A Sunday Times article said that unit trusts are not transparent. This is not correct. The unit trust trade on its net asset value at the end of each day. The fund manager accepts your investment in cash, gives you the units, and then invest the additional cash. It creates liquidity. For a long term investor, this is a good arrangement.
A ETF trades on the price quoted on the exchange. This may be transparent and tradeable, but it may suffer from the lack of liquidity, if you wish to trade in a large volume.
Each arrangement has its advantages and disadvantages. The most important factor is the expense ratio. If the unit trust or ETF gives a low expense ratio, a long term investor will gain from it, compared to high expense funds.
Saturday, April 26, 2008
Personal attacks
I have blocked many unsubstantiated remarks levied against NTUC Income, its products, its agents and management.
I allow some of the negative comments to go through, if they are not personal and make a point that is based on facts.
I have also received personal attacks against me. I block them, if they are personal and malicious. However, I have decided to allow some of them to go through.
I allow some of the negative comments to go through, if they are not personal and make a point that is based on facts.
I have also received personal attacks against me. I block them, if they are personal and malicious. However, I have decided to allow some of them to go through.
Investment linked plans from NTUC Income
Someone, probably a NTUC Income agent, made an anonymous posting about the regular premium investment-linked plans (namely the Ideal plans ID2 and ID7) introduced by me when I was CEO. He (or she) accused me of being unfair in recommending against investment linked plans now. Although it was a personal attack against me, I have decided to post the comment.
Those who correctly read my blog knows that I am recommending against regular premium ILPs that take away two years of savings, especially sold to customers who are not informed about the high charges.
The Ideal plans introduced during my time have the following upfront charges:
ID2 - 7 months premuim
ID7 - nil
They are much lower than the charges of the regular premium ILPs sold in the market. Read this comparision:
http://www.askdrmoney.com/Ins_ILP_RP.htm
The Ideal ID7 is a good plan for the customer. But the insurance agents are not willing to sell it, as they earn a low commission. You have to buy it from the business center (if they still offer it).
You can avoid all the upfront charges by investing in the STI ETF. For the life insurance cover, you can buy a decreasing Term insurance. Read this FAQ:
http://www.tankinlian.com/faq/low.html
Recently, I withdraw a large sum of money from the money market fund and wanted to re-invest in the Combined Fund. Although it was a topping up of any existing policy, I was asked to pay a upfront spread of 3% for the new investment. I decided against it. I took out the money and invested it in the stockmarket directly.
By not taking care of the interest of an existing policyholder, NTUC Income has lost a large investment.
Those who correctly read my blog knows that I am recommending against regular premium ILPs that take away two years of savings, especially sold to customers who are not informed about the high charges.
The Ideal plans introduced during my time have the following upfront charges:
ID2 - 7 months premuim
ID7 - nil
They are much lower than the charges of the regular premium ILPs sold in the market. Read this comparision:
http://www.askdrmoney.com/Ins_ILP_RP.htm
The Ideal ID7 is a good plan for the customer. But the insurance agents are not willing to sell it, as they earn a low commission. You have to buy it from the business center (if they still offer it).
You can avoid all the upfront charges by investing in the STI ETF. For the life insurance cover, you can buy a decreasing Term insurance. Read this FAQ:
http://www.tankinlian.com/faq/low.html
Recently, I withdraw a large sum of money from the money market fund and wanted to re-invest in the Combined Fund. Although it was a topping up of any existing policy, I was asked to pay a upfront spread of 3% for the new investment. I decided against it. I took out the money and invested it in the stockmarket directly.
By not taking care of the interest of an existing policyholder, NTUC Income has lost a large investment.
Friday, April 25, 2008
Calpers earned 19.1% return
Source: Bloomberg
California Public Employee Retirement Scheme (Calpers) earned a 19.1 percent return for the year ended June 30, 2007, according to its most recent annual report, compared with a gain of 18.4 percent on the Standard & Poor's 500 Index of stocks.
The fund had about 60 percent of its portfolio invested in public equity, about 24 percent in bonds and other fixed income, 8 percent in real estate, 6.7 percent in private equity and 1.4 percent in cash equivalents, the report said.
California Public Employee Retirement Scheme (Calpers) earned a 19.1 percent return for the year ended June 30, 2007, according to its most recent annual report, compared with a gain of 18.4 percent on the Standard & Poor's 500 Index of stocks.
The fund had about 60 percent of its portfolio invested in public equity, about 24 percent in bonds and other fixed income, 8 percent in real estate, 6.7 percent in private equity and 1.4 percent in cash equivalents, the report said.
Homeowners convert to costlier fixed rate loans
Source: Bloomberg
Mortgage refinancing in the U.S. is increasing as record numbers of homeowners dump their adjustable-rate mortgages for the security of a fixed loan.
The amount of refinanced home loans will reach $321 billion by the end of June, the most in a year. Nine out of 10 of those borrowers will choose a fixed rate.
Property owners are abandoning adjustable-rate mortgages, or ARMs, to ward off the prospect of higher payments. About 6 million U.S. homeowners, or 59 percent of the ARM market, have Libor-indexed loans. The 12-month U.K. benchmark Libor rate rose more than two-thirds of a percentage point in the past month.
Question: Will this situation happen in Singapore? Will more people move from floating to fixed rate loans?
Mortgage refinancing in the U.S. is increasing as record numbers of homeowners dump their adjustable-rate mortgages for the security of a fixed loan.
The amount of refinanced home loans will reach $321 billion by the end of June, the most in a year. Nine out of 10 of those borrowers will choose a fixed rate.
Property owners are abandoning adjustable-rate mortgages, or ARMs, to ward off the prospect of higher payments. About 6 million U.S. homeowners, or 59 percent of the ARM market, have Libor-indexed loans. The 12-month U.K. benchmark Libor rate rose more than two-thirds of a percentage point in the past month.
Question: Will this situation happen in Singapore? Will more people move from floating to fixed rate loans?
Bonus on participating policies
Dear Mr. Tan
I have several life insurance policies with X. They reported higher investment income for 2007. I hear that they will reduce their annual bonus on their policies and increase the maturity bonus. Is this fair to policyholders? If not, what action can the policyholder take?
REPLY
The life insurance company and its appointed actuary is required to act fairly in the distribution of the annual bonus. They have to follow the principles set out in their contract or in their company bye-laws. Recently, the Monetary Authority of Singapore has issued a guideline on the distribution of bonuses on participating policies.
In the situation that you have described, the company X has to give a convincing explanation on why they are reducing their annual bonus, in spite of an increase in investment income. If you are unhappy with the explanation, you can lodge a complaint with MAS or with FiDREC.
You can ask MAS to verify if Company X has met with their obligation under the MAS guidelines.
I have several life insurance policies with X. They reported higher investment income for 2007. I hear that they will reduce their annual bonus on their policies and increase the maturity bonus. Is this fair to policyholders? If not, what action can the policyholder take?
REPLY
The life insurance company and its appointed actuary is required to act fairly in the distribution of the annual bonus. They have to follow the principles set out in their contract or in their company bye-laws. Recently, the Monetary Authority of Singapore has issued a guideline on the distribution of bonuses on participating policies.
In the situation that you have described, the company X has to give a convincing explanation on why they are reducing their annual bonus, in spite of an increase in investment income. If you are unhappy with the explanation, you can lodge a complaint with MAS or with FiDREC.
You can ask MAS to verify if Company X has met with their obligation under the MAS guidelines.
Higher return and lower risk
Dear Mr Tan,
Indeed, having read through your website, I have come to understand just how great ETFs are, esp the STI ETF. You mentioned that STI ETF is like a unit trust, less those high expense ratio and high sales charge. You also highlighted that for long term investors, it is good to invest in ETF.
Having thought through quite some time, I don't get the logic. Since STI ETF can be bought and sold like shares, why is it beneficial, especially to long term investors?
REPLY
Shares are likely to earn a higher return compared to bonds and other safer investments. But shares are volatile, i.e risky.
By investing in a fund comprising of many shares, you reduce the risk through diversification. By investing for the long term, you average out the good and bad years, to get an average long term return.
Hence, a low cost investment fund, such as ETF, allows you to earn a higher return (from shares) and reduce the risk through diversification.
Indeed, having read through your website, I have come to understand just how great ETFs are, esp the STI ETF. You mentioned that STI ETF is like a unit trust, less those high expense ratio and high sales charge. You also highlighted that for long term investors, it is good to invest in ETF.
Having thought through quite some time, I don't get the logic. Since STI ETF can be bought and sold like shares, why is it beneficial, especially to long term investors?
REPLY
Shares are likely to earn a higher return compared to bonds and other safer investments. But shares are volatile, i.e risky.
By investing in a fund comprising of many shares, you reduce the risk through diversification. By investing for the long term, you average out the good and bad years, to get an average long term return.
Hence, a low cost investment fund, such as ETF, allows you to earn a higher return (from shares) and reduce the risk through diversification.
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