A Fellow Investor Passes On - Only learnt the news today

As I was flipping through some investment magazine today, I just read the news that Mr Dennis Ng had passed away.  I had a particularly weak feeling in my stomach as I have sort of "known" Dennis through his regular posts in the old Wallstraits forum and also seen him appear on TV as well as youtube videos.

Though I never met him in real life, my knowledge about investments and personal finance would have been much poorer without his selfless sharing.  If I recalled, he even left a comment on this blog before though I can't really remember which post it was on.  He also contributed to CPF's IMSavvy site.

To find out about his passing so late is quite a shocker to me.  He left at a very young age and certainly was still in his prime.  A weak feeling went through my entire body as I read and re-read the news time and again.  He passed on in Jul 2012 but his knowledge that he has shared will probably endure in the minds of those who were willing to accept his ideas.

It is sad to know that Singapore has lost somebody who was passionate enough to stand up for his beliefs in personal finance.This news is only a stark reminder to me that life is too short to let it pass it by just like this.  Enjoy your life even when you have not accumulated your first million. My heart goes out to his family and friends.

Thoughts of a Blogger

So I have been a "blogger" for a few years now.  And I must say that my foray into blogging was purely incidental.  And since the new year is here, I reflected on what I have been blogging about for the past few years and also how I would like to see things going forward.

The weirdest part about being a blogger is that people are actually viewing my thoughts. 200,000 over pageviews since I first started this blog.  That is quite a feat considering that the first few months of my blog, I was only getting 1 to 2 visitors per week!  So to know that there are actually so many people reading this makes me "frightened" at times.  I hope that they do not take me too seriously even though my posts often sound serious =)

Another striking thing that occured to me is the amount of email that I have to deal with.  I get lots of requests for link exchanges, personal finance queries, advertising queries, guest posts requests, etc.  It doesn't help that I do not check my email that frequently.  Not to forget all the spam that comes in.  It means that sometimes, I do not have the time to respond to emails or reply to queries which sometimes get lost in the hundreds of email.  So I apologise if I have missed out your email pertaining to some request.  For link exchanges, please look at my stated policy under the FAQs.  So do read them first before emailing me.  Leaving a comment is a good way for me to remember to respond though I sometimes have little time to respond to comments too.  A million apologies again.

I am also disgusted by the lack of quality in my writing.  If you know how much time I actually spend on writing and vetting my own work, you will probably forgive me.

Well, the most funny thing is that even though this is a personal finance blog (well, sort of), the greatest number of hits are actually on my non-investment related posts like Best Breakfast Places in Singapore. It sometimes makes me wonder whether I should be blogging about something else instead.

For 2012, I hope that I will be able to set aside more time to engage with readers.  To really have a conversation on this blog.; to build up each other's knowledge and financial know-how.  And to share with one another the ups and downs of life.  By now, I hope you have gotten a slight glimpse and insight into my thoughts.

Are You Ready to Take Charge of Your Healthcare Costs?

I wrote about CPF's "Are You Ready" campaign recently and also did a quick check in my previous posting about "Are You Ready to Manage Your Cashflow".  Anyway, there is a contest also ongoing on the Are You Ready site and there are MacBook Airs and shopping vouchers to be won just by sharing your stories.  So do visit the site here and share your stories.

Anyway, thought I will do a continuation of what I did in the previous post and check my own readiness in terms of taking charge of my healthcare costs.  I went through the list of questions in the checklist and here are my answers (as honest as can be):

I Make/Receive Monthly Medisave Contributions

Yes.  My CPF contributions go towards the Medisave Account.  Thus far, my Medisave account has only been used to pay a certain part of the hospital bills when my first child was born.  I guess this question is really aimed at those who are self-employed and who ought to make contributions to their medisave account.

I Am Aware of the Importance of Medisave, Medishield and Eldershield

Wow, this is a pretty tricky question.  I guess I generally know these 3 terms mean thought I must admit that there might be some inaccuracy in my understanding.  But here it goes:

Medisave - An account held under CPF that can be used to pay off hospital bills (if certain criteria are met).
Medishield - A basic hospitalisation insurance plan.
Eldershield - A severe disability insurance scheme.  Especially useful if you require long term care in the future. It provides a monthly cash payout and is available when you are of age 40.

And the importance of them all, I think I can say I know the importance of them all even though I am too young to be covered under Eldershield now.

I am Insured by Medishield and/or an Integrated Shield Plan

Yes, I upgraded my coverage to an Integrated Shield Plan offered by Aviva.  I have covered my entire family with it.

I Exercise At Least 3 Times A Week

Errrr.........Okay, no.  I hardly exercise at all these days.  Have been making too many excuses not to exercise and this is a timely reminder that I should really be exercising more.  Maybe for a start, I will try to exercise once a week?

I Keep A Balanced and Healthy Diet

Well, generally, I would like to think that I eat rather healthily.  At least I do not have any health problems.  But I certainly think I could eat healthier (i.e. more vegetables, more fruits and less meat).  I am certain that I have room for improvement in this department.  Interestingly, somebody once did a guest post on this blog regarding the linkage between financial health and obesity so you might want to check out the article.

Conclusion

So done.  I have checked off the checklist and I think that while I am financially prepared to take charge of my healthcare costs, there is definitely room for improvement in terms of keeping myself healthy (by exercising) as well as eating right.  A good and timely reminder indeed.

Are You Ready to Manage Your Cashflow?

Well, the IMSavvy site has recently launched an "Are You Ready" activity/movement/campaign.  And I was really glad that such a topic was actually chosen as it is a timely reminder for people to make sure that they are READY in terms of their personal finance.  It basically covers the 4 topics of:

•                      Managing Your Cash Flow

•                      Buying A House Within Your Means

•                      Taking Charge of Your Healthcare Costs

•                      Securing Your Retirement

Just thought that I would share some thoughts about my own personal experience regarding the first topic of managing my cashflow.  Based on the checklist provided at the IMSavvy site (http://www.cpf.gov.sg/imsavvy/ayr_list.asp?catid=1), there were a few questions and I hope to answer these questions as honestly as I can.  So here I go:

I Spend Less Than What I Earn Monthly

Yes, I do spend less than what I earn monthly most of the time.  The only times that I ever spent more than I earn was when I was either going on a holiday or spending on my wedding preparations/home renovations.  Otherwise, as a whole, I would like to think that for a typical month, I make a pretty conscious effort to spend less than what I earn monthly.  This discipline I guess was instilled in me since young - you never want to spend your pocket money before the week is over.  So likewise, when you are working, your monthly cash outflows should not exceed your monthly cash inflows unless for very good reasons (e.g. once-off big ticket items).

I Save At Least 10% of My Income

Generally, I would like to think that this is a YES for me too.  It really depends what is the definition of saving.  My definition of saving is basically income that is not spent on consumption.  So saving to me includes putting money in the bank, putting it in a regular savings plan or investing in stocks.  Well, some people will include their CPF contributions as part of their savings (and that isn't entirely wrong).  So different people probably have very different ideas about what actually constitutes savings.  For me, I do save >10% of my income over and above my CPF contributions.

Again, I must qualify that there are some months when I am a little less disciplined and splurge a little.  But with a regular savings plan that I have set up through an ILP bought years ago, more than 10% of my income does go into saving (at least based on my own definition).

I Have At Least 6 Months Worth of My Income as Emergency Funds

A big YES to this question too!  This was really something that I put off in the past and it was advice that I did not heed which I regret.  During then, I was young and rash.  I decided that the bank was paying me too little interest and decided to invest the majority of my money in stocks.  I had less than 6 months worth of my income in emergency funds even though I originally had set aside that sum of money.  Then came the time when I had to pay for some big ticket items and I was left with little choice but to liquidate some of my investments at a loss.  So if this is not good enough warning for you, please do set aside 6 months of your income as emergency funds first before you even start investing.  The last thing you want to do is to be liquidating your investments at a loss when a certain crisis (e.g. job loss) hits you.

I Pay My Credit Card Bills and Other Debt Obligations, in Full and On Time Each Month

Generally yes.  All my debt obligations are paid through GIRO so I do not lapse on it.  I do pay my credit card bills in full at the end of each month though not always on time.  This is simply because I forget to pay them or miss the due date as the credit card bill was lost in my stack of letters.  I usually call up the bank to waive the late charges since it is basically an oversight. I must have done that more than 5 times but they have always been more than willing to waive it.

I Have Adequate Financial Protection

Well, this is perhaps the toughest question to answer.  And my answer to this is probably a "MAYBE".  I know that I ought to be insured to certain levels (e.g. 10 times my annual pay for death coverage).  But all these are really rule of thumb calculations.  My protection level is slightly below those levels.  I would like to think that I am adequately insured with coverage for death, TPD, critical illness, hospitalisation and personal accident.

This is perhaps a good time for me to dust off the dust on my insurance plans and see whether it is time to review the insurance coverage for myself as well as my family members.

So how did you fare in answering these questions?  Any action you need to take if you have answered a "No" to any of the questions above?  Are you ready to manage your cashflow?

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?

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 =)

Financial Planning - Simplified to 4 Variables

Before I begin today's post, I would like to highlight that my first posting at CPF's IM$avvy site should be up by tonight. Do check it out over at the CPF $avvy Blog Corner under the month of May Archives. The title of that post is "Can You Trust Your Financial Planner?"

Financial planning can be too confusing at times. There are lots of terms that people throw around to make it seem complex.

I was thinking about it for sometime and decided that there are perhaps only 4 variables or factors that will ultimately determine whether one is financially secure.

The 4 Factors

1. Income

Income determines how much money flows INTO your pockets each month or every year. Income involves both active income (from one's salary) and passive income (from dividends, etc).

2. Expenditure

Expenditure is the amount one spends every month. It is the amount of money that flows out of your pockets to buy food, transportation costs, movie tickets, housing installments, etc.

3. Savings/Investments

Savings/Investments should be the difference between Income and Expenditure. Ideally, it should work out as:

SAVINGS = INCOME - EXPENDITURE

From the simple equation above, I guess you can see that the only way to increase your savings/investments is to either increase your income and/or decrease your expenditure.

Another thing to note is that saving money is actually quite meaningless unless you know what you are saving for. Are you saving for retirement or saving up for a holiday? In either case, you need to know that there will come a day when you are going to spend your savings. The timeframe is important so that you know whether you should keep your savings liquid or you can afford to keep them in not so liquid instruments. The end goal of savings should not be just for the hidden pleasure of seeing your bank account grow fat.

4. Savings/Investment returns

This last factor determines the rate of return your savings or investment is giving you. If you are getting a 0% rate of return, the amount of money you save will be the amount of money you have at the end of the day. On the other hand, if you have chosen to invest it and the investment gives you 10% returns annually, the amount of money that you have at the end of the day will be much more than the absolute amount you have actually saved.

Conclusion

In this posting, I have simplified financial planning into 4 simple variables that you need to take note off.

Determine what is your monthly income, expenditure, savings and the rate of return you are getting on your savings. To improve your financial situation, you just need to tweak any of these 4 variables.

I shall cover this in my next posting.

Profile for IM$avvy

Hi people,

I have been working on crafting my profile for the IM$avvy webpage. I was thinking between revealing myself versus remaining anonymous and decided to go for the latter.

Do give me your comments on what you think:

Financial Freedom

FF is in his late twenties and believes in the need for people to be informed and educated about personal finance so that they can make better financial decisions. He writes to keep himself updated with the latest developments as well as to inform, educate and entertain the public. He hopes that through his writings on personal finance, people will be able to learn from his experiences and mistakes. He writes frequently at his own blog about his journey towards financial freedom and encourages readers to embark on their own financial journey. Blogging serves as a platform for him to express his thoughts as well as to engage the online community to share their experiences with one another.

Out of My Comfort Zone

Today, I did something which I never imagined I would actually do in my entire life.

There are alot of things that I have been doing lately which I never thought I would have done but this single step really brings me out of my comfort zone.

For the longest time, blogging has always been something which I have done anonymously. I have never met any of my readers or met up with any of those from the online community.

Today, I took the first step and met someone from CPF regarding the possibility of me contributing as a guest blogger at IM$avvy. It was a scary thought for me as this was the first time I was actually meeting someone regarding my blog.

The feeling was actually like me going for a job interview except that the interviewer had lots of personal information about me!

Most of you will know that I feel that this blog is certainly not like a masterpiece. I would actually be embarrassed to showcase it to anyone. Afterall, my writing has at best been incoherent and at its worst, totally incomprehensible. I don't spend much time editing my work so it is really not amazing that I feel inadequate.

Yet, I came across this quote recently that really inspired me to step out of my comfort zone and to embrace myself for who I really am. I share with all of you this quote:

Our deepest fear is not that we are inadequate.

Our deepest fear is that we are powerful beyond measure.

It is our light not our darkness that most frightens us.

We ask ourselves, who am I to be brilliant, gorgeous,
talented and fabulous?

Actually, who are you not to be?

You are a child of God.

Your playing small does not serve the world.

There's nothing enlightened about shrinking so that other

people won't feel insecure around you.

We were born to make manifest the glory of
God that is within us.

It's not just in some of us; it's in everyone.

And as we let our own light shine,
we unconsciously give other people
permission to do the same.

As we are liberated from our own fear,
Our presence automatically liberates others.

—Marianne Williamson


Well, I am glad that I actually took this step out of my comfort zone.

Invitation to blog@IM$avvy

Dear friends,

I have been quite amazed at what this blog has achieved in such a short period of time. I have gotten countless of offers for help from readers. I have gotten lots of encouragement from strangers. And now I even got an offer to blog at CPF's IM$avvy.

I have been considering about the option and was wondering whether it would be too heavy a committment to commit to. Besides, I don't get paid. But nevertheless, I think it would be good exposure for me.

The email that was sent to me earlier this month is attached below (I have omitted certain sensitive information):
_______________________________________

Hi FF,

We will like to invite you onboard as IM$avvy Blog Corner Financial blogger.

IM$avvy is an initiative by CPF Board to provide an interesting and interactive portal for working and young adults to get information on financial matters such as financial planning, retirement, property and investment. One of our main goals is to increase awareness of our younger generation on the importance of financial planning so that they can start planning early and enjoy a secure retirement. In addition to having a blog on our website, we also host a forum, an info hub, webcasts and many more. To better connect with our target audience, we have established our presense on social networking platforms like Facebook, Twitter and FriendFeed! You can visit our website: www.imsavvy.sg to find out more.

Currently, we have 8 resident bloggers and we are looking for more talented writers and subject matter experts like yourself to join us. We will prefer bloggers contributing new posts at regular intervals e.g. once or twice a week and committing to do so for a period of one year. Alternatively, do let us know what is a comfortable arrangement for you. We can also look into publishing your current and past blog entries on IM$avvy Blog Corner instead of limiting to only submitting new posts. You can refer to the file attached in this email for more general information for IM$avvy bloggers.

On the average, each post has about 2,500 page views. IM$avvy Blog Corner will be a good channel to raise the profile of your blog. At the same time, you can take this opportunity to interact with our members. Participation of our bloggers are on a voluntary basis and there is no fee paid to them.

Do let me know your interest and we can discuss this further. Feel free to contact me at tel: XXXXXXXX for any enquiry.

Look forward to hearing favourable news from you.


Best Regards,
XXXXX

____________________________