I have been talking about inflation for months. So, there is no surprises to see high inflation numbers reported in the newspaper today. Inflation is everywhere a monetary phenomenon. Hence, it depends a lot on whether the authority is determined in controlling it. In Singapore, the internal factors causing inflationary pressure are mostly created artificially by the government policies. For example, recent high car prices are mainly due to high COE and our housing sector is heavily supported by the HDB market. If the authority is determined in controlling the inflation at all cost, they can do it rather easily by introducing some policies to remove these underlying factors. The external factors such as food prices are however more difficult to control. Anyway, we should not dwell into that and let the authority worry about it. Hopefully, we will not see high inflation rates hitting more than 10% like what we have in the 70s.
Inflation is bad for savers. If it left uncontrolled, we will see our savings turned into wasteless papers. It has happened to many countries such as Vietnam, Brazil, etc and it will happen to us if we do not take steps to counter the effects. In times like this, it is best not to keep too much savings. Cash is not king under such situation. Prices for precious metals and commodities will soar. Stock prices of companies dealing in these will go up too. In addition, companies with monopolistic pricing power such as the utilities and public transport companies are attractive because they are able to price themselves out of these inflationary risks. The ones to avoid are the bonds and fixed income assets because their values will drop for every increase in the inflation rate.
I believe our inflation rate will continue creeping up for the time being. In the meantime, invest with care.
Thursday, December 23, 2010
Thursday, November 4, 2010
Greed and Fear
I believe there is no place other than the stock market that you will experience so much fear and greed in life. Just a few days ago, we were creeping so close to a correction. Now, just like a fire hose with the hydrant fully turned on, liquidity starts gushing into equity market. Has anything changed significantly in the last few days? Not that I know of. It is a completely different feeling and environment today. How do we explain this?
It is all about greed and fear. Emotion and expectation can run high when there is hope. However, when there is hope, there is greed. When there is greed, there is fear of losing. When there is fear of losing, there is panic. The reverse is equally true. When emotions are down, we lose hope. When there is little hope, we start to fear. Fear will eventually lead to panic.
We have a famous saying from Sun Tze "If you know your enemy and yourself, you can win a hundred battles". Knowing yourself is just as important as knowing the market. Learning to control thy emotions can make you think clearly and act rationally. In the meantime, happy investing.
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.
It is all about greed and fear. Emotion and expectation can run high when there is hope. However, when there is hope, there is greed. When there is greed, there is fear of losing. When there is fear of losing, there is panic. The reverse is equally true. When emotions are down, we lose hope. When there is little hope, we start to fear. Fear will eventually lead to panic.
We have a famous saying from Sun Tze "If you know your enemy and yourself, you can win a hundred battles". Knowing yourself is just as important as knowing the market. Learning to control thy emotions can make you think clearly and act rationally. In the meantime, happy investing.
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.
Wednesday, November 3, 2010
US QE2
Today, we finally see some lights in the battle of the US election. Right now, the next unknown factor is the breadth and depth of the quantitative easing II (QE II) policy. Whether this proves to be eventually right or wrong, only time will tell. For sure, QE II will force US dollar to depreciate further. So what! The US economy is not growing fast enough to boost the employment rate. What's the use of having strong US dollar when the economy is not able to sustain it. Inflation will definitely come in the future. But, what choice do they have?
Anyway, US has the ability to print trillions of reserve currency and the world will be have to absorb it one way or another. This hot money is already flowing into the emerging economies like Singapore. With QE II, I believe this will continue further. Is this sustainable? - this is questionable. Be it QE I or II or III or IV, the effects of the liquidity injection will diminish eventually. You can bet that our authorities are monitoring these events very closely. The newly introduced property measures will help to ensure that the hot money will not create a property bubble that may burst when the "music" stops. The appreciating exchange rate policy will hopefully address the inflationary effects brought about by the recovery in the economies of the regional countries and growing domestic demand. As for stock market, my feel is that we are not in euphoria state yet but that does not mean we will not experience any correction in time to come. Volatility is still prevalent in the market, so invest with care.
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.
Anyway, US has the ability to print trillions of reserve currency and the world will be have to absorb it one way or another. This hot money is already flowing into the emerging economies like Singapore. With QE II, I believe this will continue further. Is this sustainable? - this is questionable. Be it QE I or II or III or IV, the effects of the liquidity injection will diminish eventually. You can bet that our authorities are monitoring these events very closely. The newly introduced property measures will help to ensure that the hot money will not create a property bubble that may burst when the "music" stops. The appreciating exchange rate policy will hopefully address the inflationary effects brought about by the recovery in the economies of the regional countries and growing domestic demand. As for stock market, my feel is that we are not in euphoria state yet but that does not mean we will not experience any correction in time to come. Volatility is still prevalent in the market, so invest with care.
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.
Thursday, October 14, 2010
Singapore Currency
Today, MAS adjusted the currency band upwards. Surprise?!!! Not really. In an open and small economy like Singapore, exchange rate policy is more effective in controlling inflation than any other mechanism. The authority has been monitoring the inflation numbers very closely especially after such spectacular growth in the past few quarters. So, when CPI keeps going up, they have to tighten the exchange rate policy.
Being a country with one of the highest saving rate in the world, it cannot afford to let inflation erode away the saving of the people. The increasing inflation rate is already creating a negative real interest rate environment that fuels inflating prices in the property and stock markets. If inflation were to be left uncontrolled, the savers will be severly punished. Like I have mentioned before, the nearly zero interest rate environment is not sustainable. The excess capacity that we have in the economy today will run out sooner or latter. Once that happens, inflation will come roaring back. Already at close to zero, interest rate has no other way but to go up.
Being a country with one of the highest saving rate in the world, it cannot afford to let inflation erode away the saving of the people. The increasing inflation rate is already creating a negative real interest rate environment that fuels inflating prices in the property and stock markets. If inflation were to be left uncontrolled, the savers will be severly punished. Like I have mentioned before, the nearly zero interest rate environment is not sustainable. The excess capacity that we have in the economy today will run out sooner or latter. Once that happens, inflation will come roaring back. Already at close to zero, interest rate has no other way but to go up.
Monday, August 23, 2010
Update: Inflation
Inflation is still creeping up as expected. There is no way that a country can enjoy high GDP growth, loose monetary policy and still low inflation. Singapore's interest rate models very closely to the one in the States. With close to zero nominal interest rate and high inflation rate, there will be negative real interest rate. Therefore, for every dollar that you save, you will lose a few cents or more.
In a negative real interest rate environment, one of the best places to park your money will be real assets or financial assets e.g. property, stock, etc. Given the volatile stock markets, it looks like the only logical place for the investors to put their money will be in real estate. But, this scenario cannot go on forever. It will eventually create major housing bubble. Look at US housing crisis today and the one that happened to Japan 20 years ago. The crisis can be deep and lasting. A high inflation rate will also cause problem with the exchange rate and so on. This is something that most central bankers will not like to see.
Now, with interest rate at around zero percent, a "no brainer" guess is that it has to go up sooner or later.
In a negative real interest rate environment, one of the best places to park your money will be real assets or financial assets e.g. property, stock, etc. Given the volatile stock markets, it looks like the only logical place for the investors to put their money will be in real estate. But, this scenario cannot go on forever. It will eventually create major housing bubble. Look at US housing crisis today and the one that happened to Japan 20 years ago. The crisis can be deep and lasting. A high inflation rate will also cause problem with the exchange rate and so on. This is something that most central bankers will not like to see.
Now, with interest rate at around zero percent, a "no brainer" guess is that it has to go up sooner or later.
Sunday, June 27, 2010
Layman Analysis of the Economy
I may have sounded quite depressed in my recent posting. While Singapore's economy is running red hot, my postings are getting less optimistic each time.
If you compare the global economy to a patient's health, this patient was in intensive care unit back in 2008. After tons of blood infusion (i.e. stimulus packages), he is now out of danger but will still require life support system to ensure that his condition stays stable. While the whole world is rejoicing and celebrating his near miracle survival, the doctors and nurses are staying vigilant and are more apprehensive of his situation.
Then, after one year or so, his other organs (i.e. employment data, housing) start failing. Worse still, he starts developing other life threatening problem (i.e. euro crisis).
The global economy has not recovered yet. Will he be re-admitted back to intensive critical unit again? Only time will tell. And, that's the reason why we should stay vigilant and not be complacent.
If you compare the global economy to a patient's health, this patient was in intensive care unit back in 2008. After tons of blood infusion (i.e. stimulus packages), he is now out of danger but will still require life support system to ensure that his condition stays stable. While the whole world is rejoicing and celebrating his near miracle survival, the doctors and nurses are staying vigilant and are more apprehensive of his situation.
Then, after one year or so, his other organs (i.e. employment data, housing) start failing. Worse still, he starts developing other life threatening problem (i.e. euro crisis).
The global economy has not recovered yet. Will he be re-admitted back to intensive critical unit again? Only time will tell. And, that's the reason why we should stay vigilant and not be complacent.
Monday, June 21, 2010
Chinese Yuan: Impact to us
Under pressure, China finally agreed to ease its exchange rate peg with US dollar. Personally, my view is that this is something that the Chinese central bank will have to do eventually, given that it faces the same 'impossible trinity' that MAS faced a short while ago to control the inflationary pressure. Under fixed exchange rate regime, it is ineffective to control inflationary pressure using interest rate. As discussed in my previous posting, there are already very obvious inflationary pressures in China today. Hence, like it or not, the changes in exchange rate control will have to come sooner or later. Easing the exchange rate peg will help to reduce the prices of imported goods.
Right after this announcement last weekend, the stock markets surged this morning. This is the same short-term effect that you saw in STI after MAS adjusted its exchange rate band recently. This can be easily explained because we would expect the other countries to benefit from this change or ease their exchange rates against US dollar, given that they do not need to hold their exchange rate further to keep their exports as competitive as the Chinese. Equity market should benefit from this.
In the long run, like what I have mentioned before, things will get more expensive because most of our goods esp. clothings and electronics come from China. It will not be easy for companies to relocate their factories to other countries with cheaper factors of productions. Factors like skilled labor force, factories and the necessary infrastructure will take years to build. Hence, we should be seeing inflationary pressure soon.
Right after this announcement last weekend, the stock markets surged this morning. This is the same short-term effect that you saw in STI after MAS adjusted its exchange rate band recently. This can be easily explained because we would expect the other countries to benefit from this change or ease their exchange rates against US dollar, given that they do not need to hold their exchange rate further to keep their exports as competitive as the Chinese. Equity market should benefit from this.
In the long run, like what I have mentioned before, things will get more expensive because most of our goods esp. clothings and electronics come from China. It will not be easy for companies to relocate their factories to other countries with cheaper factors of productions. Factors like skilled labor force, factories and the necessary infrastructure will take years to build. Hence, we should be seeing inflationary pressure soon.
Monday, June 7, 2010
Inflation is coming..
Like the market, the past few weeks for me have been hectic and busy. There were many moments of ups and downs. Anyway, like I have said in my last posting a few weeks back, we are close but not yet there (Greed index is around 29+ now and Fear index is about 36+). Patience is important. So much for the market.
A few months ago, I was talking about inflation if there were revaluation of China Yuan. Despite all the 'noises', the revaluation did not materialize. Unfortunately, this does not mean that inflation will go away. If you read the news these few days, you will realise that the people in China are asking for higher and higher wages. Of course, this is necessary because they are finding houses more expensive and other necessities less affordable. Everybody works for a living. If you feel that the dollar you receive today is worth less than a dollar tomorrow, you will ask for more pay. There is nothing wrong with this and it is part and parcel of wage inflation. However, if this is left uncontrolled, it will be disastrous. Being the 'factory of the world', this inflationay effect in China will soon be exported to the rest of the world.
And, if you think our exchange rate policy may be able to cushion us from the inflationary effects, think again. Our exchange rate is now around 1.41 after spiking up to 1.36 a couple of months back after the shift in the exchange rate band. Being a country that imports most of our domestic products, this could only mean that we will be seeing more inflationary effects soon.
A few months ago, I was talking about inflation if there were revaluation of China Yuan. Despite all the 'noises', the revaluation did not materialize. Unfortunately, this does not mean that inflation will go away. If you read the news these few days, you will realise that the people in China are asking for higher and higher wages. Of course, this is necessary because they are finding houses more expensive and other necessities less affordable. Everybody works for a living. If you feel that the dollar you receive today is worth less than a dollar tomorrow, you will ask for more pay. There is nothing wrong with this and it is part and parcel of wage inflation. However, if this is left uncontrolled, it will be disastrous. Being the 'factory of the world', this inflationay effect in China will soon be exported to the rest of the world.
And, if you think our exchange rate policy may be able to cushion us from the inflationary effects, think again. Our exchange rate is now around 1.41 after spiking up to 1.36 a couple of months back after the shift in the exchange rate band. Being a country that imports most of our domestic products, this could only mean that we will be seeing more inflationary effects soon.
Thursday, June 3, 2010
Investment: Bond Fund
Bonds are debt instruments. For example, if I need money from you, you can pass your money to me and I will give you a piece of paper saying that I owe you this amount of money. I may or may not pay you any interest amount. After a period of time, I will return the money to you hopefully if luck is on your side. In real life, things are more complicated and you cannot really get people to lend you money without convincing them that you can repay the principal amount in the future. In addition, you will need to pay them interest amount if you ever hope that they will part their money willingly with you. There are also other factors to consider including your credit rating, bond valuation, etc.
How do we invest in bonds? You can either get it through a broker (this usually involves $100k and above) or you can invest in treasury bills through banks or security firms. There is very little fee (if any) involved in these transactions. Treasury bills are safer in nature because they have shorter maturity and they are guaranteed by our government. Notwithstanding there are factors such as callability, duration and so on, most highly rated bonds are generally safer than stocks. However, no risk no gain. Bonds' return are very pathetic ranging from less than 0.5% for treasury bills onwards.
If you have been following the development in the European Union these days, you will know that bonds are still subjected to certain level of risks. The companies or countries selling you the bonds could go bust. If you are forced to liquidate the bonds during a crisis, you may even lose your principal sum.
With such low return and the fact that bond investment is not risk-free, does it make sense to invest in funds of bonds? Of course, not. Bond funds are basically mutual funds that invest in bonds and the fund managers earn a cut from the return. So, if the return of the bond fund is 5% (interest payment and capital gain) and you have to pay 3% for management and administrative fees, you will earn only 2% after deduction. In addition, you have to bear the risk of investing in these bonds.
Therefore, if you ever want to invest in bonds, try not to invest in bond funds because you will never get anywhere with it. And, if you really must invest in bonds to diversify your portfolio, the best strategy is to make direct investment within your limits.
Happy investing.
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.
How do we invest in bonds? You can either get it through a broker (this usually involves $100k and above) or you can invest in treasury bills through banks or security firms. There is very little fee (if any) involved in these transactions. Treasury bills are safer in nature because they have shorter maturity and they are guaranteed by our government. Notwithstanding there are factors such as callability, duration and so on, most highly rated bonds are generally safer than stocks. However, no risk no gain. Bonds' return are very pathetic ranging from less than 0.5% for treasury bills onwards.
If you have been following the development in the European Union these days, you will know that bonds are still subjected to certain level of risks. The companies or countries selling you the bonds could go bust. If you are forced to liquidate the bonds during a crisis, you may even lose your principal sum.
With such low return and the fact that bond investment is not risk-free, does it make sense to invest in funds of bonds? Of course, not. Bond funds are basically mutual funds that invest in bonds and the fund managers earn a cut from the return. So, if the return of the bond fund is 5% (interest payment and capital gain) and you have to pay 3% for management and administrative fees, you will earn only 2% after deduction. In addition, you have to bear the risk of investing in these bonds.
Therefore, if you ever want to invest in bonds, try not to invest in bond funds because you will never get anywhere with it. And, if you really must invest in bonds to diversify your portfolio, the best strategy is to make direct investment within your limits.
Happy investing.
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.
Tuesday, May 25, 2010
Market: Down again and again
Today, market is down again. Everybody feels like it is end of the world. Damn. It feels like early 2009 again. Call me sadist if you like. But, all of us may be given a second chance to collect value stocks at early 2009 prices soon. Twice in 3 years. Will most shares fall to single P/E level? Will some good stocks fall below their intrinsic values or even below their cash values? Not sure. But, it is worthed waiting.
The Greed index is now 26 or so. It was close to 70 early this year and it fell to 15 or so during the last great financial crisis in 2008-9. We are not there yet but we are close.
It feels like fishing. Throw in the bait and wait for the fish to bite. Patience and I think we need lots 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.
The Greed index is now 26 or so. It was close to 70 early this year and it fell to 15 or so during the last great financial crisis in 2008-9. We are not there yet but we are close.
It feels like fishing. Throw in the bait and wait for the fish to bite. Patience and I think we need lots 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.
Thursday, May 20, 2010
Food for thought: What will happen if EUR were to collapse
There is a lot of speculation regarding the collapse of EUR. My guess is that it will not happen because of the great economic impact to the world if this were to happen. In a way, I think it is too big to fail.
There is a saying that the PIIGS countries will be better off if they are not tied to EUR. Personally, I think these countries will be worse off if they were to transform themselves out of EUR. This is because the root cause of their problem is their ability to repay their debts. It is never about EUR. Getting out of EUR may return the monetary control to these central banks. But, the loss of confidence in these countries will still be there. In fact, without EUR and the support of EU, it will just expedite the eventual collapse of these economies and their financial systems.
If these countries were to default on their debts, the banks and financial institutions in Germany and the rest of EU countries will definitely face huge losses. It will cause some of these banks and financial institutions to fail. The consequences will be deadly to the economies round the world and the domino effect will eventually pull the rest of the world back into the global crisis that we have witnessed in 2008. This time round, I do not believe quantitive easing monetary policies will be able to pull us out of this mess so easily.
The snowball effect of this crisis is too huge and I doubt anybody will want to see this happen.
There is a saying that the PIIGS countries will be better off if they are not tied to EUR. Personally, I think these countries will be worse off if they were to transform themselves out of EUR. This is because the root cause of their problem is their ability to repay their debts. It is never about EUR. Getting out of EUR may return the monetary control to these central banks. But, the loss of confidence in these countries will still be there. In fact, without EUR and the support of EU, it will just expedite the eventual collapse of these economies and their financial systems.
If these countries were to default on their debts, the banks and financial institutions in Germany and the rest of EU countries will definitely face huge losses. It will cause some of these banks and financial institutions to fail. The consequences will be deadly to the economies round the world and the domino effect will eventually pull the rest of the world back into the global crisis that we have witnessed in 2008. This time round, I do not believe quantitive easing monetary policies will be able to pull us out of this mess so easily.
The snowball effect of this crisis is too huge and I doubt anybody will want to see this happen.
Wednesday, May 19, 2010
Food for thought: Worst case scenario
We are now in May 2010. Europe is having its worst crisis since WWII. Though the European Union has pumped in almost SGD 1 trillion in rescue package, it fails to calm the market. Market is expecting worse days to come because the package does not address future growth plan. So, stock market starts to plunge again. Many start to wonder whether Euro will be able to survive as a currency.
As usual, out of curiosity, I start to dream wilder and think deeper about this crisis. You may call this mad economist but I think there is no harm thinking of what would be the worst case scenario if everything (i.e. currency, equity, bonds, etc) in this world were to collapse. It is quite scary and please be warned that you should not continue reading if you have any health problem such as heart problem, respiratory problem, etc. It may be worse than your worst nightmare.
Now, let's assume Greece decides to pull out from EU and drops Euro out of desperation. Market will start to punish the EU countries deadly because everybody will be worried about the future of Euro and the ability of these countries to survive this crisis. One by one, the EU country starts to pull out from European Union. For sure, Euro will start to collapse and cease to be a currency. Many banks and companies in EU will start collapsing and the whole EU will plunge into darkness.
With the collapse of the EU, people start to wonder the ability of US in surviving this crisis as well sustaining its ever growing deficit. If EU can collapse, why not US? Now, people start to punish US market in bonds, equity, currency, etc. Credit default swaps on US sovereign bonds will begin to raise and USD may even collapse. China, being its biggest trading partner, will now begin to feel the pressure. The whole world including Asia Pacific and Middle East will panick and everybody will start to sell and sell from stocks to bonds.
Though gold may boom when volatility is high, its price will also collapse because the fund manager needs to sell something to cover losses in other places. And, of course, property prices will drop to the bottom. Who are you going to find to take over your property? Banks will start to foreclose these properties to cover losses.
Worse still, we will be seeing bank runs. How do you expect anybody to trust the banks if they could not even trust their government? People will start withdrawing money and save it under their pillows. But, so what? Paper money will start to devalue because people begin to lose confidence in the government.
Finally, the world will plunge into a depression that may last 20 to 30 years or maybe more than you ever know. There will be no more stock market, no more bond market, no more CDS market, no more currency market, no more gold market, etc, etc. Basically, we will be back to stone age.
Do you think the above will ever happen? In my opinion, ZERO percent chance that this will happen. But, this is something interesting and scary enough for deep thoughts.
As usual, out of curiosity, I start to dream wilder and think deeper about this crisis. You may call this mad economist but I think there is no harm thinking of what would be the worst case scenario if everything (i.e. currency, equity, bonds, etc) in this world were to collapse. It is quite scary and please be warned that you should not continue reading if you have any health problem such as heart problem, respiratory problem, etc. It may be worse than your worst nightmare.
Now, let's assume Greece decides to pull out from EU and drops Euro out of desperation. Market will start to punish the EU countries deadly because everybody will be worried about the future of Euro and the ability of these countries to survive this crisis. One by one, the EU country starts to pull out from European Union. For sure, Euro will start to collapse and cease to be a currency. Many banks and companies in EU will start collapsing and the whole EU will plunge into darkness.
With the collapse of the EU, people start to wonder the ability of US in surviving this crisis as well sustaining its ever growing deficit. If EU can collapse, why not US? Now, people start to punish US market in bonds, equity, currency, etc. Credit default swaps on US sovereign bonds will begin to raise and USD may even collapse. China, being its biggest trading partner, will now begin to feel the pressure. The whole world including Asia Pacific and Middle East will panick and everybody will start to sell and sell from stocks to bonds.
Though gold may boom when volatility is high, its price will also collapse because the fund manager needs to sell something to cover losses in other places. And, of course, property prices will drop to the bottom. Who are you going to find to take over your property? Banks will start to foreclose these properties to cover losses.
Worse still, we will be seeing bank runs. How do you expect anybody to trust the banks if they could not even trust their government? People will start withdrawing money and save it under their pillows. But, so what? Paper money will start to devalue because people begin to lose confidence in the government.
Finally, the world will plunge into a depression that may last 20 to 30 years or maybe more than you ever know. There will be no more stock market, no more bond market, no more CDS market, no more currency market, no more gold market, etc, etc. Basically, we will be back to stone age.
Do you think the above will ever happen? In my opinion, ZERO percent chance that this will happen. But, this is something interesting and scary enough for deep thoughts.
Monday, May 10, 2010
WOW again: What a rebound!
Check all the European stock indices now. All have rebounded; some as much as 8 percent. Like I have said in my earlier posting last week, the market is always irrational. I am not surprised that this strong rebound will come. When market is down so badly, it is natural for it to rebound sooner or later. There is no rocket science to this. Anyway, a lot of shortists will try to cover their positions now. So, this strong rebound is inevitable.
What is important is what will happen after this. My advice stays the same - stay rational and invest prudently. Nobody can tell you what will happen tomorrow. Invest the money you can afford and the companies you can trust.
What is important is what will happen after this. My advice stays the same - stay rational and invest prudently. Nobody can tell you what will happen tomorrow. Invest the money you can afford and the companies you can trust.
Friday, May 7, 2010
WOW: What happened!
Yesterday, DOW plunged 998 points in a matter of half an hour. What a fear? Market is telling us that problems in Greece, Spain, Portugal and Ireland will cause the global economy to collapse within weeks or even days. The whole world will once again enter into a recession worse than the 2008 global financial crisis. Do you believe this? I don't. Why? This is because these countries are not big enough in terms of the economic impact. Nevertheless, market is always irrational and nobody can control the market that builds its fear from thousands and thousands of investors.
At this moment, VIX is shooting up really fast. As noted in my posting one month ago, there was too much complacency in the market then. Now, there is too much fear. No matter what happens, we should always stay rational. Always remember what Warren Buffet says - Be greedy when the market is fearful and be fearful when the market is greedy.
Now, the market is entering into a panic mode. Soon, we can do some serious fishing.
At this moment, VIX is shooting up really fast. As noted in my posting one month ago, there was too much complacency in the market then. Now, there is too much fear. No matter what happens, we should always stay rational. Always remember what Warren Buffet says - Be greedy when the market is fearful and be fearful when the market is greedy.
Now, the market is entering into a panic mode. Soon, we can do some serious fishing.
Wednesday, May 5, 2010
Stock: Dollar Averaging
Market's down. Greed index is down and fear index is up. These are part and parcel of stock investment. If you have a proper risk management program in your investment strategy and have invested in companies that are built to last, there is little to worry. In the stock market, there is always a time to buy, a time to sell and a time to go fishing (meaning wait and see). Anyway, all of us do not have a crystal ball to see what will happen in the future. So, let's do what is within our control - invest prudently.
In stock investing, there is a strategy called dollar averaging. As nobody is able to time the market accurately, dollar averaging allows you to spread your investment over a period of time to reduce the risk of overpaying for a particular investment at any particular time. For example, if you want to purchase 50,000 shares of a stock, you may want to spread your purchases over 5 months, buying 10,000 shares per month. Let's say the stock price is $1 on month 1, $2 on month 1, $3 on month 3, $4 on month 4 and $5 on month 5. Your total cost of investment excluding trading cost will be $150k if you purchase 10,000 shares per month over 5 months. This will be $100k cheaper than to purchase all 50,000 shares at $5 each on month 5.
Is this really a good strategy? It depends. If you are a stock trader (i.e. not investor) and your holding period is a few days to a few months, then this strategy is suicidal in a falling market. It is especially so when both the company of that stock and your holding power are weak.
What would be a good time to use this strategy? It depends. Personally, I think this is a good strategy if you are investing in stock of a company that is well managed or stock index of a country that you believe to be financially stable. It could even be a ETF.
Try a simulation run of this dollar averaging strategy on STI ETF over a period of past few years and you will know whether this strategy works.
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.
In stock investing, there is a strategy called dollar averaging. As nobody is able to time the market accurately, dollar averaging allows you to spread your investment over a period of time to reduce the risk of overpaying for a particular investment at any particular time. For example, if you want to purchase 50,000 shares of a stock, you may want to spread your purchases over 5 months, buying 10,000 shares per month. Let's say the stock price is $1 on month 1, $2 on month 1, $3 on month 3, $4 on month 4 and $5 on month 5. Your total cost of investment excluding trading cost will be $150k if you purchase 10,000 shares per month over 5 months. This will be $100k cheaper than to purchase all 50,000 shares at $5 each on month 5.
Is this really a good strategy? It depends. If you are a stock trader (i.e. not investor) and your holding period is a few days to a few months, then this strategy is suicidal in a falling market. It is especially so when both the company of that stock and your holding power are weak.
What would be a good time to use this strategy? It depends. Personally, I think this is a good strategy if you are investing in stock of a company that is well managed or stock index of a country that you believe to be financially stable. It could even be a ETF.
Try a simulation run of this dollar averaging strategy on STI ETF over a period of past few years and you will know whether this strategy works.
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.
Thursday, April 29, 2010
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.
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.
Saturday, April 24, 2010
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.
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.
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.
- Try to get policy to cover the women illness.
- 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.
- 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.
Thursday, April 22, 2010
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.
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.
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.
Monday, April 19, 2010
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.
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.
Friday, April 16, 2010
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".
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".
Friday, April 9, 2010
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.
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.
Thursday, April 8, 2010
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.
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.
Wednesday, April 7, 2010
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.
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.
Friday, April 2, 2010
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.
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.
Wednesday, March 31, 2010
My day today: Today is a sad day
Today is a sad day for me. Something unexpected happened at work and it didn't feel good to talk about it. Anyway, life is so unpredictable. Look at the market today. Who is talking about last year's crisis anymore? Now, people are talking about the bullish property market, high COE car prices and booming stock market. If you still remember the Asian Financial crisis, SARS crisis or Dot.com crisis, they are nothing but bad memories now. Countries are keeping huge reserves but they are issuing even larger amount of debts and printing even more money to service these debts. After the busting of the Dot.Com bubble, we have another crisis in the supper bubble created by the booming US housing market within 10 years. Now what? We wait. It will be just a matter of time before another crisis hits. This is for sure.
Despite all these crisis, have we learnt anything? I doubt so. After every crisis, you have so many accounting standards to cover loopholes here and there. So what? As long as there is greed for more and fear of losing, this will be never ending. In gist, it is important for your survival to learn to expect the unexpected.
During good times, please prepare for the worst. And, during bad times, please get ready for good times to come. Some people call this contrarian view. To me, this is common sense.
Despite all these crisis, have we learnt anything? I doubt so. After every crisis, you have so many accounting standards to cover loopholes here and there. So what? As long as there is greed for more and fear of losing, this will be never ending. In gist, it is important for your survival to learn to expect the unexpected.
During good times, please prepare for the worst. And, during bad times, please get ready for good times to come. Some people call this contrarian view. To me, this is common sense.
Friday, March 26, 2010
Currency: Where is Euro heading and how does it affect us?
Everyday, we are hearing about problems in Greece. But, why should their problems affect asian countries like us when our stock market and property market are booming like no tomorrow? Anyway, Greece's GDP is only US$300 to 400 billion. That is about the size of both Malaysia's and Singapore's GDP added together. So, imagine problem in Singapore and Malaysia is going to rock the whole world. Impossible, right!
Now then, why is the stock market so worried? This is because the problem is more than meets the eye. Greece is just the beginning. You may have heard about PIGS - "not pigs" but Portugal, Ireland, Greece and Spain. The financial markets are worried that these countries may not be able to pay their debts that are going to due soon. Their combined GDP is about US$2.5 trillion. That is almost the size of UK's GDP. If they fail to repay their debts, investors will lose confidence in Europe and the Euro currency will definitely take a major hit.
So, who or what will benefit from this? USD !! USD will shoot to the roof because of uncertainty. Without Euro, USD will also be the only effective liquid reserve currency remaining in the world.
We are in Asia. This is between US and Europe. So, why worry? No, our stock market and property market have been driven up by liquidity and cheap money all these while. Money has been flowing from overseas into Asia because they have no other place to park and invest it. Japan is having recession, so is Europe. The only reasonable place to invest will be Asia and a large part of these money are borrowed in USD at very low interest rate. We called that carry trade. Imagine what will these investors do if USD were to appreciate suddenly to sky high level. Since they have borrowed in USD, they will have to repay in USD. In order not to suffer substantial losses due to unfavourable exchange rate, they will liquidate their holdings in stock market and property market. There will be bloodbath.
So, now, you see. Everything is inter-related. One thing can lead to many things. That is why the world is so big and yet so small.
Now then, why is the stock market so worried? This is because the problem is more than meets the eye. Greece is just the beginning. You may have heard about PIGS - "not pigs" but Portugal, Ireland, Greece and Spain. The financial markets are worried that these countries may not be able to pay their debts that are going to due soon. Their combined GDP is about US$2.5 trillion. That is almost the size of UK's GDP. If they fail to repay their debts, investors will lose confidence in Europe and the Euro currency will definitely take a major hit.
So, who or what will benefit from this? USD !! USD will shoot to the roof because of uncertainty. Without Euro, USD will also be the only effective liquid reserve currency remaining in the world.
We are in Asia. This is between US and Europe. So, why worry? No, our stock market and property market have been driven up by liquidity and cheap money all these while. Money has been flowing from overseas into Asia because they have no other place to park and invest it. Japan is having recession, so is Europe. The only reasonable place to invest will be Asia and a large part of these money are borrowed in USD at very low interest rate. We called that carry trade. Imagine what will these investors do if USD were to appreciate suddenly to sky high level. Since they have borrowed in USD, they will have to repay in USD. In order not to suffer substantial losses due to unfavourable exchange rate, they will liquidate their holdings in stock market and property market. There will be bloodbath.
So, now, you see. Everything is inter-related. One thing can lead to many things. That is why the world is so big and yet so small.
Friday, March 19, 2010
Currency: Impact of Yuan appreciation
If you go to Supermarket or any shopping centre today, you will find a lot of goods that are made in China. Like it or not, China is now the manufacturing firm of the whole world. So, what will happen if yuan were to appreciate?
Although Yuan is pegged to a basket of currency, it is relatively running a fixed exchange rate policy with USD forming the majority of the currency basket. Unless, your currency is pegged to Yuan, the likely effect is that yuan will rise against your currency -- the resulting effect will be increased import prices of Chinese goods. In an open economy, we may source the goods from other countries if the cost of getting certain goods from a certain country becomes less competitive. But, given the fact that it takes months or years to shift production facilities and also the fact that there are relatively very few countries that can match China in terms of production capacity and cost competitiveness, the likely effect that we will see from yuan appreciation is inflation.
Although Yuan is pegged to a basket of currency, it is relatively running a fixed exchange rate policy with USD forming the majority of the currency basket. Unless, your currency is pegged to Yuan, the likely effect is that yuan will rise against your currency -- the resulting effect will be increased import prices of Chinese goods. In an open economy, we may source the goods from other countries if the cost of getting certain goods from a certain country becomes less competitive. But, given the fact that it takes months or years to shift production facilities and also the fact that there are relatively very few countries that can match China in terms of production capacity and cost competitiveness, the likely effect that we will see from yuan appreciation is inflation.
Market: Where is it going?
I just spoke to a few people who are closer to the market in the last few days and the feeling that I get is that the market is getting cloudier each day. VIX index is near May 2008 low and this implies that there is certain level of complacency in the market. However, it does not mean that market will be going bear any time soon. To me, it simply means that it is getting harder to see the market direction beyond a couple of weeks.
While we are seeing more positive numbers coming out from our economy as well as those from the G8 (or G20 now), we still have potential problem in many areas notably sovereign debts. We may also have issue with Euro because of the problems in the European region. Then, there is problem with US ever growing debt, and the Treasury bonds and etc, etc and etc.
What does this mean? In short, it means we will see more volatility. We always have this Chinese saying "Opportunity comes with crisis". In times like this, there are potential in other areas such as VIX index, etc, etc. Or, maybe, be a crouching tiger and strike at the right time during these volatile times. There is never lacking of opportunities - just make sure you have enough "bullets" when opportunity comes.
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.
While we are seeing more positive numbers coming out from our economy as well as those from the G8 (or G20 now), we still have potential problem in many areas notably sovereign debts. We may also have issue with Euro because of the problems in the European region. Then, there is problem with US ever growing debt, and the Treasury bonds and etc, etc and etc.
What does this mean? In short, it means we will see more volatility. We always have this Chinese saying "Opportunity comes with crisis". In times like this, there are potential in other areas such as VIX index, etc, etc. Or, maybe, be a crouching tiger and strike at the right time during these volatile times. There is never lacking of opportunities - just make sure you have enough "bullets" when opportunity comes.
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.
Saturday, March 13, 2010
Lesson Learnt: FerroChina
Yesterday, FerroChina was delisted from SGX. A once leading galvanised steel producer is now history. Before it went burst, it was still growing leaps and bounds. The growth figures were beautiful and full of promises. But, it is now buried under millions of debts.
I have lost my investment in this company. It's painful. Even though I have done my homework analyzing this company, reading its financial reports and following the analysts' reports, nothing actually prepares me for this. Before it went burst, it was still reporting 194% increase in gross profit for 1H FY08 compared to 1H FY07. The net debt to equity was just 55.7%. So, how did a company with such impressive results and financials go belly up? *Sigh* I don't know.
On hindsight, I think I have believed too much in its financial reports, and I have focused too much on how well this company can grow and forgotten to look into the details of its debt. This company is practically growing and living on debts. Even without this financial crisis, the amount of debt and repayment would have buried it 6 feet under. In the pursuit of growth, financial prudence and risk management have been put aside. To me, this is a good lesson learnt.
I have lost my investment in this company. It's painful. Even though I have done my homework analyzing this company, reading its financial reports and following the analysts' reports, nothing actually prepares me for this. Before it went burst, it was still reporting 194% increase in gross profit for 1H FY08 compared to 1H FY07. The net debt to equity was just 55.7%. So, how did a company with such impressive results and financials go belly up? *Sigh* I don't know.
On hindsight, I think I have believed too much in its financial reports, and I have focused too much on how well this company can grow and forgotten to look into the details of its debt. This company is practically growing and living on debts. Even without this financial crisis, the amount of debt and repayment would have buried it 6 feet under. In the pursuit of growth, financial prudence and risk management have been put aside. To me, this is a good lesson learnt.
Tuesday, March 9, 2010
Cost of quality : Toyota
The recent issue with the Toyota cars makes me wonder whether we understand the true cost of quality - the quality of work or product or service, etc. I was quite fortunate to study the TPS (Toyota Production System) during my masters study many years ago. Frankly, I am fascinated by the Toyota Way. The concept is wonderful and the Kaizen standard is really unbeatable. Practically, everybody in the company is responsible for the continuous improvements that we see in the Toyota cars today. The quality that you see in the Toyota cars comes from years of research and commitment from everybody in the company.
Unfortunately, the recalls and negative news have cast negative spotlight on the company recently. I am not sure what has happened to their standard of quality. But, these issues have caused much negative publicity and will cost them dearly. Many companies have failed because of bad quality products. Now, for Toyota, the cost of quality would be everything. It will either make or break the company.
Unfortunately, the recalls and negative news have cast negative spotlight on the company recently. I am not sure what has happened to their standard of quality. But, these issues have caused much negative publicity and will cost them dearly. Many companies have failed because of bad quality products. Now, for Toyota, the cost of quality would be everything. It will either make or break the company.
Sunday, March 7, 2010
Unit Trust : How do you select one?
As I have explained in my earlier posting, buying unit trusts is no different from buying stocks. To start off, you may want to take the top-down approach.
1) First, look at the global economy. If the economic indicators are not doing so well at the global basis, likelihood is that the return of your investment will not be so fantastic.
2) Then, focus at the region or country or industry that you are interested in. For example, if the economy is recovering, the commodity market should start to pick up because the economy will need more resources to satisfy growth.
3) After you have done the above studies and decided what to invest, you will then look at the fund managers that are providing this type of fund. Track records are very important for selecting the right funds. Similar to stocks, buying a newly launched fund is equivalent to buying an IPO stock. It is better to select fund managers who have been in the market for a certain period of time in order to have enough information to assess their performance(my personal preference is at least 5 years).
4) Compare the returns of the funds and the performance of the fund managers. There are a number of websites such as fundsupermart that provides very detail analysis of these funds as well as their performance over time. In addition, you may also want to look at some of the ratio listed below to evaluate the funds.
Expense Ratio
As a rule of thumb, you should look for funds with low expense ratio. This is the cost of managing the fund. Given equal performance, the fund with the higher expense ratio will give a lower return compared to one with lower expense ratio.
Sharpe Ratio
It is the excess risk adjusted return. Given two funds with the same investment strategy, the one with the higher sharpe ratio will give you more return over time.
The above is just one of the many ways to select a fund. After selecting a fund, you should also have a strategy to buy into the fund. This will be discussed in future posting.
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.
1) First, look at the global economy. If the economic indicators are not doing so well at the global basis, likelihood is that the return of your investment will not be so fantastic.
2) Then, focus at the region or country or industry that you are interested in. For example, if the economy is recovering, the commodity market should start to pick up because the economy will need more resources to satisfy growth.
3) After you have done the above studies and decided what to invest, you will then look at the fund managers that are providing this type of fund. Track records are very important for selecting the right funds. Similar to stocks, buying a newly launched fund is equivalent to buying an IPO stock. It is better to select fund managers who have been in the market for a certain period of time in order to have enough information to assess their performance(my personal preference is at least 5 years).
4) Compare the returns of the funds and the performance of the fund managers. There are a number of websites such as fundsupermart that provides very detail analysis of these funds as well as their performance over time. In addition, you may also want to look at some of the ratio listed below to evaluate the funds.
Expense Ratio
As a rule of thumb, you should look for funds with low expense ratio. This is the cost of managing the fund. Given equal performance, the fund with the higher expense ratio will give a lower return compared to one with lower expense ratio.
Sharpe Ratio
It is the excess risk adjusted return. Given two funds with the same investment strategy, the one with the higher sharpe ratio will give you more return over time.
The above is just one of the many ways to select a fund. After selecting a fund, you should also have a strategy to buy into the fund. This will be discussed in future posting.
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.
Saturday, March 6, 2010
Chartist View: Property
The number of articles in the newspapers and the recent highlights on the property market is really giving me some adrenaline rush to find out where we are in the property cycle. Just like property stocks, I believe private properties are cyclical in nature as well, meaning there will be ups and downs.
If you refer to the PPI in URA website , I think we are not far away from the previous peak in 2008 and 1996. From chartist's point of view, we are near resistence level. When you are near resistence level, you need more buyers to help to push the price past the previous high. The next few quarters should be quite interesting for property market.
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.
If you refer to the PPI in URA website , I think we are not far away from the previous peak in 2008 and 1996. From chartist's point of view, we are near resistence level. When you are near resistence level, you need more buyers to help to push the price past the previous high. The next few quarters should be quite interesting for property market.
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.
Wednesday, March 3, 2010
Update: Insurance charges
In today's Strait Times, there is an article regarding MAS request for more disclosure on insurance charges. If you are interested, you could also request for such information from your insurance companies. This will give you information on whether the proposed cash value is realistic at the end of the day.
Unit Trust : Is it worth buying?
By now, I am pretty sure that you have come across many people who tell you that you should buy unit trust or mutual funds if you are passive investors and you do not have time to monitor your investments. There are professionals out there who will take care of your money and leave you to do what some of us do best: eat, play and sleep (Don't worry, you are not one of them since you are spending your precious time reading my blog). Blunt and crude, maybe, but let me give you this piece of advice. There is no free lunch in this world. If you do not take care of your money, somebody will.
I will share my opinion regarding unit trusts in the following FAQ.
1) Is there any difference between investing in stocks and unit trust?
No. You are still required to understand what you are buying. To do that, you need to read the prospectus, annual and semi-annual report of the unit trust. You will need to know the fund manager and understand their investment strategy. You will also need to evaluate their performance. Basically, there is no difference between buying stocks and unit trust.
2) Why do I need to monitor my investment when there are professional being paid to do all these?
Professionals are still human. Sometimes, their actions may deviate from the strategies that they preach. And, yes, they also lose money (sometimes, more than what you wish). You should read the book called 'Beating the Street' by Peter Lynch. In the book, he described how a group of little children beat the professionals in stock picking. So, if you do not invest the time to understand what you are buying and the performance of the funds, you may and will lose money.
3) If that's the case, why do I invest in unit trusts?
This is because :
a) your few thousand dollars will not get you anywhere if you want to buy the expensive blue chip stocks. But, it should be enough for you to participate in a fund that invests in these companies.
b) the professionals are closer to the market and they are trained to pick stocks with a disciplined approach.
c) you do not access to certain market e.g. overseas stocks, etc.
If you are still interested to know how I evaluate these unit trusts, please read my next posting.
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.
I will share my opinion regarding unit trusts in the following FAQ.
1) Is there any difference between investing in stocks and unit trust?
No. You are still required to understand what you are buying. To do that, you need to read the prospectus, annual and semi-annual report of the unit trust. You will need to know the fund manager and understand their investment strategy. You will also need to evaluate their performance. Basically, there is no difference between buying stocks and unit trust.
2) Why do I need to monitor my investment when there are professional being paid to do all these?
Professionals are still human. Sometimes, their actions may deviate from the strategies that they preach. And, yes, they also lose money (sometimes, more than what you wish). You should read the book called 'Beating the Street' by Peter Lynch. In the book, he described how a group of little children beat the professionals in stock picking. So, if you do not invest the time to understand what you are buying and the performance of the funds, you may and will lose money.
3) If that's the case, why do I invest in unit trusts?
This is because :
a) your few thousand dollars will not get you anywhere if you want to buy the expensive blue chip stocks. But, it should be enough for you to participate in a fund that invests in these companies.
b) the professionals are closer to the market and they are trained to pick stocks with a disciplined approach.
c) you do not access to certain market e.g. overseas stocks, etc.
If you are still interested to know how I evaluate these unit trusts, please read my next posting.
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.
Tuesday, March 2, 2010
Insurance : When do you buy insurance policy?
You should always buy an insurance policy before the risk in consideration has already occurred. For example, if you have a car, you should buy an auto insurance before you start driving the car. In fact, many of you will say that this is a "common sense' answer because no insurance company in the right mind will be willing to insure you after you are already involved in a car accident. True indeed.
Unfortunately, this answer becomes unclear when we start to talk about life insurance or health insurance. A lot of us carries this false sense of security that insurance is not really necessary when you are still healthy. However, no matter whether you like it or not, tomorrow is always a mystery. You should buy an insurance policy when you need it least because the price to pay for it will always be highest when you need it most.
In my next posting, I shall discuss about unit trust.
Unfortunately, this answer becomes unclear when we start to talk about life insurance or health insurance. A lot of us carries this false sense of security that insurance is not really necessary when you are still healthy. However, no matter whether you like it or not, tomorrow is always a mystery. You should buy an insurance policy when you need it least because the price to pay for it will always be highest when you need it most.
In my next posting, I shall discuss about unit trust.
Monday, March 1, 2010
Insurance : Comparing term life insurance and wholelife insurance
In Singapore, there are a few low cost term insurance plans that may be worth looking. You may want to look at some of the policies available for SAFRA members or NTUC members. Although these are group policies and it requires you to be a member of the respective organisations before you can take up these policies, the total cost (premium + membership) is still comparatively cheap.
Take SAFRA Living Care insurance policy for example. The premium is $289 for a 35 year old male with a sum insured of $100,000. For an equivalent wholelife insurance policy, you will be looking at an annual premium rate that is a few times more than this.
So, how do you decide whether it is a better option to go for term life insurance or wholelife insurance? As explained in my earlier postings, the purpose of insurance is to mitigate or transfer risk. Taking a wholelife insurance will normally introduce a new risk - the risk that you may not get back the cash value that you desire.
Let's assume that annual premium for the equivalent wholelife policy for the 35 year old male is $2000. With a projected return of 5.25% per annum (the best estimate for long term investment return rate set by Life Insurance Association, Singapore) for 25 years, the projected return will be around $70k to $90k depending on your life assurance cost and other insurance expenses. However, please note that this return is not guaranteed and hence it carries an unknown risk.
Now, let's do the same with SAFRA living care policy (Refer to SAFRA rates at ). It will cost the same man a total premium of ($289x10 + $416x10 + $808x5) = $11,090 for 25 years. That's an average of $445 per year. Assume that he puts the difference in premium that he saves ($2000 - $445) in CPF special account, the guaranteed return of 4% for CPF SA will earn him $65k after 25 years. The $65k comes risk-free. Of course, if he is less risk averse, he could improve his return by investing some money in other financial products such as stocks or high-yield bonds. Similarly, he can increase his sum insured by paying more premium and reducing the investment return.
From the above example, you can see that term insurance gives you more control over your finances as well as the amount of protection that you need. In a way, it allows you to manage your risk more effectively.
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.
Take SAFRA Living Care insurance policy for example. The premium is $289 for a 35 year old male with a sum insured of $100,000. For an equivalent wholelife insurance policy, you will be looking at an annual premium rate that is a few times more than this.
So, how do you decide whether it is a better option to go for term life insurance or wholelife insurance? As explained in my earlier postings, the purpose of insurance is to mitigate or transfer risk. Taking a wholelife insurance will normally introduce a new risk - the risk that you may not get back the cash value that you desire.
Let's assume that annual premium for the equivalent wholelife policy for the 35 year old male is $2000. With a projected return of 5.25% per annum (the best estimate for long term investment return rate set by Life Insurance Association, Singapore) for 25 years, the projected return will be around $70k to $90k depending on your life assurance cost and other insurance expenses. However, please note that this return is not guaranteed and hence it carries an unknown risk.
Now, let's do the same with SAFRA living care policy (Refer to SAFRA rates at ). It will cost the same man a total premium of ($289x10 + $416x10 + $808x5) = $11,090 for 25 years. That's an average of $445 per year. Assume that he puts the difference in premium that he saves ($2000 - $445) in CPF special account, the guaranteed return of 4% for CPF SA will earn him $65k after 25 years. The $65k comes risk-free. Of course, if he is less risk averse, he could improve his return by investing some money in other financial products such as stocks or high-yield bonds. Similarly, he can increase his sum insured by paying more premium and reducing the investment return.
From the above example, you can see that term insurance gives you more control over your finances as well as the amount of protection that you need. In a way, it allows you to manage your risk more effectively.
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.
Saturday, February 27, 2010
Insurance : Choosing an insurance policy
In choosing an insurance policy, there are quite a number of technicalities for consideration. The following are some of key considerations :
1) Type of insurance
Term, wholelife, health, auto, etc.
2) Renewability
If the insurance policy is not renewable guaranteed, there is a possibility that it may be cancelled in the future.
3) Premium rate guarantee
Some insurance policy may come with guaranteed premium rate. However, due to the higher life assurance cost as one grows older, the premium rate for some term insurances tend to be age-band.
4) Type of Coverage
Death/Crisis cover/TPD/PA
The list goes on and on. For life insurance, I would prefer term insurance to whole life insurance. The reasons have been explained in my earlier posting (Why do we need insurance?). Personally, I feel that life insurance is meant to mitigate the risk of loss of income in the event of death/disability/terminal illness. This protection is especially important when you are the sole breadwinner. With our limited funds, we would like to get the maximum protection value for every dollar spent on the premium. This is what term insurance could offer.
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.
1) Type of insurance
Term, wholelife, health, auto, etc.
2) Renewability
If the insurance policy is not renewable guaranteed, there is a possibility that it may be cancelled in the future.
3) Premium rate guarantee
Some insurance policy may come with guaranteed premium rate. However, due to the higher life assurance cost as one grows older, the premium rate for some term insurances tend to be age-band.
4) Type of Coverage
Death/Crisis cover/TPD/PA
The list goes on and on. For life insurance, I would prefer term insurance to whole life insurance. The reasons have been explained in my earlier posting (Why do we need insurance?). Personally, I feel that life insurance is meant to mitigate the risk of loss of income in the event of death/disability/terminal illness. This protection is especially important when you are the sole breadwinner. With our limited funds, we would like to get the maximum protection value for every dollar spent on the premium. This is what term insurance could offer.
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.
Friday, February 26, 2010
Insurance: Why do we need insurance?
There are many reasons for buying an insurance policy. It could be an insurance for your car, house or yourself. No matter what is the reason, the very first step to choosing an insurance policy is to understand the underlying purpose of getting one in the first place.
Basically, buying an insurance is about risk management. When you get an auto insurance, you are trying to transfer the risk of potential liability or potential damage to your car to another party. This party will get a premium for insuring your car while you will get a peace of mind by knowing that somebody will provide coverage in the event of an accident.
Once you are able to understand that insurance is about risk management, it will become easier to choose an insurance policy that is suitable for you. The general guidelines for choosing one could be summarized as follows:
1) What is the risk to mitigate or transfer?
Life insurance (e.g. whole life, term life, etc) - to mitigate the risk of loss of income in the event of death, disability or terminal illness.
Health insurance - to mitigate the risk of medical cost
Car insurance
Home insurance
etc
2) How long do you need to mitigate or transfer this risk?
3) What is the size of the risk that you need to mitigate or transfer?
This is basically the coverage that you need.
Nowadays, there are many perks being tied to insurance policy such as investment return, savings, etc. If you understand the underlying principle for getting an insurance, it will become easier to know whether these incentives are suitable or relevant to you. Just bear in mind - Make everything as simple as possible.
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.
Basically, buying an insurance is about risk management. When you get an auto insurance, you are trying to transfer the risk of potential liability or potential damage to your car to another party. This party will get a premium for insuring your car while you will get a peace of mind by knowing that somebody will provide coverage in the event of an accident.
Once you are able to understand that insurance is about risk management, it will become easier to choose an insurance policy that is suitable for you. The general guidelines for choosing one could be summarized as follows:
1) What is the risk to mitigate or transfer?
Life insurance (e.g. whole life, term life, etc) - to mitigate the risk of loss of income in the event of death, disability or terminal illness.
Health insurance - to mitigate the risk of medical cost
Car insurance
Home insurance
etc
2) How long do you need to mitigate or transfer this risk?
3) What is the size of the risk that you need to mitigate or transfer?
This is basically the coverage that you need.
Nowadays, there are many perks being tied to insurance policy such as investment return, savings, etc. If you understand the underlying principle for getting an insurance, it will become easier to know whether these incentives are suitable or relevant to you. Just bear in mind - Make everything as simple as possible.
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.
Thursday, February 25, 2010
Purpose of this blog
Hi,
I am Robert and I am working in Finance/IT industry. I have great passion in learning and understanding financial products like insurance, stocks, unit trusts, etc. In this blog, I would like to share with you my understanding of these products and would very much like to seek constructive feedback from all of you.
I am Robert and I am working in Finance/IT industry. I have great passion in learning and understanding financial products like insurance, stocks, unit trusts, etc. In this blog, I would like to share with you my understanding of these products and would very much like to seek constructive feedback from all of you.
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