Finance Your Passion Workshop

Winston Ng approached me to help them to market this workshop which is being conducted by his young company.

After speaking to him, I believe that his workshop may be of useful to the visitors to my blog. The workshop is for 2 full days and does cost a modest fee. If you attend, give your feedback to me.

FINANCE YOUR PASSION WORKSHOP

The Finance Your Passion Workshops are created with the intention of teaching core Financial, Retirement and Protection Strategies to the masses at an affordable price. We are independent from any financial product company and neither endorse nor are against any products.

We teach the key "questions" that individuals should ask themselves before buying any product. The basic knowledge they need to know, rather than being blind-sided by all the sales gimmicks.

Our study of the best systems in the world found that Retirment Planning is a multi-faceted process that includes:

1) Increasing Earnings
2) Finding Your True Purpose in Life
3) Mastering Spending Patterns
4) Adequate Protection
5) Safe Investing
6) Charity Giving

In our Finance Your Passion Workshops, we teach all these to people at an affordable rate, so that when they approach their insurance advisors/ fund managers. They know the right questions to ask, rather than paying unnecessary hefty fees and worse still get biased advice.

During the workshop, they will also build their very own retirement plan - something which most singaporeans do not have!

More details can be found at:
http://www.financeyourpassion.com/
http://www.financeyourpassion.com/fyp-cpf.htm

They provide a series of reports on their website when you sign up for their free mailing list.

http://www.financeyourpassion.com/te6s/dburpay.pdf

Consumers are dissatisfied with financial institutions

Dear Mr. Tan,
A consumer survey conducted by MAS showed that only 33% are satisfied with the financial product that they have bought. 67% are neutral or dissatisfied.

In your opinion, does this reflect a general state of unhappiness among consumers?

REPLY
Consumers have been unhappy with the low interest rate paid by the banks for the past years. The interest rate is insufficent to offset inflation. The large increase in inflation rate this year has worsened the situation.

Many consumers switched to structured financial products and obtained an equally low return. Life insurance and investment linked products also incur high charges and will take a long time to reach the break-even point.

The negative experience of consumers on financial products has been reflected in their answers to the consumer survey.

MAS has now issued a proposed guideline to make the board and senior management of financial institutions to be more accountable for giving fair dealing outcomes to consumers.

Buying life insurance in Singapore

Dear Mr. Tan,
I came to know you from your useful financial tips in MyPaper.

I am a Malaysian working in Singapore. My wife and I currently maintain some insurance plans, previously bought in Malaysia, as shown below: (details deleted).

We later found that the insurance policies available in Singapore provide greater value. As a result, we are now thinking of terminating some of our existing Malaysia insurance policies and buy insurance policies from Singapore insurance companies, as shown below: (details deleted).

Do you foresee any problems for Malaysians who buy insurance policies (life and medical) from Singapore? Is this advisable? Are the coverage sufficient for us? Are the premiums reasonable?

REPLY

I am not able to give specific advice for your situation. I suggest that you talk to a financial adviser (find one whom you can trust).

My general advice is set out in my FAQ, as follows:

a) Existing Policies:
http://www.tankinlian.com/faq/exist.html

b) Investing your savings
http://www.tankinlian.com/faq/savings.html

I do not forsee any problem for Malaysians buying life insurance in Singapore. I believe that many people have done it. The only disadvantage is that it is not recognised for income tax relief in Malaysia, but this is probably not important for you.

Speculative investment

Dear Mr. Tan
I am thinking of investing in Citigroup Inc in the USA. Do you think that this is a wise move?

REPLY
Investing in Citigroup is speculative. You should do it only with money that you can afford to lose. But, I agree that it is quite tempting and there is a good prospect of an attractive gain.

Computing the yield

1. You can compute the yield accurately by using a financial calculator.

Example:
Period: 5 years
Amount now: $5,000
Annual saving: $1,200 for 5 years
Accumlated amount in 5 years now: $12,000
Annual saving invested at beginning of year
Computed yield: 2.23% p.a.

Annual saving invested at end of year
Computed yield: 2.58% p.a.

2. If you do not have a financial calculator, you can use a rough method.

Total invested at start of period: $5,000
Total invested at end of period: $11,000
Average amount invested: ($5.000 + $11.000) / 2 = $8,000
Gain for period: $12,000 - $11,000 = $1,000
Yield = $1,000/ $8,000 / 5 years = 2.5% per year

This method works for short durations, i.e. up to 5 years. The difference
betweens larger for longer duration.

Tan Kin Lian

How to invest in this environment?

Interest rate from bank deposit and Government bonds are at a low level.

The investment choices are:

1. Keep the money in the bank and accept a return of 0.5%
2. Invest in the stockmarket for the long term, and accept the volatility.

Do not invest in a high cost financial product (such as a structured product or an investment-linked policy) as the charges will reduce your yield further.

Read this FAQ about charges:
http://www.tankinlian.com/faq/ilp.html

Yields on Singapore Government bonds

Here are the yields of government bonds, obtained from
www.fundsupermart.com.sg

The yield is about 1% for durations up to 3 yrs, 1.5% for duration of around 5 years, 2.5% for 10 years and 3% for 15 years and longer.

The yields are low.

Bond Name                                    Year  IYld
NX98100H; Coupon 5.625%; Maturity 01/07/2008 0.32  1.47 
NX99100S; Coupon 4.375%; Maturity 15/01/2009 0.86  0.93 
N504100Z; Coupon 2.375%; Maturity 01/10/2009 1.56  1.04 
N505100F; Coupon 2.625%; Maturity 01/04/2010 2.07  1.28 
NX00100T; Coupon 4.625%; Maturity 01/07/2010 2.32  1.07 
NX01100H; Coupon 3.625%; Maturity 01/07/2011 3.32  1.16 
NX02100S; Coupon 3.500%; Maturity 01/07/2012 4.32  1.46 
NX03100Z; Coupon 2.250%; Maturity 01/07/2013 5.32  1.68 
NX04100F; Coupon 3.625%; Maturity 01/07/2014 6.32  1.89 
NY01100F; Coupon 3.750%; Maturity 01/09/2016 8.48  2.31 
NY03100A; Coupon 4.000%; Maturity 01/09/2018 10.48  2.50 
NY05100N; Coupon 3.250%; Maturity 01/09/2020 12.48  2.79 
NY07100X; Coupon 3.125%; Maturity 01/09/2022 14.48  3.01 
NZ07100S; Coupon 3.500%; Maturity 01/03/2027 18.99  3.25

YrTM: Years to maturity
IYld: indicative yield based on offer price

Fundsupermart

I opened an account with Fundsupermart. The process was easy. The website is well designed. I intend to buy low cost unit trust and government bonds through this account. I will share my experience of this platform in this blog.

How To Maximize our R & D Investments

R & D in Science & Technology is important and good for Singapore. There are many aspects to these activities. Many students, parents, professionals, managers/project leaders and policy makers would like to know how they can participate and contribute to this important adventure of ours.

Based on his experience Dr. Lee Kum Tatt has written a number of articles on this subject in his blog http//:leekumtattblogspot.com

Read his latest articles where he and his wife share their experiences in developing
R & D in Science & Technology with us.

www.leekumtatt.blogspot.com

Questions on existing life insurance policies

1. I have paid the premiums under my life insurance policy for more than 10 years. The cash value is still less than the total premiums paid. Why does the policy give such a poor yield?

The insurance company has paid a high rate of commission to the agent in selling the policy to you. The commission and other marketing expenses take up about 24 months of your premium (for most cases). This money has been spent and is taken away from your savings.

The company has also incurred cost in providing the life insurance cover to you under the policy. This cost is relatively small. The company has also taken away some of your premiums as a profit margin for their shareholders.

After deducting the charges, the balance of the premium that is invested is quite small in the initial years.

For a company with high expenses, it usually takes more than ten years for the policy to reach its break-even point, i.e. the cash value is more than the premiums paid. If the expenses are low, the break-even point may be reached before ten years.

2. I have an existing life insurance policy. It provides a poor return on my premiums. Should I continue to keep this policy?

You should as the insurance company to quote the following figures for you:

cash value, if you surrender the policy now
cash value, if you surrender the policy in 5 years time
premium payable for the next 5 years

You can compute the yield for the next five years. If the yield is more than 3%, it is better to keep the policy, as you enjoy the life insurance cover and still get a modest yield. You can get a fairly satisfactory yield, as you have already incurred the high charges during the earlier years of the policy.

If it is less than 3%, you can consider terminating the policy. You can take up a term insurance policy and invest the difference in premium in a low cost investment fund.

3. Should I continue with my investment-linked policy? Does it give good value?

You have to study the charges under the investment-linked policy. Some of the charges are:

the spread taken from each premium that is invested
the expense ratio taken from the fund
additional administrative fee charged on the policy
mortality charges
distribution cost

The distribution cost is usually hidden from the policyholder. It is the difference between the premium that you pay and the amount that is invested for you. This difference is used to pay commission to the agent and marketing expenses. It is usually taken from your policy during the initial years. After this initial period, here is no more distribution cost.

You have to compare these charges with the charges for similar plans in the market. Usually, if the distribution cost has already been fully deducted, it is better for you to keep the investment-linked policy.

4. I have retired from work. I find it a burden to continue paying the premium under my life insurance policy. Some policies require me to pay premiums for my entire life. What should I do?
You have the following options for these policies:

· continue to pay the premium using your past savings
· stop paying premium, and enjoy a lower coverage under the paid-up policy
· terminate the policy and receive its cash value

If you have sufficient savings, you can study the yield over the next five years, to decide if you should continue the policy. You can adopt the approach mentioned in paragraph 1 above.

If you do not have past savings, you have to consider the paid-up policy or to cancel the policy entirely for its cash value.

Low Cost Life Insurance Policy

Dear Mr. Tan,
Is it possible to have a low cost life insurance policy, other than term insurance? Can a whole life or endowment policy be designed to be sold directly, without the high charges for commission to be paid to agents?

REPLY
This is possible to design a "no-load" life insurance policy. It will combine the protection and savings and give a good rate of return to the customer. The customer may have to pay a flat fee of say $100 towards the cost of issuing the policy.

The advantage of this "no-load" life insurance policy is that the cash value can be more than 80% of the premiums paid, from the first year onwards. The remaining 20% will be used to pay the premium for the insurance cover, and some expenses.

I hope that some new insurance company will work on this type of policy design. This will offer a good option for the public.

Accumulate short term savings in a bank account

Dear Mr. Tan,
What is the best way to invest $200 a month?

REPLY
You can accumulate the savings in a bank account. If you join a monthly savings plan, you may be able a higher interest rate on your savings.

After you have accumulated sufficient savings, you can use it to buy Government Bonds or invest in the STI exchange traded fund. or a low cost investment fund.

The advantages are:
1. 100% of your savings is intact
2. You can earn a better return from the investment fund or government bonds.

Do not invest in an insurance product where 18 to 24 months of your savings are taken away as charges to pay the agent and other expenses.

Do not pay high charges for your investments. Read this FAQ:
http://www.tankinlian.com/faq/ilp.html