It is important to choose a low cost fund for your investment. If you invest in equities for the long term, you should be able to get an average yield of 3% to 4% above Government bonds. This should give a gross yield of about 6% to 7%.
If the expense ratio of the fund is 2.5% (which is quite typical), you will get a net yield of only 4% (after charges). If the expense ratio is 1%, you get a net yield of 5.5%.
The difference of 1.5% in the yield can amount to more than 15% over 10 years. It is important to invest in a low cost fund, so that you can keep most of the yield.
The experience of most investors is that the speculative funds incur high charges and do not produce a better yield over the long term. In fact, many speculative funds lost money for the investors.
Sunday, March 16, 2008
Low cost insurance
Mr. Tan
I am reaching 30. Currently, I have a insurance ijfe plan of the insured amount of about $70,000. I am insured under the Health Shield and get the rider like the Pink Of Health.
I am now paying a premium of about 3% of my monthly income. I am thinking of getting additional cover of critical illness and term plan. What are the options of the insurance that I can choose from?
REPLY
You can read the FAQs in my website
www.tankinlian.com/faq
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/benchmark.html
I am reaching 30. Currently, I have a insurance ijfe plan of the insured amount of about $70,000. I am insured under the Health Shield and get the rider like the Pink Of Health.
I am now paying a premium of about 3% of my monthly income. I am thinking of getting additional cover of critical illness and term plan. What are the options of the insurance that I can choose from?
REPLY
You can read the FAQs in my website
www.tankinlian.com/faq
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/benchmark.html
High charges under ILP policy
Dear Mr. Tan,
I am insured for a sum assured of $100k and critical illness for 180k under a ILP since 2006. The cash value is about $300 now although I have a total premium of $3,600. Is this a good policy?
REPLY
The cash value is too low, compared to the premium that you have paid. The charges under the ILP policy is excessive and has taken away most of your savings. Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
As you have already incurred most of the upfront charge, it is probably better for you to continue the ILP policy. After the second year, the charges should be quite low.
If you have to increase your savings in the future, do not buy a high cost ILP policy.
You can buy a term insurance policy to cover your protection needs. It is low cost and offers a large coverage. Read this FAQ:
http://www.tankinlian.com/faq/benchmark.html
I am insured for a sum assured of $100k and critical illness for 180k under a ILP since 2006. The cash value is about $300 now although I have a total premium of $3,600. Is this a good policy?
REPLY
The cash value is too low, compared to the premium that you have paid. The charges under the ILP policy is excessive and has taken away most of your savings. Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
As you have already incurred most of the upfront charge, it is probably better for you to continue the ILP policy. After the second year, the charges should be quite low.
If you have to increase your savings in the future, do not buy a high cost ILP policy.
You can buy a term insurance policy to cover your protection needs. It is low cost and offers a large coverage. Read this FAQ:
http://www.tankinlian.com/faq/benchmark.html
Negative return from unit trusts
Hi Mr. Tan,
Your website is very useful to improve our financial awareness, especially for people living in Singapore. I visit your blog every day.
I read your article about Investing for the Long Term. I look forward to a Unit Trust that offers quite similar feature as ETF.
Currently, I have invested more than 60% of my savings into several unit trusts since mid 2006. (Details of funds removed). So far, my investment showed a loss of 20%. I consider my investment to be for the long term, and have not made any withdrawal.
Do you have any recommendation what I should do in the midst of current credit mess? Should I invest through a personal advisor from financial institution? I have been approached by an adviser who offers advice for an annual cost wrap of about 1%. Is it worth while?
REPLY
What are the upfront and annual charges of these funds? If you invest in 2006, you should have a period where you made a big gain (i.e. last year) and it should have broken even now, even with the market downturn.
I am surprised that you you have lost 20% of your investment. Perhaps you have invested in the more speculative funds, or the fund charges are too high?-
Your website is very useful to improve our financial awareness, especially for people living in Singapore. I visit your blog every day.
I read your article about Investing for the Long Term. I look forward to a Unit Trust that offers quite similar feature as ETF.
Currently, I have invested more than 60% of my savings into several unit trusts since mid 2006. (Details of funds removed). So far, my investment showed a loss of 20%. I consider my investment to be for the long term, and have not made any withdrawal.
Do you have any recommendation what I should do in the midst of current credit mess? Should I invest through a personal advisor from financial institution? I have been approached by an adviser who offers advice for an annual cost wrap of about 1%. Is it worth while?
REPLY
What are the upfront and annual charges of these funds? If you invest in 2006, you should have a period where you made a big gain (i.e. last year) and it should have broken even now, even with the market downturn.
I am surprised that you you have lost 20% of your investment. Perhaps you have invested in the more speculative funds, or the fund charges are too high?-
Motor insurance increase by 20%
Hi, Mr. Tan
I have insured my motor car with NTUC for the past many years, when you were CEO. I just received the renewal notice for my car insurance. Guess what! The premium increased by more than 20%.
I did not make any claim and have been enjoying 50% discount. Why should the premium increase by so much? Should I stay with NTUC?
REPLY
I recall that the motor insurance has lost money during the past year. But I agree that an increase of 20% is excessive, especially as you did not make any claim last year.
Perhaps you should call a few insurance companies and check their premium for your car. The telephone numbers are shown here:
http://www.tankinlian.com/faq/motord.html
Let me know the results of your survey.
I have insured my motor car with NTUC for the past many years, when you were CEO. I just received the renewal notice for my car insurance. Guess what! The premium increased by more than 20%.
I did not make any claim and have been enjoying 50% discount. Why should the premium increase by so much? Should I stay with NTUC?
REPLY
I recall that the motor insurance has lost money during the past year. But I agree that an increase of 20% is excessive, especially as you did not make any claim last year.
Perhaps you should call a few insurance companies and check their premium for your car. The telephone numbers are shown here:
http://www.tankinlian.com/faq/motord.html
Let me know the results of your survey.
Oil product
Dear Mr. Tan,
Is it safe to invest in oil product? It has a ROI of more than 8%.
www.oilpods.com
http://www.oilestates.com/faq.html
REPLY
I am not familiar with investing in this product. I advise you to avoid investing in a product that you are not familiar with.
Is it safe to invest in oil product? It has a ROI of more than 8%.
www.oilpods.com
http://www.oilestates.com/faq.html
REPLY
I am not familiar with investing in this product. I advise you to avoid investing in a product that you are not familiar with.
Keep the money in CPF retirement account
Dear Sir,
I am asking this on behalf of my mother. She has $60K in her retirement account. She is thinking of transfering the entire sum to the NTUC annuity. Is it wise?
REPLY
It is better to keep the money in the CPF retirement account and earn an return of 4%plus 1% bonus (on $40,000).
Your mother should buy the life annuity with savings that are outside of CPF.
I am asking this on behalf of my mother. She has $60K in her retirement account. She is thinking of transfering the entire sum to the NTUC annuity. Is it wise?
REPLY
It is better to keep the money in the CPF retirement account and earn an return of 4%plus 1% bonus (on $40,000).
Your mother should buy the life annuity with savings that are outside of CPF.
UK Traded Endowments
ORIGNALLY POSTED IN DECEMBER 2007
Dear Mr. Tan,
Recently, I was engaged in an online discussion about UK Traded Endowments. The other party suggested investing in UK Traded Endowments, which was able to give a better return than money market fund.
Are you familiar with this type of investment? What is your opinion?
REPLY
The fund manager buys the endowment policies from the customers and pay the premiums till maturity to collect the proceeds. You have to rely on the ability of the fund manager to manage the situation.
I do not know what charges are being taken away by the fund manager as their fees and expenses, and whether the remainder is a fair rate of return to the investor for the risk.
You have to study the following:
1. What is the underlying rate of return to the investor from the traded endowments?
2. What are the factors that could impact on the underlying return, e.g. reduction in bonus rates?
3. What are the fees taken away by the fund manager?
4. What is the net return to the investor?
5. What is the financial standing of the fund manager?
Dear Mr. Tan,
Recently, I was engaged in an online discussion about UK Traded Endowments. The other party suggested investing in UK Traded Endowments, which was able to give a better return than money market fund.
Are you familiar with this type of investment? What is your opinion?
REPLY
The fund manager buys the endowment policies from the customers and pay the premiums till maturity to collect the proceeds. You have to rely on the ability of the fund manager to manage the situation.
I do not know what charges are being taken away by the fund manager as their fees and expenses, and whether the remainder is a fair rate of return to the investor for the risk.
You have to study the following:
1. What is the underlying rate of return to the investor from the traded endowments?
2. What are the factors that could impact on the underlying return, e.g. reduction in bonus rates?
3. What are the fees taken away by the fund manager?
4. What is the net return to the investor?
5. What is the financial standing of the fund manager?
Exchange Traded Endowments
Dear Mr. Tan,
I've never heard you mention about Traded Endowment Policies (TEP). Well, I might have overlooked your articles. Is it true that TEPs are safe even when the market's down because they claim that one can still get average returns of 6-8% during times of uncertainty.
Here's the link.http://www.tradedendowment.com/index.php?option=com_content&task=view&id=29&Itemid=40
Your thoughts please
REPLY
I have written about traded endowment policies in my blog. You can search my blog for my articles.
I advise against investing in these products as the intermediary, who arranges the investment, takes a fee (which is usually not transparent). As the investor, you carry the risk.
I've never heard you mention about Traded Endowment Policies (TEP). Well, I might have overlooked your articles. Is it true that TEPs are safe even when the market's down because they claim that one can still get average returns of 6-8% during times of uncertainty.
Here's the link.http://www.tradedendowment.com/index.php?option=com_content&task=view&id=29&Itemid=40
Your thoughts please
REPLY
I have written about traded endowment policies in my blog. You can search my blog for my articles.
I advise against investing in these products as the intermediary, who arranges the investment, takes a fee (which is usually not transparent). As the investor, you carry the risk.
Bear Stearns
Dear Mr. Tan,
Did the Singapore Government invest in Bear Stearns?
REPLY
I recall that GIC and Temasek invested in UBS, Citigroup and Merrill Lynch. I do not recall that they invested in Bear Stearns.
Did the Singapore Government invest in Bear Stearns?
REPLY
I recall that GIC and Temasek invested in UBS, Citigroup and Merrill Lynch. I do not recall that they invested in Bear Stearns.
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