Success Takes Effort

Recently, this thought has struck me deeply. Success does not come easy and it certainly takes a bit of effort. Most people spend their entire lives slogging it out before success comes their way. They spend easily 20 to 30 years of their life before reaping the fruits of their labour.

I was looking at the CV of a person I respected and was amazed at the amount of things and posts he has held. I looked at his age and wondered whether I could ever achieve such things by that age. Only time will tell and if God willing, I still have twenty years of my life to either surpass him or equal him.

Success takes effort and hard work. Often, it involves years of just working at a desk, carrying out your daily job. Just some food for thought.

AXA FutureProtector High Lapse Rate

It was reported in the Straits Times today that AXA, an insurance company, is trying to claw back $7 million from local financial advisory firm Finexis.

Last year, Finexis had a promotion where they were giving away free 1 year term insurance to its customers and potential customers. This free 1 year term insurance was AXA's FutureProtector policy. Most probably unknown to AXA, Finexis gave away all these insurance policies without asking customers to pay a single cent.

This was my personal experience:

Financial Planner from Finexis: "I got free insurance to give you. Just sign it here and after 1 year cancel it. Free, why not just take it. $200K coverage."

Me: "Okay lor"

I readily signed up for the free insurance from Finexis with the mindset to cancel the policy after 1 year. Afterall, that was what I was told to do. In fact, just this year, the agent sent me a giro cancellation form so that I could cancel off the policy as agreed upon. But I had no use for the form as I had already informed the bank beforehand to cancel off the giro agreement at the start of the year.

So now we know the repercussions of giving away free insurance. I am pretty certain that many of those who took up the free insurance just lapsed their policies as they saw no need for that protection at all in the first place. The only reason they took it up was because it was given totally free of charge without them having to purchase any other policy at all. We Singaporeans love free stuff =)

Salary Discussion

How much does a normal or average Singaporean earn? Based on median income, that is supposed to be $2,400 per month and raised to over $3000 by 2020 (Government's projection). I am not sure whether that is the actual case and have created a poll. Hopefully, more people will take part in the poll and "reveal" their salary.

I guess it will also useful for people who are thinking of switching jobs and are too afraid to ask others what their pay is like. Based on a recent survey published in Straits Times, people looking for jobs tend to view salary and career progression as fairly important factors when considering a job. In addition, they are looking for "work-life balance".

Here are some "statistics"of gross monthly salary that I know of based on conversations with friends and family:

1. Trained Teacher ($4000 plus, degree holder)

2. Stat Board (fresh grad, $3000)

3. Ministries (fresh grad, $3000 ++)

4. Secretary for SME (fresh grad, <$2,500)

5. Engineer (fresh grad, $3000)

6. Teaching Assistant, NUS (fresh grad $2,500)

7. Recruitment consultant (with commissions, $4000-$5000 after 1-2 years)

8. DXO in Mindef ($3200, fresh grad)

9. Tuition Teacher ($1000 to $10000+, depending on level taught and no. of students)

10. Bancassurance in bank ($4000 with experience)

11. Insurance agents ($2000-$15000, depending on commissions)

12. Property agents ($2000 - $20,000 , depending on sales)

13. Pastor ($3000)

14. Taxi Driver ($3,500)

15. Admin staff in MNC ($2,600 fresh grad)

16. Secret agents ($5000, fresh grad)

17. A*Star (fresh grad, $3500)

18. Sales Engineer ($4000)

19. Big 4 accounting firm (fresh grad, <$3000)

The figures above are "hear-say" figures and might not be entirely accurate. These are based on my conversations with people and what they accidentally reveal over the years when they complain about pay or are discussing about changing jobs.

Of course, there are a whole slew of other factors like performance bonus and yearly increment. But I guess the "wisdom" about all these matters are really out there in the market and only known by those who are working in that particular industry.

Perhaps people will feel free to share anonymously on their income and the qualifications they hold (including no. of years worked).

Surrendering Insurance Policies?

I read the news article a few weeks back about insurance agents/financial planner shifting around the various companies in Singapore with handsome buyout clauses and stuff. These insurance agents get paid lots of money just to jump ship from one insurance company to another company.

While that might be a concern to most people, it is important to note that if your insurance agent has switched companies, he or she is not supposed to induce you to lapse or surrender your existing insurance policies and buy a new policy from them. This unethical agents are just out to earn extra commission as they no longer earn the trailer commissions that they would have earned if they had stayed with the same company. When they join a new insurance company, they start from ground zero all again and have to start building up their client base all over again. The fastest and easiest way that they go about doing this is to ask their previous clients to take up new policies with them, often citing the benefits of doing so.

Some of them might even suggest that they can continue to "take care" of you. That is not the case as the insurance policy contract that one purchases and owns is an agreement between the insurance company and you. The insurance agent is just a distributor and does not own the clients in a legal sense. When your insurance agent leaves the industry or leaves the company, the insurance company will get another insurance agent to "service" you. If all else fails, just call the customer service hotline. That is the usual way I find out information and it is much faster than going through your insurance agent.

In the insurance industry, this malpractice of replacing old policies with new policies has led to agents being caught and fired. Many have also been disillusioned by the unethical conduct and have left the industry or lamblasted the industry. However, the practice is still very widespread. I have met with many insurance agents before and all of them have at certain points in time asked me to surrender one of my existing policy to buy a "better and newer" policy from them. This happens even when I have met IFAs.

This point has been elaborated by Mr Tan KL before at his blog. In most cases, surrendering your insurance policy does not make sense. This is especially so if you are asked to buy a similar insurance policy to replace the policy that you have surrendered or lapsed.

From a monetary point of view, it is very difficult to justify surrendering a policy for another policy. Always remember to get a 2nd or 3rd opinion when in doubt so that you can make a more informed decision. Better still, ask people like me who are not in the industry and you will probably get a more informed and independent opinion. Of course, you will have to buy me coffee =) .........Just kidding..

Does Studying a Masters Help?

I have been wondering the past few days whether studying a masters would be useful in my career progression and open more doors to me. I currently only have a bachelor's degree and was thinking of doing a masters in one of the local university.

Of course, cost is one of the main factors that I choose to do it locally. Besides, I cannot afford to do it on a full-time basis and most probably will have to pursue it on a part time basis.

I was just wondering whether doing a masters in my related field of work will bring about a better career progression for me. Besides, I have also been wanting to do a masters for the longest time but I just don't know whether it is worthwhile to spend the time and money on something unless there are potential benefits. The other option will be to wait for a few more years, save up enough money and then go overseas to do my masters.

Decisions, decisions, decisions....

Poll Results: Which is the most toxic investment product

In a poll that I recently conducted on this blog, I asked the simple question to readers:

Which is the most toxic investment product?

All investments are subjective are their investors believe that they will rise in value and thus invest in them. Toxic investments or assets are simply things that lose their value such that there is no way to liquidate them for any money. Whether investment products are toxic........we can only tell based on hindsight I guess. On hindsight, we are now certain that subprime mortgages are toxic assets. But whether other investment products are toxic or not, we can only wait and see.

Poll Results - A total of 22 votes were cast

1. Land Banking (54%)

2. Insurance Products (18%)

3. Wine Investment (27%)

4. Shares (0%)

Analysis of Results

The poll showed that more than half felt that Land Banking was a toxic investment product. Wine Investment was next followed by insurance products. Nobody felt that shares is a toxic investment.

The reason why Land Banking got so many votes is perhaps due to the recent Straits Times article on it being unregulated. Mr Tan Kin Lian has also highlighted the pitfalls of investing in land banking on his blog. The low liquidity of this investment product coupled with the risk involved makes this a fairly risky product to a certain extent.

Interestingly, noone rated shares as toxic or risky even though there have been cases or debacles of shares becoming worthless overnight. Just think of China Print and Dye, etc. These shares just lost value overnight and became totally without value. Isn't that toxic?

Generate Income from Your Property

A few days ago, I wrote about HDB's Lease Buyback Scheme. I was just exploring the various options that might be available to people for generating income from their biggest asset: Their Homes or HDB flats.

I have been thinking about it for some days and I do feel that the Lease Buyback Scheme ought to be further improved if possible. For one, they should perhaps extend it to all Singaporeans to make it easier for older Singaporeans to liquidate the tail-end lease of their HDB flats. After all, not many people are ready for retirement in Singapore.

Renting Out

Another way that people can generate income from their property or HDB flat will be to rent out the entire flat or rent out certain rooms.

A person is allowed to rent out the entire flat after living in it for a certain number of years. (5 years if subsidised and 3 years if unsubsidised). Approval is required from HDB to rent out the flat. A higher property tax of 10% will be chargeable if you rent out your entire flat.

Alternatively, one can also rent out one or more rooms in your property or HDB flat with no change to the property tax payable.

Generating income from your property during your retirement years is fairly easy. However, one should realise that there are also certain risks and downsides involved:

1. Bad tenants (illegal immigrants, overstayers, people who don't pay rent, tenants who spoil your property).

2. Conflicts when living with tenants.

3. Lack of privacy.

What is Happening to Singapore?

I must be crazy. Or perhaps I am just short tempered lately. But what on earth is happening to Singapore?

In the past 1 to 2 years, I have been encountering more and more service staff who have no inkling of how to speak English at all!!! And they are supposed to be in the customer service line!!

The reason I am angry is because one would expect them to at least speak some basic English considering the job that they are doing. Afterall, there are people in Singapore who do not speak Chinese.

Some of these service staff also have an attitude to go with it. I remember once when I clearly saw a service staff who I know was from China at first glance. I spoke in Chinese and asked for one food item. She packed in two instead and I quickly corrected her to say that I only wanted one. She had the cheek to speak back to me and said that I actually said two!! Wah...fainted...

The last encounter was really amazing. I was asking for a high chair for my child at a supposedly Western restaurant. The service staff stared blankly at me and I repeated the request.

The woman actually said this in Chinese: " Ni jiang hua yu hao ma?" (Can you speak in Chinese please?) I have nothing against speaking in Chinese to service staff. But my thoughts go out to the non-Chinese speaking population. How do they cope?

I have even seen with my own eyes, a service staff trying to speak to a Malay in Chinese before. After the Malay ignored her, she even like rolled her eyes, most probably thinking to herself why the customer was ignoring her.

My oh my...What is happening to Singapore??????????? Is it just me?

Independent Financial Advisers?

I read in the Straits Times the letter to the forum by Larry Haverkamp titled : "Onus on insurers to boost transparency".

In it, he referred to another recent article which mentioned that financial advisers should not call themselves "independent" if an insurance company pays them a bonus for hitting sales targets. Mr Haverkamp goes on to suggest that dropping the term "independent" is a good idea but might not be a big deal as advisers will still continue to push the products that pay them the most.

MAS actually has guidelines on whether a financial adviser is "independent". And at times, it can be pretty grey as certain product providers do provide incentives that might make them bias in favour of a particular investment product.

Haverkamp is also correct to point out that playing with the word "independent" is actually just a small step forward. The ideal reform would be to empower consumers and let them make decisions based on a complete knowledge of the various products namely:

1. DIY method (Buy Term Invest the Rest)

2. ILP

3. Endowment

4. Whole Life Plans

Toxic Investment Products

Hi People,

I am running a poll to find out what you feel or think is the most toxic investment product out there in the market.

The poll can be found on the right hand column of this site. It is right under the picture of the pretty lady and should be located near to the top of the blog. The poll is only on for 4 more days so do let me know what you think simply by voting. Just one click and I will know the answer.

I have listed 4 choices of:
1. Land banking
2. Insurance
3. Wine investments
4. Shares


This will give an idea of what people think about the various products. I will share the findings with all so do contribute your thoughts yah?

Cheers,
FF

Sing Dollar Rises with Record GDP Growth Forecast

With Singapore's GDP expected to grow at a record 13 to 15 percent in 2010, the Sing Dollar is also expected to rise to curb inflation. MAS has declared that it will maintain a modest and gradual appreciation stance for the currency at the next policy meeting.

I have always been quite interested in economics. Unfortunately, I have never been trained in this subject. The closest I got was to study Economics 101 in university and that was pretty much about supply and demand lines. We hardly talked about currency appreciation and inflation.

This is my version or laymen's language of what is going on:

1. Singapore's output in terms of products and services have been pretty high over the past 2 quarters. As such, the expected GDP figures are going to be between 13 to 15 percent. GDP stands for Gross Domestic Product and is basically a measure of the country's economic output. For the long term, a healthy GDP growth is around 3 to 5 percent.

2. When GDP rises, inflation is also expected to increase. This is because firms require more workers and start bidding against one another to attract workers so as to produce a higher output. This leads to an increase in the prices of goods and services and thus leads to inflation. When GDP grows rapidly, inflation is also expected to rise rapidly. Most economists try to keep a low steady inflation rate of 2 to 6 percent. That basically means that there will ALWAYS be inflation in Singapore as it is judged that low rate of inflation is good for the economy. So do take note that inflation is not some airy fairy thing that only takes place once in a blue moon. Most countries try to keep a positive inflation as they view that deflation is bad for the economy. In that sense, we can expect inflation to be always with us.

3. By appreciating the Singapore currency, inflation will be kept in check to the low rate. MAS is not trying to abolish inflation. Rather, it is trying to achieve the targeted inflation rate of 2 to 6 percent which is deemed healthy.

I am not an economist and I am also not from MAS. But I guess this is the linkage between GDP, inflation and currency appreciation. At least, this is the way I understand it to work =)

Of Grenadine Syrup, Kolo Mee, Aimlessness and 1984

I went to Giant today and stared at the Grenadine Syrup that cost ten bucks per bottle. Cool. I could make my own tequila sunrise with this final ingredient. I have been eyeing it for sometime already but the thought of spending $10 for sugar water made me think twice. Alcohol by itself is already fattening and the last thing I want to do is to make myself any fatter. So I didn't buy it in the end.

Had lunch at the Sarawak Kolo Mee place. I am not sure why they call it Kolo mee. I am not sure what Kolo is supposed to mean. Anyway, the place was almost empty. The waitress greeted me warmly and I took a seat. The last time I had eaten the Kolo Mee was like more than 3 years back. Now I understood why the place was empty. A bowl of Kolo Mee which is basically like noodles, pork bits, prawns, wanton and char siew cost over $6. Together with the drink that I ordered, lunch cost me a whopping $8.55!

Nevertheless, I must say that the Kolo Mee was really tasty. I am pretty sure they drenched it in lard oil or something cos it was really super duper tasty. But I guess I won't be eating it anytime soon simply because paying six over bucks for a small bowl of noodles doesn't make economic sense to me. I know of $2.50 wanton mee that taste just as good. There is this Pontian Wanton Mee outlet at various hawker centres which are really worth it and yummy....

Feeling aimless the past few days. My wife asks me why I am not talking to her. I also do not know what to say. I just feel like I have achieved quite a bit of the goals I have set for myself in life. In the past, it was stuff like get married, get a job, travel to Europe, study abroad, have children, buy a car, get my own flat, etc etc. And I realise that I have already sort of achieved all these goals already. Whereas my peers still have the fun and joy of looking for their life partners or are looking forward to buying a car or flat, I have already sort of BEEN THERE DONE THAT. I am just feeling so aimless.

Perhaps it is time to setting more goals. Or perhaps it is about discovering what my true purpose in life is.

I have just finished reading Ninety Eighty Four by George Orwell. I thought I read it in the past but I must have been mistaken. Because I do not remember it being so saucy. My goodness. To think that I recommended the book to my wife when we first met... hahahha.. she must have thought that I must be quite "loose". I figured that I must have skimmed read it the first time or probably just jumped right to the end of the book without reading the middle parts. Anyway, 1984 is a good read. I really liked the parts about history only existing in written records and in our minds line of argument. Wicked if you ask me.

If I don't exist on written records and I don't exist in people's minds, does it mean that I do not exist at all?

On to reading my next book : One Flew Over the Cuckoo's Nest

Being Contented Helps You Save Money

There are many ways to save money. I know of probably 1001 ways to save money and I am pretty sure that most people know how to save money too. But I guess there is an underlying reason why people do not save money. It is because they have not learnt contentment.

Being contented with the things that you have in life is one of the first steps when it comes to saving money.

Whenever I spend money, I realise that I can actually save money if I curb my WANTS and simply be contented with the little things in life. This is probably true for many of us and it's perhaps the reason why we are constantly buying new things and upgrading our cars and stuff.

Learn to be contented and you will find that you can save alot more money without much effort.

Economics of Real Estate

Real estate has been a popular topic of conversation in the financial circles for most of the decade. First it was the hottest asset to own, with flipper and investors buying every home they could get their hands on. Today it is about as toxic as, anything found in your local dump. I find real estate to be a valuable asset for many reasons. It provides shelter and comfort, a place to eat and sleep, and to those who are raising a family memories. Everyone remembers their early years growing up in their home, and all the fun they had in the backyard playing with friends and family. It was a shame that many just bought homes to just resell in a short time frame. Not that I can blame them, it was the easiest way to make a living. With every bank willing to give real estate investors a loan because of rapidly appreciation home prices, who wouldn’t try and get in the game.

If every asset were to only appreciate then basic financial theory would be flawed. The demand would far outweigh the supply if everyone wanted to buy these assets that only went up. Unfortunately the banks lent out money to those who did not understand basic economics. For that matter banks did not understand basic economic either. The real estate market was not at equilibrium. The demand far outweighed the supply due to the fact that the banks were the outside force contributing to the demand. The definition of equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences. If the banks did not supply that external force, than the demand for assets would not have been so great, and the prices would not have escalated to the levels they did.

The real estate market got so far away from equilibrium that is having to snap back to attain a level where supply equals demand. At the moment there is little to no demand for many of these assets. This is also due to the fact that banks that once supplied endless amounts of loans to anyone who asked for them, are not loaning out money. In both instances economic theory has proven true. The demand became out of touch with equilibrium and so did the amount of loans issued. In both cases, they are in the process of correction which will take time. The current state of the market is such that there is so much supply that prices will have to come down to meet the demand. Not only are people hesitant to buy a home, but the banks that once lent money to anyone are being rather picky to those who want to take out a mortgage.

Today, loan availability is reserved for those with a steady employment history and a good credit score. The supply of available homes will hopefully continue to be bought up by investors and buyers who are able to obtain loans. If the supply remains at the highs that it is currently we should expect to see a continued falling of prices. It will come to the point where homes are cheaper to buy from the banks than they are to build. Bank homes will be coming on to the market for the next few years. Unless there are inflation pressures, the prices will fall.

This presents a buying opportunity to any foreign buyer that has a stronger currency that the Unites States Dollar. The exchange rate for these buyers will be able to buy them more home for the money here in America. By looking at exchange rates on the internet or a forex account, those interested in buying real estate in America can calculate the cost of the property in their own currency. Let us hope that our currency remains weak enough to attract foreign buyer to help rid of us of the supply. It is imperative for the health of our country that that real estate market is in equilibrium, and not gyrate in one direction or the other.

The following article is a guest post from Forex Fraud. While written for a United States audience, it is still relevant to Singapore in certain ways. If you wish to contribute guest posts to this site, please email sgfinancialfreedom@gmail.com

Paul the Octopus is NOT Psychic

Okay. So it managed to guess the results correctly for a number of games. But if you are starting to believe that Paul the octopus is a psychic, then you are either plain stupid or downright crazy. Paul the octopus is just an octopus looking for food in the fish tank.

The statistical odds of choosing a correct team with just 2 tanks to choose from is simply 50-50. It does not take a genius to realise that an animal has a probability of choosing the correct tank for more than 10 times in a roll. It is just statistics at play. If Paul had made a mistake earlier on, he would not be so famous. The fact that he has made so many "CORRECT" guesses is simply due to the fact that it is a 50-50 chance each time that he gets the correct answer. Paul is not psychic, he is just hungry.

If Paul was really psychic, he would be able to choose the correct team to win the world cup with all the 32 countries inside his tank. Now that would be really psychic. (You seriously think the octopus knows that the World Cup is going on????????????????) Duh.........

The same thing applies for fund managers and their investment returns. Don't be fooled by randomness. Anyone who still doubts what I say ought to read Nicholas Nassim Taleb's book Fooled by Randomness.

But of course there will be those certain few people who will still like the romantic idea that the silly octopus is really psychic and knows which team will win the World Cup.

Can You Trust Your Financial Planner?

Below is the first article that I contributed to CPF's IM$avvy. It discusses the current state of the financial planning industry in Singapore. I hope readers find this useful.

Being too trusting of others can sometimes work against us in financial planning. Too often, we are not skeptical enough when it comes to financial advice offered by others. Can you trust your financial planner? Is he really providing independent and unbiased advice or is he just trying to close a sale?

Advisory Business or Sales Business?

When the Financial Advisers Act was first introduced in Singapore, many thought that the financial planning industry would come up with a new breed of financial advisors who were independent and unbiased. While the fee based or fee-only model of financial advice is slowly taking off, most people in Singapore are still unwilling to pay a financial planner for the time and energy he takes to craft a financial plan. As long as the market is not ready, financial planners will continue to be compensated based on commissions.

A thin line separates the financial advisory business and the sales business. A sales person is one who derives his income from commissions. On the other hand, the financial advisory business is supposed to provide independent and unbiased advice to clients. It is important to realize that potential conflict of interests arise when financial planners earn commissions from the sale of financial products.

If your financial planner is earning a commission from you, can you trust that he will make the best financial decision for you? If a financial planner is selling you a product that you know very little about, how can you trust that the product is suitable for you?

Financial Products and Imperfect Information

I just read a book and it talked about a wallet auction.

Imagine that I pull out my wallet from my pocket and placed it on the desk in front of me. How much will you offer for the money in it? Whatever the case, any buyer of my wallet will be certainly worse off as I will only accept offers that they should not be making. I know what I am selling but the buyer does not know exactly what he or she is buying. It all boils down to information asymmetry or imperfect information.

The same theory applies to financial products. Imperfect information exists and the buyer has to overcome his lack of knowledge of the situation or of the seller. Market economies often deal with this problem through the mechanisms of advertising and reputation. As a consumer of financial products, your perception of a certain company’s reputation might influence you to purchase the product or invest in certain instruments. Or perhaps you have seen some advertisements that offer yields and gains that are too tempting to resist. Or perhaps, your friend had recommended a “reputable” financial planner that you can trust.

The reason why buyers rely on reputation and advertising is that they are not willing to spend the time to overcome the information asymmetry that exists. For example, a doctor gives me a prescription for a certain ailment. I trust his recommendation because of his reputation and credentials even though I am clueless about the medication that he has just offered me. In this case, it is unwise of me to spend 5-6 years of my time going to medical school just to breach the information asymmetry that exists between him and me.

But are financial products so complicated that we cannot take some of our own time and effort to breach this information asymmetry? Can you still trust that your financial planners will give you the best recommendations when there is a potential conflict of interests?

Trust Yourself: Financial Education

One simple way to overcome this information asymmetry would be for the consumer to become educated in financial matters such that they are better able to understand their own financial situation and make better financial decisions. This would help them better understand the financial products that they wish to purchase. For the beginner, the CPF IMSavvy website has a comprehensive list of articles that should serve as a good foundation for anyone interested in becoming more financially literate.

Are you willing to invest the time and energy to learn more about financial planning? Or do you still trust that a financial planner will do the best job for you?

Why Financial Knowledge is Not Enough

For most people, financial knowledge is actually easily acquired through the internet, books, friends or various other sources. Financial knowledge is simply the simple know-hows of basic financial planning. Yet, it is perhaps surprising that even when many people do possess this knowledge, not many actually act upon it. In a certain sense, having financial knowledge is not enough to guarantee financial success.

Financial knowledge is not enough by itself. It is akin to knowing about healthy living and eating but still being overweight and living a very unhealthy lifestyle. When I am choosing what to eat for lunch or dinner, I know what are the healthy food choices. I know that I ought to stay away from fizzy drinks. I know that I ought to exercise alot more. Yet even when I am armed with all this knowledge, I do not act upon it. I continue to eat unhealthy food and skip my planned exercise sessions. What results (love handles, tummy, failing IPPT) is not due to my lack of knowledge about healthy living.

The same case applies to most people when it comes to financial knowledge. They might know the need to save and invest their money. They know the importance of planning for their retirement. They know the importance of insurance. The problem is not really a lack of knowledge. The problem is that they fail to act upon it. I know of people who are well-versed in terms of financial knowledge but whose financial health itself are in a "mess".

In Bloom;s Taxonomy of Learning, it has been identified that people need to acquire Knowledge (K), Skills (S) and Attitude (A). As such, we can see that knowledge is just part of the entire learning process. Having knowledge alone does not mean you will succeed. It is an interplay between the K, the S and the A.

Financial Knowledge is not enough. We need to act upon that knowledge. We need to work on our attitudes that are so ingrained within us.

Lease Buyback Scheme

I am not yet over 30 but I guess it will be interesting to explore certain options that are available to me when I pass the age of 62.

The Lease Buyback Scheme or LBS is a new monetisation option to help lower-income elderly flat owners unlock the value of their homes to meet their retirement needs. As it has always been reported in the news, most Singaporeans are asset rich but cash poor. After pouring in alot of their money into buying a house, they are often left with insufficient money for their retirement needs. This scheme will help them to stay on in their own flat.

Under the LBS, HDB will buy back the tail end of the flat lease from the elderly household. On top of the housing value that is unlocked, HDB will provide an additional $10,000 subsidy. Out of the total amount, $5000 will be given to the household as upfront cash. The rest of the money will be used to buy a CPF LIFE Plan to provide a monthly stream of income for life. The household will continue to stay in their flat which will be left with a 30-year lease.

Eligibility

LBS is eligible for Singapore Citizens households who:

• are living in a 3-room or smaller flat
• are at CPF draw down age (currently 62 years) or older
• have not enjoyed more than one housing subsidy in the past
• have not previously owned a 4 room or bigger flat, or private residential property
• have lived in the flat for at least 5 years
• have a monthly household income of $3000 or less
• Do not have any outstanding loan of more than $5000

So am I eligible for it when I turn 62?

Firstly, I do not live in a 3-room or smaller flat so I will obviously not be eligible for it. It seems that this scheme is targeted at the elderly now and from statistics, only 25,000 households are eligible for LBS. This households will be those that fulfill the eligibility conditions stated above.

The amount that a household gets from the LBS depends on the valuation of their homes as well as the remaining lease.

LBS is not the only option for households who meet this criteria. Other monetisation options are also available for those with HDB flats. This might include renting out the HDB flat/room, moving to a HDB Studio Apartment or moving to a smaller, cheaper HDB flat.

For many Singaporeans, a HDB flat is their main asset and it will be useful to know that there are various options to generate income from their flats to meet their retirement needs.

In summary, elderly Singaporeans basically can explore 4 different options to generate income from their flat for their retirement needs. They are:

1. Rent Out Flat/Room

2. Move to a HDB Studio Apartment

3. Move to Smaller, Cheaper HDB Flat

4. Lease Buyback Scheme

Change of Ownership for AIG Global Investment Corporation (Singapore) Ltd

I received a letter from American International Assurance (AIA) about a week back regarding the change of ownership for AIG Global Investment Corporation (Singapore) Ltd. Here is the news:

American International Group, Inc (AIG) has announced on 29 March 2010 that it has completed the sale of a portion of its investment advisory and asset management business, including the entity formerly known as AIG Global Investment Corporation (Singapore) Ltd., to Bridge Partners, L.P., an exempted limited partnership owned by Pacific Century Group, an Asia-based investment firm. The divested portion of the asset management business has been branded as PineBridge Investments and operates in 31 countries. With effect from 26 March 2010, PineBridge Investments is an indirect wholly-owned subsidiary of Bridge Partners, L.P.

The resulting change in ownership has resulted in a change of name of AIG Global Investment Corporation (Singapore) Ltd. to PineBridge Investments Singapore Limited. Changes has also been made to the name of AIG International funds and sub-funds. PineBridge Investments is the fund manager for AIG International Funds. This change does not affect the names of AIA Investment-Linked Policy (ILP) Funds.

I hold an AIA ILP which I bought some years back. Here are the consequences for me as far as I can tell:

1. No change to the AIA ILP name. Mine is AIA Achiever.

2. There will be a change in names for all the AIG International Funds. For example, the AIG Greater China Equity Fund is now known as PineBridge Greater China Equity Fund.

Lending Money to Friends or Relatives

I realised that alot of readers like me to share my personal experience on financial matters.

Afterall, pure textbook knowledge about financial planning matters are available everywhere and sometimes, humans learn best from the experiences of others. I have thus created this tag on personal experience where I share my very own personal experience with readers and hope that you will be enlightened by it too. My personal experience are not textbook examples of how you should deal with your personal finance. It is how I dealt with my personal finance given my unique circumstances and scenarios. Sometimes, I acted against head knowledge because I treasure certain things more.

Lending Money

Lending money to friends or relatives is a common issue that crops up in personal finance. Very often, we might get unexpected requests from friends to borrow some money. I am not talking about $10 kind of money because they forgot to bring money with them. I am talking about them borrowing money that ranges from the hundreds to thousands of dollars.

I have one principle I use when I lend money to others. My father was the one who taught me this:

"If you ever lend money to others, treat the money as gone."

This is indeed a wise saying.

Once you decide to lend money to somebody, you should be prepared to write off the debt and the treat the money as a gift to them. If you are not willing to do so, then do not lend them any money.

Once you lend a friend or relative money, it will be very difficult to get the money back. It is a "face" thing amongst Chinese I guess to never ask people to repay back loans especially if they are close friends and relatives. So you will basically be at their mercy when it comes to repayment unless you have bothered to draft up a comprehensive IOU statement.

I am glad to say that I have lent money to friends and relatives on two separate events. I thought about it and asked myself whether I was willing to GIVE away this money and treat it like I will never get it back. Both times, I decided that I was in a position to give the money as my finances was good. Afterall, I view myself as only a steward of the money that God has entrusted me with. I also figured that since this people dared to ask me, they must really need the money.

I am glad to say that I got repaid back both times. One was paid back in a few weeks while the other took a few years. I did not ask for any repayment at all and did not charge any interest. To me, the money was a gift to them and getting paid back was considered a bonus.

I know of people who have lent lots of money to others and have failed to get their money back.

Invest with Temasek through Seatown

In the near future, it might be possible for the public to co-invest with Temasek. A new investment firm called Seatown has been established last year and it will admit sophisticated investors in 3 to 5 years and the public in 8 to 10 years.

That means that around the year 2018 to 2020, the public might get the opportunity to co-invest with Temasek Holdings.

This news was first announced by Ms Ho Ching last year.

Temasek Holdings seeded Seatown with over $4billion and has experienced executives running Seatown.

I am looking forward to this.

Cheap and Good Books

I am always on a lookout to buy cheap and good books to read. I am addicted to reading and always need a book in hand to keep my sanity. It isn't the coolest of hobbies as there really isn't much to talk about after reading a book. Nevertheless, I get immense pleasure from just reading books, especially if they are good.

I guess deep down inside of me, I always wanted to be a sort of novel writer or something. But perhaps that dream might never get fulfilled. Afterall, how many famous authors do we know from Singapore? Most of the famous authors hail from countries like the United States and Britain. Very few come from Asia. This is especially so when it comes to writing in English. Who will want to buy a English novel written by a Chinese writer? The market is really limited in that sense.

Anyway, back to cheap and good books.

I found out that Penguin books are usually really cheap and good. Recently, I bought The Beach by Alex Garland for $10.70 at PageOne. I devoured the entire book in less than three days.

Just today, I also managed to grab another Penguin book that cost $10.70. Apparently, there is a whole list of this Penguin books that have this plain orange coloured cover that are all going for $10.70. A really good deal if you ask me.

So if you are really looking for a cheap and good book, look no further. Penguin books are really worthwhile in my opinion.

Every once a year, there is also a Penguin BookFair that is held at the Singapore Expo. If you are patient enough, you can get the books there for an even cheaper price.

Cheapest Way to Invest (Part 2)

Last month, I wrote a very quick and dirty post on the Cheapest Way to Invest. This post has also been published at CPF's IM$avvy site.

In the previous post, I outlined that the cheapest way to invest is probably a "wrong" question. Instead, the question should be posed as follows:

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)?

Lowest brokerage charges, Sales charges or commissions

There is no easy solution to finding a good investment with low brokerage charges, sales charges or commissions. Afterall, people who sell investment products need a way to make their living and very often, these people are compensated based on the amount that the customer invests.

As a rough guideline, the charges one should expect to pay for investing in shares should be around a minimum of $20 to $30 per trade (depending on the size of the trade). If the amount you are buying or selling is larger, the brokerage charges are actually a percentage of the amount. For lowest brokerage charges, do shop around in Singapore for the lowest charges. Carrying out the trades by yourself through the internet is often cheaper than getting the broker to carry out the trade for you.

For investments into funds (e.g. Fundsupermart or investment linked plans), the norm is a 5% sales charge. Over the years this has been reduced and some funds are now offering sales charges for as low as 1% or even promotional rates of 0.2%. One needs to understand that the sales charge is the difference between the bid-offer spread of the fund prices. Some platforms or companies also charge an annual ongoing fee based on your investment amount. This means that the larger your investment amount, the larger the ongoing fee. Take for example an investment of $10,000 into a fund with a 5% sales charge. That basically means that your investment amount is reduced to $9,500 almost immediately upon investing into the fund.

Commissions are paid out to insurance agents/financial consultants/relationship managers/financial planners/brokers/etc whenever they make a sale of an insurance product. In today's context, many investment products are now tied in with insurance and the insurance companies pay a distribution fee to the agents who manage to sell the products to customers. This distribution fee is the commissions that are paid out as wages/commissions to the various levels of people in the insurance company.

Whatever the case, it is always good to source around for the lowest charges. However, it is also important to note that such charges are hard to escape from and there will definitely be charges to pay. Take a look at the Benefit Illustration for products from insurance companies to make the comparison.

Lowest Monthly Premiums or Lowest Initial Capital Outlay

Based on what I know, $100 is usually the lowest monthly premium for any regular investing/savings plan. However, it is not uncommon to see endowment savings plans that allow you to commit as little as $50 per month. Philips also has a ShareBuilders Plan that allows you to buy certain blue-chip stocks on SGX for as little as $100 per month.

For investment into funds, the usual minimum investment amount should be $1000 though it is not uncommon for some to have investment amounts of $5000.

Unregulated Investments

MAS does not regulate certain investment products so the consumer has to beware when investing in the following:

1. Land Banking

2. Oil pods

3. Wine Investments

Others like ponzi schemes and multi-level marketing are also investments which consumers should take note of. I did not include these products into this post because I feel that they are not really worth the risk. You make your own call =)

New Look For This Site

Hi People!

I finally did the thing that I have been procrastinating for the longest time. I gave this site an overhaul using the latest design features from Blogger.

I have always been afraid of tinkering about with the design because I was afraid that it might corrupt my files and stuff. Silly me!

Anyway, since I had some time to burn today, I just fiddled around with Blogger's latest design tab functions and chose the simplest design for my blog. I think the new look is much better than the previous look.

For your info, to comment on this blog now, you will have to click the comments link that is located near the title of the post.

Hope you like the new layout of this blog. Do let me know if there is anything that you feel needs to be tweaked to make this blog look better.

Best regards,

FF

Recycling the Singapore Way - Karang Guni

Very often, we get to hear the sounds of the beeping of a bicycle-like horn around various HDB estates in Singapore. The unmistakable sound of that horn is actually the "recycling" man making his rounds around the blocks to collect any old newspapers, household gadgets or simply anything that can be recycled. We call them the Karang Guni man though I am not certain what it means exactly in Malay. All I know is that if you offer him your old newspapers, he will offer you some loose change based on the weight of the old newspapers you have sold him.

Just recently, I heard the sound of the karang guni man's horn beeping across the corridor and managed to catch his attention that I had some old newspapers that I wanted to "sell" him. In the past few months, the wife had been throwing away the old newspapers down the rubbish chute because she had no idea what to do with them.

After bringing out all the newspapers, the man tied them up with a pink rafia string and proceeded to weigh them. He announced it as "8 Kilos" and then handed me 80 cents, explaining that I get 10 cents for each kilo of newspapers.

What he did next was most unexpected. He whipped out a name card from his wallet and handed it over to me. He told me that I could call the number on that name card whenever I had something that I wanted to get rid off.

Part of the name card reads:

Specialise in collection of Old Clothing, Used/defective Home Appliances, Television, Mobile Phone, Old News Paper and Others. We also provide Removal & Transportation services.

A change of the times and definitely Uniquely Singapore! Shows how much the karang guni man has progressed since yester year.

How much for shampoo that cures hair loss?

How much will you pay for a bottle of shampoo that is supposed to be able to cure and prevent hair loss?

I was sitting in a hairdresser's chair recently enjoying my usual haircut when the hairdresser started chatting me up. After the usual pleasantries, she highlighted to me in a very light hearted manner that my hair or scalp was slightly oily.

(I have had oily hair for many years and I always thought that it was because I used too much gel when I was younger to style my hair. I switched to hair wax which was supposedly better but that did not stop my hair from being oily.)

After highlighting that fact, she went on to give me a diagnosis of the male pattern hair loss that I was facing and asked me questions about whether I had experience hair loss, receding hair line etc..

All this hit home quite hard as I have been pretty conscious about the fact that my hair line has indeed been creeping up my forehead and I looked a little bald from certain angles. Even some friends have told me that I looked like a fat and balding uncle on facebook (thanks to candid and unflattering pictures of me that end up on facebook without me knowing...)

That is very sad. To be 28 and going on to 29 and to look bald is not a thought that I like entertaining very much. But everytime when I look in the mirror, I am certain that my hair seems to be getting much thinner and I will one day lose all my hair.

After much sales talk, she managed to convince me to buy a bottle of shampoo for $22. It has some teatree oil extract which is supposed to be good to keep my scalp less oily. I willingly parted with the money as I believe prevention is better than cure and I am willing to spend money to prevent myself from going bald. Her sales talk that preyed on my fear of losing hair was also really good.

After a few weeks of using the product, my wife has commented that my hair is no longer oily and is smooth and nice to run her fingers through. I am still not sure about the anti-hairloss function of the shampoo and can only wait it out for a few more years to see whether it is really effective.

Hopefully this will turn out to be one of my better investments.

Median Income to Rise by 2020

I haven't had much to write about in the couple of days. Today, when I turned to the front page of the newspapers, I saw the headlines that states that average Singaporeans can expect their incomes to rise from the current median income of $2400 per month to $3,100 per month.

The funny thing about how I read news articles is not on what they report but rather on certain aspects that probably interests noone else but me. In reading this news article, I was more interested in why the goal was to raise the median income instead of the average/mean income. The 2nd thought that formed in my head was this: Will an average Singaporean earn more or less than the median income of $3,100 per month?

The difference between median and mean

This is probably secondary school maths but I guess there is a slight difference between median and mean (or average) when used in statistics. Generally, it depends on the data set and whether the mean or the median gives you the more accurate representation of what "average" really means.

When data is symmetrically distributed, the mean is a good way of calculating the average income. The mean is simple obtained by adding all incomes together divided by the total population. However, when data is skewed either to the left or the right, it might be better to use the median income to give a more accurate reflection of what "average" is in Singapore. So the question that is left to be answered is whether the income distribution curve is skewed to the left or the right. (Of course, to measure income that is not symmetrical, the median is a much better way that the mean).

So there is the tricky part if you say that the "average Singaporean can expect his income to rise because the median income is expected to rise." Here, what it means is that median income actually represents the "average" Singaporean's income more truthfully.

So I basically answered my two thoughts in this posting.

1. To measure income which is often not symmetrically distributed, we use median income which reflects the average income much better.

2. An average Singaporean can expect to earn the median income of $3,100 in ten years time and not more or less.

Other questions that will probably go unanswered are these:

1. Is the mean income in Singapore higher or lower than the median income?
2. Which one is harder for the government to achieve? Increasing the mean income or the median income?