Monday, May 10, 2010

Avoid being overcharged

This article explains about the legal but dishonest ways that you can be overcharged.

My comment
There are many similar cases in Singapore. As companies wish to maximise their profits, they are now using unethical means. Share your views here.

Focus of TKL blog

The focus of this blog, as stated in the header, is "insurance, finance and current affairs in Singapore". I wish to cover all three topics to be best of my ability. I appreciate the contribution of readers who direct me to other blog postings that are relevant to my blog.

My blog is aimed at the 2,500 daily visitors who find it to be useful and relevant to them.

Some people disagree with the views posted in my blog. They are welcomed to give your views, but should avoid engaging  in personal or malicious attacks. If they do not like the focus of my blog, they do not need to visit this blog. (Note: I continue to get malicious attacks regularly from two persons, and have blocked their comments).

Tan Kin Lian

Exchange Traded Funds (ETF)

There are two types of exchange traded fund (ETF).

a) An ETF that is invested in the shares that track the index
b) An ETF that is composed largely of deriviatives and have leverage.

You should invest in type (a), such as the STI ETF managed by StateStreet in SGX. This type of ETF is held by a trustee under the trust law.

You should avoid type (b), as it carries the risk that the issuer of this product may get insolvent, as has happend with Lehman Brothers.

Do not worry about the liquidity of the STI ETF. It is sufficient for ordinary investors, who wish to invest small sums of money for the long term and to withdraw small sums every one or two months for their expenditure. Liquidity is not an issue.

The STI ETF is NOT suitable for speculators who need the liquidity for trading. If you wish to trade, it is better to get a liquid stock.

If you are not sure about the structure of the ETF (i.e whether type a or b), you should ask the stockbroker or just stick to STI ETF (managed by State Street).

Tan Kin Lian

Investment Linked Policy

I have often been asked for my views about an investment-linked policy (ILP). It separates the term insurance and investments. Do they provide good value to the consumer?

In most cases, they provide poor value for the following reasons:

a) A large part of the savings for investments is taken away to pay the "distribution cost"
b) The premiums charged for the death benefit and riders are quite high
c) The distribution cost and effect of deduction are usually higher than the traditional policies
d) The projected returns are optimistically and potentially misleading.
e) Many consumers find the benefit illustration to be too complicated to understand.

In most cases, the consumer is better off in buying the death cover and riders in a separate policy and to get competitive quotes from several companies. The best cover is the group term insurance offered by SAF,  SAFRA and NTUC. Most people are eligible to participate in these policies.

It is better to invest in a low cost investment fund, such as the STI ETF available on SGX. This is explained in my book on financial planning, which is available here.

Tan Kin Lian

Gold and barter

Read this article.

My comment.
I always avoid paying a high price for an investment in high demand or in a bubble, including gold or property. Those who can get out early can make a profit. The other investors have to hold on to the investment for a long time to recover their cost of investment.