Saturday, June 26, 2010
This question is abit baffling to me sometimes as I do not really understand what exactly they are asking about. I am supposing that the question is actually twofold:
1. What investment incurs the lowest brokerage charges, sales charge or commissions?
2. What is the cheapest form of investment (cheapest in the sense of lowest monthly premium committment or lowest initial capital outlay)?
So the question on what is the cheapest way to invest perhaps is a question on what is the lowest amount of money one can invest in and at the same time incur very low charges or fees that could potentially "eat" into the initial investment amount.
Well, if you ask me, the lowest amount of money one can invest is actually in shares. This is considering the fact that you can buy like 10 shares of SingTel which together with brokerage charges will cost you less than a $100. But that is of course not very efficient as the brokerage charges will make up more than 50% of your initial investment.
For example, a person buys 10 shares of SingTel and the brokerage charges is for example $25 per trade.
If SingTel is trading at $3.00, 10 shares of Sintel will cost $30 while the brokerage charges will make the total investment cost $55! What this basically mean is that for buying 10 shares of SingTel, the investor has paid $55 which brings the average cost of purchase per share to $5.50 compared to $3.00.
What I have shown in the example above is just to show that if you put in a low amount of investment capital, it might be cheap and expensive at the same time. Cheap in the sense that you only required $55 to invest but expensive because the commissions and charges make up a huge percentage of your initial capital outlay.
Well, to cut the whole story short, one needs to balance both the intial capital outlay as well as the charges incurred. I hope to expand on this article in the near future...
So what is the cheapest way to invest? Any tips from anyone?
Friday, June 25, 2010
Wednesday, June 23, 2010
Tuesday, June 22, 2010
Monday, June 21, 2010
Saturday, June 19, 2010
Thursday, June 17, 2010
In today's analysis, we will look at participating policies and bonuses.
Main feature of a participating policy is its ability to provide stable returns while participating in the performance of a Participating Fund or Par Fund. While one does not have any control over what the par fund is invested in, one can expect to participate in the performance through bonuses which are allocated to the policy holder.
Policy benefits or bonuses depend on the following factors:
1. Investment performance
2. Claims experience
4. Decision of the Appointed Actuary and approval by Board of Directors
Usually, bonuses are allocated based on the surplus of the Par Fund. When bonuses are being considered, the actuary and directors take into account average performance of the par fund over a period which is longer than one year so as to minimise short term fluctuations in asset values of the par fund.
Hope this short posting explains how bonus allocation works for all you participating policy holders out there.
Tuesday, June 15, 2010
But we need to know what we are saving money for.
Is it just to see our bank accounts grow fatter? Do we have a clear purpose in our savings?
We can choose to spend our money today. Or we can save it up and spend it tomorrow. When it comes to saving, we need to know why we are not spending the money today and instead saving it up. I am writing this post to tell myself why I am not gratifying my desires NOW but instead putting money aside in a bank account.
Here are a few of my savings goal (in terms of priority) for the short term as well as long term:
Short Term Savings Goal (5 to 10 years)
1. COE for my current car when the COE expires (estimated $25K)
2. Europe holiday
3. Down deposit for 2nd property
Long Term Savings Goal (10 to 30 years)
2. Child's University Education
3. 2nd Car
4. 3rd Property
This reminds me that I need to start saving for my short term goals.
Monday, June 14, 2010
The policy name is Asia Junior Life Plus Assurance with Escalating Reversionary Bonus.
Every now and then, I will try to analyse abit of this complicated insurance plan and try to decipher each and single statement on the policy contract as well as bonus declaration statements to see what it means.
Today, I will try to interpret what I read from the Bonus Declaration Statement in Year 2010.
BONUS DECLARATION STATEMENT IN YEAR 2010
TM Asia was kind enough to send a pretty concise booklet on the Annual Bonus Update 2010 together with my bonus declaration statement for the year 2010.
Here are some key points that I note from the Annual Bonus Update:
1. This is the 3rd published bonus update report for TM Asia Life Singapore Ltd's Participating Fund. The annual bonus update 2010 is an update on the participating fund for the year ending 31 December 2009.
2. For 2007, gross investment returns was 12.25%. For 2008, -17.13% and for 2009, 20.05%.
3. TM Asia Life has an unmatched record of never reducing bonus rates. Since they have never reduced bonuses even during the financial crisis of 2008, we can see that insurance companies typically use a bonus smoothing technique to ensure that bonuses are paid out both in good times and bad. When times are good, they might not pay out too much bonus but instead "store" this money in the par fund so that they can have money to pay out bonuses even when the funds are not doing well. In a sense, the policy owner does not get the wild fluctuations in policy value that is associated with investment linked plans. On the downside, it also means that one cannot expect big bonuses even when the market is doing well.
4. Participating Funds can sometimes be "black holes" of investment where we know little about the assets that are being held. In the Annual Bonus report, I can see that the Top 10 Equity holdings for the Par Fund are:
- TM Asia Equity Fund
- Keppel Corp
- Singapore Airlines
- Singapore Exchange
5. The bonus rate is $10 for every $1000 Sum Assured. I am insured for $160,000. That means that I am entitled to $1,600 bonus for the year. In ADDITION, there is a bonus added on accrued bonus (by a rate of 1%). As my accrued bonus is now $20,292.02, the bonus on bonus is $202.92. The total bonus I get for this year is thus $1600 + $202.92.
6. The accrued bonus is not the cash surrender value. This is a very important point which many people are often mistaken about. The cash surrender value comprises guaranteed plus non-guaranteed components. The accrued bonus makes up part of this non-guaranteed bonus and is pro-rated according to the number of years I have been servicing this policy. In other words, if I surrender the policy now, only 25% of my accrued bonus + guaranteed component will be paid out to me. (As the number of years increases, the bonus is increased in percentages. That is why it is called "Escalating Reversionary Bonus"). To find out what is this amount, it is best that you obtain a Benefit Illustration from TM Asia Life.
That is all for today's analysis. I will analyse the various components at a later date. As mentioned, what I am analysing is based on TM Asia Life's Asia Junior Life Policy. It might not be the same as other insurance policies that are out there. If you are interested in me doing an analysis for your policy, you can send the relevant documents to my email at email@example.com. Your name and stuff will be kept confidential but I will analyse the policy and publish my findings on this blog.
Sunday, June 13, 2010
Thursday, June 10, 2010
Wednesday, June 9, 2010
The Federal Reserve Chairman Ben Bernake says he does not expect the US economy to fall back into another recession.
This boosts people's confidence in stocks and thus reduces the demand for safer investment instruments like bonds and treasury notes. In order to attract investors to bonds, the issuers of bonds thus need to raise the interest rate or coupon rate to make it competitive and lucrative enough for investors to invest in them. Otherwise, these investors would rather invest their money in the stock market.
Hope this provides a simple explanation on why interest rates rise when the economy is doing well.
As interest rates rise, can we also expect the interest rates or deposit rates in our banks to rise?
Tuesday, June 8, 2010
In Singapore culture, it is deemed embarrassing to be seen eating alone. In fact, I think most people would rather skip their meals if they have to eat alone.
Is it true?
Based on my personal experience, I have certainly felt that way before. In the past, when I was still working in an office, we would all go and eat lunch together at the cafeteria nearby. Sometimes, due to work committments, my usual lunch kakis would be out of office and I was left alone. It was really "embarrassing" in a sense to be seen eating alone in the cafeteria where there were many other acquaintances / colleagues around. These are of course the people that you don't usually mix around with because they are from different branches and departments.
Many times, I found that I resorted to packing my lunch and eating at my desk rather than be seen eating alone.
Nowadays, I have overcomed that fear. Perhaps it is because I no longer work in an office. I certainly don't mind eating alone. But there is still that nagging fear that I might meet someone I know and it might be an "embarrassing" situation.
Do you dare to eat alone?
Monday, June 7, 2010
Saturday, June 5, 2010
Friday, June 4, 2010
Tuesday, June 1, 2010
It is not a lot really but still works out to be some"kopi lui" to keep me motivated to keep on blogging. Since people have been saying that I have been too transparent with my finances, I guess I won't reveal how much I got this time. All I will say is that it is the biggest cheque I have received thus far.
What I like about the cheque is that it seems to be mailed from all the way from the United States. The cheque is green in color and is very different from other personal cheques that I have received. On the cheque, everything is printed out. The best thing of course is the currency exchange rate. With the exchange rate now at 1US$ to 1.4S$, it works out to be quite a neat sum. Enough to eat a good meal =)
And in case you are thinking that this blog is making lots of money, it is not. It is some other site of mine that is actually raking in most of the money. Though I spend lots of time on this site, it still hasn't been that "productive" in that sense of the word.
I had bought Aviva's SAF Group Term Policy some years back. Looking at the NTUC I-Term Policy now, I think that it is indeed a competitive product that might be much cheaper than other term policies around. Please do your own research as this is just based on my gut feel and opinion.
NTUC I-Term Policy
NTUC's term policy is a pure protection plan that provides coverage for death, total permanent disability and terminal illness. Terminal illness should not be confused with critical illness. Suicide is excluded for the first year of coverage. For TPD, the payouts are over a period of 5 years (10% for the 1st 4 years and the remaining 60% on the 5th year). This is pretty common amongst all insurance plans.
For a male of 30 years of age (non-smoker), a coverage of $100,000 will cost only $9 per month for a 5 year term and $13 per month for a 20 year term. As such, it does seem that the premiums are much lower than Aviva's SAF Group Term Policy! In addition, the premium rate is guaranteed for the term of the policy. That means that the premiums you will pay are guaranteed based on the number of years you are covering for yourself. Based on the website, you can choose between a 5 year up to a 35 year term of coverage (in increments of 5 years).
In fact, a Business Times article on August 2006 reported that I-Term was the cheapest term policy around then. I am not sure whether it is still the cheapest around in the market today.
No Minimum Entry age and Max Entry Age of 74yrs old (age last birthday)
I-Term has no minimum entry age. This means that a baby can be covered from as young as 1 year old. The maximum entry age is 74 yrs old.
A Quick Analysis
Based on first glance, I-Term indeed looks to be a value for money term insurance policy offering high coverage for low premiums. Unless someone corrects me, I would like to think that this is the cheapest term insurance I know of in the Singapore market today. Thanks to my reader for giving me the heads up on this cheap term insurance plan!
What I like about this plan is basically how it is competitively priced and how it offers a variety of terms for coverage. If I were to switch to this term insurance, I will most likely opt for the 35 year term coverage. In terms of monthly premiums, it might be cheaper than the SAF Group Term Policy that I have. In addition, it will be guaranteed renewable.
Aviva's SAF Group Term Policy provides rebates each year that help to make their term plans even more competitive when you take into account the rebates. For example, I have received this year's rebates of up to $100. So comparing premiums wise, it is a close fight between these two term plans. Nevertheless, I still think that for the benefits provided, the I-Term is rather competitive for its pricing. As my SAF Group Term Policy is lumped together with other critical illness and personal accident coverage, it is difficult for me to do an apple to apple comparison and decide whether it is truly worthwhile to switch plans at the moment.
If there is any NTUC income agent reading this blog, do let me know what the premiums are like for critical illness coverage and personal accident coverage. Who knows, I might even purchase the policy from you! =)
Recently, TM Asia declared that yearly bonus again for participating whole life policies and even though the returns on the par fund for 2009 wasn't fantastic, the bonuses declared were not reduced. TM Asia has never cut their bonus for the past 10 years. At least that is what I have heard.
After receiving the annual bonus statement, I decided to call the customer service centre for a benefit illustration of my policy. I just received the benefit illustration today.
Do note that since this policy was bought by my parents and handed over to me, I never did any comparisons with other companies then. While many people have never heard of TM Asia, it is actually quite a big company though it is relatively unheard of in Singapore. Its tied agency force is also very small as it tends to rely on IFAs to distribute its products.
A Quick Analysis
I am currently at Year 12 of my policy year meaning that I (and my parents) have paid 12 years of premiums worth a total of $22,204.80 for a coverage of $160,000 for Death and TPD. There is no critical illness coverage in this policy.
Based on the current surrender value, it is $11,200 (Guaranteed) and $4,357 (Non-Guaranteed). That adds up to a total of $15,557 in surrender value provided that the non-guaranteed component is accurate.
The bonuses become guaranteed additions to the sum assured once they are declared.
Terminal bonus on death and maturity
TM Asia whole life policy has the following feature:
Below 10 yrs : 0%
10 to 14 yrs : 25%
15 yrs: 50%
16 yrs: 100%
17 yrs: 150%
18 yrs: 200%
19 yrs : 250%
20 to 24 yrs: 300%
25 to 29 yrs : 400%
30 and above : 500%
This basically means that the non-guaranteed component for death or maturity of the policy starts to increase as the policy years go by. As my policy is only 12 years old, whatever bonuses that have been declared are still subject to 25% payout only. That means that if $10,000 in bonuses have been declared, the non-guranteed component payout is only $2,500. This bonus chart stated above relates only to claims during death and maturity (policy year 99 I am guessing). So I guess it is not really meaningful to me unless I die or I live past the age of 99.
Terminal bonus on Surrender
To add to the already confusing policy, there is another table that shows how the terminal bonus for surrendering the policy works out.
It states: "Terminal bonus on surrender as percentage of attaching bonus is illustrated from the end of 19th year onwards if applicable."
19 year: 125%
20 to 24 yr : 300%
25 to 29 yr: 400%
30 and above: 500%
Basically, at the 20th policy year ( meaning after 19 years of paying premiums), I can expect to see a big jump in the non-guaranteed component of the surrender value. This is illustrated in the benefit illustration where the non-guaranteed surrender value jumps from $8,464 to $20,858 during the 19th and 20th policy year respectively. At the 21st policy year, it almost doubles again to $42,057.
I have had thoughts of surrendering this policy but decided against it as I wanted to wait until the 20th policy year before making any decision. In any case, this policy serves as a good protection and savings plan for me. I know many people will recommend the proverbial Buy Term Invest the Rest mantra but this has worked well for me thus far. While it does not have Critical Illness coverage, I still have my coverage from other policies.
Many IFAs have also touted TM Asia's whole life policies as being one of the most competitive in the Singapore insurance industry. I am not sure how true that is. The only thing I know is that in terms of bonus declaration, TM Asia has been able to pay out a constant bonus over the past 10 years. Dollar for dollar and coverage wise, I would like to think that other companies might have even more competitive plans that provide better coverage at a lower premium. In fact, I think many of the whole life policies now are rather similar and competitively structured. Insurance companies often review their products so that they become better than their competitors.
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