king's guards caught the assasin after he poisoned only one bottle, but they did not know which bottle was poisoned.
It is known however that the poison is so powerful that even a tiny bit of the poisoned wine will kill, and it is known also that the poison will only kill after 24 hours. The king order you, his advisor, to get some of the criminals in the dungeon to test the wines for him. The king expects to find out the result the next day, essentially 24 hours after the testers drink the wine.
Now the simplest way is if 1000 criminals were available, just get them to each drink a little bit from each of the 1000 bottles. Hence, the poisoned bottle will be identified when one particular tester, out of the thousand testers, dies the following day. However, only 10 criminals is imprisoned in the dungeon on that particular day!
Is there a way to identify the poisoned bottle by the following day using only 10 testers? What is the method?"
Selecting a unit trust
hi Mr. Tan
I understand that ETF has an expiry time limit. I have to track the index before actually trading in it. Do you know which unit trust that tracks only STI which is suitable for long term investment?
I am keen to invest STI index, as the charges are much lower compared to unit trust. Can you advise on suitable funds for a time horizon of 20-30 years, with consistent return above 10%?
REPLY
The STI ETF is a fund. It does not have any expiry date. I do not have any information about the funds that you are looking for. You can talk to a financial adviser.
I understand that ETF has an expiry time limit. I have to track the index before actually trading in it. Do you know which unit trust that tracks only STI which is suitable for long term investment?
I am keen to invest STI index, as the charges are much lower compared to unit trust. Can you advise on suitable funds for a time horizon of 20-30 years, with consistent return above 10%?
REPLY
The STI ETF is a fund. It does not have any expiry date. I do not have any information about the funds that you are looking for. You can talk to a financial adviser.
Eldershield
Dear Mr. Tan,
I will be age 40 this year and CPF Board will soon mail me the brochures on ElderShield. You mentionedthat we should use Medisave sparingly because it is our hard-earned money and it is meant for ourfuture medical expenses.
Should I consider ElderShield; knowing a female at age 40 has to pay at least $5444 (ie $217.76 x 25 years) to get a lifetime coverage with max payout of $28800 (i.e. $400 x 72 months)?
Should I use cash instead to pay for this plan, if it is allowed?
REPLY:
It is a good idea to use cash to pay for Eldershield, if it is allowed. This allows you to earn 4% plus 1% on the money that is kept in your special account
If you have adequate savings for your retirement needs, you can buy Eldershield. I expect that more than 30% will eventually make a claim. If your savings is not sufficient, you can skip Eldershield (as it is of lower priority).
I will be age 40 this year and CPF Board will soon mail me the brochures on ElderShield. You mentionedthat we should use Medisave sparingly because it is our hard-earned money and it is meant for ourfuture medical expenses.
Should I consider ElderShield; knowing a female at age 40 has to pay at least $5444 (ie $217.76 x 25 years) to get a lifetime coverage with max payout of $28800 (i.e. $400 x 72 months)?
Should I use cash instead to pay for this plan, if it is allowed?
REPLY:
It is a good idea to use cash to pay for Eldershield, if it is allowed. This allows you to earn 4% plus 1% on the money that is kept in your special account
If you have adequate savings for your retirement needs, you can buy Eldershield. I expect that more than 30% will eventually make a claim. If your savings is not sufficient, you can skip Eldershield (as it is of lower priority).
Term insurance
Mr. Tan,
For a Term insurance, the yield is 0%. What is the benchmark to decide on a "good value" policy?
REPLY:
You should compare the cost of the Term insuance policy insuring the same amount and period. You can ask for a quotation of the premium by calling the insurance companies listed in this FAQ:
http://www.tankinlian.com/faq/termd.html
Mr. Tan,
I agree with you that Term insurance gives good value. But are you being responsible in asking people to buy Term insurance? What if the term matures and the policyholder still needs coverage? He may not be able to get the coverage because of poor health. Even if he is able to get coverage it will come at a higher cost.
REPLY
You can buy a Term insurance to cover 30 years and pay a level premium. Most people need life insurance for 30 years to cover their working life. They do not need any more life insurance after they have accumulated sufficient savings and their children have grown up. It is more important for you to have adequate insurance in the earlier years, when your children are still young. This is only possible through Term insurance. Read this FAQ:
http://www.tankinlian.com/faq/term.html
For a Term insurance, the yield is 0%. What is the benchmark to decide on a "good value" policy?
REPLY:
You should compare the cost of the Term insuance policy insuring the same amount and period. You can ask for a quotation of the premium by calling the insurance companies listed in this FAQ:
http://www.tankinlian.com/faq/termd.html
Mr. Tan,
I agree with you that Term insurance gives good value. But are you being responsible in asking people to buy Term insurance? What if the term matures and the policyholder still needs coverage? He may not be able to get the coverage because of poor health. Even if he is able to get coverage it will come at a higher cost.
REPLY
You can buy a Term insurance to cover 30 years and pay a level premium. Most people need life insurance for 30 years to cover their working life. They do not need any more life insurance after they have accumulated sufficient savings and their children have grown up. It is more important for you to have adequate insurance in the earlier years, when your children are still young. This is only possible through Term insurance. Read this FAQ:
http://www.tankinlian.com/faq/term.html
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