Article on Rates of Returns of Life Insurers in The Sunday Times

Article on Rates of Returns of Life Insurers in The Sunday Times
(17 September 2006)
We have received some queries about an article on the returns of participating policies which was published in The Sunday Times on 17 September 2006. Written by Lorna Tan, it is entitled, "What you see may not be what you get". This paper addresses any concerns you may have arising from the article.

The article contains highly misleading information.

1. The journalist quoted the "Insurance Commissioner's Report" as the source of information. This is not true. The Monetary Authority of Singapore (MAS) has not published such figures since 2000 (probably because these figures had been misquoted in the past).

2. In the MAS reports prior to 2000, it was clearly stated that the net rate of return included net interest and did not take into account any profit or loss on the realisation or revaluation of assets. As such, these figures do not represent the actual investment performance of our insurance funds, where gains from equities and other asset classes form an important part of the overall return.

The journalist did not include this important point in her report and wrongly used these rates as investment rates of return of Par funds.

3. The net rate of return shown in the MAS reports (i.e. prior to 2000) was the aggregate net rate for all life insurance funds (i.e. Par fund plus non-Par fund plus Investment-linked fund, where applicable) of an insurer. It was not the net rate for the Par fund.

The aggregate net rate for all insurance funds is obviously not the same as the net rate for the Par fund.


Click here to read more

Source: Great Eastern Website

Article on How Insurers Invest in Their Par Funds in The Business Times

Article on How Insurers Invest in Their Par Funds in The Business Times
(27 September 2006)
There is an article entitled, "A peek at how insurers invest" in The Business Times on Wednesday, 27 September 2006. The journalist, Genevieve Cua, reported on what insurers invest in their Par funds. Her article included a table of asset allocation for Par funds and the capital adequacy rates of all life insurers. We would like to draw your attention to some points in relation to the article.

Click here to read more

Source: Great Eastern Website

IKEA Vouchers and $10,000 IKEA Extreme Makeover Package!

<PROMOTION IS OVER>

If financial planning is something really new to you, why not make use of this opportunity to find out more. And if you find our plans suitable - that $10,000 IKEA extreme makeover package may be yours!

For an appointment or more information, kindly drop me an email,
or call

Are you considering a degree course?

Perhaps you are contemplating to obtain a degree 3 or 5 years from now, or maybe you are wondering how much the cost of education will be when your kids grow up.

Well, according to the article published on last Sunday on Sunday Times, Jan 15, 2006 - you may need to set aside a substantial amount should you decide to further your studies, or send your kids to the university.

Not surprisingly, education costs will rise with inflation. Hopefully our pay cheque will increase at a rate faster than inflation :-)

Overheard at the coffeeshop from a uncle in his 50s

"Better to die lah, falling sick is worse than dying. So expensive, how to afford the medical expenses?"

He's not alone.

I know of a provision-shop uncle who operates 24/7 in Serangoon. The reason was that he used to have a good friend who fell very sick due to cancer. His good friend's family spent every cent they have on him. With the lost of the breadwinner, they relied on the savings, borrowed and sold everything to get money for his treatment.

Despite all the efforts and struggles, the uncle lost his good friend.

His good friend's family lost a breadwinner, loss of income, end up in debts and is no longer the same. It brought the family into dire circumstances

It was like a wake-up call for the uncle. It prompt him to earn as much money as possible. Which is why his provision-shop is open 24/7. He doesn't want to end up in that kind of situation, nor does he wants to subject his family to this ordeal. He said that he copes by having his wife to work in the morning, while he works from mid-noon all the way to till dawn. From the look of his face, I can see that it's strainful on him, especially for someone his age.

I shared with him that there's another alternative - buying a comprehensive health plan that will pay for all medical bills starting from the first dollar.

He's convinced and much happier today. And I don't see the provision-shop opening 24/7 hours anymore.


***

Do not underestimate the costs of medical care. Say "No" to huge medical bills. Feel free to send me an email or call 81-888-232 for more information

5 Things You Need to Know When Investing Your CPF

1. Investing your CPF should be seen as a medium to long term investment. In that way, better returns can be expected. Successful investment is not purely luck. It's about consistency and staying invested.
   

   
   Do you know that contrary to public perception, investing in unit trusts has been more profitable than leaving your money in CPF accounts? (source: Straits Times, Year 2005)
   
   Over the past seven to 10 years, nearly 75 per cent of all unit trusts have outperformed CPF returns. The average annual return on equity and bond funds was 6 per cent, compared with CPF interest earned of 2.5% to 4%.

   
   
2. Preferably, you should set aside part of your CPF for your house loans or your kids education loan. That way, you will not worry unnecessarily about your investment in the short-term.
   
   
3. The fund management fee. Usually equities funds charge a higher management fee, however you may wish to check if the management fee is justified. If the performance of the fund is so-so only, you may wish to look for another alternative.
   
   
4. The funds performance. Find out how the funds have performed over the last 3 to 5 years. Although past performance is not indicative of future perfomance, it can still serve as a benchmark.
   
   
5. Ultimately, the fund(s) that you choose should be based on your:

• Time Horizon;
• Asset Allocation;
• Diversification;
  
• Expectations (of returns and inflation)

Policy Loans

Taking a loan from your existing policies may be a good idea when you need cash urgently. This usually applies to traditional policies, also known as Whole Life policies. And the interest rate is definitely much lower compared to credit cards at 24% per annum. Normal policy loan interest rates ranges from 6% to 8%.

At the same time, you enjoy the coverage provided by your policies. However, your policy must have certain cash value before you can take out a policy loan; and subjected to the conditions set by the insurance company. Do note that when you take out a loan, your return on investment will be reduced, depending on the amount you cash out.

On the other hand, if you own a ILP (Investment-Linked Policy), you need not take out a loan. You simply cash-out the amount you need. This is one of the beauty of an ILP. An ILP is a combination of investments (Unit Trusts) and life insurance in one plan. Insurance charges are deducted from the investment component of the ILP.

You can even go for premium holidays, which means you don't have to any premiums, and yet enjoy continuous coverage.* I believe this is useful, especially when the individual is in a temporary financial difficulty and unemployment. In the case of a traditional policy, to stop paying premium may impact the return rates severely, and in worse cases, the policy may even lapse.



* terms and conditions varies with different companies. For all plans, needs and concerns must be taken care of, before determining whether the plan is suitable for the individual. Feel free to drop me an email to discuss further.

The Cost of Waiting

Many people hesitate when it comes to investments or savings, hoping and waiting for the best deal.

What they don't realise is that by waiting, there's a cost involved too - The Cost of Waiting

Imagine one day you see a Fix Deposit (or investment) advertisement, giving an interest rate of 3% every year. The plan is to start from Year 2005 to Year 2010. By putting $50,000 with the financial institution for 5 years, you will get $57,963.70 at the end of the term. You can earn a total interest of $7,963.70 if you invest now.

But something is pulling you back, you are wondering is there any better opportunities or higher interest rates. You decide to wait.

1 year later ...

Indeed, there's a higher interest rate being offered this time -

3.2% interest rate!

And this offer is sweeten even further, only 4 years required. You decided to take up the offer. It's year 2006 now.

Four years later. Year 2010 ...

Your $50,000 became $56,713.81. Total interest earned is $6,713.81.

Cost of Waiting?

$7,963.70 - $6,713.81 = $1,249.89

Given a fixed time frame (until year 2010), the cost of waiting is $1,249.89

What are you waiting for? :)

PS: To obtain the same amount of interest (i.e. $7,963.70), an interest rate of 3.764% per annum is required.

Bank Interest Rates for the Last 10 Years

Bank Interest Rates from Jan 1995 to Jan 2005*

Bank Saving Deposits*

• Jan 1995 - 2.93%
• Peak from Jan to Aug 1998 - 3.49%
• Lowest at - 0.23%
  
• Dec 2005 - 0.30%

Bank Fixed Deposits (12 months)*

• Jan 1995 - 4.23%
• Peak from Jan to Aug 1998 - 5.38%
• Lowest at - 0.72%
• Dec 2005 - 0.86%

As reflected on MAS website, generally interest rates had fallen pretty much. For bank saving deposits, it had dropped from 2.93% to only 0.3%. Which means that for every $1,000 you have in your saving accout, you get an interest of only $3. Gone were the days where you get $29.30 for every $1,000 you save in the bank.

However, interest rate is not the only element that had dropped. The value of money has also fallen. This is due to inflation, whereby prices of goods and services increases. As a result of this, you can buy lesser stuff with the same amount of money. Take a look around you, among many things, petrol prices has risen, utilities bills and transport costs have increased over the years.

Things are not so bad after all, with banks and insurance companies offering numerous financial plans to achieve higher and better interest rates. To name a few, plans include fixed deposits, regular saving plans (RSPs) and investments. However, please be advised that different plans cater to differnt needs and appetities. At the end of day, the plan chosen or recommended must suit the individual's lifestyle or expectations.

*Figures refer to average rates compiled from that quoted by 10 leading banks and finance companies.
(Source: Monetary Authoriy of Singapore, www.mas.gov.sg)

Spending VS Saving

Do you owe a credit card?

Most likely you do.

As always, banks and credit card companies are eager and aggressive to increase their database credit card members. They offer free gifts and free annual fees. People sign them up.

Credit card is a convenience, a prestige for some. But it can cut people as well. It can result in big spending, and in some cases overspending. With the usual credit card interest rate at 24% annually, some people wound up in debt. Others end up bankrupted.

I guess it's human nature to love good food, good entertainment. How many people really thought about what's going to happen to them 20 years later? They can't see it. Most people care about now only. What they have now and what can they do with the money now.

Some says we can always plan later, let us enjoy now.
Some says let's live for today.
Some says I just don't have enough.

Planning should start now. Planning should be for the long term, not just for the short term. When you start planning financially, you feel that you have more control over your life. You know where you are heading. At least you have a direction.

Starting early also means that you can set aside a smaller amount of savings, and let it accumulate over the years. IF you start later, you will need to set aside a bigger amount of savings periodically in order to reach your desired amount of savings.

Your savings will come in handy in rainy days, when you retire, or even business opportunities.

Nobody regretted saving, only regretted spending.

Start saving today.

Some facts for people who retire after 2013 ...

"From 1 January 2009, members who reach 55 can only withdraw 40 percent of their Special and Ordinary Account balances, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Required Amount in the Medisave Account. This percentage of withdrawal will go down by 10 percentage points each year."

- source: www.cpf.gov.sg

1. If you will to retire after 2013, you can no longer take out 50% of your CPF money. You can only take out the excesses of OA and SA after you have met the Minimum Sum of $120,000. Medisave Minimum Sum is currently at $30,000.

• The last date that allows members to take out 50% is 31 December 2008.

2. The Minimum Sum you set aside will determine your payout for 20 years after your retirement. Currently, the monthly payout starts at the statutory retirement age of 62. An alternative is to purchase a Annuity. It's not a popular choice though.

3. Recently, there are recommendations to extend the retirement age beyond 62, which means to say,

• the monthly payouts will start at a later age
• people may need to continue working if they
  
• do not have enough savings;
• do not meet the Minimum Sum requirements

All these may catch most people unaware and deliver a big impact to them.

Tricks that people can play on your credit card

CREDIT CARD SCENE 1
A friend went to the local gym and placed his belongings in the locker. After the workout and a shower, he came out, saw the locker open and thought he had locked the locker. He dressed and flipped the wallet to make sure all was in order - all cards were in place. A few weeks later his credit card bill came at a whopping $14,000! He called the credit card company and told them he did not make the transactions. Customer care verified there was no mistake in the system and asked if his card had been stolen. When he checked again, a switch had been made with an expired similar credit card from the same bank. The thief switched cards on him.

Verdict: The credit card issuer said since he did not report the card missing earlier, he would have to pay the amount owed to them. Small amounts rarely trigger a "warning bell" with some credit card companies. It just so happened that all the small amounts added up to one big one!

CREDIT CARD SCENE 2
A man at a local restaurant paid for his meal with his credit card. The bill for the meal came, he signed it, the waitress folded the receipt and passed the credit card along. Usually, he would just take it and place it back in his wallet. This time, he took a look at the card and saw it was the expired card of another person. He called the waitress and she looked perplexed. She apologized and hurried back to the counter under the watchful eye of the man. All the waitress did while walking to the counter was wave the wrong expired card to the counter cashier, and the counter cashier immediately looked down and took out the real card. No exchange of words --- nothing! She took it and came back to the man with an apology.

Verdict: Make sure the credit cards in your wallet at yours. Check the name on the card every time you sign for something or when the card is taken away for even a short period of time. Any people just take back the credit card without even looking at it, assuming it is theirs.

FOR YOUR OWN SAKE, DEVELOP THE HABIT OF CHECKING YOUR CREDIT CARD EACH TIME IT IS RETURNED TO YOU AFTER A TRANSACTION!

CREDIT CARD SCENE 3
I went to a pizza restaurant to pick up an order that I had called in, paying by Visa Check Card which is linked directly to my checking account. The young man behind the counter took my card, swiped it, then laid it flat on the counter, waiting for the approval - standard procedure. While waiting, he picked up his cell phone and started dialing. I heard a click that sounded like my phone does when I take a picture. He gave me back my card but kept the phone in his hand as though still pressing buttons. I wondered what he was taking a picture of until it dawned on me that the only thing there was my credit card. About five seconds later, I heard the chime that tells you the picture has been saved. Needless to say, I immediately canceled that card as I walked out the pizza parlor. Beware of phones because many people have camera phones these days. Also, the waiter brings your card and receipt to sign, make sure you scratch the number off. Some restaurants use only the last four digits, but a lot of them are still putting the whole thing on there.

***
Sharing this useful info which I got from a friend ;)

Equities seen as a short term investment?

This afternoon, I was taken aback by a friend's remark:

"My agent said that equities is the best for short term investment and that I'll be able to enjoy the maximum returns possible."

That's a BIG misconception ... ... well, I think that may happen only AND only if the market is verrrry bullish. But then, how big is the chance?

And what if you have an urgent need of cash and decides to sell within a year of purchase, when the equities aren't performing? That's a big problem. Isn't it? Which is why equities should never be looked upon as a short term investment.

I shared with her, that for equities, you never know when it's going to rise or fall. As the equities' performance will be largely dependent on market conditions, companies performance, and world events; how is it possible for anyone to know whether the market is going up or down? Anyone can predict. But who knows for sure?

****
Personally, I think that even if the individual is a risk-taker, he shouldn't have the perception that equities are suitable as a short term investment, as this may result in unexpected cashflow problems.

Having a portfolio consisting of equities and bonds may be a better idea. Diversification and asset allocation is definitely one of the key to successful investing.

Retirement in Singapore

The CPF Minimum Sum is currently set at $92,000 from July 1, 2006 and will be raised gradually until it reaches $120,000 in 1 July, 2013. (Source: www.cpf.gov.sg)

The Minimum Sum is supposed to last 20 years from the statutory retirement age of 62.

TWO potential problems may arise from this:

1. How many Singaporeans are able to hit the Miniumum Sum? Especially after paying for their kids' education & HDB loans.
   
   Which is perhaps why there are so many retirees still working at fastfood restuarants, food courts, as cleaners, etc. I doubt that most of them are working to kill time. Given a choice, I believe most of them would rather go for a holiday, look after their grandchilds, or do any leisure stuff, after working for at least half their lifetime.
   
   
2. For those who are able to meet the Minimum Sum of $120,000* when they retired in 2013.
   

A huge question mark looms over their heads - Is it enough for retirement? To last for 20 years? For simplicity, if you do a calculation without inflation and interest accrued on the $120,000, you will realise this:

$120,000 for 20 years
--> $6,000 for 1 year
--> $500 for 1 month

Is $500/month enough for a retiree? Would this $500 be able to cover for medical care, expenses, food, utilities, transport costs? What kind of lifestlye will he be leading?

What kind of lifestyle do you want?