Haunted... no more...

The time is 8pm. You are in the office working over time. You look up from your computer wanting to take a break and rest your eyes.

You suddenly realise you are all alone in the office. The silence is deafening! The ticking of the clock that is hanging on the wall is suddenly very loud. The photocopier machine suddenly starts up, then you realise its just fax coming in.

You look out the window but see your own reflection in it. You look away quickly, as you are worried you will see something else in the reflection other than yourself. You start recalling the horror stories you have heard from your friends about being in offices alone at night.

You think you hear the keyboard of somebody else clicking a few cubicles away. You tell yourself its all in your head. Suddenly your mobile phone rings, you practically jumped, the ringing of your mobile phone seems louder than usual.

You hesitate to pick up the phone, what if all your hear is static and unearthly clicking sounds like in The Ring?! The caller ID does not show a number, and the caller seems persistent. You slowly reach over to your phone and pick it up.

You pressed the answer button and said: Hello, hoping it ain't the static and clicking sound you hear.. while you were praying the caller said: Hello, may I speak to your name? Yes, you said, heaving a sigh of relieve it is a human voice. Hi, I am John calling from Insurance Company Name. 

Oh no a cold call from an insurance company! This is worst than static and clicking noises! Give me the static!!!

Is this how you feel when you get a call from an financial consultant? Have no fear! DNC is here! If you haven't read the news or have been living in a cave, DNC is 'Do Not Call' and as of yesterday you can start registering yourself on this list so that you can lodge a complain officially if you still get unsolicited calls.

To register yourself, please click here. Wait! You sure? You may be missing out on the best things in life... like financial planning and insurance or investment or property deals or... never mind you don't care about those anyway.. click away!

Just remember that if your financial consultant calls you don't go complaining that he flouted the DNC laws, you are a customer. If you don't have a financial consultant, please call me 9180 3448, Tang, I cannot call you.

Investing? Diversify!

Just sold off some investments I did 2 years ago in funds. Did these investments with a bank I was before. Been sometime I looked at it and thought now is a good time with the whole Cyprus issue and all.

Walked into the bank and asked for my portfolio. I glanced at the printed copy of my portfolio and was dismayed to find a particular fund that showed -12% under the rate of return column. Looked at the fund that was at negative 12%, Global Property. Alamak since when I have this fund man! Probably I did, it was one of those decisions I made that since global property has been going down the only way is up. Wrong call....

Glanced at the other funds I had. An asian managed dividend paying fund and a Singapore fund. 5% (excluding the dividends I got over 2years) and 29% respectively. Woohoo! Whatever losses I made in the property fund is nicely covered by my other 2 funds.

I have been an advocate of long term investments (though 2 years ain't that long term, but this is tactical asset allocation), diversified asset allocation and dollar cost averaging. This strategy has helped give potential returns of about 10% per year. Though like they say past experience is not indicative of future performance, but diversification has helped all the time.

Some of you may argue that Tang 10% could be something I do in an hour. Sure but will you tell me if you lost 10% in an hour? The fact is if something can give you a potential return of 10% in an hour it also potentially can give you 10% losses in the same hour. And that, like I have mentioned in my previous post is not investment but speculation.

And again it is not wrong to speculate, but do so only when you have core financial planning done then go speculate, knowing that losing 10% in an hour is not going to affect future plans. In fact, even if you lost all your money in the casino or spent it on all the quick picks in every Singapore Pools in Singapore for the 10 million price draw, you are rest assured that future plans will not be affected, then go ahead do it! Come on admit it, we all dream that one day when we tio the Toto we will throw resignation letter in our bosses face.

I have secretly dreamed that if I did tio the Toto, I will photocopy and blow up my Toto ticket and paste it behind me in my work station, then chill and do minimal work just to hit KPI, just to justify my existence. My winnings left in a dividend paying fund drawing 4%, for every million it is $40,000, can sustain my daily living and working is just getting more money from the company. Boss walks out of the room and say Tang your performance not up to standard, without looking at him, I use my thumb to beckon him to look at my winning ticket. Boss no choice walks back into room. If only....

Sigh...

But that was corporate life. Now I am the boss, resignation letter I throw in my own face :).

So before you foray into investments ask yourself some questions:

1. How long is my time horizon?
2. Is my core financial portfolio in place?
3. How much am I able to lose?
4. Is the investments I am going into diversified?

There are many solutions that fit different needs and risk profile so start taking action, because what you do today will impact your future.

The Day The World Changed

Imagine, before leaving for work,you said goodbye to your father in the morning at 6 am and by 11 am you are at the hospital the doctor is telling you your father is gone. And if you think this is some scene from some Korean or Hong Kong drama then you are wrong. This happened last Thursday to a friend of mine and I start to realise I cannot seem to be helping people fast enough to get them insured.

Why? There are many times when I ask friends who they are concerned about, who they love and care and tell them they have to consider the repercussions if something unfortunate was to happen. Ask them for their loved ones contact so that I can talk to them to prevent unnecessary financial cost if sometime happens.

Not only will there be financial cost but also the cost of living for those they leave behind. Even if death do not occur, financial liabilities will come from medical and living expenses of both the sick and the living.

In short many times I ask for referrals from people and the usual answer: don't have anyone in mind. I call them and ask them first. They are not free. They need they will call you.

The truth is when do people need insurance? When their loved ones pass away, when they are critically ill, when they are hospitalised, when they are disabled. But by the time those things occur, you need also cannot buy. Just like the life jacket on the aircraft.

If I ask anybody who has traveled on a plane before where the life jacket was, everybody will say under the seat. But the truth is do we actually know if it is physically there? We do not even pay attention to the air stewardess when she is explaining how to put on the life jacket, which tube to blow into to inflate, when to pull the tab to inflate the life jacket. We take it for granted that the plane will not fail.

And isn't that what we do in life? We take it for granted that all will be fine. We think we will never die, never fall sick, never get hospitalised never need that life jacket under the seat.

And that's the difference in life and on the plane. You know that if the plane was to fail and you hear the captain telling you to put on the life jacket, you can be rest assured the life jacket is there. If its not and if you survive the plane failure you can sue the airline company later.

What about life? When one is in an unfortunate incident, are we able to pull that life jacket out from under the seat? At the point when you actually need that life jacket can you tell the insurance company you want to buy one now? Who do you sue if you manage to come out of it. Will you still be able to live life at your current standard of living or has most of your assets been used for the medical and other cost?

That's where financial planning comes in. And yes I know this term has been used too loosely and its been abused by many. Many advisers tell people financial planning but eventually push a product and yes I understand its because of these people that many refuse to refer.

If you have read my earlier post, financial planning is a process where one go through what an accountant will do for the company. We first see an individual or family cash flow and net worth. This allows one to see if the individual or family is overspending. We see if the assets are allocated properly to achieve a desired return. We use past expenses and current assets, project them into the future with inflation and rate of return. We will then choose risk management theories to mitigate our risk. Then we implement solutions suitable for one's situation. After the implementation of the solutions, we become auditors. We need to monitor and review if the solutions implemented are still relevant. Certain events will render one's solution irrelevant, events like: getting a promotion, changes in expenses or income, buying a property, getting married, having a kid, kid going to school, retirement, changes to the economy, inflation, changing government policies, strike 4D, TOTO, big sweep. This list is not exhaustive.

So if you are reflecting on what kind of solutions you have and it has not been audited for some time, better consider doing one. Because many of the events mentioned above WILL happen, and the time to do something about it is NOW! And that is called planning. Stop taking things for granted because we do not have a life jacket like we do on a plane. And just like the life jacket we never want to use it but we are at peace its there. We may not want to use all the solutions in our financial plan but be at peace it is there.

So pick up your phone and give your financial adviser a call, tell them you want your plans reviewed. If you do not have one drop me an email tngjinyau@gmail.com or call, text, whatsapp 9180 3448. And if you still think its not going to happen to me, think again..

I apologise to those who take offence to this post so close to Chinese New Year. But my heart felt condolences go out to my friend and his families who has lost someone close.

To all my Chinese friends Gong Xi Fa Cai.

The Unseen Monster

Read this in the papers yesterday and I was thinking of the times when I was in corporate, working 9 to 5 and receiving a take home pay at the end of the month.

I have always wondered 'Why does my pay never seem to be enough even when I get a raise every year? Why is it that I get a raise every years yet, you never seem to have more savings or a better standard of living?

After being in the financial industry I started realising the mistakes that most of us make and I have been through it myself.

Firstly, inflation has been slowly eroding away the value of our monies. We all know about inflation but many do not do anything about it. 

The government tells us CPI increased. CPI? What's that? Can eat or not?

For those who knows what CPI represents, most will also ignore the consequences of high CPI.

Some who knows what CPI is, what is its repercussion and consequences, they will still procrastinate about doing something about it.

So what is CPI? CPI, Consumer Price Index or what we know commonly as Inflation is the silent killer that has been eating at our monies. So how does inflation affect us.

I remembered the year 2003 when I started to indulge in kopi-o. One cup of kopi-o then cost $0.50. 8 years on in 2012, my indulgence is now, $0.90 per cup. (And I do not take only a cup one day.) What do you think inflation of my kopi-o has been the past 8 years. On an average the inflation for my cup of kopi-o per year is 7.6%. 

 Many of you might think: 'But its only $0.40 what! Tang why you bother write blog for $0.40!'

Let us move the decimal points, something that cost $5 will cost $9. Something costing $50 will cost $90. Something that had cost $500 now cost $900. The difference is now, $4, $40 and $400 respectively. The difference will get bigger once the sum of money becomes bigger. $0.40 seems acceptable, but does $40,000 in 8 years sound reasonable?

To put inflation into perspective, imagine you earn $4000 every month, you spend $3,500, and save $500. You get a pay raise of 4% and inflation has been at 7%. After 8 years, your income after a pay raise of 4% every year will be $5,475. Your expenses that is growing with inflation of 7% will be at $6,013, with no more extra for savings.

Based on the above example, how can we maintain our standard of living when the cost of our expenses are moving faster than our pay! It has moved beyond our means and we have to start digging into our savings just to maintain the lifestyle we enjoyed just 8 years ago. And once our savings run out, we either start signing our credit cards or compromise our standard of living.

Being young and having my first credit card was detrimental. With inflation increasing, and me trying to keep up with my standard of living, I ran up a total of almost $30,000 in credit card bills. And with the interest rates of credit cards at 24% p.a it is almost impossible to clear my debt while just trying to pay off the minimum amount. 

But when I started in the financial industry, the idea of planning began to sink in. I always thought that Income - Expense = Savings, but some seminars I attended changed my whole perspective. One speaker actually mentioned that the real formula to be rich and financially independent is to save and to save the formula is Income - SAVINGS = Expenses!

That blew me away! I had been a slave to my money! I have allowed myself to work for money, I have not allowed money to work for me. I have to be a master of money and not a slave to it! That day, I got home, took out my scissors, cut away my cards. 

Found some personal loan that will give a slightly lower interest and transferred my balance so that I can pay off my debt in a very systematic way. 

In the mean time, I also walked into POSB,  ask them about an account that will take my money from my salary on a monthly basis on a fixed date. I do not want an ATM card or internet access for this account. They told me about the fabulous MySavings account that allowed flexibility of setting aside a fixed amount of my salary on a user defined date! If I need to withdraw from the account I had to go to the branch, queue, to get my money. (Though now the account has changed, they now give internet access and tie it to your ATM card. But the habit of savings has been formed)

Life changed, debts was cleared and inflation was still a concern. 

Savings interest: 0.125%

Inflation: 7%

Real rate of return on my money: - 6.875%

I knew I had to do something about it.

Family Impact Analysis

Let us look at our family, do we run our family like a business? Let us look at how similar a family is compared to a business. Businesses is about profit and loss. Its about bottom line. Its about being responsible to their shareholders. 

So who are the shareholders of your family and are you being responsible for them? Parents, kids, spouse and anybody who may have a vested interest. The profit or loss in your home will be taking your combined household income minus all expenses. 

Businesses have balance sheets every month to ensure they are still running on profit. If they know they are running close to a loss, they have measures and strategies to cut cost and bring the business back into the black. They know their fixed expenses and cash flow needed every month. They project how much expenses may be needed in future to sustain the business. They have risk management strategies to ensure that profitability and net worth of business is not compromised.

Do you know if your family is running on a profit or loss? Do you have a strategy if your family is running on a loss? Do you have projections for the future so that you know the family is sustained? Do you have risk management strategies to ensure profits and net worth are not compromised in your family?

Businesses also understand that they have to invest their liquid assets to allow their money to work harder for them. They may think of doing other businesses to diversify their exposure in their core markets. They may also employ asset management companies to invest their monies. They leverage on these companies' expertise in markets and sectors they may not be familiar with.

Are you letting your monies sit in liquid assets? Is your family's assets being invested to allow it to work harder for you? Is your assets diversified to reduce your exposure in one market?

If you have not thought about the above you may like to consider doing a Family Impact Analysis. Think about all the possible risk that may affect your family. Think about the probability of the risk happening. Think about the impact on the family. Then if you want a better understanding, complete the below questionnaire with your name, email and phone number

Lessons From Businesses You Can Port Into Your Home

I will like to thank Mr Steven Ng Liang Hwi who has gave me much inspiration for this post. Your input as a risk manager in your company is a great learning lesson for me too.

Have you ever wondered what the risk management department in your company does? They seem to disapprove many of your initiatives or create many unnecessary red tapes before you can push your idea through. Why are they being so narcissistic about new ideas and initiative? Don't they realise the amount of productivity/ sales/ bottom line that will be increased if this initiative is passed through?

Well that is the job they do. They have a system called a Business Impact Analysis, they look at the company as a whole, find out all possible risk that may affect the company. Put a figure to the possibility of the risk happening. Put another figure to the impact of the risk if it happens. Put these figures into a software which will calculate whether the risk is big enough to mitigate it.

For example, if the risk is not probable and will not impact the company they may choose to neglect the risk as the impact to the company is negligible. But if the probability of the risk is high and the impact to the company is high then they will have to adopt one of 4 strategies to mitigate this risk.

Therefore when you decide that you have a great idea and initiative that will greatly benefit the company, you have just created another risk for the risk department. They will have to go through the whole process of finding out all the risk that is associated with your idea; Put the figures in to the software for the probability of the risk happening. Calculate the financial impact of the risk happening. Then decide which risk they want to take and which they do not and on and on and on. By the time they say ok, the fire in your belly for the idea has extinguish.

The Strategies to Mitigate Risk

So now lets say your idea is fantastic and risk department has identified the risk and wants to mitigate it. There are 4 strategies and these are to:

1) Accept the risk,

2) Avoid the risk, 

3) Reduce the risk, or

4) Transfer the risk

Lets look at each strategies individually. Lets assume that one of the risk for a company is working at height. If a company Accepts this risk, they will just get workers to work from height without safety gear and accept the fact that if a worker fall they will cover the bills and liabilities that come with it. 

If they assume a Avoid risk strategy, they will not take jobs that is too high. They will only jobs that have no heights thus limiting the jobs they take and limiting their income.

The above 2 strategies are totally impractical as accepting the risk creates too significant an impact to a company happens if something happens.

Therefore, the 2 practical approach will be Reduce and Transfer. Risk reduction for the above example will be for company to ensure safety gears are used. Safe standard operating procedure are in place. Penalty in place for flouting of safety guidelines. These will help the company reduce the risk while working from heights.

But reducing risk is only one strategy and does not ensure that accidents don't happen and most companies will adopt a risk transfer strategy as well. They buy insurance that will transfer the financial risk to insurance companies thus ensuring that liabilities resulting from an accident does not affect their profits or savings. They transfer this risk by paying a small portion of their total liabilities in premiums for a substantially bigger payout when an accidents happens.

So what lessons can be learnt from a business? Are we running our family like a business? Are we exposing our families to unnecessary risk without mitigating them? How can we do a Family Impact Analysis? 

Stay tune for the next post!

Lessons From A Taxi Driver

23/10/2012 Tuesday

Dropped my bike off at AMK industrial park 2 for some oil leaking from my engine and decided to grab a cab home. As I was walking towards the junction, a cab pulled up going to make a left turn. Flagged it. Uncle wound down his window,

'Where you going?' He asked. 'Uncle, Simei.'. He hesitated , took a second glance at his clock and waved me on board. 'How you want to go? CTE then PIE then exit Simei?' he asked.

'Uncle, TPE also can' I said.

'CTE then PIE then exit Simei? Ok ah?' he asked again. Figured he was hard of hearing already, I said: 'Ok, ok, can can.'

As I was sitting in the back of the taxi, I remembered attending one of Dr Andrew Goh's training titled: Think Like A Taxi Driver and decided to engage with uncle. 'Uncle, you had lunch already?' I asked.

'After I drop you off I am going to return taxi at Sengkang.' he said.

Eeeerrrrr... ok ok uncle hard of hearing. Ask again: 'Uncle, you had lunch already?' 

'Eat liao. But nowadays don't eat rice, just eat porridge. Drive taxi no time eat.'

'So uncle, how long have you been driving taxi already?' Uncle ask me guess. '10 years?' I answered.

'34 years already. This year I 67. (At that moment I felt at peace knowing I had at least a million dollars worth of insurance coverage) 3 years time, I going to retire'

'Wa uncle so long ah? You got kids or not?' Uncle said got kids, 1 boy, 1 girl. 'Then uncle relax liao la, no need work so hard.' I said.

Uncle went on to tell me his wisdom; he said he used to drive taxi for 12-14 hours when younger now drive for 6 hours, enough to cover his basic needs. He told me not to expect from my kids. If they make it big in life they can give you more ok. If cannot then have to continue working to sustain. He gets $300 from CPF and he has some savings. He said he co-owned his taxi for 20 years. If you don't co-own, you pay $60 rental for taxi in 1980s. If co-own you pay $60 for 4 years and $30 after that. He said he saved the $30 per day and now has savings to pay off some stuff every month. In essence, he told me he cannot stop driving his taxi.

Then he told me: Young man, now that you are still young, better save for your retirement. Don't anyhow spend your money. When young earn more, but also save more.

Sigh! As a financial planner we advocate that to people on a daily basis. We have plans and solutions for many of these financial objectives including retirement. But half of the replies you get when you want to meet up with people: I got already. You people earn so much. Bluff people one. Think about it. No need. And finally the best: NOT INTERESTED. 

And guess when will people be interested to do something about their retirement?

During retirement.  

Well guess life's like that. The quote from Gladiator sums it up: What You Do In Life Echoes in Eternity. So whether your retirement allows you a choice to work or not depends on what you do today.