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
Monday, May 10, 2010
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
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.
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.
Sunday, May 9, 2010
Bank charges
I have to pay USD100 to Hong Kong. The bank charge $20 for cable charge and $10 for handling fee. Western Union (through the Post Office) also charge $30. This amounts to 20% of the amount to be paid. I asked the supplier to collect by credit card or Paypal. I hope that they agree.
Survey: Puzzles to train your mind
If you have practiced on the shape quiz or tangram, please take part in this survey.
Pricing of HDB flats
Read this article in The Online Citizen.
My comments
I prefer to give an option to the public to buy the HDB flats at cost plus or at market price (less subsidy). Both types are subject to their conditions. This is similar to executive condo (EC) flats that are subject to conditions which are different from private condos.
The option to buy HDB flat at cost plus may suit some young people who looks at the flat as a home, rather than as an investment. They want to pay a lower price to keep down the cost of living.
My comments
I prefer to give an option to the public to buy the HDB flats at cost plus or at market price (less subsidy). Both types are subject to their conditions. This is similar to executive condo (EC) flats that are subject to conditions which are different from private condos.
The option to buy HDB flat at cost plus may suit some young people who looks at the flat as a home, rather than as an investment. They want to pay a lower price to keep down the cost of living.
Subscribe to:
Posts (Atom)