It is easy to be cheated (1) - Introduction

I shall be writing a few articles about how easy it is for someone to be cheated in the world of investments. I shall be quoting from several recent experiences in Singapore, but I will not be mentioning specific products or organisations. You have to make a guess.

There will be lessons that can be learnt so that you are not caught in these scams. You have to worry about reputable organisations, as many of them are now engaged in these type of practices in their pursuit of profit.

It is easy for a consumer to be cheating from the following  types of products:

a) structured and banking products

b) insurance products

c) shares

d) trading in foreign currenty 

e) land banking and other non-listed products

f)  exotic products sold by private bankers

Nearly all investments are similar to gambling. The investor in speculating (i.e. gambling) on the price movement of the product. The speculator makes a profit when the price goes up and makes a loss when it goes down. The investor also has to make a choice in selecting the right product to invest it. 

It is easy for a small investor to be cheated in this environment by the other party who has better information or the ability to create the product to their advantage.

Even the cautious investor, who does not wish to take any speculative risk, can be conned into investing in products (such as the credit linked notes) that can wipe out the entire savings, without providing a commensurate rate of return. Some are offered products that have already turned bad, but are packaged in a misleading manner at an over-inflated price. They are being cheated!

Do come to my blog daily to read about these stories and take the lessons to avoid being cheated of your hard earned money.

Tan Kin Lian

AGM of NTUC Income

I attended the AGM of NTUC Income and raised several questions. I shall post the answers separately. 

I wanted to submit a nomination for the board of directors, to represent the policyholders. However, the nominee decided to withdraw at the last minute. He felt that most of the attendees were staff and agents of Income, and would have voted in favour of the CEO - who was standing for re-election. I have to respect his wishes.

There appeared to be insufficient policyholders (who were not staff or agents) at the AGM. Even if they were there, most of them preferred not to ask any question or follow up questions.

 

Logic Quiz 4-1 (Vol 4)

There are four houses with different colours in a row. Each occupant plays a different sport and drinks a different beverage.

 1. The engineer drinks whiskey.
 2. The golf player lives in the last house.
 3. The volleyball player lives in the grey house.
 4. The rugby player drinks rum.
 5. The scientist plays cricket.
 6. The green house is left of the grey house.
 7. The engineer lives in the blue house.
 8. The accountant lives left of the scientist.
 9. The salesman lives in the first house.
10. The vodka drinker lives in the purple house.

Question: Who drinks wine?

Record your time and give your answer here. You will be given the correct answer, after you submit your entry.

Benchmark
1 to 5 mins: very good
5 to 10 min: good
10 to 15 mins: fair
more than 15 mins: need more practice! 

More of the quiz
It appears every Sunday in The New Paper.
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The spectre of death

Dr. Wong Wee Nam wrote an article about H1Ni virus in this blog. It is written clearly for the layman and explains why there is no need to have undue concern about this virus at the present time. 

Generally, Singaporeans tend to over-react to any type of perceived risk (claiming that a "black swan" event could occur). It is good to hear from the experts. In this respect, he quoted Professor Lee Wei Ling who shared the same idea.

Dr. Wong has contested in past general elections as an candidate from the alternative parties.

Automated vehicles - to arrive soon?

I have posted several interesting articles in this blog.

Uncertain distribution of bonuses

In recent months, I have received many e-mails from policyholders of various insurance companies asking about the reduction in the bonuses on their participating policies. The companies explained that the bonus cuts were necessary in the light of the financial situation and indicated that the terminal bonus will be increased to give a high payout on the policies.

However, the terminal bonuses are not guaranteed and many years later, these policyholders are told that the terminal bonuses have to be cut due to some other reasons at that time. 

The insurance company claimed that the bonus rates have been approved by the appointed actuary and fairly distributed to policyholders. What is fair is subjective and may not be fair from the prespective of the policyholders - as they have no say. 

Many policyholders have found that the bonuses have been reduced compared to what they were told at the point of sale, and that the insurance company continued to make bigger profits for shareholders and pay higher managenent expenses and commissions. They are not convinced that they have been fairly treated over the years, but they have no way to exercise their contractual or legal rights.

This practice has been prevailing in some insurance companies in past years and has now spread to many other companies. It is now becoming quite common for insurance companies to treat their policyholders in this arbitrary manner.

In some countries, the regulator has insisted on the use of asset shares to determine the bonuses to be distributed to participating policyholders. They have also placed caps on the amounts of commission and expenses that can be charged to the life insurance fund.  Malaysia has introduced these measures to a satisfactory degree.  I hope that Singapore will implement similar measures for the protection of the policyholders.

While the situation remains unclear and arbitrary, it is best for consumers to avoid putting in a lot of savings in a life insurance policy. These includes endowment, whole life, critical illness and investment linked policies sold with high commissions to the agents. You have locking the savings for a long time and is likely to get a poor return. If you terminate the plan in the earlier years, you will to suffer a large loss with have to lose more than half of your savings. 

It is all right to pay a low rate of premium for a term insurance policy, including a rider that covers critical illness. The cost should be less than $2 for every $1,000 of coverage. If you cover $100,000, the premium should be kept to $200 a year, or less.

Tan Kin Lian

Puzzle - The three coins

Joe: "I'm going to toss three coins in the air. If they all fall heads, I'll give you $2. If they all fall talls, I'll give you $2. But if they fall any other way, you have to give me $1."

Jim: "Let me think about this a minute. At least two cins will have to be alike because if two don't match, the thrid will have to match one of the other two. And if two are alike, then the thrid coin will match the other two and not match them. The chances are even that the third coin will or won't match. Therefore the chances must be even that Joe is better $2 against my $1 that they won't be alike, so the bet should be in my favor. Okay, Joe, I'll take the bet.

Was it waise for Jim to acept the bet?

Give your answer here. You can seel the solution after submitting the answer.

 

Puzzle: The Bicycles and the Fly

Two boys on bicycles, 20 miles apart, began racing direclty toward each other.The instant they started, a fly on the handle bar of one bicycle started flying straight towards the other cyclist. As soon as it reached the other handle bar it turned and started back. The fly flew back and forth in this way, from handle bar to handle bar, until the two bicycles met.

If each bicycle had a constant speed of 10 miles an hour, and the fly flew at a constant speed of 15 miles an  hour, how far did the fly fly?

Give your answer here. 

Benchmark:

Less than 2 min: excellent

2 to 5 mins: good

5 to 10 mins: fair

Above 10 mins: took so long?