People Are Forgetful...

Its amazing how property prices in Singapore have moved up so quickly so fast ever since the last crisis caused by a property bubble bursting in US. Guess people are forgetful. People have forgotten how a $980,000 property bought in 1997 is valued only at $450,000 in 2003. 

Monthly repayments for home is affordable now because the crisis since 2008 is not fully resolved. Too much  money have been spent on resuscitating the economy to risk another collapse and most government is wary about rising interest rates too fast too soon. This has driven cheap money into the economy giving people the ability to buy more expensive houses, driving up the demand. Of course this always brings out the emotions in people and making them blind to the fact that property is still an asset and there is a possibility of prices going down.

With the cooling measures just introduced, it does not have much effect on the market. People seem to be still wanting more exposure into property.. its probably because monthly repayments are still affordable. 

Lets take for example, Buying a property that cost $1 million. Lets say being a first owner, you get to purchase your property with a 80% loan. The bank lends you $800,000. Your monthly repayment based on an interest rate of 1.5% for a 30 years term is estimated to be about $2,757.

An increase of 0.25% in the loan interest rate will move the repayment up to estimated $2.849. Bring the interest rate up to the point where it was in 2007 where lowest interest rate is probably 3%, monthly repayment estimated about $3,364 (3% is only for first year then)

This is for first timers, I do not even want to mention for those who buying second property having shorter repayment terms and higher duties. 

Inevitably when the interest moves up there will be less people being able to afford houses thus driving down demand thus bringing down the property prices, thus causing people to panic sell, thus having fire sales when people cannot pay up (we hope there is less fire sale compared to 2003), unless of course the government sticks to the promise of 6.9 million population which so many property owning Singaporeans are so against....

So when will interest rates move up? Its when economies are doing well, inflation is increasing, to cool an overheated economy governments increase interest rates as one of the strategies. When interest goes up, cheap money is taken out of the economy, causing less spending bringing down inflation. When this is happening which asset class is going up? Equities! Which asset class is slowing going down, property! So doesn't diversification make sense? Then again this is in theory, but again I maintain that diversification is the way to go. 

I just can only hope that what happened in 2003 does not happen again... then again people are forgetful...

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.

Chinese New Year is Over

Well CNY 2013 was gone in a flash. The kgs put on also came in a flash. The season is changing once again and the heat seems to be back.

And I am going to Korea tomorrow! Stay tuned for my next escapade to Korea! Its great that most of my airfare and some of my accommodation is paid for. Woohoo!

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 Only Constant Is Change

After joining the financial industry the quote that 'the only constant is change' became so much more apparent. Not only are there changes in the organisation, the change in the industry is also very fast paced. In 2000 when I joined the industry 2 paper was all I needed to take Certificate in Life Insurance & Investment Linked Policies. As the years went by, they introduced Financial Needs Analysis then Health Insurance. It is now renamed to M9, M5, M8, HI and the most recent addition to the slew of exam papers an adviser has to take, M9A and M8A. 

And those was just the papers to take. The industry also went through many changes with its regulations. CPF monies allowed to invest from zero dollar, then back to having minimum before one can invest. Then you have changes to customer's expectations that result in changes in products. Then there is inflation, economic change, product changes, moving from paper proposal to laptops, changes in company policies, changes to our title...

But this is part and parcel of life. Change. Adapt or get left behind. I started to adapt and move with the times. I embraced changes, adopted technology as it comes along. Today I am even more savvy technologically then many of my Gen Y colleagues. 

Our products have expanded. I remembered in 2000. Total product 10 fingers can count. Today, fingers and toes add together also cannot count the plans available. Now there are high net worth products, mass market products, participating products, non participating products, personal accident, Health and Surgical products. Each of these products serve a different purpose, suitable for different people. 

Come first March is another change: Medishield. Its been reported in the papers. There will be an increase in coverage and therefore an increase in premiums. There will also be an increase in deductible, which means an increase in out of pocket expenses. In 2005, Medishield have been integrated with Private Shield Plans to give members more comprehensive coverage.

With private integrated shield plans any out of pocket expenses can be defrayed with riders. My advice to all my client is that the very first thing they must have in their financial portfolio is a shield plan.

I remembered a friend of mine who when approached by me told me that he does not believe in insurance. Did his investment planning and told him if he don't want to talk about anything else just get a hospitalisation plan first. My rationale then was anyway its from Medisave. Was I glad he did it. He is now diagnose with Hep B and he will definitely get excluded if he tried to get it now.

I have also recently added a rider for another client on his shield plan and he was just warded 2 weeks back. He left the hospital after 2 days and did not pay a single cent, in fact he got paid.

Premiums you pay for a private integrated shield plan? Less than $1 a day from medisave and less than $1 a day for the rider. What can you do with $2 a day??

Are you willing to risk a huge medical bill for just $2 a day. You decide..

See the average bill size here

Want to find out more about financial planning or just want to have more info, email me tngjinyau@gmail.com

The Problem With Investments

The problem with investments is that many expect money put in today make money tomorrow or very quickly. Thats not investing, its speculating. It does not help that many people are drawn into advertisements that tell you, you can make millions with just 15 mins everyday. They claim they found the success formula in investing and they are here to share their knowledge bacause they feel good things must share. Their sharing cost $3000 plus. Eeerrr since when did sharing become a commodity?

I knew of somebody that paid that kind of money and when I asked them for their lesson notes, I saw them using charts of companies during 2003 and 2004 period. Any idiot with a dart and a list of stocks during 2003-2004 can make money in equities. Stick the piece of paper on the wall, throw the dart at it. Whichever stock the dart hit you buy, to make it more challenging do it blind folded.

I started to realise that many "investors" is running on greed and these marketers of these programs are capitalising on it. You will notice that these advertisements will be the most rampant when the economy is at a slump and the only way for the economy is up.

And greed caused problems to these "investors" too. Many have bought into technology stocks or funds in year 2000. In 2003 when I was in the bank I met numerous customers that have a negative return on their investments and 99.9% of them has most, if not all, of their portfolio in technology. Why?

Greed has driven the mass buying of technology as tech stocks in 2000 was in favour. Tech funds was doing almost 10% a week! And people were optimistic of the new era of internet. If you think about it, in 2000 if you were a startup company with a laptop and called yourself something.com your shares will be flying off the shelf. But what assets is supporting these share value? You and your laptop....

So whats the difference between investing and speculation. We all know speculation, put money today and try to make a reaping in a very short time. But investing is putting your money in and knowing it will give you a return in a longer time frame because of good fundamentals in a company or fund. Those of you who have watched Forrest Gump will know what I mean. At the ending sequence he said he found some piece of paper his grandfather left behind and it had a picture of an Apple on it. Thats investing but still kinda high risk cos his grandfather may have just put his money in one company. What if it had failed?

There were many more lessons in investments like asset allocation, diversification and time horizon. These I picked up through many discussions with my clients. And some of these lessons are hilarious. I remembered doing road show and when an uncle walked past, i casually asked if he did investments. Yes he said. Wa uncle good! What you invest in? He replied, 4D, toto, big sweep, soccer. Wa uncle not only you invest you also know how to diversify ah? He never became my client but its people like these that makes my job so much more interesting and enriching.

Photo by www.stockmonkey.com

2nd Leg Again

I have just resigned after my manager threatened me by asking me to leave. I start work at another bank in the mobile sales team and taking a pay cut to join this team but I know less salary means more commission.

The new bank was family oriented. They have not gotten their qualified full branch license and therefore had branches in obscure places.

I remembered on my first few days of joining I closed $80,000 worth of investments and it was cheered! While at the older bank it was jeered and probably spat on... stepped on and spat on again.

The team was new and many of the colleagues I had was fresh graduates just joining the workforce. The dynamics was fantastic and work did not feel like work anymore.

I looked forward to going to work again and hate it when it was time to go home. We stayed back in the office to do calls challenging each other with the most number of appointments made.

Roadshows were fun too! Sure or not? Roadshow? Yes! We practically was trying ways and means to get to talk to anyone before each other but it was fun!

You cannot believe how much people are enjoying work while getting paid $1,000 basic. 

I eventually got promoted as sales manager there. The team worked on a needs based approach. We started moving away from closed ended products that gave protection or guarantee on the capital. We started to focus on open ended investment products as it gave much better returns than closed ended ones. 

I started to study how the green and red arrows you see at the corner of any news channel affect my investments. I started to get a finer grasp of how world macro and microeconomics affected investments. I started appreciating economics while in school I use to question why we bothered what happened anywhere else but here. I knew how certain events affected equities and made phenomenal returns from Asian countries.

I became an advocate for investments and mind you I mean investments not speculation.