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Saturday, December 25, 2010
Professional Quality Web Content From A Real Professional | BusinessAndLegal.ie
Competing with the experts
When a consumer buys insurance, the consumer has the compete with the insurance experts, e.g. the actuaries, on what is a fair price for the insurance protection. The insurance company will naturally want to make a bigger profit, if they can, and will charge more to the consumer for the protection. There is no way that the consumer can compete with the insurance company as they have the statistics and the expert to do the calculation. The unwary consumer is likely to pay too much and get a bad deal.
The best protection for the consumer is:
The best protection for the consumer is:
- Deal with an insurance company that is pro-consumer, i.e. they will charge a fair price. An example is an insurance company that is not profit-driven. Today, it is difficult to find such a company in Singapore.
- Buy a standard insurance policy that is offered on similar coverages by several companies. The market competition will force the company to lower their margin and make a modest profit. Examples are term insurance, motor insurance, personal accident insurance and fire insurance.
- Avoid a specially designed product, under an exotic name, that is marketed to you by an insurance agent, adviser or consultant. This applies especially to a life insurance policy that combines protection with investment of savings. You can be sure that this policy cannot be compared, and is likely to be highly priced to give a big margin to the agent and the insurance company.
Tan Kin Lian
Accept low yield or take market risk
We are in a period of low interest rate. Consumers should accept this low yield and do not be greedy. If you want higher interest rate, take the risk of investing in an indexed fund, comprising of equities. Accept the volatility and average out the good and bad years.
The worse investment decision is to buy structured products or unregulated products that seemed to promise high yield. The investor is likely to fall into a trap from cheats and scams or from financial institution that take off a large margin on the structured products and do not tell the real risk of these products.
Do not believe any marketing person who assure you that you can get a good return without risk. They are likely to tell you a lie. When you find out later, you are not able to hold them accountable, as they will deny the statement.
You should read my book, Practical Guide on Financial Planning or attend the educational talks organised by FISCA. If you do not put in the time to be educated, be prepared to lose a lot of money from bad investments!
Tan Kin Lian
The worse investment decision is to buy structured products or unregulated products that seemed to promise high yield. The investor is likely to fall into a trap from cheats and scams or from financial institution that take off a large margin on the structured products and do not tell the real risk of these products.
Do not believe any marketing person who assure you that you can get a good return without risk. They are likely to tell you a lie. When you find out later, you are not able to hold them accountable, as they will deny the statement.
You should read my book, Practical Guide on Financial Planning or attend the educational talks organised by FISCA. If you do not put in the time to be educated, be prepared to lose a lot of money from bad investments!
Tan Kin Lian
Risk of long duration bonds
If current interest rate is 0.5% and government bonds for 10 years give a yield of 1.5%, which is better for the investor?
If interest rate remains at the low level for the next 10 years, it is better to invest in the government bonds and earn an additional 1% interest yearly. However, the risk to the investor is an increase in interest rate. If the interet rate increase to 3% per annum, the investor is stuck with 1.5% interest on the government bond for the remaining period. If the investor decides to sell the government bond at that time, there will be a capital loss of about 1.5% times the remaining period. If the remaining period is 8 years, the capital loss can be 12% (or thereabouts). The loss is higher, if the yield goes up to 5% (say).
It is difficult to predict the future interest rate. Even the the fund managers or analysts or the government leaders are not able to predict this trend. So, the investor cannot make this prediction. They should not ask other people, as nobody knows.
If you decide to invest in long term government bonds during a period of low interest rate, you should be prepared to wait out the entire period at the current yield. If you do not want to take this risk, you should invest in a bond for a short duration, say 3 to 5 years, even if you get a lower interest rate compared to long duration bonds.
Tan Kin Lian
.
If interest rate remains at the low level for the next 10 years, it is better to invest in the government bonds and earn an additional 1% interest yearly. However, the risk to the investor is an increase in interest rate. If the interet rate increase to 3% per annum, the investor is stuck with 1.5% interest on the government bond for the remaining period. If the investor decides to sell the government bond at that time, there will be a capital loss of about 1.5% times the remaining period. If the remaining period is 8 years, the capital loss can be 12% (or thereabouts). The loss is higher, if the yield goes up to 5% (say).
It is difficult to predict the future interest rate. Even the the fund managers or analysts or the government leaders are not able to predict this trend. So, the investor cannot make this prediction. They should not ask other people, as nobody knows.
If you decide to invest in long term government bonds during a period of low interest rate, you should be prepared to wait out the entire period at the current yield. If you do not want to take this risk, you should invest in a bond for a short duration, say 3 to 5 years, even if you get a lower interest rate compared to long duration bonds.
Tan Kin Lian
.
Investing in equities
Many consumers find it difficult in deciding on which stock to invest in. My advice to them is to invest in an indexed fund or an exchange traded fund. They should not worry about stock picking (which is difficult) and market timing (which is also difficulty). If they are not sure about the timing, they can invest in several installments based on the principle of dollar cost averaging. Read this FAQ
Apple iPad
This writer explains why he is NOT buying the Apple iPad
www.easyapps.sg/sgep/latest.aspx
http://online.wsj.com/article/SB10001424052748704259704576033941846942596.html?mod=rss_Technology
I agree with his reasons.
www.easyapps.sg/sgep/latest.aspx
http://online.wsj.com/article/SB10001424052748704259704576033941846942596.html?mod=rss_Technology
I agree with his reasons.
Understand your biggest risk
Your biggest risk is NOT premature death. It is NOT critical illness. It is earning a poor yield due to the bad life insurance products sold to you by an insurance agent (who wants to earn a fat commission from selling the product). By earning a poor yield, you will not have sufficient savings for retirement, even though you have been frugal and have saved as much as you can during your working life.
Your priority is to get a good yield on your investment, at least 2% higher than inflation. You should avoid life insurance products that take away 40% or more of your accumulated savings. You can buy term insurance for 25 years to cover premature death and earn a good yield by investing in a ETF. It is explained in my book, Practical Guide on Financial Planning. You can also read this article.
Tan Kin Lian
Your priority is to get a good yield on your investment, at least 2% higher than inflation. You should avoid life insurance products that take away 40% or more of your accumulated savings. You can buy term insurance for 25 years to cover premature death and earn a good yield by investing in a ETF. It is explained in my book, Practical Guide on Financial Planning. You can also read this article.
Tan Kin Lian
Personal Financial Plan [3]
I encourage consumers to carry out a personal financial plan, using the calculator shown in this website, www.easysearch.sg/life21. The key feature of this calculator is:
Tan Kin Lian
- It is free (unlike the fee charged by a financial adviser)
- It is easy to understand
- It shows you the projected income, after adjusting for inflation
- It highlights the difference in your income, based on a 2% difference in yield
- It shows the importance of getting a yield that is 2% above inflation
- It show the danger of buying a life insurance policy that gives you a poor yield, due to high deduction.
Tan Kin Lian
Singapore is the happiest place on Earth
Do you agree with this view expressed by an author of a newly published book? Read SGEP for an alternative view. http://www.temasekreview.com/2010/12/24/singapore-is-happiest-place-in-asia/
Art of being minimalist
I received this message from a reader.
Dear Mr. Tan
In these days of blatant consumerism, especially in Spore, and during this holiday season, please find attached an e-book for your reading pleasure...
The e-book can be viewed here:
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