Dear Mr. Tan,
How do I invest in REITS? Is it a fund or a stock or ETF? How to choose a good REITS to invest?
REPLY
A REIT is a stock that you can buy through the Exchange from a broker. My stockbroker has recommended some stocks to me, and I have listed them in my blog. You should make your own analysis.
Sunday, February 17, 2008
Calculating the yield
Dear Mr Tan:
I am a faithful reader of your blog and enjoy the advices which you gave to the public. I wish to ask about the calculation of yield. I use the following formula:
$150 a month month for 21 years, total=$ 37800
Cash value = $ 61000
Yield for 21 years = (61000-37800) /37800 *100% = 61.4%
Yield per year =61.4/21= 2.9%
Is my calculation correct ?
REPLY:
The yield is calculated using a compound interest formula.
I use a financial calculator and input the following figures:
Annual savings: $1,800 (in advance)
Duration 21 years
Value on maturity: $61,000
The calculator gives me a yield of 4.5%.
If you take a regular saving of $1,800 a year and add interest at 4.5% on the increasing balance yearly, you will arrive at $61.000 at the end of 21 years.
Tip: Buy a financial calculator for $50.
I am a faithful reader of your blog and enjoy the advices which you gave to the public. I wish to ask about the calculation of yield. I use the following formula:
$150 a month month for 21 years, total=$ 37800
Cash value = $ 61000
Yield for 21 years = (61000-37800) /37800 *100% = 61.4%
Yield per year =61.4/21= 2.9%
Is my calculation correct ?
REPLY:
The yield is calculated using a compound interest formula.
I use a financial calculator and input the following figures:
Annual savings: $1,800 (in advance)
Duration 21 years
Value on maturity: $61,000
The calculator gives me a yield of 4.5%.
If you take a regular saving of $1,800 a year and add interest at 4.5% on the increasing balance yearly, you will arrive at $61.000 at the end of 21 years.
Tip: Buy a financial calculator for $50.
ETF and Unit Trust
Mr. Tan,
What is the difference between a unit trust, mutual fund and a ETF?
REPLY
A unit trust is the same as a mutual fund. They are the names used in UK and USA respectively for a fund that is traded daily based on its net asset value. If you wish to buy or sell units, the price will be determined at the end of the day.
An ETF is a fund that is traded on the stock exchange. You buy or sell shares in the fund, like any other share. It is based on the price struck between the buyers and sellers on the exchange. This price should reflect the net asset value of the fund, but it also depends on the liquidity.
Some investors have complained about the low liquidity of the STI ETF. This is a disadvantage of ETF, for long term investors. I believe that this disadvantage is being addressed within the next few months.
Some investors think that it is an advantage to be able to trade the ETF based on its prevailing price at any time. In my view, a fund should be invested for the longer term, and the daily NAV value is a better feature.
For intra-day trading, it is better to choose an individual, highly liquid stock.
What is the difference between a unit trust, mutual fund and a ETF?
REPLY
A unit trust is the same as a mutual fund. They are the names used in UK and USA respectively for a fund that is traded daily based on its net asset value. If you wish to buy or sell units, the price will be determined at the end of the day.
An ETF is a fund that is traded on the stock exchange. You buy or sell shares in the fund, like any other share. It is based on the price struck between the buyers and sellers on the exchange. This price should reflect the net asset value of the fund, but it also depends on the liquidity.
Some investors have complained about the low liquidity of the STI ETF. This is a disadvantage of ETF, for long term investors. I believe that this disadvantage is being addressed within the next few months.
Some investors think that it is an advantage to be able to trade the ETF based on its prevailing price at any time. In my view, a fund should be invested for the longer term, and the daily NAV value is a better feature.
For intra-day trading, it is better to choose an individual, highly liquid stock.
Decline in interest rate
Dear Mr. Tan,
Aviva has decided to redeem the BIGe account and return the money to the investors CPF account. Where can I invest to earn a decent return, that can offset the high rate of inflation?
REPLY
If you keep money in the bank, you earn interest at 1% to 1.5%. This is lower than the rate of inflation. Your other options are:
1. Buy equities (shares) to earn a long term yield of 6% to 8%
2. Invest in foreign currencies to earn a higher interest rate
3. Invest in REITS, which gives a good dividend yield
If you are investing for the long term, say 10 years or more, you do not have to worry about the current uncertainty. It will clear off in 6 to 12 months.
You have the option to wait before investing in equities. During this time, you will earn a low rate of interest. You have to accept it as the cost of being risk adverse. But you must be ready to move in, when the market turns.
Aviva has decided to redeem the BIGe account and return the money to the investors CPF account. Where can I invest to earn a decent return, that can offset the high rate of inflation?
REPLY
If you keep money in the bank, you earn interest at 1% to 1.5%. This is lower than the rate of inflation. Your other options are:
1. Buy equities (shares) to earn a long term yield of 6% to 8%
2. Invest in foreign currencies to earn a higher interest rate
3. Invest in REITS, which gives a good dividend yield
If you are investing for the long term, say 10 years or more, you do not have to worry about the current uncertainty. It will clear off in 6 to 12 months.
You have the option to wait before investing in equities. During this time, you will earn a low rate of interest. You have to accept it as the cost of being risk adverse. But you must be ready to move in, when the market turns.
Trust
Where will you like to place your life time savings?
1. With a company that you can trust?
2. With a company that is professionally runned with the aim to make most profit?
If you buy a life insurance policy, you have incurred a large upfront cost. You are stuck with the policy for many years, usually with a poor return. A large part of the gain goes to pay the insurance agent who sells the policy to you, and to make profit for the insurance company.
Here are the tips for consumers:
1. Invest in a financial product that have low upfront cost, such as a unit trust
2. Buy your insurance protection separately, e.g. through a Term or accident insurance policy
3. If you buy an endowment or whole life policy, choose a company that operates on low cost and is worthy of your trust.
1. With a company that you can trust?
2. With a company that is professionally runned with the aim to make most profit?
If you buy a life insurance policy, you have incurred a large upfront cost. You are stuck with the policy for many years, usually with a poor return. A large part of the gain goes to pay the insurance agent who sells the policy to you, and to make profit for the insurance company.
Here are the tips for consumers:
1. Invest in a financial product that have low upfront cost, such as a unit trust
2. Buy your insurance protection separately, e.g. through a Term or accident insurance policy
3. If you buy an endowment or whole life policy, choose a company that operates on low cost and is worthy of your trust.
Researchers
What do science-trained researchers do? Read Dr Lee Kum Tatt's blog:
www.leekumtatt.blogspot.com
www.leekumtatt.blogspot.com
Regular replacement of policy
Someone told this story in a speech. When he started work, he bought a life insurance policy from a large company.
The agent saw him every few years, and convinced him to switch to a new policy. The agent said that the new policy was "better". This was done a few times over the years.
Later, he realised that the agent took advantage of him. Every time that he changed his insurance policy, he lost on the past savings and cash value. Although he had paid his premiums for 20 years, his cash value is low.
Where did this happen? It happened in Singapore. And it happened to a well eduated person!
The agent saw him every few years, and convinced him to switch to a new policy. The agent said that the new policy was "better". This was done a few times over the years.
Later, he realised that the agent took advantage of him. Every time that he changed his insurance policy, he lost on the past savings and cash value. Although he had paid his premiums for 20 years, his cash value is low.
Where did this happen? It happened in Singapore. And it happened to a well eduated person!
Financial crisis every 10 years?
Read this article in CNN
http://money.cnn.com/2007/09/14/pf/sivy_markets.moneymag/index.htm
It seems that a crisis occurs every 10 years in USA:
1989-90 Savings and Loans crisis
1998 - Long Term Credit Management
2008 - Subprime
http://money.cnn.com/2007/09/14/pf/sivy_markets.moneymag/index.htm
It seems that a crisis occurs every 10 years in USA:
1989-90 Savings and Loans crisis
1998 - Long Term Credit Management
2008 - Subprime
Marketing to residents living nearby
Dear Mr. Tan,
I have set up a retail shop. I wish to look for the names and telephone numbers of people living in my area. I wish to carry out target marketing to get them to come to my shop. Is there a telephone book that is sorted by address?
REPLY
You can buy a CD that contain the name and telephone number of people living in a specific area, sorted by address. More details can be found at:
http://www.tankinlian.com/database/index.html
Wish you all the best in your marketing.
I have set up a retail shop. I wish to look for the names and telephone numbers of people living in my area. I wish to carry out target marketing to get them to come to my shop. Is there a telephone book that is sorted by address?
REPLY
You can buy a CD that contain the name and telephone number of people living in a specific area, sorted by address. More details can be found at:
http://www.tankinlian.com/database/index.html
Wish you all the best in your marketing.
Greed makes monkey of men
RECEIVED THIS E-MAIL:
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys at $10 each. The villagers, seeing that there were many monkeys around, went into the forest and started catching them. The man very gentlemanly bought thousands of monkeys at $10 each, but as supply started to diminish, the villagers slowed down and eventually stopped their efforts.
The man then announced that he would now buy at $20. This renewed the energy and efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further, and people started going back to their farms.
The offer was then increased to $25 each, but the supply of monkeys became so little that it was a almost a miracle to even spot a monkey, let alone catch one.
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would transact on his behalf.
In the absence of the man, the assistant assembled the villagers and told them : " Look at all these monkeys in the big cages that the man has collected. I will sell them to you at $35 each, and when the man returns from the city, you can in turn sell them to him at $50 each. Deal or no deal ? "
The excited villagers, smelling a quick-profit killer opportunity, immediately rounded up all their savings and bought all the monkeys. Then they never saw the man nor his assistant again, and there were just monkeys everywhere!
Now you have a better understanding of how "greed"makes monkey of men?
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys at $10 each. The villagers, seeing that there were many monkeys around, went into the forest and started catching them. The man very gentlemanly bought thousands of monkeys at $10 each, but as supply started to diminish, the villagers slowed down and eventually stopped their efforts.
The man then announced that he would now buy at $20. This renewed the energy and efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further, and people started going back to their farms.
The offer was then increased to $25 each, but the supply of monkeys became so little that it was a almost a miracle to even spot a monkey, let alone catch one.
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would transact on his behalf.
In the absence of the man, the assistant assembled the villagers and told them : " Look at all these monkeys in the big cages that the man has collected. I will sell them to you at $35 each, and when the man returns from the city, you can in turn sell them to him at $50 each. Deal or no deal ? "
The excited villagers, smelling a quick-profit killer opportunity, immediately rounded up all their savings and bought all the monkeys. Then they never saw the man nor his assistant again, and there were just monkeys everywhere!
Now you have a better understanding of how "greed"makes monkey of men?
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