Dear Mr. Tan,
Is unit trust a complicated product? Do you recommend investing in a unit trust?
REPLY
A unit trust is generally a simple product. Your money goes into a fund which is invested on behalf of all the investors. The fund manager has to disclose the following:
a) Upfront spread
b) Expense ratio (i.e. the annual charge)
c) Scope of investment.
It is best to invest in a unit trust that has no spread, i.e. the same price is used for buying and selling of each unit, or a spread of not more than 1%. You should choose a fund with low expense ratio, less than 1% per annum.
If you select a unit trust that has a high spread and expense ratio, you have to be sure that the fund manager is able to produce a better return compared to the market. Usually, it is difficult to make this judgement.
I prefer to invest in an indexed fund, such as the STI ETF. It has no spread (except a transaction charge of 0.3%) and an expense ratio of 0.3%. An ETF is like a unit trust, except that it can be traded on the stock exchange. A unit trust is transacted daily based on the net asset value at the end of each day.
Tip: invest in a low cost unit trust, such as the STI ETF.
Sunday, April 27, 2008
Avoid complicated products
Many financial institutions design complicated products that lock you up for many years and give you a poor yield.
They pay a high commission (taken from your investment) to the marketeer, which could be an insurance agent or the relationship manager of a bank.
To hide the poor yield, they introduce several complicated features to distract the investor. If they are transparent, they will never be able to sell the poor yielding product.
Many life insurance products introduced in recent years are designed to be complicated and non-transparent. They give a poor yield to the policyholder.
Some products may give a fairly decent yield, but it comes with high risk. For example, if the underlying investment is risky and can earn a gross yield of 7%, the investor may get a net yield of only 3%, after deducing the high charges which takes away most of the gain. Usually, the investor is not aware about the high risk, as it is hidden in many pages of a complicated document.
Lesson: Never invest in any complicated product, even if it is sold by your trusted bank. Instead, you should invest in transparent product, such as stocks or bonds that are transacted through the stock exchange. If you invest in fixed deposits, you can check the interest rate offered by various banks.
They pay a high commission (taken from your investment) to the marketeer, which could be an insurance agent or the relationship manager of a bank.
To hide the poor yield, they introduce several complicated features to distract the investor. If they are transparent, they will never be able to sell the poor yielding product.
Many life insurance products introduced in recent years are designed to be complicated and non-transparent. They give a poor yield to the policyholder.
Some products may give a fairly decent yield, but it comes with high risk. For example, if the underlying investment is risky and can earn a gross yield of 7%, the investor may get a net yield of only 3%, after deducing the high charges which takes away most of the gain. Usually, the investor is not aware about the high risk, as it is hidden in many pages of a complicated document.
Lesson: Never invest in any complicated product, even if it is sold by your trusted bank. Instead, you should invest in transparent product, such as stocks or bonds that are transacted through the stock exchange. If you invest in fixed deposits, you can check the interest rate offered by various banks.
Monthly income plan
Dear Mr Tan
I have been offered the following "Monthly Income Plan" by my bank, marketing for a life insurance company:
Initial Investment - 10 K @$1
Front end load : 5 %
Annual fee : 1.25 %
Initial investment: 9,675 units
Monthly pay out coupon : App. $38 for 11 months and app $58 for 12th month. Total amt received per year : $476.
How to sell : relationship manager (RM) told me that just fill up the form. based on current market price and I can sell. eg of current unit price is 99 cts., from the statistics , it is as low as 87 cts.
My initial thought is that I wanted to invest 10 K. My concern is that after investing, I will only get my return after 3rd year, and RM may continue to ask me to make further investment.
REPLY
I believe that the annual payout of $478 (i.e. 4.78%) is not the actual income earned on the investment, but is a withdrawal of your initial investment. You have to check this point.
I dislike this type of complicated structure as it is confusing to the investor. Never trust anything that you do not understand.
You can read this FAQ on the charges for an investment linked fund:
http://www.tankinlian.com/faq/ilp.html
For a single premium ILP, the upfront charge is usually between 3% to 7%. The charge of 5% is at the average level. The annual fee of 1.25% is reasonable, provided that the fund is largely invested in equity. If it is invested mostly in bonds or money market funds, the fee should be less than 1%.
I find all ILPs to be expensive. It is better to invest in a ETF such as the STI ETF managed by StateStreets. The upfront charge is only 0.3% (ie the brokerage that you pay to the stockbroker).
I have been offered the following "Monthly Income Plan" by my bank, marketing for a life insurance company:
Initial Investment - 10 K @$1
Front end load : 5 %
Annual fee : 1.25 %
Initial investment: 9,675 units
Monthly pay out coupon : App. $38 for 11 months and app $58 for 12th month. Total amt received per year : $476.
How to sell : relationship manager (RM) told me that just fill up the form. based on current market price and I can sell. eg of current unit price is 99 cts., from the statistics , it is as low as 87 cts.
My initial thought is that I wanted to invest 10 K. My concern is that after investing, I will only get my return after 3rd year, and RM may continue to ask me to make further investment.
REPLY
I believe that the annual payout of $478 (i.e. 4.78%) is not the actual income earned on the investment, but is a withdrawal of your initial investment. You have to check this point.
I dislike this type of complicated structure as it is confusing to the investor. Never trust anything that you do not understand.
You can read this FAQ on the charges for an investment linked fund:
http://www.tankinlian.com/faq/ilp.html
For a single premium ILP, the upfront charge is usually between 3% to 7%. The charge of 5% is at the average level. The annual fee of 1.25% is reasonable, provided that the fund is largely invested in equity. If it is invested mostly in bonds or money market funds, the fee should be less than 1%.
I find all ILPs to be expensive. It is better to invest in a ETF such as the STI ETF managed by StateStreets. The upfront charge is only 0.3% (ie the brokerage that you pay to the stockbroker).
Annual and special bonus
Dear Mr. Tan,
NTUC Income has reduced the annual bonus and increase the special bonus. Is the special bonus guaranteed? Can the special bonus be reduced in the future? Can I trust NTUC Income to honour the special bonus that is being projected now?
REPLY
The special bonus is not guaranteed. It can be taken away at any time. This has happened in the case of other life insurance companies. When they reduce the special bonus, the impact on the policyholder is very severe.
It is better to have a high rate of annual bonus, rather than a high rate of special bonus. An annual bonus is vested in each year as it is declared, and cannot be taken away. A special bonus does not vest until the time of claim.
In the past years, NTUC Income has a fixed rate of 25% for special bonus. As this is a uniform fixed rate, it has honoured it for the past 20 over years.
In the future, the special bonus is not an uniform rate, and may vary according to type of policy and duration. You can never be sure that you are getting a fair share of the special bonus, especially when the investment climate changes.
If you do not accept this change, you can lodge a complaint to MAS. This is a fundamental change of practice, which affects the reasonable expectation of the policyholder. It is important for MAS to ensure that the new practice is done in a manner that is fair to all policyholders, now and in the future.
NTUC Income has reduced the annual bonus and increase the special bonus. Is the special bonus guaranteed? Can the special bonus be reduced in the future? Can I trust NTUC Income to honour the special bonus that is being projected now?
REPLY
The special bonus is not guaranteed. It can be taken away at any time. This has happened in the case of other life insurance companies. When they reduce the special bonus, the impact on the policyholder is very severe.
It is better to have a high rate of annual bonus, rather than a high rate of special bonus. An annual bonus is vested in each year as it is declared, and cannot be taken away. A special bonus does not vest until the time of claim.
In the past years, NTUC Income has a fixed rate of 25% for special bonus. As this is a uniform fixed rate, it has honoured it for the past 20 over years.
In the future, the special bonus is not an uniform rate, and may vary according to type of policy and duration. You can never be sure that you are getting a fair share of the special bonus, especially when the investment climate changes.
If you do not accept this change, you can lodge a complaint to MAS. This is a fundamental change of practice, which affects the reasonable expectation of the policyholder. It is important for MAS to ensure that the new practice is done in a manner that is fair to all policyholders, now and in the future.
Reduce need to commute
PRINTED IN STRAIT TIMES FORUM PAGE ON 26 APRIL 2008
Many cities face a big challenge in handling the large number of people who have to commute to and from work. They contribute to congested roads, crowded buses and trains and long commuting time. Singapore faces the same challenge.
Most of the remedial measures appear to focus on the supply side, that is, build more roads and provide more trains and buses. They take a long time to implement and do not seem to solve the underlying problem The construction works aggravate the problem.
I suggest that attention should be given to new measures to reduce the need for commuting, such as:
> encourage businesses to locate their workplaces in satellite towns
> encourage people to work near their homes, or live near their place of work
> reduce or waive stamp duty on property transactions, for a person who moves to be closer to the place of work
> improve the local transport within a town
If we can reduce the commuting demand significantly, we can make a major contribution to reduce energy consumption, travel time, travel cost and road congestion.
Tan Kin Lian
Many cities face a big challenge in handling the large number of people who have to commute to and from work. They contribute to congested roads, crowded buses and trains and long commuting time. Singapore faces the same challenge.
Most of the remedial measures appear to focus on the supply side, that is, build more roads and provide more trains and buses. They take a long time to implement and do not seem to solve the underlying problem The construction works aggravate the problem.
I suggest that attention should be given to new measures to reduce the need for commuting, such as:
> encourage businesses to locate their workplaces in satellite towns
> encourage people to work near their homes, or live near their place of work
> reduce or waive stamp duty on property transactions, for a person who moves to be closer to the place of work
> improve the local transport within a town
If we can reduce the commuting demand significantly, we can make a major contribution to reduce energy consumption, travel time, travel cost and road congestion.
Tan Kin Lian
When you are over 60
SENT TO ME BY A FRIEND
1. Focus on enjoying people, not on indulging in or accumulating material things.
2. Plan to spend whatever you have saved. You deserve to enjoy it and the few healthy years you have left. Travel if you can afford it. Don't leave anything for your children or loved ones to quarrel about. By leaving anything, you may even cause more trouble when you are gone.
3. Live in the here and now, not in the yesterdays and tomorrows. It is only today that you can handle. Yesterday is gone, tomorrow may not even happen.
4. Enjoy your grandchildren (if you are blessed with any) but don't be their full time baby sitter. You have no moral obligation to take care of them. Don't have any guilt about refusing to baby sit anyone's kids, including your own grand kids. Your parental obligation is to your children. After you have raised them into responsible adults, your duties of child-rearing and babysitting are finished. Let your children raise their own off-springs.
5. Accept physical weakness, sickness and other physical pains. It is a part of the aging process. Enjoy whatever your health can allow.
6. Enjoy what you are and what you have right now. Stop working hard for what you do not have. If you do not have them, it's probably too late.
7. Just enjoy your life with your spouse, children, grandchildren and good friends! People, who truly love you, love you for yourself, not for what you have. Anyone who loves you for what you have will just give you misery.
8. Forgive and accept forgiveness. Forgive yourself and others. Enjoy peace of mind and peace of soul.
9. Befriend death. It's a natural part of the life cycle. Don't be afraid of it. Death is the beginning of a new and better life. So prepare yourself not for death but for a new life with the Almighty.
10. Be at peace with your Creator. For... He is all you have after you leave this life.
1. Focus on enjoying people, not on indulging in or accumulating material things.
2. Plan to spend whatever you have saved. You deserve to enjoy it and the few healthy years you have left. Travel if you can afford it. Don't leave anything for your children or loved ones to quarrel about. By leaving anything, you may even cause more trouble when you are gone.
3. Live in the here and now, not in the yesterdays and tomorrows. It is only today that you can handle. Yesterday is gone, tomorrow may not even happen.
4. Enjoy your grandchildren (if you are blessed with any) but don't be their full time baby sitter. You have no moral obligation to take care of them. Don't have any guilt about refusing to baby sit anyone's kids, including your own grand kids. Your parental obligation is to your children. After you have raised them into responsible adults, your duties of child-rearing and babysitting are finished. Let your children raise their own off-springs.
5. Accept physical weakness, sickness and other physical pains. It is a part of the aging process. Enjoy whatever your health can allow.
6. Enjoy what you are and what you have right now. Stop working hard for what you do not have. If you do not have them, it's probably too late.
7. Just enjoy your life with your spouse, children, grandchildren and good friends! People, who truly love you, love you for yourself, not for what you have. Anyone who loves you for what you have will just give you misery.
8. Forgive and accept forgiveness. Forgive yourself and others. Enjoy peace of mind and peace of soul.
9. Befriend death. It's a natural part of the life cycle. Don't be afraid of it. Death is the beginning of a new and better life. So prepare yourself not for death but for a new life with the Almighty.
10. Be at peace with your Creator. For... He is all you have after you leave this life.
Disturbed by cut in annual bonus
Dear Mr. Tan
I was disturbed by the lastest news that Ntuc Income had declare to cut our annual bonus and by doing this, they will increase our maturity bonus. I was not convince how can this method benefit me in the long run.
I had called Income's hotline and had spoken about this issue. However, nothing can be resolved as they stand very firm that they do this is to benefit to the policyholder. I had total 6 life policies been affected could you give me some advise regarding this issue.
REPLY
You can ask NTUC Income to show you the cash value of your policies for the future years, based on the old bonus rates and the revised bonus rates. You will be able to see if the change in bonus is fair. It is their duty to provide a clear explanation of the change in bonus, especially as they are making a major change of this kind.
If they do not respond to your request, you can write to MAS and ask their assistance.
I was disturbed by the lastest news that Ntuc Income had declare to cut our annual bonus and by doing this, they will increase our maturity bonus. I was not convince how can this method benefit me in the long run.
I had called Income's hotline and had spoken about this issue. However, nothing can be resolved as they stand very firm that they do this is to benefit to the policyholder. I had total 6 life policies been affected could you give me some advise regarding this issue.
REPLY
You can ask NTUC Income to show you the cash value of your policies for the future years, based on the old bonus rates and the revised bonus rates. You will be able to see if the change in bonus is fair. It is their duty to provide a clear explanation of the change in bonus, especially as they are making a major change of this kind.
If they do not respond to your request, you can write to MAS and ask their assistance.
Subscribe to:
Posts (Atom)