Tuesday, September 29, 2009
Old ezLink cards cannot be used from 1 Oct 2009
The old ezLink cards cannot be used from 1 October 2009. This affects over 3 million cards. There was so little publicity about the deadline to convert to the new card that many people were caught unaware. What will happen to the balance in these cards? Read my views here.
Law professors lobby for consumer protection agency
There is a need for consumers to be protected against bad business practices and complex products that are designed to take unfair advantage of consumers. Even the law professors agree with this view. Read this report.
Financial innovation
Hi KL,
Robert Shiller wrote a column in the Financial Times (27 Sep 2009) with the above title.
The main thrust is that the source of this crisis lies in imperfect financial architecture, rather than over-complexity of products. We should recognise that increased complexity offers potential rewards as well as risks. Complexity is only problematic when used to obfuscate and deceive. Regulators beginning to actively discourage complexity are headed in wrong direction. Innovation in financial sector has to be upheld to improve our lives, the same as innovation in any other sectors. Thus regulators need to be given a stronger mandate and more qualified manpower to encourage innovation.
The conclusion is to use this crisis to promote innovation-enhancing financial regulation, not to let this be eclipsed by superficially popular issues.
Shiller's arguments appear sound to me. Innovation is the lifeblood of capitalism, driving productivity growth, and should be actively encouraged under proper regulation.
I am thinking perhaps it would help if you state your stand on this, so that people will not read you wrongly, or to quote you out of context. Are you in principle opposed to financial innovation (leading to increased complexity)? Or fundamentally it is the crooked salesforce to blame who exploited the complex products? Or we should point at the regulators? If regulation is perfect, there is no way a seller can cheat, and buyers are informed of all associated risks & rewards, do you think complex products are alright?
In your writings, you have recommended easy-to-understand products to men on the street - low cost with fair distribution of rewards. Your well-meaning intention is very clear, no doubt about this. Less clear is the driving principle: because you think financial innovation is bad, or you think the ethics of banks is very questionable, or you think the regulators will never catch up with the industry players' tricks etc. This is important because the proposed remedy will be different. If innovation is bad, we will ask regulators to ban/minimise creativity; if innovation is helpful but consumers are often poorly informed, we should push for better communication by sellers while retaining innovative drive; if regulators are themselves behind the curve and not equipped with necessary skills, we need to incentivise more talents to join them.
Hope to see a response. Thanks for your time!
YZ
There is a proper place for financial innovation, to keep up with the times and changing needs of society. For example, we have to innovate to provide a better system of financing health care. We need a better system to allow people to pay their mortgage installments in an environment of irregular employment.
It is better for the innovation has to be carried out as a joint effort by the industry, consumers and the regulators.
We will need a consumer protection agency that has the power to safeguard the interest of consumers. This function used to be performed by regulators, but they have neglected this function in recent years under the misguided strategy of "leave it to the market". This role has to be reinstated. America is addressing this issue now.
Tan Kin Lian
Robert Shiller wrote a column in the Financial Times (27 Sep 2009) with the above title.
The main thrust is that the source of this crisis lies in imperfect financial architecture, rather than over-complexity of products. We should recognise that increased complexity offers potential rewards as well as risks. Complexity is only problematic when used to obfuscate and deceive. Regulators beginning to actively discourage complexity are headed in wrong direction. Innovation in financial sector has to be upheld to improve our lives, the same as innovation in any other sectors. Thus regulators need to be given a stronger mandate and more qualified manpower to encourage innovation.
The conclusion is to use this crisis to promote innovation-enhancing financial regulation, not to let this be eclipsed by superficially popular issues.
Shiller's arguments appear sound to me. Innovation is the lifeblood of capitalism, driving productivity growth, and should be actively encouraged under proper regulation.
I am thinking perhaps it would help if you state your stand on this, so that people will not read you wrongly, or to quote you out of context. Are you in principle opposed to financial innovation (leading to increased complexity)? Or fundamentally it is the crooked salesforce to blame who exploited the complex products? Or we should point at the regulators? If regulation is perfect, there is no way a seller can cheat, and buyers are informed of all associated risks & rewards, do you think complex products are alright?
In your writings, you have recommended easy-to-understand products to men on the street - low cost with fair distribution of rewards. Your well-meaning intention is very clear, no doubt about this. Less clear is the driving principle: because you think financial innovation is bad, or you think the ethics of banks is very questionable, or you think the regulators will never catch up with the industry players' tricks etc. This is important because the proposed remedy will be different. If innovation is bad, we will ask regulators to ban/minimise creativity; if innovation is helpful but consumers are often poorly informed, we should push for better communication by sellers while retaining innovative drive; if regulators are themselves behind the curve and not equipped with necessary skills, we need to incentivise more talents to join them.
Hope to see a response. Thanks for your time!
YZ
MY REPLY
I am against complex products that are designed to "cheat" the consumers and marketed under the name of "financial innovation". The main culprits are the financial engineers who design these products, although the people who sell these products have to share the blame for being greedy to earn the attractive commission. The regulators also failed in the duty by allowing these products to be sold.
There is a proper place for financial innovation, to keep up with the times and changing needs of society. For example, we have to innovate to provide a better system of financing health care. We need a better system to allow people to pay their mortgage installments in an environment of irregular employment.
It is better for the innovation has to be carried out as a joint effort by the industry, consumers and the regulators.
We will need a consumer protection agency that has the power to safeguard the interest of consumers. This function used to be performed by regulators, but they have neglected this function in recent years under the misguided strategy of "leave it to the market". This role has to be reinstated. America is addressing this issue now.
Tan Kin Lian
Health care system in Germany
Here is an excellent health care system, that is much better than America or Singapore. Look to Europe for good examples, e.g. Germany or Switzerland.
RED Portal (15) - Rental Rates
If you are a owner of a condominium, how much should you offer your unit for rental? The RED portal has a tab called Info. It shows the range of rental rates for various condominium projects.
If your condominium is not listed, you can look at the benchmark price (BMP) for sale. Most condominiums are rented at between 0.25% to 0.4% of the BMP price. For example, if the BMP price is $1000, the rental rate should be between $2.50 to $4.
As a guide, you can take 0.33% (4% pa) of the value of the property. If the sale value is $1 million, you can rent it for $3,300 per month.
If you wish to list you unit for rental, click on the Offer tab (for your housing project and give your details. Our staff will contact you.
www.easysearch.sg (Real Estate Data)
If your condominium is not listed, you can look at the benchmark price (BMP) for sale. Most condominiums are rented at between 0.25% to 0.4% of the BMP price. For example, if the BMP price is $1000, the rental rate should be between $2.50 to $4.
As a guide, you can take 0.33% (4% pa) of the value of the property. If the sale value is $1 million, you can rent it for $3,300 per month.
If you wish to list you unit for rental, click on the Offer tab (for your housing project and give your details. Our staff will contact you.
www.easysearch.sg (Real Estate Data)
ProTrader - Financial Trading Game
Monday, September 28, 2009
Impact of a reduction in yield
If you save $500 a month over 35 years, your total savings is $210,000. If you earn 5% per annum during this period, you should get $569,000. Unfortunately, you will not get this full sum, as the financial institution will take away a portion of your gain to pay for their various charges, such as marketing, fund management, administration and profits.
Most high cost products can reduce you yield by as much as 2%, giving you a net yield of 3%. This 2% yield may appear small, but over a 35 year period, it could take away 34% of the accumulated amount, giving you a net amount of $373,000. You are left with a net gain of only $163,000. The amount taken away from you, representing the reduction of 34% is $196,000. In other words, you are left with less than half of the total gain.
It is important that you find a product where the reduction in yield is as little as possible.
If you invest directly in shares, you will not suffer any reduction in yield, but you will need to monitor the shares and make sure that you collect the dividends and rights issues. You may also suffer a big loss, if the particular business performed badly.
To avoid this risk, it is better to invest in a unit trust where the investments are professionally managed and and you enjoy diversification. However, the charges for most unit trust is 1% per annum, which is rather high. The fund manager will tell you that he can add value by picking the good stocks that will perform better than the market, but studies have shown that most fund managers are not able to generate this value.
You can invest in an exchange traded fund, which is benchmark against the stocks comprised in the market index. An example is the Statestreet Trakker fund, commonly known as the STI ETF. The management fee is 0.3% per annum. This is a low charge, compared to unit trust.
Read this table to see the impact of a reduction in yield on a monthly savings plan over a number of years.
Most high cost products can reduce you yield by as much as 2%, giving you a net yield of 3%. This 2% yield may appear small, but over a 35 year period, it could take away 34% of the accumulated amount, giving you a net amount of $373,000. You are left with a net gain of only $163,000. The amount taken away from you, representing the reduction of 34% is $196,000. In other words, you are left with less than half of the total gain.
It is important that you find a product where the reduction in yield is as little as possible.
If you invest directly in shares, you will not suffer any reduction in yield, but you will need to monitor the shares and make sure that you collect the dividends and rights issues. You may also suffer a big loss, if the particular business performed badly.
To avoid this risk, it is better to invest in a unit trust where the investments are professionally managed and and you enjoy diversification. However, the charges for most unit trust is 1% per annum, which is rather high. The fund manager will tell you that he can add value by picking the good stocks that will perform better than the market, but studies have shown that most fund managers are not able to generate this value.
You can invest in an exchange traded fund, which is benchmark against the stocks comprised in the market index. An example is the Statestreet Trakker fund, commonly known as the STI ETF. The management fee is 0.3% per annum. This is a low charge, compared to unit trust.
Read this table to see the impact of a reduction in yield on a monthly savings plan over a number of years.
Tan Kin Lian
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