Common sense approach towards investment products

Several people have posted comments that they have lost trust in investment products. They are not impressed with the recent announcement by the Monetary Authority of Singapore in improving the regulatory regime on the sale of investment products. They lost their trust in financial institutions after losing a lot of money on the credit linked notes.

I wish to advise these investors to learn from the lessons from the sad episode. It is important that consumers should be educated. The key lessons are:

a) Invest some time to understand the fundamentals of investing. Join FISCA (Financial Services Consumer Association).

b) Stay away from any product that you do not understand. Although I can be considered a financial expert, I have to stay away from many complex and opaque products, such as dual currency investments, land banking, credit linked notes, time sharing, etc.

c) Use your common sense. Ask a few questions about the financial product. What do I get from the product? How much do I pay? What is the chance of making a profit or a loss? How much do the seller earn by selling the product to me? These are simple questions, but they cannot be answered. Even the seller does not know the answers. So, I stay away from these products.

d) Do not trust the words of any sales person. You need to see any informations stated clearly in writing. If the wordings are not clear, do not accept them.

e) Avoid special invitation to sales seminars. I have received many telephone calls to attend land banking seminars, time shares, property launches, etc. I decline. These events are costly and have to be covered by the commissions earned on the actual sales.

f) Invest in stocks and bonds for the long term. I spread my savings into 20 stocks, chosen for their long term value. I hold them through the cycles of the stock-market. I advised my children, who have smaller sums to invest, to put their savings into a low cost, exchange traded fund.

It is important for ordinary people to learn the fundamentals about long term investments. I have set up FISCA (Financial Services Consumer Association) to meet this need for financial literacy. It will focus primarily on the undertanding of long term savings.

If you remain uneducated about financial literacy, you can stay away from investment products only for a short time. You are likely to fall for the next scam that comes your way. It is better to be financially literate, so that you can understand what to avoid. Take the first step and join FISCA.

Tan Kin Lian