Friday, April 4, 2014

Lele's school

Feel relieved that Lele has a primary school to go to. No need to go through the hassle of PV and balloting.
Lele must be laughing @ us to worry about his school when he is not even 1 year old now. When you are a parent, you would know the feeling, you want the best for your baby always.

Wednesday, March 26, 2014

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Saturday, February 8, 2014

Got my driving license on 3 Feb

Finally, got my driving license on 3 Feb on my first attempt. I am looking forward to the day I can drive my little Luke around.

Saturday, November 9, 2013

Kindle paperwhite Rocks

I simply love my kindle paperwhite, you can read it anywhere, anytime you want. There isn't any restriction on the light, the angle, or anything like that. And I got it @ 120. What more can I expect? It makes me love reading :)

I hope Luke will love reading in future also.

Friday, October 19, 2012

Saturday, February 11, 2012

Kindle Rocks

Another great invention of 21 century. People can read books on this magic device without hurting their eyes, without carrying heavy and thick books. The E-ink technology really makes people's life easier and healthier.

After jailbroke my kindle touch (courtesy of my smart Chinese brother Yifan Lu http://yifan.lu/2011/12/10/kindle-touch-5-0-jailbreakroot-and-ssh/),  and convert my book into mobi format using Calibre, I absolutely feel in love with little device.

Weird thing is that I have never been eyeing on iPad, but when I get to know kindle got this E-link technology, immediately attracted by it and bought one on Amazon. If Kindle DX is half of its current price, I will get one as well. My kindle touch is still a bit small, pocket bible size, but easy for carry around.

Most important thing is that I won't be distracted by those entertainment application on my laptop though kindle does have wifi function and can surf internet (in black & white).


Feel so strong to read some books on it now :)

Wednesday, November 2, 2011

Insurance (zt)

http://forums.hardwarezone.com.sg/showthread.php?t=2818607

Part 1. How to find a good agent: Spotting the good guys and avoiding the con-men

Today I was scrolling through a few threads and found that much of the "advice" come from a few insurance agents preying on gullible people here. So, I would like to share some general guidelines that people may find useful, especially those who are not that financially saavy. I also decided to include "doctor analogy", as I find the purpose of a financial adviser is to checkup your financial health and recommend the appropriate products (treatment). This may help newcomers understand things in terms that we are familiar with. I do not represent any insurance company and neither will I recommend any insurance company. I hope the mods can sticky this thread.


Starting from the worst:

Worst: Bank Staff (e.g. Relationship Managers)


To summarize - NEVER ever purchase any investment or insurance product based on a bank's recommendation!
Reasons:
1) Banks are notorious for hard selling, product churning, outright misrepresentation, etc... - I hope nobody has forgotten the miniBOMB (minibond) saga.
2) Banks relationship managers (or whatever they are called) have sales quota to meet - Your interest is NEVER in their eyes.
3) Banks will sell products that will make money for them first BEFORE the product makes money for you. Banks have been known to intentionally design products to profit from consumer loss.


By law, bank staff are now not allowed to sell investment products for people who come in to do basic transactions and did not explicitly requested for investment advice. This applies to fixed deposit too.


So, if you or your elderly parents ever go to the bank to apply for a FD, and the bank starts selling you some other stuff:
1) Tell them they are breaking the law
2) Don't believe what a single word they say (especially if they offer alternative recommendations)
3) If they persist, report to MAS, write to newspaper, etc... whatever


This is quite a hard line stance, but I think it is necessary. While I'm sure there may be responsible relationship managers out there, I think the probability of finding one is probably 0.01%.


Bad: Tied Agents or "Financial Advisers"


To summarize - One should never by products from a tied agent Yes, tied agents still make up the majority of agents and this may be offensive to the insurance agents and "financial planners" out there, but it's the truth.
Reasons:
1) Tied agents are trained to be salesperson 1st and financial adviser 2nd (if it all).
2) Tied agents are remunerated by commission and there is a conflict of interest between the agent earning money to feed his family vs agent responsibility in doing proper financial planning and recommending suitable products for his client. Many if not all tied agents will recommend you products that earn them the most commission and these products are usually the lousiest one for the consumer/client.
3) Tied agents are also usually pressed by upper management to sell more products to meet quota, much like bank staff.


While I do acknowledge that there may be some responsible tied agents out there, one other fact puts me off from transacting with them - they can only recommend products from their company. That by itself is a severe limitation. If you ever come across a tied agent who responsibly recommend products from other companies, you should advice him/her to join the IFA line where his ethical conduct may be put to greater use.


The only reasons why I will do business with a tied agent is because some companies do not partner with many IFAs (e.g. AIA, GE, Prudential) but such companies may have competitive products.


Doctor Analogy A tied agent is like a doctor that only prescribe and sell drugs from one drug company, and often the drug he/she prescribes is the most expensive one and may not necessarily be the most cost-effective medicine.

Fair: Independent Financial Advisers (IFA)


To summarize - All good financial advisers are IFA, but not all IFA are good financial advisers


One thing I learnt is that IFA does not instantly equals good financial adviser. Basically, I have classified IFA into a few categories.


Category 1 The Next Generation Salesperson
I admit, I have not met this type of IFA before. Nevertheless, I am listing down this "profile" as I am sure they exist. Probably "graduated" from a tied FA, this IFA is what I call the "next generation salesperson". He/she is still a salesperson at heart. Only difference is that instead of 10 products, he now have 100 products to sell!


Doctor Analogy This type of IFA is like a doctor who has the entire range of drug products. But he/she does not do a proper diagnosis of your health condition, and prescribe medicine that will earn him the most money, and the medicine may not be even relevant to the health condition!


Category 2 Wolf in the Sheep Skin
Very sadly, I have encountered this type of IFA, which I think is the most damaging out there. Unlike salesperson, whom a newbie can learn to identify quite quickly, this type of IFA will *appear* to be genuinely ethical but in reality they are not. They will usually do proper financial planning, but the product recommendation will be full of unnecessary high-expense, high-commission products.


Doctor Analogy This type of IFA is like a doctor who has the entire range of drug products. He/she does proper diagnosis and recommend the correct type of medication for your health condition. However, this doctor will prescribe the most expensive, which is also usually the least effective medicine, so that you will not be cured totally. Thus, you have to visit him again for more medicine, and he earns more money from you. In real life, I have encountered such doctors before, and I never visit them again once I learn of their unethical "business model".


Category 3 The Average IFA
I do hope the majority of IFA lies in this category, and in my opinion this is the minimum standard that consumer should aim for. This IFA will do proper financial planning and recommend appropriate products based on client needs. However, he/she will not source for the best product out there but will recommend something that is good enough.


Doctor Analogy This type of IFA is like a doctor who has the entire range of drug products. He/she does proper diagnosis and recommend the standard medication (neither super effective or terribly bad). Most family doctors in real life fall in this category.


Category 4 The Good IFA
Probably the minority of IFA out there, this IFA does everything properly from financial planning step to the implementation step. He/she places his clients interest before his own, and in many cases goes the extra mile at his/her expense.


Doctor Analogy This type of IFA is like a doctor who has the entire range of drug products, does proper diagnosis and recommend the most effective medication. In real life, I only know of one family doctor that is up to this standard.






So the biggest question know if that since we know Banks and Tied agents should be avoided at all cost. How do we distinguish the good IFA from the bad IFA? That's coming up next...




Category 1 The Next Generation Salesperson


Meeting the Next-Gen Salesperson IFA is going to be detrimental to your long term financial health. Not only does he/she does slipshod financial planning, his product recommendations is also equally bad. I think such salesperson is quite easily to identify even for newbies. Some tell tale signs:
1) Jumps straight into product recommendation without doing a proper cashflow analysis.
2) Missing out key parts in financial planning, such as (a) understanding your investment objectives, (b) understanding your background economic situation, (c) understanding your risk tolerance, (d) not drawing up an investment portfolio, etc...
3) "Neglecting" to mention important but low commission products, such as H&S Shield Plan.
4) In the sad scenario that you took him/her as your IFA, you'll notice that this type of IFA will contact you regularly to buy some latest products. "Regularly" here can be loosely defined as recommending a new product every quarter.


Category 2 Wolf in the Sheep Skin
Admittedly, this class of IFA will provide proper financial planning, so you will have stuff like H&S Shield plan unless you decline not to take it or are not insurable. Nevertheless, because this kind of IFA recommend expensive products, your returns over the long term will suffer. Also bear in mind for investments, every % count. A return of 4% vs 5% may seem the same, but over a 30 yr period, a $1000 sum becomes $3200 (for 4%) vs $4300 (for 5%). As you see even 1% returns over time can make a non-trivial difference to how much money you will have when you retire. Some telltale signs for this kind of IFAs:
1) Downplaying the importance of important but low commission products - e.g. Disability income insurance.
2) Recommend things like ILP and Endowments and even talks about the benefits of them.
3) Recommend Whole Life insurance over Term insurance.
4) Claiming that you should buy insurance to help you to save.


Category 3 The Average IFA
With the average IFA, more-or-less your financial health will be ok in the long term. However, because he does not really source for the products that is in the best interest of his clients, you may be missing out some returns in the long run. Some telltale signs for an average IFA:
1) Recommending Term insurance over Whole life insurance.
2) Recommending Unit Trust investment (and not ILP or Endowment).
3) Subscribes to a Buy-Term-and-Invest-the-Rest (BTIR) philosophy.


Controversy over Whole Life vs BTIR (Buy-Term-and-Invest-the-Rest) philosophy
Here is where some IFA will disagree, but my stand is that almost everyone should BTIR. Actually there is fundamentally no difference between BTIR and Whole Life - both approaches takes your money and split them into an insurance and investment part. The only difference is who manages the investment part. It's either you (or your IFA on your behalf) or the insurance company. Some IFAs may cite that Whole Life may be suitable for financially disinterested clients... but they forget the point when one buy Whole Life, he/she is implicitly outsourcing the investment part to the insurance company... so why not let your IFA do it for you? Another reason is that financially undisciplined clients may benefit from Whole Life as it forces them to save... again I say why don't just RSP into a portfolio managed by your IFA. It's the same thing...


Category 4 The Good IFA
This type of IFA is hard to find, primarily because the IFA may get to lose out in his commission earnings as some products might have no commissions. Some telltale signs of a good IFA:
1) Recommends H&S Shield Plan, Disability Insurance and Term with CI coverage - these are the most basic 3 insurance that everyone should have if it is within one's financial means.
2) Introduces the ideas of minimizing expense ratio for investments, passive (and not active) investment, talks about ETFs and index fund.
3) May use Unit Trust, but will select low expense, low turnover Unit Trust.
4) Discloses the commission he will earn from various products, and highlight any conflict-of-interest in his role as a financial adviser. - Seriously I'm not too sure if anyone does this, but before purchasing from an IFA I would ask for a full disclosure of his/her remuneration.
5) Talks about Estate Planning, an often neglected but important aspect of financial planning for those who have a next generation to consider.
6) Does not guarantee you a returns of a fixed % every year (note that saying you will likely get 5% returns till retirement vs saying you will guaranteed get 5% returns till retirement are two different statements btw).
7) Does not talk about >15% returns every year over a long period of time (simply put because no investment can do that).
8 ) Reminds you that past performance is not an indicator of future performance and tells you that fund performance ratings are basically bull****.
9) Does not talk too much about the current investment hype you are hearing all around you (now it is Gold, few years back it was China & India fund, and even before that it was Technology fund). Basically, if your IFA sounds like the today's economic news be very afraid.


Controversy over Passive (Index) vs Active Investment
No matter what financial gurus may tell you, including those big shot Wall Street con jobs (oh I meant Wall Street experts actually), it is an established fact that passive investment strategy will outperform active investment strategy over the long term (>20yrs). This is proven by over 20+ years of research. For anyone else who argues otherwise, it's bull****. In my opinion, this is a pretty black and white matter, and I don't believe there are many cases where active management may be better.


In my last post, I will cover my experience with the various IFA firms I have engaged so far. While I think the quality of IFA is probably not tied directly to the IFA firm, nevertheless I think it reflects on the IFA firm as a whole and should be included.

Part 3. Key Investment Concepts to Master to avoid retiring broke

In this post, I will highlight the key investment concepts that you need to be aware of, even at the newbie level.


Market Timing / Active Trading: Proven Not to Work over a Long Time
I won't go into a detailed post on this topic, but to cut the long story short market timing or any other forms of active trading strategies (be it Fundamental Analysis, Technical Analysis, Charting, has been proven not to work over a long period of time (>10 years). This is backed up by 20+ years of academic research. I will recommend an open minded investor several key books that talks about this:
A Random Walk Down Wall Street, by Burton Malkiel
The Intelligent Investor, by Ben Graham (Warren Buffet is Ben Graham protege btw...)
The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between by William Berstein
The Intelligent Asset Allocator, by William Bernstein (it's a more technical version of the book above)
Asset Allocation, by Roger Gibson
So what or how should you invest? Simple, buy a diversified portfolio of passively-managed index funds or ETF.


Portfolio Planning: The Proper Way to Invest
The worst question to ask, which occurs so often in this forum is "I have XXX money to invest, what stock is a good buy?". Let's set the facts straight, that statement was not about investment it is about speculation/gambling. Proper investment means setting up a plan that accounts for your (i) risk appetite - how panicky are you when the market crashes, (ii) time horizon - how many years till retirement, (iii) other socio-economic factors - do you have a stable job, etc... After such aspects are addressed an investment portfolio is planned. A portfolio is like a plan that you draw up at the start and you stick to it. In this plan, you will allocate a fixed percentage of your money to stocks, bonds and cash (for e.g. 60/30/10 into stocks/bonds/cash). Every time period (e.g. every month) you will buy into such stocks/bonds/cash in the specified ratio, and every once in a while (e.g. every year), you will "rebalance" the portfolio into its proper allocation. That is called investing. It is an extremely boring thing to do, and is as exciting as watching grass grow. Investing is not about panicking when the stock market crashes and selling when the news is screaming "recession!" Investing is not about buying gold or the stuff that everyone is talking about. Never forget that the end goal (retirement) is what that matters. Over the period of one's working lifetime (30-40 years), stock markets has never provided negative returns, so you can ignore the market if it crashes tomorrow.


Risk and Return: High Return Investment has High Risks, There is NO Escape
No Pain, No Gain. It's a crude analogy but it makes the point clear. You cannot get high returns in investing unless you take high risk. However, taking high risk does not mean losing a lot of money. Here is where risk management comes in, which is directly linked to your portfolio planning. If you are a very conservative person, invest more in bonds that are low-risk, low-return instruments. If you are an aggressive person, invest more in stocks that are high-risk, high-return instruments. Also always remember that in the long term (>10 years) even high risk investments like stocks will in the majority of cases provide high positive returns. Over one's working lifetime of 40 years, it is almost "guaranteed" that you will never lose money in the stock market. Of course, this is contingent that the investor "buy and hold" and does not do stupid things like sell stocks when the market crash. In investing, the long-term goal is the only thing that matters. If the market crash and burn tomorrow, it shouldn't bother you. I find myself repeating quite a lot from the earlier section, but this lesson is the most important take home message in this entire post.


Diversification Across Asset: Never have a Pure Bond or Pure Stock strategy
One does not invest 100% in bonds. Neither does one invest 100% in stocks. No matter how aggressive or conservative an investor you are, it is always prudent to invest and diversify across the three asset class of cash, bonds and stocks.


Diversification Amongst Stocks: One Stock is Not Enough
When you invest in stocks, you do not just buy one stock. Even 10 stocks is not enough. To be on the safe side, you should invest in an index that has many stocks, ideally 100+ if not 1000+ stocks. Index can never drop to zero but individual stocks can. That is the idea of diversification, spreading the risk across many many stocks. How do I manage 100 or 1000+ stocks? Buy an index fund or ETF.


Diversification Across Countries: Look Beyond Singapore
Many investors would benefit by diversifying to other countries. Singapore is a small nation and by just purchasing Singapore stocks you are at risk to "black swan" (i.e. super unexpected) events. Although admittedly it is a very small risk, it has happened once before - The Japanese investors if they had only invested in Japan stocks until today would still probably have not recovered from the 1980 crash. If the Japanese investor had invested half their money in world stock, he would have at least doubled his money by today. Lesson learnt? Have at least a proportion of your stocks invested globally. With ETFs it has become very easy to purchase a basket of a few thousand stocks from many nations across the world.


Costs: Every Percentage Point Counts
Investment is not free. It comes loaded with a lot of hidden cost. Be aware of commission costs whenever you buy or sell a stock that eats into your long term returns. Be aware of costs that the brokerage may charge you every month per counter of stock. Be aware of the expense ratio and management fee of a particular unit trust or ETF. You should always strive to achieve lowest costs, which means only do business with the lowest commission brokerage and buy unit trust/ETF that has the lowest expense ratio and management fees. Comparing a unit trust with a 1% vs 2% expense ratio may not seem like much, but do the maths. If you invest regularly in a unit trust that returns 7% per year before expenses over a 30 year period, the lower expense ratio product would have given you at least +30% more money at the end.


Guaranteed Returns: There is No Such Thing!
One of the supposed "advantages" of insurance is that it provides "guaranteed" returns that is usually higher than fixed deposit. Many endowments make this selling point of "guaranteed" returns after a period of time, say 20 years. However, a DIY investor can also do the same thing by investing into a balanced conservative portfolio of bonds and stocks. Part of the money will be invested in high quality government bonds (like SGS bonds), it is virtually "guaranteed" that the money will not be lost, well... unless the government collapses which is unlikely to happen. The other part can be invested in a diversified portfolio of stocks that over a 20 year period will very likely provide high positive returns. To really "guarantee" that you will have a specific sum after 20 years, a DIY investor can always do the maths to make sure the bond proportion would have grown sufficiently large, to the point of even offsetting stock loses should the market crash in that 20th year. The advantages of such a DIY approach, is that the fees are transparent and lower. What this means is that for a DIY investor and an Endowment "investor", if they both invest in similar stuff, the DIY investor will come out ahead with more money at the end.


Guaranteed Returns: It is also Depends on Who is the One Providing the Guarantee!
Probably one of the most common reasons as to why people fall into various con and scam "investment" products is the being misled by the term "guaranteed returns". A guaranteed return is only as safe as the person or entity providing the guarantee. Therefore, it is always prudent to ask who is the party providing the guarantee. In the case of SGS bonds, the Singapore government guarantees the coupon payouts every year and guarantees that they will return the capital after the bond matures. In the case of other exotic investments like land banking, some company you just met is guaranteeing the declared returns over the specified time period. Do you think that both forms of investment offers the same level of "guarantee"? Remember that a guarantee is as only as good as the person making the promise. While we can be almost 100% sure than the Singapore government will be around 20 years from now, we cannot be 100% sure that the company you just met with will be around next year!


Benchmarking Performance: It's Not Just Enough to "Make Money" in Stocks
I always hear people boast that they "make money" from the stock market. That is quite frankly a very misleading statement. If you don't believe or choose not to believe in buying into a passively-managed portfolio of index funds or ETF, then please compare your past historical returns with a suitable benchmark (like the STI ETF). Yes, you may have "made money" in the stock market, but if after such comparison, you earn less money than the STI ETF then you would have been better of investing in the STI ETF. I cannot emphasize this enough - It is simply not enough to "make money" or earn positive returns from the stock market. You have either got to beat the market (through active trading strategies which research says will not work over the long term) OR invest in the market through a passively-managed index fund.


Survivorship Bias: You Will Always Hear Success Stories... but Do They Last?
Every once in a while, you will come across somebody (be it your friend, relative or in the news) that made big bucks by speculating the stock market or the property market (these are the 2 most common cases in Singapore but is by no means exhaustive). Never forget the idea of "survivorship bias", which means that out of this one successful story you come across, there are hundreds if not thousands of failure stories that you do not hear about. Don't feel sad that your boring investment has only returned a few percentage points every year. Why? Cause in the long run speculation is a zero-sum game, that means a speculator will lose as much as he wins. The only reason why there are successful speculators is that because they are lucky and not skillful. Eventually their luck will run out. Don't believe me? Do you have a friend from many years ago who claimed he beat the market in using his powerful stock picking techniques? How is he doing now?


BTIR (Buy Term and Invest the Rest): The Better Way to Manage Insurance & Investment
Whenever you purchase a Wholelife Insurance or ILP, part of it goes to an "investment" part and the other goes to the "insurance part". The problem with Wholelife and ILP is that there are very high costs associated with them, on average the insurance company sucks up 3-4% of your investment returns every year. BTIR is an alternative strategy that advocates buying purely insurance and purely investment products. There are many ways to implement, but I will just share mine. The insurance part will be covered by a low-cost term insurance that covers till age 65. The difference in premium between the wholelife/ILP and term insurance is then used to invest till age 65. After age 65, there is no more insurance, but I would have accumulated a sum of money and that is used to "self-insure" the person till his death. I would also like to highlight the most popular misconceptions of Wholelife/ILP vs Term:


Misconception 1: Wholelife/ILP forces you to invest regularly, BTIR does not.
Reply 1: Not true. You can always GIRO into a unit trust every month, just like you GIRO into a Wholelife/ILP


Misconception 2: Wholelife/ILP coverage is for life whereas Term coverage ends eventually.
Reply 2: Not true. A proper BTIR strategy will be planned in such a way that one would end up with a lump sum of money after the Term coverage expires.


Misconception 3: Wholelife/ILP coverage increases with time since companies may give bonus every year. Term does not.
Reply 3: Not true. A proper BTIR strategy also does investment and so your sum will increase over time.


Misconception 4: Wholelife/ILP gives guaranteed returns. BTIR strategies do not.
Reply 3: Not true. When you invest, part of your money is in bonds, and the bond part is quite literally guaranteed (but on the condition you invest in proper investment grade bonds like SGS bonds).


Conflict of Interest: Your Broker, Bank & Agent is Not Your Buddy
One should take note that in the current state of practice by the insurance/investment/finance industry there is 99% of the time a conflict of interest between you and your agent. What does this means? Well, the problem arises is because the agent makes money from commission, and so the agent in his own best interest will be encouraged to offer products that earn him/her the most commission. Such products may not necessarily be in your best interest, and often commission-heavy products are usually products that are lousy from the consumer point of view. Some agents/IFA may "pretend" to be ethical by giving you or rebating you part or all of their commissions. What you do not know is that many insurance companies have a "volume bonus" tie up with the IFA firm. What this means is that an insurance company may offer money (as much as million dollars) as bonus to an IFA company in return for a greater volume of sales, so all agents from such IFA companies will have a vested interest to push the products associated with the "volume bonus".


Part 4. Things to Know before Meeting a Financial Planner/Adviser

Here's my personal list for the importance of various insurance policies arranged in order of priority:
(1) As-Charged Private H&Shield Plan (e.g. NTUC Enhanced Income Shield, Aviva MyShield, and many others)
Function: Allow you to claim up to 90% of your hospital bills.


(2) Rider for Private H&Shield Plan (e.g. NTUC Assist Rider, Aviva MyShield Plus, and many others)
Function: Allow you to claim almost 100% of your hospital bills (except the first $2000-3000).


(3) Own-Occupation Disability Income Insurance (only Aviva IdealIncome and GE PaySecure)
Function: Pays you with 60-70% of your declared salary for life if you suffer from a medical condition that prevents you from working in your declared job.


(4) CI Insurance
Function: Pays out a decent large sum of money in the event that you kenna a Critical Illness condition (e.g. heart attack, stroke, cancer, coma, etc..)


(5) Term Life Insurance or Whole Life Insurance
Function: Pays out a decent large sum of money when you die. Only required if you have dependents (financially poor parents, kid under 21 years old, non-working spouse).


(6) Long-Term Care Insurance (e.g. Aviva MyCare, NTUC Primeshield, and many more)
Function: Increases your basic eldershield payout, providing an income for life if you become a vegetable.


(7) Personal Accident Insurance
Function: Pays out a decent large sum of money when you die in an accident. Also provides payout for partial disability.


(8) Single Premium Annuity
Function: Provide an income for life in exchange for giving the company a lump sum of your money. Only for retirees.


Insurance Products to Avoid: ILP, Endowments.

Here's a table that list various insurance/investment products based on the amount of commission earned:
Note: As I am not working in any insurance or investment company, I cannot be 100% certain and this is meant to be a guideline based on what I have gathered over the years


Insurance High Commission Products: ILP, Anticipated Endowment, Whole Life Insurance


Insurance Med to Low Commission Products: Annuity, Single-Premium Endowment, Term Life Insurance, Disability Income Insurance (very little commission), Private Shield Plan Insurance (super little commission)


Investment High Commission Products: Structured Products/Deposit, Hedge Funds, ILP, Other exotic investment stuff (e.g. minibond)


Investment Med to Low Commission Products: Unit Trusts, ETF (zero commission!)


Very very unforunately, the best products in insurance and investment are usually the lowest commission products. Be very aware of this conflict-of-interest when engaging any financial adviser.

Here's my personal compilation of list of poor financial advice that I have seen other IFA/FA offer, either through personal contact, on forums or on blogs:


IFA/FA: Whole Life insurance CI coverage is better than Term CI coverage since it is for the entire life.
You: Have you heard of BTIR, which stands for buy-term-and-invest-the-rest? This means that you save and invest the difference in premium between Whole Life vs Term, and set aside a sum equivalent to the Term coverage when it expires. So, after the Term CI coverage expires, you have your own "self-insured" CI money which you can claim from yourself for any condition. Isn't that better?


IFA/FA: Term insurance is no good because you get back nothing if you don't kenna CI or TDP or die in that period.
You: Ya... that's the purpose of an insurance product you know! Insurance is meant to provide protection, not to give me high returns. Why should I expect to get any money back at the end of the term?


IFA/FA: With Whole Life insurance, your sum assured grows with time. Term coverage does not.
You: Have you heard of BTIR, in which the "I" stands for "Invest" and that the sum also grows with time. Also, how many insurance company have a good historical track record of keeping to their projected "non-guaranteed" returns?


IFA/FA: This ILP/Endowement/etc is good because of the high returns (and he/she points to the non-guaranteed column).
You: It is non-guaranteed.


IFA/FA: With CI coverage, you don't need Disability Income insurance
You: There can be cases whereby you get disabled and it is not part of the definition of "Critical illness". (Note the reverse situation also applies when you can get a CI but cannot claim from Disability Income)


IFA/FA: You don't need a H&S shield plan because the CI coverage with basic medishield is enough.
You: That will not help me if I need to go Private Hospital or Ward A because of a life-threatening emergency, in which they will put me on "queue" if I were admitted to Ward B2/C.


IFA/FA: Please cancel your H&S shield plan, this new shield plan I recommend is better.
You: There is not much difference between all the various shield plans, if I switch can you guarantee that my preexisting conditions will be covered under the new plan? (Here, I'm assuming your existing shield plan is an "as-charged" plan).


IFA/FA: CI coverage is not needed, because when you kenna a CI you will sure die within a few years and your retirement money will be enough to cover the medical expenses.
You: Actually more and more people are CI survivors. Critical illness is not the same as terminal illness.


IFA/FA: You should invest in property because it provides a steady stream of income (I have seen some FAs trying to market it as a replacement for annuities!)
You: There is no diversification. If anything happens to the property, my income stream is dead. Did you know other types of investment can also provide a steady stream of income?


IFA/FA: ILP is good because it is cheap and you can control your investment, it gives flexibility, etc...
You: I can BTIR and I get even more flexibility. And... you forget to mention how much ILP costs in the long run.


IFA/FA: This is a good Unit Trust because it has a 5-star rating.
You: Past performance is no indicator of future performance, in fact based on the laws of probability it will probably underperform in the future!


IFA/FA: You should purchase this Unit Trust or some kind of investment instrument (and it's the stuff you've been hearing all over the media in recent times).
You: Where is the portfolio planning, and how does it fit into my portfolio?


IFA/FA: I have never heard of index funds before.
You: Uh.. huh and you call yourself a financial adviser?


IFA/FA: I don't believe in index funds cause I think they don't work for .
You: Where did you get your financial education from?


IFA/FA: With this portfolio I designed, we can beat market returns. In fact I have done it for the past 10 yrs.
You: Past performance is no indicator of future performance. You may have beaten the market for the past 10 yrs, but it means nothing. How do I know if you are skillful or lucky?


IFA/FA: Forex and currency trading is a good way to invest.
You: Have you confused investing with speculation/gambling?


IFA/FA: Please don't invest now, the market has crashed!
You: Actually, when the market crashes this is the best time to invest!


IFA/FA: Please liquidate your investment now, the market is crashing!
You: Actually, that's the worst possible thing to do in a market crash.


IFA/FA: You should buy this product from me because there is this free gift (TV, handphone, etc) that comes with it.
You: Not interested.


IFA/FA: Insurance companies is very safe in Singapore and will NEVER collapse because of government regulations, so it's safe to buy your policies all from one company (note that "never" is not the same as "unlikely").
You: While it is true that Singapore's regulations on insurance companies are probably one of the best it the world, nothing is for certain. Ever heard of regulatory oversight/negligence? Faking financial statement and figures? Fraud? Embezzlement? The fine print which nobody reads?


IFA/FA: Investment is very complicated, you must learn stuff like Technical Analysis, Fundamental Analysis, Sharpe Ratio, Beta, P/E Ratio, etc... so leave it to me the expert to handle for you.
You: Actually, investment is actually quite simple. All I need to know is my investment objectives, my financial background, my risk tolerance, how to design an appropriate portfolio, and then dutifully save every month in a low cost low expense portfolio.


IFA/FA: You don't need to purchase this insurance as it is covered by your employer.
You: The majority of group insurance policies (i.e. those offered by employer) are non-portable, i.e. you lose coverage when you lose your job. Are you sure my group insurance policies will continue after I change or lose my job?


IFA/FA: I can help you beat the market because I possess a PhD in investing (or wadever nice sounding qualification). I follow the Wall Street experts strategy of , etc...
You: Ya, and I know of two guys that have PhD, are full professors, and have won nobel prize in economics, and they tell me that what you say is not true! (Btw the 2 guys are Robert C. Merton and Myron Scholes). Even billionaire Warren Buffet says that the average guy should not try to beat and time the market!

Part 5. Commentary of Various Type of Insurance


1. Private H&Shield Insurance


This is the most important insurance to get. What this insurance covers is the medical bills associated with long-term hospitalizations and some (not all) outpatient treatment associated with certain cancer, dialysis and kidney failure. Everyone should get an "as charged" shield plan as opposed to the older type of shield plans that have various capped limits. Luckily, all of the capped limit shield plans have been removed from the market (if I am not wrong), so less confusion for a newcomer. For most "as charged" shield plan on the market, this insurance policy allow you to claim up to 90% of your medical bills. Such plans usually come in 3 flavors targeted for various hospital types - Private, Ward A and Ward B1. (Note: Basic Medishield only covers up to Ward B2). The premium are extremely cheap compared to the hospital bills that one can rack up. Since everyone will go to the hospital eventually (unless you are really that healthy), this kind of insurance is more or less confirmed to "earn" in one's lifetime, in the sense that the premium you pay over the many years can be "claimed back" by just one expensive hospital trip.


2. Co-Insurance Riders for Private H&S Shield Insurance


In a traditional private H&S shield plan, the insurance company will not cover the first $1000-4000 of your hospital bill and will not cover 10% of the bill beyond the first $1000-4000. This 10% that consumers need to co-pay is known as co-insurance. Some riders to such shield plans will pay for the 10%, which means that you will only need to pay $1000-4000 per year, regardless of how expensive your hospitalization costs are. Personally, I find such riders very good value-for-money since they aren't that expensive. Also, I can be sure of how much money I need to budget for hospitalization in the future. With increasing medical costs (average medical inflation is at 5% over the last decade), it might be prudent to get such a rider. In 20-30 years time, it may be likely that even a government hospital will charge six figure sum and 10% of a $100k bill is $10,000. Getting a rider to cover the co-insurance makes one's medical bill more predictable.


3. First Dollar Riders for Private H&S Shield Insurance


Some private H&S shield plan offer a rider than will pay everything. This means essentially you pay zero dollars when you go to the hospital. Sounds great right? Well... not really because such riders are very expensive and became insanely expensive when you reach an old age. I don't find such riders value-for-money, cause the premiums are too high. Insurance is meant to insure against big catastrophic events. I'm sure most people can set aside a few thousand dollars for medical bills right (assuming you have a co-insurance rider)?


4. Disability Income Insurance (Own Occupation, Long-Term)


Disability Income Insurance is probably the 2nd most important insurance for young people. When you apply for this insurance you will declare your salary and your occupation. If you pass the medical underwriting, such DI insurance will provide you with a payout of 60-70% of your last declared salary until retirement age (varies from 50-65), if you suffer from a medical condition that specifically prevents you from working in your original job. For e.g. you are a teacher and you lose your voice permanently, DI insurance payout will kick in. There are only 2 such products on the market - Aviva IdealIncome and GE PaySecure. When looking for such DI insurance be careful that there are alot of "imitation" products out there. Always make sure that the DI insurance you pay uses "own occupation" definition of disability. Note there is also disability defined as "any occupation" and the more traditional definition of cannot perform 3 out of 6 activities of daily living. If any DI plan uses such definitions it is not good, because claiming becomes extremely hard and unlikely. Also, make sure the payout is long-term and not limited to a few years only. DI insurance are cheap and extremely value-for-money considering that the insurance company may need to pay millions if you kenna such a medical condition early in life.
(Note: In the initial post I said the DI payout was for life. My apologies, DI insurance policy only payout until retirement age, which varies from 50-65 depending on how you want to customize your plan).


5. Critical Illness Insurance


Critical Illness insurance pays out a lump sum of money whenever you get one of the 30 CIs as defined in the policy (e.g. stroke, end-stage cancer, coma, etc.) Most of the CIs have very high medical treatment costs associated with them. But also note that the definitions of CI is exact so not every serious or expensive medical condition is claimable as a critical illness. CI may come as standalone CI plan or come as a rider for a term life insurance plan. I have a personal preference for standalone CI, since the premiums are usually cheaper than a term life plan with CI rider. Standalone CI plans are also good for people who need CI protection but don't need the death payout. This is especially true for people who have no dependents. There are some who will suggest that CI insurance is not necessary since if one gets a CI it is likely that the person will die very soon. This is partially true, usually the odds of surviving a CI for more than year is not good (50:50 chance?). Nevertheless, the lump sum of money will help your family members pay for your hospital bills, and should you survive a CI this is where CI insurance is very helpful. Without CI insurance, it is likely that a lot of money would have been spent on hospital bills (especially if you don't have a good shield plan). This can jeopardize you retirement plans in the future.


6. New Generation Critical Illness Insurance


Recently a series of "new generation" CI plans have been emerging. Some features of such plans include: (i) payout for multiple CI (i.e. can claim more than one time), (ii) early payout for CI (i.e. can claim part of the sum assured if the CI condition is not serious like early cancer). It sounds nice in principle, but such plans are also usually 2-3X more expensive than the traditional CI plan. Personally, I find these products not value-for-money, but if I were to purchase such a product I would ask the following questions:
(i) Can I make subsequent claims on the same CI condition (for e.g. in the case of relapse)? Logically speaking after suffering and surviving a CI condition, I would think that the chance of a relapse is higher than the chance of getting another unrelated CI condition. If the insurance doesn't give a second payout for the same CI condition, what would be the point?
(ii) Can I make subsequent claims on related CI condition? If you can't claim on related CI conditions, then the usefulness of the insurance is quite limited as apart from a relapse of your original CI condition, getting a related CI condition is more likely to happen.
(iii) What is the waiting time between the first CI claim and subsequent CI claim?
(iv) How much can I claim from early CI payout, and what is the maximum sum for early payout? Once you have this figures, ask yourself if the max early amount is worth the extra premium you pay over a traditional CI plan. Calculate the difference between traditional CI and early payout CI and do a projection of the investment returns. If the invested returns exceed the early payout sum in a short amount of time, it is probably better for you to "self-insure" the early payout CI by getting a traditional CI plan and saving/investing the difference in premium.


Finally, never forget that the chance of surviving a CI beyond one year is not very high (50:50 chance perhaps?) So, always remember that there is a chance that you will die before you can make the 2nd CI claim. If this is the case, then the extra premium paid for such a plan is truly wasted.


7. Term Life Insurance


Term Life insurance is a form of low-cost life insurance that pays out a lump sum of money when you die. It has a limited "coverage period" and once the policy expires you don't get any money back. Many people don't like this idea of not getting anything back, but always bear in mind insurance is meant for protection. If you come across any life insurance that gives you "cash back" at the end of policy if you have made no claim, you can be sure it will be more expensive than a traditional term life plan. Come on... insurance companies are not stupid people you know! Term life insurance is only really necessary under very specific conditions: (i) You have kids and would like to ensure that in the event if you pass away, your kids can grow up in a "financially healthy" environment, (ii) You have a non-working spouse who depends on you for money, and if you pass away it's likely she cannot find a decent income job to support a decent standard of living. Other situations in which term life insurance may be useful may include: (iii) You have just started work and your parents are financially needy, and would like to leave a lump sum of money for them in case you pass away too early. A very common reason that Singaporeans buy life insurance is so that when they pass away their families will get inherit a lot money. However, a lot of Singaporeans also seem to forget that when they pass away, their accumulated savings and investment also gets passed on to their family. In fact, for cases in which a person passes away at the "normal old age", buying too much life insurance is bad because if he had bought less life insurance coverage and invested those insurance premiums in a long-term investment plan, he would have accumulated more money than the life insurance payout.


8. Whole Life Insurance
Whole Life Insurance is like Term Life Insurance but the coverage is for life. However, do check the definition of "for life" as some companies define it as up to age 99 whereas others define as until you die. Whole Life Insurance can be 2-5X more expensive than Term Life Insurance. Why? Because when stripped down to its bare components a Whole Life Insurance is a combination of a Term Life Insurance (that expires when you die) and a separate Investment Plan. As I mentioned in the earlier part of BTIR, it is often better to Buy Term Life insurance and invest in the difference in premium. Over the long term, you and your family will get much more money than a traditional Whole Life insurance.


9. Limited Premium Paying Whole Life Insurance
In traditional Whole Life Insurance you pay premium up to 65. In the last few years a new type of Whole Life Insurance has emerged. This new variant limits the premium paying period to a fixed time (usually from 5-20 years). The sales pitch is that you only pay premium for a limited time, but the coverage is for life. However, what many fail to mention is that it is also much more expensive than traditional whole life plans. Nevertheless, such Limited Premium Paying Whole Life plans may be useful for young people with exceptionally high starting salaries. Another reason where I think it might be a good deal is for a newborn. The premium for such plans for a newborn would be cheaper, but the insurance has a liability for the lifetime of that newborn. If you do buy for your newborn, be sure to get a CI rider since it will benefit him eventually. However, when compared to BTIR, such wholelife plans in my opinion are also inferior. Still, there are not as bad as traditional wholelife because you can control the premium paying period.


10. Personal Accident Insurance
Personal Accident Insurance provides you with a lump sum payout when you die in an accident (obvious right?). Many PA plans also pay out when you are unable to work in your original job due to medical reasons. Some might sell it as a Disability Income insurance but note that the PA payout for such cases are usually limited to 5 years max. Personally, I don't see much of a use of a PA insurance. If you already have a proper DI insurance and Term/CI insurance it should be good enough. But... if you have extra money why not?


11. Regular Premium Endowment
Regular premium endowment is often marketed as a saving or investment plan with protection features. Be it for protection or savings/investment, such products are definitely inferior to the traditional BTIR strategy. When taken apart to its basic components, a regular premium endowment is like a combination of a term life insurance and a separate Investment Plan. If this sounds like a traditional Wholelife insurance... yes both products are in fact similar. The only difference is that regular premium endowment will pay a guaranteed sum after the policy ends. Most regular premium endowment are long-term commitments, but only offer 1-2% guaranteed returns which is ridiculously bad. Some endowments guaranteed returns are less than the premium paid, and these are worst products since there is a chance that you can lose money! As a rule for a balanced investor here's the expected returns for various time periods: (i) 5YR: 2%, (ii) 10YR: 4%, (iii) 20YR: 6%. Unless the regular premium endowment can make the above specified guaranteed returns, it is usually a better idea to just save and invest via normal investment instruments like unit trust and ETFs. As for protection/insurance concerns, just get a Term Life plan.


12. Investment-Linked Policy Insurance
Investment-Linked Policy products are probably the worst type of products offered by insurance companies (and incidentally these generate quite a lot of commission for the agent selling it). ILP come in many variations, but the most common ILP when broken into its basic part is a combination of a Yearly Renewable Term Life Insurance and an Investment Plan invested in Unit Trust of the consumer choice. Note that I have said "Yearly Renewable", which means that the premium increases every year as you age even if you have developed no health conditions. With regards to the protection/insurance part, the costs escalates exponentially as you age. A very common scenario in ILP (and this has been reported on Straits Times before) is that people are unaware of such escalating costs. As they age, the premiums of ILP increase to the point that they cannot afford it. When this happens, many people are "advised" to use their accumulated cash value from the investment plan monies to pay the premium. Eventually, when the ILP terminates many find that there is not much left and it is possible to get close to zero dollars because all the investment plan monies have went to support the increasing ILP premium. Another issue with ILP is that they are extremely not value-for-money due to the high cost and expenses in an ILP plan. It is often (dare I say always) better to BTIR and get a separate term life plan and invest in your own unit trust. Even if you are the type that refuses to BTIR, I would still recommend you to go with either Endowment or Whole Life plan. At least with those plans there is a guaranteed value, whereas for ILP there is none!


13. Long-Term Care Insurance
Long-term care insurance is an insurance policy that pays out a monthly income (from a few years to lifetime depending on the plan) if you cannot fulfill 3 of the 6 activities of daily living (Washing, Dressing, Feeding, Toileting, Transferring and Mobility). The purpose of this insurance is to help the family members of the invalid or the vegetable with the high costs that may come associated with it (e.g. dedicated nurse, any ongoing medical treatments and therapy, etc...). This kind of insurance is very hard to claim as you need to have doctor's certification of being unable to do 3 of the 6 activities of daily living, and the definitions is very strict and specific. Eldershield is actually a very basic form of long-term care insurance, but its main drawback is that the payout period is too short and the amount too little. Many insurance companies have offered "eldershield supplement" policies that increases the payout amount and pays for life (so as long as the person remains a vegetable or an invalid). However, one consideration to note is that once a person becomes a vegetable or invalid, he/she is unlikely to live very long (at most 10 years?), so a lifetime payout policy may not be too cost effective. Finally, do not overbuy into these type of insurance and don't forget that a vegetable and invalid is unlikely to need money to spend on holidays, hobbies, entertainment, transport, handphone, etc... so a significant proportion of the money that a person usually spends can and should be redirected to support the cost of supporting the ongoing medical fees. I'm quite neutral over this type of insurance. I won't place it on a high priority list, but it's good to have if you have money to spare.


14. Single-Premium Annuity
Many years ago there used to be several annuity products on the market. Unfortunately most of them have been withdrawn from the market with the introduction of CPF LIFE. A single premium annuity is financial contract in which you pay the company a lump sum of money, in exchange for a regular payout for life. Annuity can be deferred (I put my money in now and the payout starts 10 years from now) or immediate (I put my money in now and the payout starts next month). CPF LIFE is an example of a deferred annuity. Annuity are also classified into participating and non-participating annuity. Participating means that the policy can earn bonus over the years (like life insurance) and the payouts have a chance to increase over time. Non-participating means that the payout is fixed for life but usually start at a higher payout value than participating products. Personally, I find investing a portion of one's money in annuity when one is close to retirement a good idea. Because the insurance company is contractually obliged to pay you for life, there is no risk of "out-living" your money. However, always remember that the guarantee is only as good as the person promising it. If the insurance company goes bust, it might be that your annuity payout will be reduced or lost completely. For this reason, I would never commit all of my money to a single annuity plan. Finally always get an annuity that pays out for life. There are some annuity-like products that only guarantee payout for the first 20 years, which kinds of defeats the purpose of having an annuity in the first place!


15. CPF LIFE
Yeah, CPF LIFE is a compulsory annuity product that everyone has to take (unless you too old and managed to escape it). I would just like to state a warning about CPF LIFE - There is no guaranteed payout in the CPF LIFE scheme. This means that the payout can decrease based on or in the worst case the payout can drop to zero! Sounds impossible? Well... as long as it is not in the contract it is a possibility, and when it comes to financial products the only things that matter is the contract. Of course to be fair, I must also mention that CPF LIFE payout can also increase. So you decide which is more likely to happen. Now you might ask what is the purpose of telling me this since CPF LIFE is compulsory anyway. Well... one can always purchase a single premium annuity before reaching 55 and thus split the CPF monies between a commercial annuity (that has guaranteed payout) and CPF LIFE. Something to think about...

Part 6. How to do a Proper Investment


Ok, by now if you are still reading this part, you should have a decent idea of what investment is. The problem for most people is executing a proper investment plans. There is generally only 3 ways to do it:


1. The Best Way: Do-It-Yourself.
To be truly successful in this path requires further "education" that what I have written here. I would recommend that you read up more books to bolster your investment knowledge and reinforce your ideas on what investing truly is. Do not immediately think that you are not smart or savvy enough to learn about such stuff. You do not need a degree to be able to understand investments. I personally mastered most of them with just A-level qualifications. Here's my recommended reading list.


Elementary Text
Practical Guide on Financial Planning by Tan Kin Lian. This 90+ page book is written by the ex-CEO of NTUC Income. He offers good advice, although I find that it is targeted at the real basic level. Personally, I do not find it detailed enough. But for total newcomers, this is an extremely good place to start. This is also the only real investment book I've seen written for Singaporeans, other books claiming to teach investing only teach you how to gamble and speculate in the stock market.


Intermediate Text
The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between by William Bernstein. This book is written by an American author, so bear in mind that it is targeted towards the American audience. However, key lessons in investing is universal and doesn't depend on which country you invest in. It's a pretty well rounded book.


Advanced Text
The Intelligent Investor by Ben Graham. This book is written by Warren Buffet "shi-fu".
The Intelligent Asset Allocator by William Bernstein. This is a more technical and mathematical book of the above-mentioned Bernstein book. The content covered is pretty similar, but he go into greater details.
Asset Allocation by Roger Gibson. This book is written from the viewpoint that the reader is training to be a financial planner. A good read for advanced investors.


2. The OK Way: Hire a Competent Ethical Independent Financial Adviser.
For those people who feel that they cannot handle investments for whatever reasons, it is best to hire an independent financial adviser (IFA) to help oversee your investments. However, it is important to choose an ethical agent that will not milk you of your money. Which is why perhaps re-reading Part 1 might be a good idea if you are still a bit fuzzy. Even if you are "outsourcing" your investments to an IFA, I would still recommend at least going through some basic books (see the list above). Nothing is better than having your own education in investing, because it is only through educating yourself that you will be able to identify a lousy product or a con-job when it comes along.


Naturally, even such IFA need to earn a living so he/she will charge you some fees. Usually this can be a wrap fee or an upfront specified sum every period. Personally, I do not like the idea as such fees will eat into long term returns. But, it is better to have less returns than be conned by some banker or insurance agent and get out zero or even negative returns.


3. The Worst Way: Leave it to the Bank or Insurance Company.
The worst method to invest is leaving it with the bank relationship managers to invest on your behalf or buying into endowments or ILP from the various insurance companies. You can be sure that the bankers are out to get you to buy a new product every now and then so as to feed their commission or encourage you to buy some complicated and money-losing structured product (remember minibond?) that makes money for the bank first. As for endowments or ILP, the insurance companies charge very high fees and expenses to manage your money and often the guaranteed returns are no better than fixed deposits. Trusting your investment to these 2 entities is a sure way to lose money over the long run. While you may not lose money, in the sense that you got more money out than what you placed in, you will definitely lose money, in the sense that the above two options would have provided much higher returns.


Historical Returns for a Local Investor
Let's take a look at some history first. I have used the data from MSCI Singapore Index (with dividends reinvested) and 5-YR Singapore Government Bond yield. From the period of 1990 to 2010, if a person had invested $1000 at the start of each year over this 20 year period, he/she would have gotten the following returns every year:
- 70%/30% Stock/Bond: 6.80% per year
- 50%/50% Stock/Bond: 6.30% per year
- 30%/70% Stock/Bond: 5.30% per year


Of course the data I have quoted uses pure index data and assumes no expenses, commission, sales charge or any other fees. As of now, it is possible to purchase various investment instruments that can track indexes well and usually such products do not charge more than 1.0% expense ratio. This means that realistically speaking an investor invested during this period would have obtained the following returns:
- 70%/30% Stock/Bond: 5.80% per year
- 50%/50% Stock/Bond: 5.30% per year
- 30%/70% Stock/Bond: 4.30% per year


As you can see, you do not lose money in the layman sense. You will get more money than what you put in. This period covers the Asian economic crisis in the 1990s and the so-called Great recession in the late 2000s. If your returns have not matched the data I have presented above, then obviously something is not right with your so-called "investment strategy". Perhaps you have been speculating in the stock market all this while?


Of course, getting this return is not "easy". It is contingent on the following conditions:
(1) The investor invests $1000 per year at the start of year, regardless of the economic outlook.
(2) The investor chooses a proportion of stock and bond he/she is comfortable with and stick to this ratio, regardless of the economic outlook.
(3) The investor, every year will "rebalance" his portfolio to the original stock and bond proportion.
(4) The investor does not panic and sell when the market crash, neither does he become greedy and buy more stock or bonds when the market is "doing well".
(5) The investor does not attempt to market time or pick stocks, neither does he constantly change from one investment product to another.
(6) The investor does not take out and spend the dividend and interest payout buy reinvest them into the investment products.

Portfolio Recommendation
The proportion of money invested in stocks vs bonds is also known as your investment portfolio. Before asking the question of what products should I invest in, it is always necessary to ask yourself what portfolio should I adopt? There are no hard and fast rules for creating a portfolio, but generally speaking most investors agree that your current age should represent the amount of money invested in bonds. For e.g. if you are in your 20s and just started your career you should invest in 80% stocks and 20% bonds. Alternatively, if you are in your 60s and retiring, you should invest in 40% stocks and 60% bonds. However, age is only a general indicator of your portfolio design. You will also need to determine your "risk appetite" which is how panicky you are when you lose money onpaper. If you are the type that panics alot perhaps you should reduce your stock allocation by 10-20%. If you are the type that can't be bothered with market movements, you may probably be ok with an extra 10-20% in stock allocation. Once you have found a portfolio that suits yourself, stick with it and invest on a regular basis following the specified ratio that you have selected.


Product Recommendation
Finally, we have come to the so-called most important part that you are looking forward to. However, if you have been reading and understanding whatever that I have posted, you will probably realize that product recommendation is probably not as important as you originally thought. What is more important is understanding yourself and selecting an appropriate portfolio that you feel comfortable with. Once that is done product selection is pretty straightforward. A simple rule is always go for passively-managed unit trust or ETFs that have the lowest expense ratio.


Local Stock Recommendation
Unfortunately, the number of local stocks that is worth recommending is less than the number of fingers that I have. The only index fund available for the local market is the STI ETF. There are two STI ETF available on SGX, one is from StreetTracks and the other is from DBS. The StreetTracks STI ETF has been around for some time (~5 years) and has a good record of tracking the STI index pretty well. It's downside is that it has a relatively large minimum purchase (about $2000+), so if you do invest in this you will likely be investing every 3 months instead of every month. The DBS STI ETF is a newer product that has been around for a year and it also tracks the STI index. However, it's ability to track the STI index is not proven, but one advantage is that it has a smaller minimum purchase of $200+. Both ETFs have an expense ratio that is around 0.50%, which is a low value.


Local Bond Recommendation
The cheapest way to invest in local bonds would be to buy SGS bonds directly. However, this is problematic for many people because SGS bonds are only issued at a certain time of the year, and the dividends from SGS bonds cannot be easily reinvested. For most people who like to save and invest regularly like through a GIRO deduction every month, only a bond unit trust fits the requirements. Unfortunately, there is quite a lot of bond unit trust that is junk (quite literally). What you will need to look out for is a unit trust that invest mainly in SGD investment-grade bonds. Based on the above criteria, I can only recommend 2 bond funds - Lion Capital Singapore Fixed Income and Legg Mason Singapore Bond Fund. With online portals like Dollardex.com, it is now preferable to purchase such unit trust from online distributors instead of banks. Why? Cause Dollardex charges 0.5-1.0% commission for bond funds but banks charge 1.0-2.0% commission. Investors should note that because all bond unit trust in Singapore are actively managed, the fund manager may change his investment strategy/style. So, it is always prudent to check every year to make sure the manager is "behaving properly".


Personally, here's my own criteria for investing in bond unit trust:
(1) At least 50% of the bonds invested should be denominated in Singapore Dollar to avoid the risk of currency fluctuation. Preferably 66% bonds should be in SGD, but sometimes leeway can be given.
(2) Expense ratio should not be significantly higher than 1.0%.
(3) At least 90% of the bonds invested in investment-grade bonds (BBB and above) or bonds issued by stat boards that may be "ungraded".


Here's my own criteria of bond unit trust to AVOID:
(1) Invest more than 20% of the bonds in junk or non-investment grade bonds (BBB and below).
(2) Invest more than 50% of the bonds in foreign currency.


Cash Equivalent Recommendations
A lot of low risk Singaporeans like to put their monies in savings account and fixed deposits. Many aunties are also bluffed into getting locked up in structured deposits that offer low returns in exchanged for capital protection. Having money in cash equivalent is not bad, unless all your life savings is in cash, which begs to me to ask you how are you going to have sufficient money for retirement. P.S. Don't forget about inflation which makes your money today smaller in the future. (Note: The above statements of all cash portfolio doesn't apply if you are super rich). The problems with savings account is that their interest rate is effectively zero. Fixed deposits gives passable rates as cash instruments but there is a locked period of 1 year (typically). Structured Deposits may give slightly higher rates but have many years of lockup in which premature withdrawal will mean losing money. Allow me to recommend an alternative - Money Market Unit Trust like Lion Capital Money Market Fund or Philip Money Market Fund. For all means and purposes a money market fund gives interest rates that usually matches 1 year FD rates plus they have liquidity (i.e. can withdraw anytime with a very low chance of losing a bit of the original capital - maybe 0.1% chance?). Online unit trust portals charge ZERO percent sales charge for money market fund, making the only "risk" the bid-ask spread, and for the two funds I've mentioned above, investors have not had negative returns so as long as you hold for about 3 months to let the fund price rise above the bid-ask spread. Moreover, with online portals you can set up a regular saving plan to a Money Market Fund making it a good alternative to stuff like OCBC Monthly Savings Account. Money market funds are also great places to park a large sum of cash that you will need in a few years time if you are risk intolerant. Don't be surprised if no insurance agent or bank relationship manager has told you about this. This product generates virtually zero commission (1% sales charge at banks) and the management fees the fund manager earn is really peanuts.


Global Stock Recommendation
At the most basic level, buying a STI ETF and a local bond fund is probably ok. However, one can always diversify the portfolio by investing overseas. Personally, I will not recommend any of the Lyxor ETF series on the SGX because they have pretty high bid-ask spread and have liquidity problems. Instead, I will recommend purchasing ETFs from the UK or US stock market if one is interested in non-local stock investments. Be warned that should you choose to invest in the US stock market, there is a 50% estate tax of any sum above USD55,000 for all foreign investors. For this reason, I would only recommend locals to invest in the UK stock market where the estate tax exemption is much higher. For UK market, generally speaking the iShares series of ETFs are pretty good. I'll just list some that most people will find useful:
- iShares MSCI World ETF (IWRD): One ETF is a basket of ~900 stocks from various developed markets in this approximate ratio - 55% US & Canada, 30% EU Countries, 10% Japan, 5% Other Developed Nations (Australia, Hong Kong, etc...)
- iShares MSCI Emerging Markets (IEEM): One ETF is a basket of ~300 stocks from various developing markets in this approximate ratio - 30% China & Taiwan, 15% Brazil, 14% S. Korea, 8% India, 33% Other Developing Nations (S. Africa, Russia, Mexico, etc...)






Sample Portfolio 1: Aggressive
Combining everything I have said, I'll provide some sample portfolio and product recommendations. This first portfolio invest in 70% stocks and 30% bonds and is considered to be an "aggressive" portfolio. Within the stock portion, I have subdivided it to 33% Singapore Stock, 33% Developed Market Stocks and 33% Emerging Market Stock. This portfolio is suitable for young people who have no major financial commitments in the near future (e.g. downpayment for HDB flat, getting married, etc.) and still have many years till retirement, which allows them to "ride out" any bumps they might encounter such as a market crash.


23% Singapore Stock - StreetTracks STI ETF or DBS STI ETF, purchased from SGX)
23% Developed Market Stock - iShares MSCI World ETF (IWRD), purchased from London Stock Exchange
23% Emerging Market Stock - iShares MSCI Emerging Markets (IEEM), purchased from London Stock Exchange
31% Singapore Bonds - Lion Capital Singapore Fixed Income or Legg Mason Singapore Bond Fund, purchased from Unit Trust distributor


Sample Portfolio 2: Balanced
This second portfolio invest in 50% stocks and 50% bonds and is considered to be an "balanced" portfolio. Within the stock portion, I have subdivided it to 50% Singapore Stock, 25% Developed Market Stocks and 25% Emerging Market Stock. This portfolio is suitable for young people who do not want to take too much risk or middle-aged people at the peak of their career (40s-50s).


25.0% Singapore Stock - StreetTracks STI ETF or DBS STI ETF, purchased from SGX)
12.5% Developed Market Stock - iShares MSCI World ETF (IWRD), purchased from London Stock Exchange
12.5% Emerging Market Stock - iShares MSCI Emerging Markets (IEEM), purchased from London Stock Exchange
50% Singapore Bonds - Lion Capital Singapore Fixed Income or Legg Mason Singapore Bond Fund, purchased from Unit Trust distributor


Sample Portfolio 3: Conservative
This third portfolio invest in 30% stocks and 70% bonds and is considered to be an "conservative" portfolio. Within the stock portion, I have subdivided it to 50% Singapore Stock, 25% Developed Market Stocks and 25% Emerging Market Stock. This portfolio is suitable for middle-aged people who face an uncertain economic future (retrenchment) or retirees. This portfolio is also good for saving up and investing money for an intermediate-term future commitment, like saving up some money for your kid's tertiary education in 15 years time.


15.0% Singapore Stock - StreetTracks STI ETF or DBS STI ETF, purchased from SGX)
7.5% Developed Market Stock - iShares MSCI World ETF (IWRD), purchased from London Stock Exchange
7.5% Emerging Market Stock - iShares MSCI Emerging Markets (IEEM), purchased from London Stock Exchange
70% Singapore Bonds - Lion Capital Singapore Fixed Income or Legg Mason Singapore Bond Fund, purchased from Unit Trust distributor.


Sample Portfolio 4: Ultra-Conservative
This fourth portfolio does NOT invest in stocks, but invest in 70% bonds and 30% cash. It considered to be an "ultra-conservative" portfolio. This portfolio is suitable for saving up some money for a short-term goal (e.g. HDB downpayment, wedding expenses, buying a new car) within the near future (next 2-5 years). For anything less than 2 years, leave it in fixed deposit.


70% Singapore Bonds - Lion Capital Singapore Fixed Income or Legg Mason Singapore Bond Fund, purchased from Unit Trust distributor.
30% Cash - Fixed Deposit (shop around for the highest rates)


[B][COLOR="Blue"]Final Words[B][COLOR="Blue"]
Everyone's individual situation is unique so the examples I highlighted may or may not be suitable for you. Please do not take any recommendations wholeheartedly and please don't blindly follow any of them without proper understanding. Feel free to adjust your investment plan according to your socio-economic situation and unique personal circumstances. After all, it is YOUR investment not mine.

Part 7. Dummy's Guide to How to Design Your Own Guaranteed Returns Investment Plan


I believe most Singaporeans can be classified into two type of categories when it comes to investing and saving. The first type is are the ones who take too much unnecessary risk and like to play the stock market. The second type are the ones who are super "kiasee" and will cry even they lose a dollar, and are therefore attracted to Structured Products and Endowment that offer guaranteed returns or value at maturity. This section is more suitable for the second type of investor, where I will provide some details on how to DIY your own "guaranteed returns" investment plan which will offer better returns than Structured Products and Endowments and at the same time minimize the risk.


1. Decide how long you want to lock up your money
If are already receptive to the idea of Structured Deposits and Endowments, it also means that you are willing to lock up your money for a pretty long time. It also means that you know that if you want to cash out anytime before the policy or plan matures you are likely to lose money. So, in the spirit of such conditions, decide how long you want to lock up your money (e.g. parents planning for kid's tertiary education need the money in 15 years time).


2. Start with bonds to make up the guaranteed returns
Over the long term, bond funds return 2-3% per year after expenses. Let's use the lower limit of 2%. Let's assume you want to save and invest every month, so it totals of 15x12=180 mths. I'll use an arbitrary sum of $480/mth for the next 15 years at a 2% rate of return, and this will give you $100k by the 15th year. A note of caution, if you are enacting such a plan on use bond funds that invest primarily in investment-grade SGD denominated bond funds. Non-SGD bond funds are known to lose value due to currency fluctuations. Non-investment grade bond funds are known to lose value if the bond defaults.


3. Add in some stocks to give you non-guaranteed returns
I'll pick a 30%/70% stock/bond portfolio for illustration but feel free to adjust it to your taste. Based on this ratio, you will invest $210/mth in stocks. Over a 15 YR period a well diversified stock portfolio should return 6-8% per year after expenses. Let's use the lower limit of 6%, which means that the stock portion would grown to $60k by maturity. Of course, life is always not so sweet and the market may crash on the 15th year. The bad market crash may mean losing 50% the stock portfolio at worst. So, the stock portion would have grown to $60/2 = $30k if there was a super crash on the 15th year. On the flip side, if you are in the middle of he bull market when the "policy" expires and have gotten outstanding 8% returns, the stock portion would have grown to $73k.


4. Combine the Data
Based on the above details, I have just DIY my own guaranteed returns plan. The plan involves saving and investing $690/mth. The guaranteed value at maturity is $130k: $100k from bonds and $30k from stocks. This guaranteed value at maturity assumes the worst case scenario that there was a super crash towards the end of the "policy". The non-guaranteed value at maturity is projected to be $0-43k. Together, it means that you will get back $130-173k at maturity.



Part 2. How to find a good IFA: My experiences in a search for one...


How do I find an IFA firm that has agents which are ethical and responsible?
My quick Answer: There is no fast and easy way unfortunately. However, I would blacklist all IFA firms that sold minibond products, as this just goes to show the ethical standards the company has. In addition, I would blacklist any IFA firm selling land banking products, as this is another scam/losing money product and it's probably going to be the next upcoming minibond.


Please note that my personal experience with the firm's IFA is not necessary reflective of all the IFA from that firm. Additionally, the media articles written by the firm's IFA does not necessary express the sentiments/philosophy of all their IFA agents. Nevertheless, I don't think it's unreasonable to expect that IFAs and their company would share similar philosophies

1. IFA Firm Warning: Finexis http://www.finexis.com.sg/
After doing much due diligence on this IFA firm, I have gathered sufficient evidence to suggest that they operate on an "Adviser-1st, Client-2nd" model. While I have not engaged any of their IFA personally, I have found several pieces of compelling evidence.


Something cropped out when I visited their website which raises a few flags. I came across this interesting part of their website where they were selling how good their IFAs were, "With our world-class training, one in every ten of our consultants is a Million Dollar Round Table® (MDRT®) qualifier."
(Source: http://www.finexis.com.sg/index.php?...d=77&Itemid=41)


What is this MDRT? Well, I google tells this:
http://www.mdrt.org/membership/Membe...quirements.asp
Basically, it seems that MDRT member requirement is that the IFA need to generate a certain amount of sales, I quote from the MDRT website "Membership in the 2010 Round Table will be based on a minimum of USD 87,900 of eligible commissions paid or USD 175,800 eligible paid premium credited to the agent's account."
The rest of that webpage just goes and list how commission fees are calculated (what is eligible, etc...)


So it would seems that MDRT-qualified IFA have a lot of clients under them probably reflecting their experience and quality of service. Yes? MAYBE NOT
Interestingly MDRT claims that "The Million Dollar Round Table (MDRT), The Premier Association of Financial Professionals, is an international, independent association of more than 31,500 members, or less than 1 percent, of the world's life insurance and financial services professionals from 464 companies in more than 80 nations and territories."
(Source: http://www.mdrt.org/about/index.asp)


Analysis
So how is it this Finexis IFA firm can claim that 10% of their IFAs are MDRT members when the international rate is less than 1%? One explanation is that these MDRT IFAs are nothing but product churners or recommend only high commission products. Furthermore, their website show pictures of their IFA and highlight their achievements like MDRT qualifier. Most of the MDRT qualifiers look quite young to me, so how is it such young people can get so much business? No matter how educated or knowledgeable you are, experience in your line of work still counts for something...
Based on supplementary evidence (see below), finexis magic formula of doing business from appears to help their IFAs earn lots of money. That's nothing wrong with that... but given that the best products in the Finance Industry are usually commission free, can consumers be assured that the Finexis model serves the client interest as well? I do not think so.


Supplementary Evidence
From their career page: "We promise you this - DOUBLE the income, HALF the workload, or BOTH, all within 3 years! No firm has ever committed this. How is this for a commitment to you?" - Wow so their advisers on average double their income in 3 years? What's the secret formula?
(Source: http://www.finexis.com.sg/index.php?...d=98&Itemid=47)
Their "success stories": "Jeffrey Yeo achieved his first ever Million Dollar Round Table® (MDRT®) accreditation within his first year of joining fin-exis - a feat he did not reach after six largely mediocre years with his previous company. He pays tribute to fin-exis' training and support for his meteoric success"
More statistics of their IFAs: "In our short history, we have groomed on average 30 Million Dollar Round Table® (MDRT®) qualifiers per year"
(Source: http://www.finexis.com.sg/index.php?...d=92&Itemid=52)
Finexis was one of the 10 IFA firm that sold MiniBond products!!!
(Source: http://www.mas.gov.sg/resource/news_...20JUL%2009.pdf)


Conclusion
Consumers should avoid Finexis. Their highly touted successful business model that make their IFA earn big bucks, is very likely to be product churning, unreasonable trailer fees, high commission product sales, etc... They were also one of the 10 IFA firms that have sold Minibond products. While they were not been found guilty by MAS, the fact that they were selling such toxic products already puts them on a level below all other IFA firms.


To be fair, let me list out the 10 firms that sold Minibond products
1) Alpha Financial Advisers Pte Ltd
2) Cornerstone Planners Pte Ltd
3) Elpis Financial Pte Ltd
4) Financial Alliance Pte Ltd
5) Fin-exis Advisory Pte Ltd
6) GYC Financial Advisory Pte Ltd
7) IPP Financial Advisers Pte Ltd
8) Metropolitan Broking Services Pte Ltd
9) Optimus Financial Pte Ltd
10) Ray Alliance Financial Advisers Pte Ltd.
To be on the safe side, I would blacklist all these IFA firms unless you know from a reliable source that one of the IFA in there is responsible and ethical. Unfortunately, this means that my review will not be helpful since almost every IFA firm I have approached were in this list! Arghh...

2. Providend http://www.providend.com/
Personal Experience
I cold-called Providend and asked for an IFA referral. The "Emissary", Ms Madeline Chong (what's with the big sounding "Emissary" term btw?) informed me that Providend charged $2000 for Comprehensive Financial Planning. Look, I'm not a high net worth client and at this stage of my life, no financial advice is worth $2000. So, I said I am looking for product specific advice... but no no, the $2000 fee is non-negotiable. Needless to say I hung up since this wasn't getting anywhere. My impression is that Providend caters only to high net worth and serious clients. See, poor guy like me was turned off by the $2000 fee. While I think a fee-based renumeration system is ok, I think $2000 is excessive, especially when they charge me even before I get to see the IFA. What happen if the IFA is the "Wolf in Sheep Skin" type? Do I get a refund them?
Pros
Website claims that they used a team-based management, so up to 5 IFAs can be assigned to you based on specialty. I think this is a good model, as even the most expert IFA can only be expert at one aspect of financial planning.
Cons
Exorbitant fees charged even before knowing how good their IFA is. Seems to cater to high net worth client. Btw, just because they cater to high net worth clients doesn't necessary mean that their IFAs will be ethical and responsible.
Conclusion
Not accessible to the masses due to their high fees so probably one would skip this IFA firm. I cannot comment on the quality of their IFA.

3. Financial Alliance http://www.fa.com.sg/
Personal Experience
I contacted one of Financial Alliance IFA through what I call blog-referral. Basically this IFA maintains a blog, although it's not very well updated. I was seeking product specific advice, and the IFA was quite proactive and on-the-ball. I would say his advice is quite decent. At the end, the IFA also explained his company's standard fact finding procedure, and I would say it's quite comprehensive so they do appear to train their IFA well for Comprehensive Financial Planning. Of course, he did not do this for me as I specifically requested not to.
Pros
Supposedly, Financial Alliance carries one of the largest assortment of insurance products, including GE (which last I checked does not partner with IFAs). Financial Alliance is undergoing some restructuring and standardization of their IFA structure to allow for better legacy planning (i.e. what happens when your IFA retire?) Ideally, this would allow for better continuity, as most IFA now run stuff as their own business, and once they retire you might be passed on to some undesirable understudy. But seriously whether such an implementation works or not is another question entirely.
Cons
The News & Views section of their website has a number of articles written by other Financial Alliance IFA. I think it's not a far stretch to say that the company's philosophy and approach to financial planning may be reflected in some of their employees. Some of their articles offer poor advice. One example is the advice that Mr Sani Hamid (Director of Wealth Management) provided in response to how to grow money - the reply was focusing on China, India and Asia funds. His media coverage include titles like "Invest in China, India & Singapore - Sani Hamid (2 Jun 09)" and "Get Into These Hot Funds - Sani Hamid (28 Apr 09)". All these headlines are the kind of nonsense (chasing hot funds, investing without proper portfolio planning) that you see on Wall Street are indicative of unethical financial advice. I do admit I have not watched the CNBC videos yet, and I may be generalizing and jumping to conclusions, so please take note of that.
Conclusion
At the very least the IFA I engaged from Financial Alliance seems ok. However, some of their other IFAs articles in written media borderlines on poor if not unethical advice. I would go in with my eyes open.
Financial Alliance sold Minibond products according to MAS, I would consider this in my decision to do business with them




4. IPP http://www.ippfa.com
Personal Experience
My contact with IPP IFA was on a pure random basis, another one of my cold calls. The IFA that took up my case was quite knowledgeable in financial planning and did some basic fact finding and cashflow analysis. Generally, prudent advice but then he brought up the use of ILP to replace Term plan. (Red Flag!) Overall, I'm not very pleased with the outcome.
Pros
I didn't really have a good impression.
Cons
Again, I scanned through some of their media articles. One of their other IFAs, Albert Lam (Investment Director) wrote a couple of pieces that I would be wary of. Most of his articles have too much "market analysis" for my taste and too much "market talk". Some recommendations also seem to be reactive to the market situation, for e.g. "Buy commodity funds which will help you against inflation", or "Buy into hedged funds that take advantage of the credit markets crisis". To me, this is a sign of unnecessary product churning, as with a properly drawn up portfolio why would there be a need to suddenly change one's portfolio allocation just because the market collapse? Admittedly, some of this guy's articles provide good financial advice - like remain invested in a downturn, don't forget to diversify and see long term. I'm getting mixed signals.
Conclusion
Too much active management philosophy for my taste.
IPP sold Minibond products according to MAS, I would consider this in my decision to do business with them




5. FirstPrincipal http://www.firstprincipal.com/
Personal Experience
I have not engaged this IFA firm, but through other contacts I met an IFA agent from this company. Unfortunately, that person was advertising that FirstPrincipal sell land banking products! So please take this into account in your decision making process.




6. Promiseland http://www.promiseland.com.sg/
Personal Experience
My personal experience with a Promiseland IFA was one whom I engaged for help with my parent's financial planning some time back. The IFA is a regular blogger, and blogs a lot about investment (and index funds in particular). We did a comprehensive financial planning and I would say that his service was good. I can safely say that to date, he is the most client-centric IFA I have dealt with on a personal level. Apart from Tan Kin Lian (who is not an IFA), he's the only other person who blogs regularly about the merit of low-expense index fund. The company seems to maintain a high ethical standard (of course this is based on what the IFAs representing the company claim), but so far information has been consistent and verifiable (e.g. they refused to make a deal with the Minibond distributor and they are not listed as Minibond sellers).
Pros
Quite a number of IFAs from this company actually maintain blogs, with generally good advice.
Cons
The Promiseland IFA that I engaged previously now charges a fee for his services. Well... there's no free lunch I suppose. At least he doesn't charge clients $2000 upfront. It has come to my recent attention that one of the HWZ forumers, HandsTied has also joined this firm under the team of the first IFA that I met. You may PM him for further advice or if you wish to engage the services of a IFA. (Disclaimer: This is not an endorsement that HandsTied is going to the best IFA out there, but I can safely say that he/she is better than most I've seen out there).
Conclusion
Seems like a good IFA firm to approach for financial planning advice. I have mostly positive experience with them. At the risk of generalizing, I think their IFAs are generally competent and ethical.



A Few Other Things to Take Note Of



IFA Firm Research Team
Quite a number of IFAs I've met do emphasize on their own in-house research team, which kind of implies the abundance of resource that they have. In reality (unless I am mistaken), all IFA firms have their own in house research teams to source for the most competitive products, etc... So one should not be swayed by impressive "research teams" since every IFA has access to it. I won't be surprised if there are IFA firms out there who do "biased" research to talk about the merits of ILP or actively-managed portfolio of funds. Finally, just because they have a dedicated team to do "product research", does not means they will recommend the product that is in the best interest of the clients.