A customer sent the benefit illustration for a newly introduced plan called Reach. I analysed it as follows:
This is a 10 year Reach policy with an annual premium of $5,000 payable for 5 years. Subsequently, the policy pays a cash coupon for the next 5 years. The coupons can be accumulated with interest. Based on the non-guaranteed interest rate of 3% per annum payable on the cash coupons, the total amount at maturity represented a yield of about 1.2% p.a. For a 10 year investment, this is a poor yield and is not even guaranteed.
The same company had a single premium plan, called Growth, which gave a non-guaranteed yield of 2.7% or 3.5% over 7 years, which was more acceptable. It seemed that the old plan gave a better return, compared to the new plan.
It is better for the consumer to invest in the STI ETF, which is flexible and gives a better long term yield. Read my financial planning book for more information.
Monday, June 14, 2010
Willingness to change
Many people are afraid to change, because the change may go wrong. The fear the consequence of a mistake - that they may lose a well paying job.
Here are my views. We have to make many changes, in the hope that some will succeed and that the benefit of success will outweigh the cost of the failures. Usually, it is not possible for us to know if a change will succeed or fail, unless we are willing to try it. We only need to make sure that the cost of the failure is small and is affordable.
Sometimes, we need to fail the first time, in order to succeed the second time. The lessons of the first failure can be a great way to learn what the real world situation is like. If we never try, we will never know.
I wish to share this interesting personal experience. In the early 1980s, I headed an insurance company that launched, for the first time, the life annuity product. We did a great deal of planning, preparation and training of the agents and employees. We also advertised the product on a modest budget. It failed. The consumers do not accept a product where they can lose their capital on early death.
Three years later, we launched a modified life annuity product that provided a guaranteed payment for 15 years but gave a smaller payout. It was a roaring success and established a domiant market share for the insurance company. The lessons from the first failure was the trigger for the changes that led to the success of the second attempt.
I wish to encourage people, especially the younger ones, to be willing to try and to change. It will be fun to experience the succeess, failures and to learn from the results.
Tan Kin Lian
Here are my views. We have to make many changes, in the hope that some will succeed and that the benefit of success will outweigh the cost of the failures. Usually, it is not possible for us to know if a change will succeed or fail, unless we are willing to try it. We only need to make sure that the cost of the failure is small and is affordable.
Sometimes, we need to fail the first time, in order to succeed the second time. The lessons of the first failure can be a great way to learn what the real world situation is like. If we never try, we will never know.
I wish to share this interesting personal experience. In the early 1980s, I headed an insurance company that launched, for the first time, the life annuity product. We did a great deal of planning, preparation and training of the agents and employees. We also advertised the product on a modest budget. It failed. The consumers do not accept a product where they can lose their capital on early death.
Three years later, we launched a modified life annuity product that provided a guaranteed payment for 15 years but gave a smaller payout. It was a roaring success and established a domiant market share for the insurance company. The lessons from the first failure was the trigger for the changes that led to the success of the second attempt.
I wish to encourage people, especially the younger ones, to be willing to try and to change. It will be fun to experience the succeess, failures and to learn from the results.
Tan Kin Lian
Safe-to-fail
There is a controversy in the Straits Times about an article written by a journalist arguing that we should accept the "safe-to-fail" situation. Some readers said that it would lead to complacency.
I wish to share my view. "Safe-to-fail" does not necessary lead to complacency. We do what we can, and do not have to over-worry about the unlikely events, if these events do not lead to disaster. This will foster a spirit of enterprise and entrepreneurship.
We have a weakness in Singapore which has been described as the "kiasu" attitude. It is an attitude of extreme caution that lead to the unwillingness to take responsibility, and waiting for the boss to decide. This pervades many stratas of our society, including the mindset of our leaders.
It is time for us to be bold and be willing to change. I am not advocating complaceny, but a balanced approach towards making changes.
Tan Kin Lian
I wish to share my view. "Safe-to-fail" does not necessary lead to complacency. We do what we can, and do not have to over-worry about the unlikely events, if these events do not lead to disaster. This will foster a spirit of enterprise and entrepreneurship.
We have a weakness in Singapore which has been described as the "kiasu" attitude. It is an attitude of extreme caution that lead to the unwillingness to take responsibility, and waiting for the boss to decide. This pervades many stratas of our society, including the mindset of our leaders.
It is time for us to be bold and be willing to change. I am not advocating complaceny, but a balanced approach towards making changes.
Tan Kin Lian
Categories of investments
When you invest your money, you should take note of the following categories of investments:
a) exchange or market traded products
b) structured products
c) unregulated products
Category (a) include shares, bonds, currencies and commodities traded on an exchange or over the counter. You can buy or sell the product and has to pay only the spread and other charges. These costs are transparent to you.
Category (b) include life insurance policies, dual currency investments, linked notes and other structured products. You can only buy the products on the terms designed by the issuer. There is the risk that the issuer has creamed off a large margin to cover their profit and marketing expenses, giving you a poor deal (relative to the risk of the investments). As they are regulated, the investor should study the benefit illustration or prospectus that is mandated by the regulator. If you find these documents to be confusing, you should avoid these investments. You should understand the risk and make sure that you can commensurate return, before you make any investment.
Category (c) are land banking, time share and other unregulated products. These products are the most risky and require careful study. They should only be invested by sophisticated investors. The ordinary investors should avoid these products.
These points are explained in more detail in my book, Practical Guide on Financial Planing, which is written for the layman. I advised investors to invest in category (a) product and to manage the risk through diversification.
a) exchange or market traded products
b) structured products
c) unregulated products
Category (a) include shares, bonds, currencies and commodities traded on an exchange or over the counter. You can buy or sell the product and has to pay only the spread and other charges. These costs are transparent to you.
Category (b) include life insurance policies, dual currency investments, linked notes and other structured products. You can only buy the products on the terms designed by the issuer. There is the risk that the issuer has creamed off a large margin to cover their profit and marketing expenses, giving you a poor deal (relative to the risk of the investments). As they are regulated, the investor should study the benefit illustration or prospectus that is mandated by the regulator. If you find these documents to be confusing, you should avoid these investments. You should understand the risk and make sure that you can commensurate return, before you make any investment.
Category (c) are land banking, time share and other unregulated products. These products are the most risky and require careful study. They should only be invested by sophisticated investors. The ordinary investors should avoid these products.
These points are explained in more detail in my book, Practical Guide on Financial Planing, which is written for the layman. I advised investors to invest in category (a) product and to manage the risk through diversification.
Sunday, June 13, 2010
Non-PAP politicians
I am responding to a suggestion by a commenter to create this survey on non-PAP politicians. Here is your chance to give your views. Survey is now closed. 100 responses were received within 8 hours!
UPDATE
Final results based on 100 respones.
UPDATE
Final results based on 100 respones.
Experience and perspective
An engineer in the late thirties told me that tehcnology is changing so fast in this field that it is difficult for him to keep up and compete with the young engineers that are trained in the new technology.
I asked him to focus on his strenghs, which are the experience and perspective that he has gained over the years, rather than to compete in his areas of weakness.
I posed him a problem of how to write an algorithm to compare one image with another image and see if they fit. The images are formed from the tangram pieces. We discussed several options, including comparing pixels by pixels, but he pointed out that this would take too much power and would drain the battery of the mobile phone.
He then suggested an approach, taken from a previous project. Instead of comparing every pixel, the program could compare every 10th pixel across and down. This would reduce the comparison by the factor of 100 to 1, and would still produce the same answer. It was an excellent solution to a problem that had bugged me for a long time.
I wish to quote this example to encourage the older people that your experience and perspective is valuable, but you have to use it effectively. Instead of competing with younger people in new technology, the older people can use their experience and perspective to guide the young, and can continue to play a useful role in the business.
Tan Kin Lian
I asked him to focus on his strenghs, which are the experience and perspective that he has gained over the years, rather than to compete in his areas of weakness.
I posed him a problem of how to write an algorithm to compare one image with another image and see if they fit. The images are formed from the tangram pieces. We discussed several options, including comparing pixels by pixels, but he pointed out that this would take too much power and would drain the battery of the mobile phone.
He then suggested an approach, taken from a previous project. Instead of comparing every pixel, the program could compare every 10th pixel across and down. This would reduce the comparison by the factor of 100 to 1, and would still produce the same answer. It was an excellent solution to a problem that had bugged me for a long time.
I wish to quote this example to encourage the older people that your experience and perspective is valuable, but you have to use it effectively. Instead of competing with younger people in new technology, the older people can use their experience and perspective to guide the young, and can continue to play a useful role in the business.
Tan Kin Lian
Saturday, June 12, 2010
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