Market: Be Careful

Although the various indicators have not indicated that we are entering a bear stock market and the declining in stocks these few days is more likely to be a correction, please keep a close watch on PIGS (Portugal, Ireland, Greece and Spain). Like what I have mentioned last month, there is a potential for the issues in PIGS to become a big problem for the recovery in global economy.

If you have seen the Asian Financial crisis in 1997-98, you will understand what I mean. This could potentially be an European Financial crisis.

Keep a close watch on Greece.


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Insurance: Revisiting this topic again for the benefits of close friends

To begin this topic, I would like to stress again the importance of understanding the purpose of getting insurance policy. Getting an insurance plan is always and will always be about risk management. This must be the key focus. For example, we will get a medical insurance plan because we want to manage the risk of having to foot the full medical cost in the event of any critical illness. Other perks like investment returns should not be the key focus of getting an insurance plan. These needs can better fulfilled by other means such as a properly managed financial investment plan. Furthermore, insurance policy with investment return (e.g. ILP or living policy) will never guarantee you any return better than what you will get from a properly managed investment plan. It is also analgous to saying that a medical insurance plan will never guarantee good health.

Once you understand the purpose of insurance, we will now discuss what you should be focusing in the various stages of life.

A) When you are young or when you have just started working:

• Try to get a medical plan. The best time to get a medical plan is when you are young and healthy. Once your health deteriorates, it will be extremely difficult or impossible to get any company to insure you on that.

B) When you are starting a family or when there are dependents relying on your financial support

• Try to get some insurance to cover critical illness, death and permanent disability. If you are the sole breadwinner, this money will be especially important for your family in the event that something happens to you.


• You want have to do some detail calculation to figure out the coverage. This will be the amount that your family needs to tide over the difficult times.


• You can purchase a living policy or a term policy - it really depends on your preference and budget. But, if you are low on budget, there are quite a number of policies around that may be able to satisfy your needs. Try SAFRA living policy or NTUC LUV.

C) For the ladies

• Try to get policy to cover the women illness.

D) For the little children

• Try not to get any living policy for little children. They are not earning any income yet, so it really makes little sense to get a policy to cover income lost.


• Try to get a comprehensive medical plan to cover children illness.

E) For the elderly

• Try to sign up the elder shield, if you can. (I know it is very strange to classify people above 40 as elderly. Come on, we can still climb mountains and swim oceans. Anyway, this is government policy and I think they are trying to include the 40s earlier so that the premium can be reduced to a satisfactory level)


• If you can, sign up the supplementary plan as well.


• Our population is aging faster than you think. My thinking is that the premium rates of these plans will increase over the years.

As I am not an insurance agent or related to any, the above may not be the most professional view. Nevertheless, these are truely my personal opinion and I hope that it will help you in what you are looking for.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Let's not talk about money in this posting

This week, the loved ones of two of my close friends have reported to the Lord. Both are great women who have done their duties as a wife and mother (one of them was a great grandma).

They have raised their children up well so that they are able to stand on their own. These are little people who have fulfilled great responsibilities in life. They deserve my respect and I salute them.

Stock: Fundemental of Investment

If you have some money for business ventures (I am not talking about stock investment) and you chance upon the following business opportunities, which company will you invest?

Company X
a) Operating in an uninteresting industry
b) Good management and good track record for the past 10 years
c) Impressive ROE and ROA with good P&L and low debt.
d) Consistent dividend of maybe 4% or more per year for the past 10 years
e) Good business franchise that will last almost a life time

Company Y
a) Operating in a hot and exciting industry
b) Unproven management
c) Very impressive P&L but heavily in debt
d) Little or no dividend as far as history can tell
e) Potentially a competitive industry with many new entrants coming in because of the lucrative margin

I bet most of you will choose to invest in company X. But, when we apply the same analogy to stock investing, which company will you choose to invest?

Check the track record of your stock investment. If you have to worry about your stock investment every day, it could mean only two things - your risk exposure is too high or you have invested in a company similar to Company Y. These companies may be hot today and their stock prices may be flying high. But, their profits are not sustainable and their business models are never stable. In fact, their existence could be questionable after a while when the market is no longer interested in them.

If you have invested in a company similar to Company X, why worry? Even if you were to fall into a deep sleep and wake up only after 10 years, you will still find that company around paying good returns over the years. Its stock price may be uninteresting, but the company is taking good care of your investment. Although the stock price may still rise or fall because of unprecedented events, you can rest assured that the returns will keep coming and the company will keep operating.

In a way, stock investing should be a dull and boring activity.

Market: Where is it going again?

In my posting in March, I have already spoken about market volatility. This is quite common sense. There is so much complacency in the market and stock/property markets are practically going up day after day. When everybody is singing and enjoying the party, any issue (no matter how small it is) can trigger a negative chain of events. However, like what I have mentioned in March, this should not be taken as a start of another bear market. When market is up so fast and so high, corrections should be common.

Fundamentally, nothing has changed. Although there are lots of things to worry about (e.g. problem in Greece), we are still seeing good GDP numbers from a number of countries. The events that triggered today's market crash are actually not that bad for the market. For example, the measures implemented by China to cool its real estate sector will help to prevent itself from ending up like what we are seeing in US today. In fact, we should be happy that China is implementing these measures because it means that they are making an effort to ensure that its economic growth will be more sustainable. As for the volcanic ash saga, I just heard that most of the hotel room rates have shot up. So, there are always opportunities during crisis.

Anyway, apart from the above, I just like to stress the importance of risk management. Always invest what you can afford to lose - remember to control your risk exposure. It is your money, so take good care of it.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Food for Thought: CPI

CPI = Consumer Price Index.

It measures the price change of a fixed set of goods and services available in a society over a period of time. In layman's term, higher CPI means goods are more expensive, and people like you and me will complain about "money not enough".

Just a few days ago, our exchange rates band was raised because the authority was worried that inflation may be building up. Amazing! CPI for 2009 increased just 0.2 percent compared with 2008. And, the 2010 CPI forecast was around 2.5 to 3.5 percent. Right now, I am pretty sure you must be cursing and swearing at this number. Unless you have been out of earth for the past few months, you must have noticed that COE and car prices have shot to the sky, and property prices have gone to the roof for the past 1 to 3 months. So, how can the CPI forecast for 2010 be only 2.5 or 3.5 percent?

Well, to start with, CPI excludes lot of things that are very important to you like housing costs, loan repayment, etc, etc. So, even if you have to pay 100% more for your monthly loan repayment because of sudden adjustment to the mortgage loan interest rate, the CPI number will not move a bit. In fact, the CPI may even fall if the rental prices start to fall because there are over supply of flats for rental. In computing CPI, accommodation means rental or imputed rental for owner-occupied properties.

Anyway, hopefully, the exchange rate policy will help to relieve the inflationary pressure. If not, for most of us, money "really not enough".

Unit Trust Update: New platform fee from Fundsupermart

A couple of months ago, I mentioned Fundsupermart in one of my postings. The distributor has just decided to charge a platform fee starting from 1st May 2010 although it has also lowered the sales charges of its funds. The platform fee is a recurring cost - meaning you will pay this fee every quarter regardless of the return of your funds. The amount paid is a percentage of the holding of your funds. This is a cost that you should consider in addition to other fees such as sales charge when you are investing in funds with this distributor. In investing, every cent counts. You should refer to the Fundsupermart website for details.

For those who feel that they should not be paying this additional recurring cost, you can consider transferring your funds to other fund distributors e.g. Dollardex, POEMS, etc. Their sales charge may be different but they do not charge a recurring platform fee. Transferring of funds may take a while but at least you do not have to sell your funds in Fundsupermart and buy it back again from the other fund distributors. This will incur an unnecessary 1 to 2 percentage sales charge.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

What's a man's worth?

He is the reason why America is still alive and kicking today after the greatest financial crisis since the great depression. Try the youtube link below and listen to his speech about healthcare reform.


http://www.youtube.com/watch?v=GALYnnAQFKA

In a way, he is also part of the reason why some of us still have our jobs and why the stock market or property market is still booming. Without him and his belief, I doubt US can survive this crisis. If they cannot survive this crisis, I doubt China or Europe as well as the rest of us can still see GDP growth one year after the crisis. Believe it or not - his then monetary easing policies that were quickly adopted by the rest of the world helped to free up bloodlines for the many businesses that were close to collapsing.

He is a man that is worthed every cent and every praise. This is what a leader should be.

Money: The Power of Gold

Have you ever wondered what is the value of Gold? If you look at the return of gold over the past 30 years, it is close to 0. In fact, there is no return for investing in gold - not like the money that you have saved in your bank or the stock that you have invested. Furthermore, gold investment is highly volatile and you may even lose money investing in it.

Then, what is so good about gold? If you want the answer, you can either read my previous posting on the value of money, or you can go to the library to read history books on ancient Egyptian empire, Roman empire, Ching dynasty, etc, etc, etc. Over the past few thousand years, armies had fought for land, gold and other things. This is because gold is scarce and it serves as a medium of exchange for goods. The usage of paper as a form of money started only around a few hundred years back. Whenever there is a new empire or country, there will be new paper money. And, when it happens, the old paper money loses its value. As for USD, we properly started to use that as a reserve currency about a few decades back.

Let's say you keep a lot of paper currency. What happens if the country goes bankrupt? The currency will be devalued immediately. There was this joke about a farmer carrying a cart of german currency to buy a loaf of bread during the 2nd World War (serious, during depression, a loaf of bread will cause you millions). Of course, he got robbed with this load of money. Guess what. The robber ran away with the cart but not the money. The German mark was worthless after they lost the war. A few years back, I saw an article about some people in South America using their currency as toilet paper because it is cheaper to do so. So much for paper - paper is cheap and you can plant trees if you need to print another ton of that currency.

So, you see, gold is never just about investment. It is about protection - you can call that risk management. Whenever there is a crisis (war, riot, hyperinflation, etc), money currency loses its value because people lose faith in the government. Today, the only effective reserve currency is USD and it has a short history. Its worth as a reserve currency has never been proven yet in human history and you know that there are trillion and trillion and trillion of it. What will happen if it loses its value? When paper currency loses its value, the money in the world will go elsewhere and it could be in the form of oil, metal, stock or real estate. And, one of proven medium of exchange is gold.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Money: What is its worth?

Does anybody know what is the value of money? In terms of economics, money serves a few purposes, namely:

1) Medium of exchange
2) Store of value

Many centuries ago, when economic transactions were mainly barter trading, the medium of exchange were in the forms of actual goods e.g. trading of cows for sheeps, etc. Later, the medium of exchange evolved into seashells (no joke - very good ones and I have seen it) because it really did not make sense to carry 500 dead cows with you to exchange for 1000 coconut trees. Much later, we started to use gold and silver. Why not other type of metals or material or seashells? Most likely, they realized that there were too many good seashells around and it became 'fiat money' (worthless seashells). And, of course, we do not have a lot of gold and silver. You can keep your hard earned gold and silver under your bed, and get rest assured that you will not wake up the next morning to find your neighbour's dog digging out one ton of gold from the backyard. It will never happen because the amount of gold ever digged out from Mother Earth is about 20 metre cube - maybe the size of a large swimming pool.

So, gold and silver were used as a medium of exchange to buy houses, horses, cows, etc. But, gold and silver is still quite heavy. Imagine carrying ten kilogram of gold to HDB to pay for your flat. So, we have the gold standard - pegging papers to gold. Realistically, paper is quite useless until you need to go to the restroom to do 'big business'. With the gold standard, you can carry 'expensive' paper that can be converted to gold. But, gold is just a medium of exchange. So, ultimately, this paper was meant to replace gold as the medium of choice. Then, came the Bretton Woods system when every country could sell gold to US at $35/ounce with the promise that they could get back the gold in the future. Do you believe this can work? Of course not. This system broke down in 1971. So, now, the medium of exchange is in paper money backed by full faith of the government.

So much for the history. Regardless of the form of money - be it seashell, gold or paper backed by anything, what matters most is the value that it carries. One kilo of gold is worthed about SGD$48k today. So, one SGD is worthed about 0.02gm of gold. Ten years ago, one 1300 sqft 5-room HDB is about SGD$200k. At that time, one SGD is worthed about 0.0065 sqft. I am not sure what is price of a new HDB flat now. But, assuming the new 1000 sqft 5-room flat costs about SGD$300k, one SGD is worthed 0.0033 sqft.

As you can see, the value of paper money is declining because there are simply so many of them. That is why it is worthed less now. You can try keeping your money under the bed for the next ten years and I can guarantee you that it will eventually be worthed less than what it is today. That is also the reason why it looks like the prices of houses, food, etc are getting more expensive. The reality is that the value of your dollar is getting cheaper.