Baby Steps to Financial Peace

Most Singaporeans will probably not have heard of Dave Ramsey before. But anyway, Dave Ramsey is America's trusted voice on money matters. He also has something written on 7 Baby Steps to Financial Peace. The 7 steps are simple enough to follow and are listed as follows:

1. $1000 for emergency fund
2. Pay off all debts less the house
3. 3 to 6 months of expenses in savings
4. Invest 15% of household income for retirement
5. College funds for children
6. Pay off home loan early
7. Build wealth and Give

The steps seem simple enough to follow and should be a useful guide for most people. 

I guess not many people take financial planning seriously.

Take this comment by sigdiamond2000 on financial stability for example. It is extremely hilarious. 

10 Financial Practices to Improve Your Financial Health

Having a healthy financial life is not difficult, it just takes discipline and a little planning. Schools rarely teach personal finances classes, so sometimes adults need to learn the basics of personal finance. Luckily, once the ideas and plans are in place, it will become easy to have great financial health. Here, are 10 financial practices to improve your financial health.

Two Incomes
Many people get a great paying job but use all their money at the end of the month. A way to get over the hump is to have a second job. This can be an easy job 1 day a week waiting tables. Any little extra income is going to a long way in improving your bank account balance.

Debt
Debt is not evil by any means; there are some terrific uses, such as home and car loans. One should be careful to minimize debts, especially credit cards. Credit card debt can carry extremely high interest rates, making them difficult to pay off. Getting ahead is extremely hard when one is trying to make payments to credit card companies.

Credit Cards
With that being said, a credit card can be an enormous asset. Not only can one get cash back with credit cards, but they offer superb protection. It is essential to have a credit card or two.

Vices
Many people enjoy drinking, smoking and gambling. These vices can be extremely expensive and offer remarkably little return. It would be best to minimize vices, as the return on investment is nonexistent.

Credit Score
Getting and maintaining a phenomenal credit score is tremendously beneficial. Anyone looking to get a car, home or student loan, will want excellent credit. Having excellent credit can save a person hundreds a year in interest rates.

Insurance
Make sure to not go cheap on insurance. Many people look to save money by lowering insurance coverage. This is okay if it is done by shopping around. Not having health insurance, or having minimal car insurance can leave one vulnerable in critical times.

Healthy
A great way to save money is to live a healthy lifestyle. Cooking at home and riding a bike instead of walking will save money and improve health. This will also improve ones bottom line with lower health care costs.

Purge
A lot of people have an abundance of junk that they do not need. Anyone looking to get ahead should get rid of excess possessions. Not only do they get in the way, they can also cost money to store. Plus, if you sell your possessions not needed, you will get an influx of money.

Recurring
Watch out for recurring bills; it is easy to forget them. A gym membership here, Netflix there, it adds up. Sit down and go over all of your monthly fixed costs, cutting some of them will be beneficial.

Taxes
Take advantage of tax benefits, such as retirement accounts or write-offs. Billions of dollars are lost a year in tax write-offs. Simply because some people do not include them when filing taxes.

It is extraordinarily easy to improve ones financial health. It just takes a little bit of discipline and organization. The exciting thing is it is easy to stick to better financial decisions once put in practice.

Roger Hammerson writes about finance, self help & more at http://homeownersinsurance.org.

How to Manage Your Money When Working Overseas

Working overseas can be an excellent opportunity for just about anyone. Not only to learn about new cultures and new ideas. Working overseas can also give the employee significant tax benefits. With the internet, it has become much easier to manage personal finances from overseas. It is essential to properly setup the management of your money while working overseas. Here, are 5 tips on how to manage your money while working overseas.

Local Bank Account

When working overseas, it is essential to have a local bank account. This can be a bank that with headquarters in their country, or a bank with an international presence. Many people rely on direct deposit to get their paychecks, therefore, thinking they do not need an account. If any problems arise or a human is needed, having a local bank will be beneficial.

Foreign Transaction Fees. There are a few credit cards that do not charge a foreign transaction fee. A foreign transaction fee is charged by most credit card companies when a card is used overseas. The typical charge is 3 percent, which can add up quickly. Luckily, there are a handful of credit card companies that offer a card that does not add a foreign transaction fee. This will be a tremendous money saver in the long run.

Online. Every bank or credit card has a website. When working overseas, it is essential to sign up for online bill pay services. This makes paying credit cards and other bills online remarkably easy. Sign up for electronic statements, they will be emailed directly. They are just like any other statement you would receive in the mail. Another great benefit of online services is the ability to communicate. One can log into their credit card account and easily message a representative, since calling may be difficult.

Second Bank Account. Keep a bank account in the United States open, this is a terrific way to transfer money. Western Union and other wire places charge massive fees. There are a lot of banks that allow a bank to bank transfer for free. It would be extremely easy to have a relative or friend deposit money into your account, then initiate a free transfer. The transfers can go both ways, so in addition, the money can be sent home.

Inform them. When going overseas, inform the banks and credit card companies. If a credit card or ATM card is suddenly used in a different location, it may be declined. Many card companies have fraud alerts in place, for example, when someone uses a card 5,000 miles from home. A simple call to the credit card company will help prevent them from freezing the account. It is much easier to do it before leaving, but can be done during the trip if needed.

Working overseas can be an exciting and life changing experience. It is crucial to prepare your finances for your day to day life. Ones financial life and dealings back home should not be neglected either. With the internet, it has become extremely straightforward to manage finances while overseas.

Fran Childers writes about finance, travel & more at http://www.homeinsurance.org.

Buy a 2nd Property or Buy REITs?

Should one buy a 2nd property or invest in Real Estate Investment Trusts? I have been thinking about this for sometime. The minimum occupation period for my HDB flat is almost up. That means that I can actually sell my flat in the open market pretty soon. At the same time, I really love the place where I am staying at now. So it is going to be a tough decision.

The remaining mortgage on the HDB flat is now $238,000. Market value based on a similar size flat sold at the opposite block is estimated at $600,000. Bought the flat for slightly over $300,000. Currently monthly mortgage loan is $1096. Right now, I have been thinking about the following few options. Family's gross monthly income is around $5600 (really average!).

Option 1 - Sell the HDB and Buy a Private Property

This will mean selling the HDB flat, giving it up and buying a new private property. It is going to be difficult as I will have to buy a private property that is less than $1mil I guess. If I can only take 35% loan based on family's gross monthly salary, that means the maximum monthly mortgage loan that we afford is around $1900+. As we are still paying for the car we bought, it probably means that we can only afford a mortgage loan of around $1,400. I don't think the banks will be willing to land us to much. I figure that means we can only borrow around $350k (pls correct me if I am wrong). Selling the HDB and buying a private property also means that this does not count as my 2nd property and I am not obligated to set aside the 50% minimum sum in both my wife's and my CPF account. We can probably use the gains from selling the HDB to pay for the private property.

End of the day: I am probably saddled with more debt but have effectively upgraded to a more expensive property. There will be less money to spend as I have to pay more each month for mortgage.

Option 2 - Keep HDB flat, Buy a Private Property to rent out.

This is option 2 which I have been thinking about and which I am leaning towards. But it seems almost impossible to do this. This is because of the following reasons:

1. No money in CPF-OA to pay for it. Will have to use all cash to pay for the downpayment. Even if all assets (stocks + bank accounts) are liquidated, I figure that we only have slightly over $220k. Not too sure how much the bank will actually lend us for the 2nd property but I guess it is around 60-70%.

2. Will also have to rely on cash to pay for the monthly mortgage. That is impossible considering that existing HDB loan is already $1096. It means I can only get around $800 per month more in mortgage loan. Will also have to repay off the car loan so that I can borrow the $800 per month more in mortgage loan for the 2nd property. That leaves very little options for me as I won't be able to find such a cheap property that only costs $800 per month!

Option 3 - Keep HDB and Buy REITs.

REITs are easily liquidated. I also collect dividends. This seems to be a very feasible option with little downside.

Option 4 - Sell HDB and Buy 2 Pte Property

Lately, I came across this strategy which advised to sell 1 property and buy 2 properties. In this manner, you can rent out 1 and stay in the other. Not too sure whether this strategy will work at all cos it will probably mean that I have to buy 2 really small pte property.

Wise folks out there. Any advice on all the options???

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..

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.

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

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.

Passive Investing - Is It Really So Difficult?

I have always struggled with the thoughts of passive investing versus active management of my portfolio.

Today, I came across a quote by Oscar Wilde:

"To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual."

I am pretty sure he didn't have investing in mind when he came up with this line. Nevertheless, it does seem applicable even when it comes to the field of investing.

Forever Portfolio?

Too often, we find ourselves trying to time the market to buy at the lowest lows and selling at the highest points. We screen through the entire universe of stocks to find a few stocks that meet our criteria, only to sell them a few weeks later when their price has risen by 10 to 20%. We are left with nothing to invest in and end up lowering our criteria to buy stocks that we would not originally buy or end up just sitting on a pile of cash.

Sometimes, we get caught up with all the hysteria that seems to surround us. People are talking about how much money they made within a few trades and we start to look at our own portfolios and wonder : "Is Buffet really right?"

Passive investing (if I can so term it) is really difficult. To buy and hold for the long term without tinkering about too much can be extremely difficult especially when we are constantly bombarded by all the noise and distraction of the crowds.

Sooner or later, we start to find it impossible to resist the urge to make that phone call to the broker or to simply click the button on our online brokerage accounts that reads "Confirm order".

I know many people will not agree with passive investing. Many people out there have claimed to have the ability to time markets to perfection such that they have been able to make spectacular gains that are not possible by a buy and hold strategy. Of course, there must be some selection bias as the losers will never reveal themselves. Only the winners get boasting rights after all.

On the other hand, we should not find excuses if we are simply too lazy to monitor and tweak our portfolio such that we term it as passive investing or the Warren Buffet style. I am sure even Warren Buffet tweaks his portfolio every now and then!

Symptoms of a compulsive investor

Here are a few symptoms that shows you are toeing the line and moving towards a gambler mentality versus an investor mentality. (Deep down inside, human beings all like a little wager)

1. You scan the newspapers, online forums and chatboxes for the latest tips on which stocks to buy. You follow the opinions of experts and get in and out of the market at rapid pace.

2. You buy a stock and only start to do your research on it after you have completed the order.

3. You buy a stock and start to think whether you should contra it off within the next 3 days.

4. You buy a stock and keep checking its stock price every hour, hoping to make a quick buck.

5. You sell a stock and hope that it drops to a certain point so that you can buy it again.

6. You don't know why you bought a stock.

7. You don't know why you sold a stock.

I am sure you have all experienced the "symptoms" once in a while in your lives.

Preventing the onset of the disease

Prevention is better than cure. I would like to suggest a few methods to cure you of this ailment if you do suffer from it. Of course, I do not take responsibility if you lose any money.

1. Don't read the newspapers, forums and chatboxes for your stock purchases or sales.

2. Don't make a trade when you are angry.

3. Don't talk to others about investing.

This 3 strategies ought to keep y0u from making compulsive buys and sells. I realised that when I read less about the stock market, I tend to make fewer trades. When I am angry, I try not to make investment decisions and sometimes, the decisions I make can be rash. When I talk to others about investing, it always gets me excited and I feel like making a trade right away. All these are based on my personal experience.

I am not saying that you should not actively manage your stock portfolio. What I am against is the compulsive urge to tweak your portfolio so often that it is almost akin to gambling. But with all the media influences we get, it is very difficult to sit down and do nothing.

Doing nothing is a very difficult thing indeed.

Personal Finance in the 21st Century

Just before I was going to sleep last night, I was just brainstorming on certain ideas that I could further develop in the future for my postings. After all, there are those "desert" days when I have lots of topics that I would like to write about but when I start writing them down, I realise that I do not have much "meat" to add to make it a worthwhile posting.

I was just thinking about the concept of personal finance and how it is different in the 21st century compared to the previous centuries.

I personally feel that the concept of personal finance has changed over the hundred of years.

In the past, people had a shorter life expectancy, had close family support and most probably did not have the concept of retirement. These three factors alone were perhaps the reason why most people perhaps only practiced basic money management concepts like saving. Let me expound on the three factors a little more.

In today's developed countries, most people can expect to live way past the age of 70 or 80. Very often, they will no longer be physically fit to carry out any form of employment and thus need to save up to make sure they have enough to survive on when they are no longer working. This was different in the past where people just worked their entire lives (probably because they owned their own business too).

In addition, they no longer live with their children as some even migrate to other countries to live. In the past, families used to stay pretty much together and one could rely on your immediate family members to take care of you once you are old.

The concept of retirement must also be a pretty new concept as people used to work all the way till their death beds. They simply did not have the concept of retirement!

So with these changes, comes the need for people to understand personal finance. When we live longer lives, expect not to receive financial support from our children and expect to enjoy our retirement lives, we will need to actively plan our finances to ensure that we secure a good financial future for ourselves.

The questions we need to ask ourselves are these:

How long do we expect to live?

Do we expect to be financially independent or will we be reliant on our children or family members during our retirement?

Do we even expect to retire by a certain age?

If we know the answers to the questions above, we are better prepared to face the future.

Jim Rogers on Saving

I came across some gems when flipping the Sunday Times.

"Everybody should save, especially early in their careers when they need to have reserves. My first wife wanted to buy a sofa but I told her not to do so because if we put that money for the sofa into investments, we could eventually buy 10 sofas." - Jim Rogers, investor

Good piece of advice about savings from Jim Rogers.

The problem with many people is that once they start working, they suddenly find this urge to spend their money on things that they have never been able to buy before. What they do is go out for some retail therapy. And instead of saving money first, they end up spending lots of money.

"Saving is something you should do to satisfy your liquidity needs. However, the main purpose of saving beyond your immediate liquidity needs is to generate higher returns for your future consumption." David Lee, managing director of Ferrell Asset Management.

Something for all of us to think about.

Best Financial Advice Ever

We all have had friends or family give us some personal finance or investment advice.

While mulling over it yesterday, I was wondering which was the best financial advice I ever received in my life. I realised that the few important or best advice that I got were either from books, family, friends or even people who posted in forums.

Today, I will share with you TWO of the BEST financial advice I ever got.

#1 - Pay Yourself First

I can't really remember where I got this advice from. I believe it is from some book or maybe some forum. It took me quite a while to understand this golden piece of advice and I have been practicing this ever since I finally understood what it means.

To pay yourself first means to take your paycheck and then literally PAY YOURSELF FIRST.

You take out a portion of your income and save it or invest it first. Different people implement this differently so you might like to find out the ways you can go about doing it.

The idea is actually really simple and basically creates the discipline to SAVE FIRST before you even spend a single cent on food or clothing or anything else.

To date, this is the best financial advice I received because I used to pay myself LAST. That means that I basically saved or invested whatever money was leftover for that month. This resulted in months where I had little or no savings at all.

#2 - Don't Contra

This was advice given to me by many people which I failed to heed. To contra stocks means to buy and sell stocks without having to put up any money.

The lure of being able to buy stocks when they are low and selling them when they are high within 3 trading days seems so attractive. Afterall, you don't even have to use any real cash and it seems like one is able to make money without the need to even put up any money.

The problem with Contra is that time is against you. One only has 3 trading days to hope that the price of the stock will go up. If it goes down, you are forced to sell the stock for a lower price and thus incur a loss.

My view nowadays is that one should not contra at all, even if he or she has the money to buy the stock. It does not make logical sense to hold a stock just for 3 days to sell it off later.

Conclusion

Pay yourself first and don't contra. This are two of the best advice I have ever received. I have received many other sorts of advice but these two will always stay with me.

What is the best financial advice you have ever received?

5 Smart Financial Moves to Make in Your Twenties

There was this article in Yahoo provided by iFAST on some of the things twenty somethings can do to make themselves financially more prepared for the future. It summarises the article with these 5 things that it says young people should do.

•Save at least six months of your monthly salary in an emergency fund
•Put aside at least 10% of your income towards goals that you want to achieve
•Start budgeting and sticking to your plan.
•Use credit cards responsibly (pay off your balance before the due date)
•Acquire a hospitalisation plan, critical illness cov¬erage and death coverage

Out of this 5 goals, I have already done 4.

The only one that I have not done is the part about budgeting and sticking to my plan. Seriously, who in this world still uses a budget? I really cannot find the discipline to do any budgeting. I just make sure that I do not spend too much money.

Anyone of you able to do all the 5 things listed here?

I Need Advice

I need some advice from all the masters and gurus out there.

The first is regarding a potential US dollar crisis. How do you buffer yourself against such a crisis? Or how can you potentially profit from it if you do know that the US dollar is going into decline in the next few years?

The second is regarding my own stock portfolio:
My wife and I have cash of close to $100,000.

I have the following stocks amounting to $85,000 ++
1. Ascott REIT
2. First REIT
3. Suntec REIT
4. NOL
5. Kingboard
6. Pac Andes
7. Innotek
8. Unifood
9. China Aviation Oil
10. Citigroup

Other than my REITs, all the rest are still in the RED. I don't wish to sell them at a loss.

But Gohsip (a fellow blogger) suggested that my focus should be on building my capital (going for capital growth) instead of increasing my so-called "passive income" through dividend yielding assets like REITs.

Can anyone give any suggestions on what I should do especially with the stock market soaring currently?

Should I liquidate all my positions and start afresh with some good stock picks for 2010?

Or should I liquidate some of my positions and then get into new positions?

I know many of you are unwilling to share in detail because you might think that I would blame you or stuff if I lose money. Don't worry..I won't =)

I just need to hear from you: What would you do if you were me? Which stocks would you sell? Which stocks would you keep? And Which stocks would you buy?

Unit Trust Fund Screener

There are thousands of unit trust funds out there, millions perhaps. How do you sift through the garbage to get to the gold?

We all know that it is simply impossible to go through every single fund factsheet to find out which are the best funds out there. Ask a financial adviser and he will probably tell you which funds he recommends and why.

But is there a better way to go about making such an investment decision?

How do you go about choosing which unit trust fund to invest into?

Today, I will let you all in to a little secret which few know about.

A Unit Trust Fund Screener

Lipper Leaders has a fund screener that allows one to screen a whole wide range of unit trust funds based on a few metrices. But before you go off to try it out, let me explain to you what this metrices are based upon.

Lipper Leaders screens funds based on 4 essential metrices. They are as follows:

1. Total Return. Total return denotes a fund that has superior returns when compared to a similar group of funds. This rating best suits investors who want the best historical returns without looking at risk. This measure however might not be sufficient for investors who want to avoid downside risk.

2. Consistent Return. This identifies a fund that has provided relatively consistent performance and risk adjusted returns when compared to a similar group of funds. This might be for investors who are concerned about consistent performance of the fund rather than total returns that the fund gives. Certain funds however will remain more volatile than other funds based on the market sector they are invested into.

3. Preservation. This identifies funds that have been able to preserve capital in a more superior manner in various types of market when compared with other funds in its asset class. This helps limit any downside risk that an investor does not wish to take.

4. Expense. This identifies funds that have managed to keep its expenses low relative to its peers. This is best for investors who want to minimise their total costs when choosing a fund.

But You Still Need to Consider This....

So I have shared with you a very superior unit trust fund screener that will actually help you make a more informed decision when it comes to choosing which funds to invest in. This works well even if you are choosing which funds to invest in for an investment linked plan that are sold by various insurance companies in Singapore.

A good way to test your insurance agent or financial adviser next time will be to ask them WHY they are recommending certain funds to you.

Many times, you will get the answer like"Oh..this fund reached a price of $5 over dollars in 2007. Now it is only at $3, the price is very cheap."

Such financial advice is lame and if anybody ever gives you such advice, RUN!

Past performance of a fund does not guarantee future performance of the fund.

This is what we also need to take into consideration when using the Lippers Leaders Fund Screener. Just because a fund is ranked 5 for all the ratings does not mean that it will give you stellar returns in the next few years. Rather, it just gives you a way to make a much more informed decision.

To Invest in Unit Trust Funds or Stocks?

Should one invest in a unit trust fund or should one invest in stocks? Yes, I know I have brought up another contentious issue and there will probably be no end to the debate.

Unit trust funds are known to charge fees and costs that many people say are not worthwhile. Lots of "experts" out there are thus advising the man on the street to invest in stocks directly so that they need not pay expensive charges that these unit trust funds charge.

Again, I at Sg Financial Freedom will like to take the stand and say that whether a person decides to invest in unit trust or stocks all depends on the person's situation.

A person who has no time to track his investments and has totally no clue about investment should perhaps invest his money in unit trusts rather than let his money sit in the bank and rot.

A person who is savvy in his investments will most probably not opt to invest in unit trusts if he is able to get decent returns from the stock market.

I will still like to think that since these fund managers are working at their investment jobs full time, we ought to give them some credit and it might not do us any harm to just invest a portion of our money for diversification purposes.

Afterall, if you invest your own money, you are your own fund manager. How certain are you that you can beat a person who does it as a 8 to 5 job full time while you might only have the time to monitor your stocks say 10% of your time?

Sometimes, it might also be necessary to invest into unit trusts so as to get exposure to certain markets like China or into the commodities sector. It might be difficult for an individual to buy into so many stocks which a China unit trust fund could probably do more efficiently and at a lower cost.

The author invests in both stocks and unit trusts. He believes in his fund management skills but has decided to diversify some of this risk by letting others manage his funds for him as well. Afterall, he can never be too sure that his stock picking skills are always excellent.

You can visit Lipper Leaders here.

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Independent Financial Advice

I read this article from Asia One regarding the rise of independent asset managers.

It seems that very soon, it might be possible for clients to choose independent asset managers who charge a fee for advice instead of bankers who earn a commission from the products they sell.

These independent asset managers should be differentiated from the independent financial advisors (IFAs). IFAs are not truly independent as they still earn based on the commission of the products they sell. Only some IFAs charge clients based on a fee for advice.

A greater number of people prefer to work with independent managers rather than bankers because of potential cost savings and most important of all - independent advice.

The recent Lehmann fiasco and stuff have warned consumers that banks might not always have the customers best interests at heart. This is especially so when there is a potential conflict of interest as the banker seeks to enrich himself by selling high commission products.

In my opinion, ethics should also be placed as a far more important trait than knowledge. Better to work with someone who has ethics instead of knowledge.

A person who acts with integrity will give you the best advice that is suited for you. A person with good knowledge but without any ethics might recommend financial products that are not suited to your needs.

I dug out this article from Smart Investor which I read sometime back in November 2008. The advice in it is timeless. The title of the article is "What to Ask When An FA Recommends A Product."

Do bookmark this page so that you know what are the questions to ask the next time a banker or insurance agent recommends a product to you.

These are the questions to ask before purchasing any financial product from anyone:

1. Why is this product suitable for me?

2. What type of product is this? Is it a whole life policy, unit trust or structured depost? Is it for savings, investment or insurance protection?

3. What benefits does this product offer? Which benefits are guaranteed and which are not?

4. What instruments does the product invest in? How risky are these underlying investments?

5. Is this product suitable for individuals with low, medium or high risk profile? What is my risk profile?

6. How much do I need to commit to this product? Is it a one-time payment or regular payments? What is the penalty if I am unable to make the payment?

7. How long must I stay invested? What are the penalties, restrictions and procedures if I decide to liquidate some or all of my investments earlier?

8. What are the fees and charges? Will there be changes in the fees in the future?

9. What alternative products offered by the same company has similar benefits? How does the recommended product compare with alternative products?

10. Are you licensed to sell me the product? Who can I find if you are no longer working in the industry?

11. Can I monitor the performance of my invesment? How? Will I receive reports and updates on my investments? How often will these updates and reports be?

12. Is there a free look period if I decide after signing on the dotted line that this product is not suited for me? Can I get ALL my money back or are there certain penalties?

In simple words, always ensure that you understand the investment product before purchasing it. Understand why you are buying it and how it fits into your overall financial plan. Take time to consider whether this product meets your needs before finalising your decision. Do not feel pressured to make a decision or make a decision on the spot when you are not prepared for a long term committment.