Many parents want to save money for the future needs of their children, e.g. education. They asked me if a life insurance policy is suitable for this purpose.
In my book on financial planning, I have recommended that the rate of savings be 25% of the earnings (and this 25% include any saving in CPF that is not used for housing). This saving for future needs can be used for emergencies (due to loss of employment or disability), medical expenses, education, and retirement. The savings is best invested in a low cost investment fund (such as the STI ETF) and should be kept flexible. A life insurance policy is rigid and high cost and does not suit this purpose.
Each time that you decide on the use of your long term savings, you have to consider if it is an appropriate use of the money. You should avoid spending too much of the money on education, if it leads to insufficient savings for retirement. Always consider the need to spend this money and if there are other better options that are less costly.
You can buy my book on financial planning online.
Friday, May 7, 2010
Governent debt and quantitative easing
Read this excellent article by Lucky Tan.
My comments
Europe now has to print money, i.e quantitative easing, to buy over the government debts in several countries. This will cause inflation but will lead to greater stability of the markts. It is dangerous to have government deficits funded through short term borrowings.
There are three ways for a government to fund its deficit
a. increase tax
b. print money
c. borrow
Many governments have borrowed money. It is not sustainable, as the burden falls on the future generations. The other two options have now to be considered.
My comments
Europe now has to print money, i.e quantitative easing, to buy over the government debts in several countries. This will cause inflation but will lead to greater stability of the markts. It is dangerous to have government deficits funded through short term borrowings.
There are three ways for a government to fund its deficit
a. increase tax
b. print money
c. borrow
Many governments have borrowed money. It is not sustainable, as the burden falls on the future generations. The other two options have now to be considered.
Greek Debt Crisis
Greece had a big debt caused by a large budget deficit for many years. It was not able to collect sufficient tax revenue to pay for the cost of government. It borrowed on short term bonds to cover the deficit. The lenders are not willing to roll over the debts and to buy new debts.
Many countries are in similar situation. They include the Japan, UK and USA. Will the debt crisis come to these countries? It will - it is just a matter of time.
What is the root of the problem? What is the long term solution?
Many countries are in similar situation. They include the Japan, UK and USA. Will the debt crisis come to these countries? It will - it is just a matter of time.
What is the root of the problem? What is the long term solution?
Top positions in political party
A political party in a certain country has a system for each division to elect a delegate to represent that division. The delegate meet at a national convention to elect the leaders of the party. The people seeking to be leaders have to give money to the delegates to buy their votes. This is called "money politics".
The leaders need to have a lot of money to give to the delegates to win the party elections. They have to earn their money through corrupt means. Althougth the process is democratic, it is tainted by corruption.
The leaders need to have a lot of money to give to the delegates to win the party elections. They have to earn their money through corrupt means. Althougth the process is democratic, it is tainted by corruption.
Case study - responding to a difficult issue
This is a hypothetical case. I wrote it to illustrate the different approaches to respond to a difficult issue at work.
X is in charge of the daily work at the CDP which keeps the records of shareholders of listed companies. An activist shareholder Y wrote to request that a letter be circulated to all shareholders of a listed company Z regarding a corporate issue, volunteering to pay for the printing and postage cost.
What is the typical response of most people in this situation if they were in X's place? What type of response will you give?
Survey results
Here are the survey results based on 29 responses.
Most people are willing to be helpful and positive, if they feel that they have the authority.
X is in charge of the daily work at the CDP which keeps the records of shareholders of listed companies. An activist shareholder Y wrote to request that a letter be circulated to all shareholders of a listed company Z regarding a corporate issue, volunteering to pay for the printing and postage cost.
What is the typical response of most people in this situation if they were in X's place? What type of response will you give?
Survey results
Here are the survey results based on 29 responses.
Most people are willing to be helpful and positive, if they feel that they have the authority.
Insight into stock trading
Read this article
My comment
I consider all trading as gambling. If you want to gamble, it is better to choose a product that has high liquity and low trading cost, such as foreign currency.
If you wish to invest for the long term, choose good stocks or a low cost investment fund and do not bother about the volatility in the market.
My comment
I consider all trading as gambling. If you want to gamble, it is better to choose a product that has high liquity and low trading cost, such as foreign currency.
If you wish to invest for the long term, choose good stocks or a low cost investment fund and do not bother about the volatility in the market.
Capital to Income ratio
This article shows that you need 12 years of your income to be sufficient to retire at age 65, to generate a lifetime income of 80%. I think that this is far too high. You only need to have an income of 40% to live comfortably, so 6 years would be sufficient. During your working life, you only spend 50% of your income, as 25% is saved for the future and 25% is used to pay for your home. When you retire, you will send less, so 40% is more than sufficient. This is explained in my book, Practical Guide on Financial Planning.
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