Tuesday, October 20, 2009

Reduce taxi fares

Here is my suggestion to reduce the taxi fares - reduced wasted time and travelling by making better use of taxi calling.

A counter staff who said "yes"

I had an unusual encounter with a staff who said "yes" at the check-in counter. It is typical of Singaporeans to say "no". Read the story here.

Gambling and investing

Gambling is a game of chance. You bet a sum of money on a future outcome. You hope that it happens and you win the bet. If it does not happen, you lose the bet.

You can gamble on a game of roulette that has the number 1 to 36. You choose a number and place a bet. If the number appears on the next role, you win a price of 35 times of your bet. If it does not appear, you lose your bet.

You can also gamble on a 4 digit number or the numbers that will appear in Toto. You can also gamble on the Big Sweep and hope that win a large prize if your ticket number is drawn.

When you "invest" in a stock or foreign currency, you are also gambling that the price of the stock or currency will go up and give you a profit. If it goes down and you are not able to hold the position (e.g. if you are on borrowed money), you will have to sell the stock or currency and take a loss. You are actually gambling (or speculating - to use a nice word) on the price of the stock or share.

If you choose a good stock and is prepared to keep it for a long time to earn a share of the future profits, and you do not bother about the price of the stock, you can be considered as "investing" in the stock.

When you gamble, and this includes speculating in financial products, you have to make sure that you are getting a fair payout for your risk of loss. If you have a 1 in 6 chance of winning (and 5 in 6 chance of losing) in a game of dice, you should get a payout of 5 times for winning.

You should avoid structured products where the chance of winning is not transparent to you. You are likely to be given a lower payout than is justified by the risk that you are taking.

I shall write more about calculating the odds (or chance of winning) in a later article.

Tan Kin Lian

Continue working to stay in good health

It is better to continue working after the normal retirement age, either in a full or part time job, preferably in a familiar job, according to this report.

Income gap in Singapore

Read this article.

A poor deal for consumers on single premium policies

Published in Straits Times Online on 20 October 2009

Recently, I was shown the benefit illustrations for two single premium policies sold by two different insurance companies.

I was surprised to find in both cases that the surrender value on the first year is less than 75% of the single premium and that it would take 8 years or longer for the surrender value to reach the breakeven point, i.e. exceed the amount that has been invested.

Although these policies pay a death benefit that is higher than single premium in the event of death, the cost of this protection should be relatively small and should not require such a large amount to be deducted.

There could be extreme situation where a high surrender penalty is justified, such as a sharp increase in interest rate, but in normal circumstances, this type of penalty and high charges are unfair to consumers.

In both cases, the policyholders were not aware about the implication of locking up a large sum of money for long periods on an investment that gives a rather poor yield. They did not get the proper explanation from the insurance adviser and sought my assistance.

The Monetary Authority of Singapore has asked the board and senior management of financial institutions to be responsible for achieving “fair dealing outcomes” for their customers.

I hope that the MAS would ask the insurance companies that issue this type of product to explain how the product could be considered as being fair to their customers.

Tan Kin Lian