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Archive for the ‘Financial planning’ Category

Integrated Shield Plans? Waste of money? Cont’d

In CPF, Financial competency, Financial planning on 19/08/2014 at 4:30 am
When TRE republished my piece on S’pore overinsuring their healthcare that pointed out, But seven in 10 armed with IPs that target Class A wards in public hospitals chose to stay in lower ward classes when hospitalised. Only one in 10 from the same group chose private hospitals.Echoing a similar trend were those with IPs that target private hospitals – six in 10 chose lower ward classes in public hospitals. The committee noted twice in its report that many Singaporeans want medical treatment beyond that provided in Class B2/C wards but have “over-stretched themselves to buy the most expensive product for higher protection”.,
two responses stood out, one rubbishy (but which I suspect explains why many gold plate and gem encrust their Medishield plans) and the other sensible.
But both imply that because the money’s there in the Medisave a/c so spend it leh (a major point of my piece was that the ltd uses of Medisave “encouraged” gold plating and gem encrusting medical insurance. Btw, an actuary tells me that insurers don’t really make much money from such plans, but admits that it could be because they are inefficient.):
Ace:

This analysis by Cynical Investor is too simplistic. There are many consideration for buying a medical insurance.

In an emergency, for example if you faint at Tanglin Shopping Centre, the nearest hospital is Gleneagles Hospital which is a private hospital. If you are NOT covered under the highest plan and you go to Gleneagles Hospital, you will need to pay much higher out of pocket. You can of course go to SGH where you can be fully reimburse for the charges but it is further away and you may not have the luxury of time in an emergency.

For non-emergency cases, you can plan which hospital to be admitted but the fact is that the waiting time for admission to B2 or C wards for such cases can be as long as up to 9 months. Can you take the pain for so long and do you want to wait?

Hence most people would opt to buy the most expensive plan when they are young since the full premium can be paid by Medisave. When you are older, you can still downgrade to a lower plan if premium is an issue.

Singaporeans are not as stupid as the report make us up to be. We may be Kiasu but we are definitely not DAFT.

 

spiny dogfish:

One reason why people buy the most expensive plans is because of the very rapid escalation of hospitalization costs. That and the fact that the insurer has an obligation to renew your plan but is NOT obligated to allow you to upgrade.
When i bought my first shield plan the benefits were enough for a private hospital. When i got hospitalized this year the benefits had not changed as i had naively not upgraded my plan for years. The benefits were only marginally enough for B1 ward. The benefits do not change but the costs keep rising.
And i was told that had my conditon been a chronic one like say cancer or heart disease, it was possible that should i wish to upgrade my plan i would either suffer loading or that very condition would be excluded. BUT i could renew my plan, no problem.

After that you bet i’ll take the highest plan i can afford. In 5 years who knows what this plan will be good for. Just take it as front loading. The real issue is rising medical costs. Dealing with the insurance is treating the symptoms not the disease.

Importance of incentives (e.g. ministerial) & financial courses/ Dangerous to buying for yield

In Financial competency, Financial planning on 18/08/2014 at 4:40 am

Actively managed funds generate more fees for brokers which could explain a large part of their popularity. I’ve never once had a broker recommend a passive strategy and they look very disappointed when I mention it. Incentives matter.”—on “Practice makes imperfect”, August 9th 2014

Reminds me that tying ministers’ and senior civil servants, bonuses to GDP growth is problematic. The Chinese  have in principle stopped making GDP growth a KPI. They found that it skewers officials actions towards environmental degradation and urban sprawl because promoting heavy industries and building housing are the “betterest” ways to get GDP growth.

Crediting the classroom
New research shows that courses in finance at school can help reduce the harmful repercussions from taking on too much debt later in life

Danger of buying for yield alone

Even Neil Woodford, a star UK fund manager, has put the shares [HSBC] into his new income fund – it is the only bank in his top 60 holdings.

But the 12 per cent share price fall over the past year has wiped out more than double the value of dividends paid in the same period. That shows how dangerous it can be to hold shares for the dividend alone.

(FT’s Lex)

Daft Sinkies? Dishonest insc agents? Or Medisave sucks?

In CPF, Financial competency, Financial planning on 08/07/2014 at 4:29 am

I was shocked to read in BT on Saturday that the MediShield Life Review Committee highlighted something that should never have been allowed to happen by a truly nanny govt or a govt that cares for its people:

 [O]ne issue has stuck out like a sore thumb: the overbuying of Integrated Shield Plans (IPs).

In the clearest indication that something is amiss, the committee’s report released last Friday stated that about three in five Singaporeans covered under MediShield purchased IPs.

But seven in 10 armed with IPs that target Class A wards in public hospitals chose to stay in lower ward classes when hospitalised. Only one in 10 from the same group chose private hospitals.

Echoing a similar trend were those with IPs that target private hospitals – six in 10 chose lower ward classes in public hospitals. The committee noted twice in its report that many Singaporeans want medical treatment beyond that provided in Class B2/C wards but have “over-stretched themselves to buy the most expensive product for higher protection”. (Emphasis mine)

So S’poreans fork out premiums to stay in the best (OK most expensive) wards, but then don’t use them ’cause no money? Presumably the insurers are laughing when they see their bank statements.They pay out less than what they are prepared to pay for.

Shumething is clearly wrong.

BT as part of the constructive, nation-building media tries to avoid blaming S’poreans. insurers and their agents, or Medisave.

Having said that, it qualified that this typically happens during the working years, when premiums can be paid entirely or mostly through Medisave, the national medical savings scheme used to foot hospital bills, among other things.

A quick comparison of the IPs offered by the five insurers – AIA, Prudential, Aviva, NTUC Income and Great Eastern – showed that premiums for the first 40 years of an individual’s life were priced suitably low to gain market share.

For example, existing private IPs for Class B1 in public hospitals range between $78 and $207 annually, according to the comparison provided by the Ministry of Health’s website. The amount payable doubles to about $297 to $410 when the consumer is between the age of 41 and 50. It rises to between $425 and $921 for those aged 51 to 65, and for those who are 66 to 90, the yearly costs go up to between $888 and $4,245.

It calls for more education rather than pointing out that Medisave nudges S’poreans towards over-insuring despite describing the process of nudging (for the daft: the last three preceding paras).

While information is relatively accessible and most people understand that they have to pay more as they get older, only a small number of people truly realise the exponential spike in IP premiums from age 60 onwards, not to mention the accumulated lifetime costs.

All these point towards a poor comprehension of the workings of IPs – a point that the committee also made sure to reiterate throughout its report. This is why there is a pressing need for the government to educate the wider public of its entire healthcare financing system, as well as the things to look out for in choosing an IP if required, so that the individual can make an informed decision.

But it ignores the T Rex in the ward, Medisave: this typically happens during the working years, when premiums can be paid entirely or mostly through Medisave, the national medical savings scheme used to foot hospital bills,

The answer to the title of this rant?

All three with Medisave the catalyst. It worsens the stupidity (or financial incompetency) of many S’poreans and the dishonesty of agents, by nudging via skewed incentives money in Medisave cannot be touched except for illnesses and medical insc premiums, so might as well buy the more expensive coverage)). It’s our money in MediSave, but we can only spend it in the right ways, one of which leads to bigger profits for insurers..

 

 

CPF: The cock that Swee Say talks

In CPF, Financial competency, Financial planning on 25/06/2014 at 4:43 am

The best way for Singaporeans to prepare for retirement is to use less of their Central Provident Fund (CPF) money when they are young. Mr Lim Swee Say, Minister in the Prime Minister’s Office, said this will ensure the current level of CPF payout can be maintained over time and not be eroded by inflation.

Mr Lim, who is also the labour chief, made that point when speaking to reporters on the sidelines of the closing of the Singapore Model Parliament yesterday. (23 Jan 2014). He later issued a clarification saying “that housing, healthcare and education for the children” were excluded from his spending comments, saying the constructive, nation-building media had misreported him.

Even with the clarification, he was talking rubbish, showing how clueless the nTUC minister was with the life of his ordinary members.

For starters, as TRE pointed out

Using less CPF money means leaving the money with CPF board, which in the case of OA, will earn only 2.5%. Inflation rate for the last few years already exceeded 2.5% (except last year, which barely covered the 2.4% inflation rate) [Link]:

  • 2010 – 2.8%
  • 2011 – 5.2%
  • 2012 – 4.6%
  • 2013 – 2.4%

Next after his clarification that he was talking of CPF spending other than for “housing, healthcare and education for the children”, one is left wondering if he doesn’t realise that other than for these things, CPF cannot be used for other than retirement. Is he so out of touch? Or another example of his special status, like once a month CPF statement?

The more impt issue, if no use CPF, how to afford “affordable” public housing? Public housing is only “affordable” because of 20-yr mortgages that use CPF monies to finance the loans.

At the moment 36% of a S’porean’s wages are locked up in the CPF because of this Hard Truth

[Without the CPF], Singaporeans would buy enormous quantities of clothes, shoes, furniture, television sets, radio, tape recorders, hi-fis, washing machines, motor cars. They would have no substantial or permanent asset to show for it.

  • Asian Wall Street Journal, Oct 21 1985 quoting one LKY.

Our money, but can only be spent on the “right” things: uniquely S’porean.

But it was an ang moh’s idea in the first place: In February 1940, one Keynes published How to Pay for the War. He advocated that interest rates should be kept low and that compulsory saving (thereby deferring pay) should be used as a mechanism to prevent the inflation that occurred during World War One. A portion of everyone’s income would be automatically invested in government bonds. Then, when the war was over, and the economy was in dire need of savings, the money would be released. The plan was too revolutionary for the British government.

In the S’pore version, the payout got deferred and deferred.

“The rule is, jam to-morrow and jam yesterday – but never jam to-day.”
“It must come sometimes to ‘jam to-day’,” Alice objected.
“No, it can’t,” said the Queen. “It’s jam every other day: to-day isn’t any other day, you know.”
“I don’t understand you,” said Alice. “It’s dreadfully confusing!”

(Through the Looking Glass and What Alice Found There)

CPF Life: Shumething for “Free my CPF” protestors, anti-PAP cyber warriors to reflect on

In CPF, Financial competency, Financial planning on 24/06/2014 at 4:50 am

The OECD has criticised the UK government’s recently announced plans to end the obligation to buy an annuity at retirement.
Anyone aged 55 or over will be able to take their entire pensions savings pot as cash from next April instead of buying an annuity that would guarantee an income for life.

Pablo Antolin, chief economist and head of the OECD’s private pensions unit, said he was concerned the UK government’s proposals would lead to pensioners running out of money in old age.
“An annuity is the only instrument that provides complete protection in retirement and which safeguards individuals against the danger that they exhaust their savings before death,” he said.

Mr Antolin said the proposed UK reforms were driven by the high costs of buying an annuity, but he argued that savers were unlikely to achieve better incomes in retirement simply as a result of scrapping mandatory annuitisation.
Mr Antolin is expected to say at the Investment Innovation & the Global Future of Retirement conference in New York on Monday that partial annuitisation should be encouraged as an integral part of direct contribution retirement plans offered to savers across the OECD.

 With investors likely to be faced with an environment of low yields and low investment returns for some time, the only way to ensure adequate income in retirement is for workers to save more for longer, said Mr Antolin.

He also criticised private pension providers for marketing annuities as investments, rather than insurance products.

“Buying fire insurance is not an investment. That is how an annuity needs to be looked at, as insurance against outliving one’s resources,” he said.

The above was reported by FT on Monday. Apologies to FT for such a long extract. But it’s for a noble cause, educating S’poreans and showing that the PAP govt has conventional wisdom on its side, on this issue as on the immigration and growth issues.

But as one totful reader pointed out, the ministers expect million-dollar salaries to follow conventional wisdom?

Related article: http://atans1.wordpress.com/2014/06/03/cpf-life-what-sucks-which-is-closest-to-minimum-sum-scheme/

I’ll end with a constructive suggestion to those TRE posters who keep posting there that I’m a PAP, WP, ISD mole whenever TRE republishes something of mine (got three pieces there now). Rather than getting frus and abusive, why don’t they start a petition asking TRE not republish me. I have no issues about not appearing there. Let the readers decide.

CIMB’s Cost of Living Survey reflects reality better than Hard & Heart Truths

In Economy, Financial planning on 13/06/2014 at 4:25 am

Going by the CIMB survey and the attendance at Roy’s rant, Hard Truths is closer to reality (slightly only leh) than Heart Truths:

The CIMB’s Cost of Living Survey revealed that 87% of Singaporean households can still save a porti:on of their monthly income. Outside property expenses, people are spending mostly on basic necessities, cars and transport, and retirement savings.

And

We think that the idea that households are struggling is not quite right. That people are quoting the last as one of their biggest expense items does not quite gel with the idea of hardship.

Are households overstretching themselves to pay for their properties and cars? Our survey indicates that about 87% can save a portion of their monthly income (13% have no savings). Most manage to stash away
20-50% of their income.

https://sg.finance.yahoo.com/news/chart-day-graph-shows-no-021300551.html

Well this is certainly not the pix that PAP ministers and the constructive, mainstream media portray: S’poreans are living the gd life under the benevolent rule of the PAP.

And this is certainly not the pix one gets of the standard of living of ordinary S’poreans going by what Ngerng’s gang said last Saturday. Maybe taz why they only attracted a crowd of 2-3,000*.

Most S’poreans including most of the 600,000 (30% of voters) that will always vote against the PAP, simply don’t recognise the S’pore that Roy and gang paint? I certainly don’t recognise it, when I observe the lives of my relatives. Most live in public housing, have salaries around the median,  and have kids in school or uni.

The CIMB survey captures them better than Roy’s rants or the PAP’s propaganda: so long as got job, no serious illness, life is comfortable.

There is a core of elderly S’poreans, who need and deserve, a lot more help from the state. But for most younger S’poreans only a few major renovations to the gospel of Hard Truths are needed, to help them: really affordable HDB flats (15 yr mortgages, not 20 yr mortgages), improved public transport services, universal healthcare (improved Medisave is the first step towards that destination), and a lot less FTs. The last is the most impt, cause FTs suppress wages for S’poreans esp the PMETs.

BTW, these comments appeared on FB below the link to the CIMB story:

Gotta laugh at the holiday part…it’s true. People in my circle of friends who complains about cost of living; these are the people who travels for leisure more than I do*.

– And the same crowd of people will curse Yahoo for exposing their hypocrisy.

Have to agree with them.

Enjoy yr weekend esp if you are an ISD employee. No comedy routines at Hong Lim this weekend. Can look at yr monthly CPF statement and smile, thanking the govt.

*The former was the figure reported by WSJ and the latter by Yahoo.  “Singaporeans, there are 6,000 people here today,”  Roy’s gf, New Citizen Han claimed. Maybe Roy should get her a new pair of glasses, courtesy of his defence fund? And a pair of hearing aids? Remember he denied her reported comments that he wanted to be a martyr and was planning to seek asylum in Denmark. She never denied the report.

 

CPF Life: What SunTimes left out

In Financial competency, Financial planning, Media on 05/06/2014 at 4:37 am

One merit about CPF Life is that it is run by the Government. That removes the big worry of retirees as to whether their insurer is financially strong enough to withstand the next global financial crisis in order to keep making the monthly payouts, is what a SPH reporter wrote last Sunday http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={838399526-20200-2041240930}.

Those who read this blog a few days ago will know that he is being constructive, and nation-building.

There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the [Minimum Sum] scheme, where account holders are legally entitled to the monies in their CPF accounts …

(http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/)

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it? This is a peace of mind issue. It was Gan who made this assurance when he was MoM.

He should have told us the fact that the govt refuses to “protect” CPF Lifers from fund failure, despite CPF Lifers having to participate.

If one cannot trust a SPH journalist to give us the relevant facts on a non-political issue, how can we rely on any SPH (and MediaCorp journalist, for that matter) to analyse or report political issues? After all our local media is proudly constructive and nation-building?

BTW, how does this refusal to “protect” CPF Lifers square with what PM said last week? “We want to enhance [the CPF’s retirement-annuity scheme] so that the payouts can keep pace with the cost of living,” and “We also want to provide stronger assurance in retirement for the lower-income groups.”

But the article made one gd point, The Standard plan offers an annuity scheme similar to what retirees in Britain opt for. The Basic plan is commonly adopted by US retirees. Reminder, the Basic plan is closer to the Minimum Sum scheme that is no longer available. For more: http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/

Swiss cost of living in S$ terms

In Financial competency, Financial planning on 04/06/2014 at 5:39 am

A few weeks ago the BBC published

Swiss monthly living costs

  • One-bed city centre flat: 1,800 francs                                     S$2520
  • Utilities: 100-200 francs                                                              S$140- 280
  • Health insurance: 300-400 francs                                           S$420- 560
  • Public transport: 50-70 francs                                                    S$70- 98
  • Restaurant meal for two: 100-150 francs                               S$140- 210

(http://www.bbc.com/news/business-27459178)

As you can see I’ve put the S$ equivalent beside the Swiss amounts.

Now you have an idea of the Swiss cost of living. As to their wages, the median wage there is the equivalent of S$8574 a momth.  Ours is S$4358 or S$2789 after deducting CPF.

 

CPF Life: What sucks/ Which is closest to Minimum Sum scheme

In CPF, Financial competency, Financial planning on 03/06/2014 at 5:25 am

The CPF system is in the news what with the President’s Address, which had hinted at further tweaks to the CPF system to enhance the retirement adequacy of Singaporeans, and Roy Ngegng’s claims* that the CPF system amounts to theft, something I’ve pointed out even before the PM threatened to sue him for defamation. Now we have an expert on Orchard Rd being sovereign territory where Pinoys cannot trespass, writing on the topic.

Well I never tot all this would happen when a  long time ago, I’ve blogged on the flaws in CPF Life.

Black box/ No benefits illustration

Various people (self included, a retired senior bank executive, and a scholar working in a GLC ) who have the choice of choosing between the CPF Life Plans and the Minum sum S scheme, have opted for the latter because the CPF Life Plans’ calculations are in a black-box. As a financial planner pointed out, “The CPF Life Plans come without a benefits illustration, something the law requires insurance agents and financial planners to show life insurance buyers”. The plans could be better, but we just don’t know.

(http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/)

Our money but CPF Life solvency is our problem

There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the [Minimum Sum] scheme, where account holders are legally entitled to the monies in their CPF accounts …

(http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/)

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it? This is a peace of mind issue. It was Gan who made this assurance when he was MoM.

BTW, the above link analyses which CPF Life Plan is closest to the Minimum Sum scheme in terms of payouts. It’s the basic plan which is a deferred annuity plan.

And here’s a constructive, nation-building way of using yr CPF (if you disagree with Roy Ngerng that CPF is theft by govt). Using yr CPF account as a savings account http://atans1.wordpress.com/2011/12/05/using-yr-cpf-oa-as-a-savings-account/. I’m sure Roy can get for his parents better rates than the 4% and 2.5% available from CPF , but I can’t. So i leave my surplus cash with the CPF Board.

——-

*Here’s what an ex senior EDB man with progressive tendencies posted on Facebook: My impression is that quite a number of us have learned to avoid sharing stuff by sites such as STOMP, Heart Truths, and TRS after having been embarrassed by their ridiculous accusations afterwards (myself included). I think that these fringe views have actually caused serious readers to become more discerning.
To take legal action, as this post points out, is double edged. Ironically, it confers a certain ‘legitimacy’. I used to take bus 36 to work, and an obviously mentally ill man would get on around Esplanade. He would complain loudly about many of our politicians and mutter to himself his plan to deal with them. Most people avoided eye contact. I always just tried to get off the bus without provoking him further. Nobody ever tried to debate him.

Roy’s thesis that the govt steals our CPF is an example of para-facts, nuggets of pseudo-truth, edited, wrenched from context, or simply invented from whole cloth. People like Uncle Leong (and self) have described how the CPF system works long before Roy did.

I once even wrote wrote, One noted local economist has said that the government is effectively pocketing the difference between the returns it gets from investing abroad and the returns it pays on our CPF accounts: a carry trade arbitrage. Borrow low and invest for higher returns. http://atans1.wordpress.com/2010/11/02/how-we-fund-our-swfs/ He never got sued even though it was said publicly.

 

 

 

 

 

 

 

 

When do you need to use financial adviser that charges fees

In Financial competency, Financial planning on 13/05/2014 at 4:50 am

The UK has a regime whereby advisers are charged a fee for financial advice from investment advisers: no more commission-based income.

Fidelity caculated that sterling 61,000 was the minimum amount when it made sense to use fin adviser. This works out to about S$128,000.

Anything less, it is cheaper to take the risk of getting taken for a ride by yr insurance agent or financial planner who gets commissions from the manufacturers of the products that he or pushes?

Exotic world of US-listed EFTs — What S’poreans are missing

In ETFs, Financial competency, Financial planning on 04/05/2014 at 10:29 am

Of course Mah Bow Tan http://www.tremeritus.com/2014/05/01/netizens-agog-at-mah-bow-tans-fortune/and other millionaire ministers (present and retired) are not among these ‘lesser mortals”..

EFTs are created in the US to enable individual retail investors the ability to access hedge funds, long-short strategies and other areas of the market previously off limits. Here are some of the best picks.

The $700 million IQ Hedge Multi-Strategy Tracker ETF (NYSE:QAI) could be an interesting starting point. As one of the oldest alts ETFs, the fund is basically a hedge fund in one ticker. QAI hopes to replicate risk-adjusted returns of hedge funds using various hedge fund investment styles. It does this by using other liquid ETFs. Current top holdings include the Vanguard Total Bond Market (NYSE:BND) and PowerShares Senior Loan (Nasdaq:BKLN). So far, QAI has managed to provide consistent returns since its inception. Another broad hedge fund style ETF choice could be the ProShares Hedge Replication ETF (NYSE:HDG).

The biggest category of alts fall under the managed futures banner. These strategies take advantage of price trends across different futures contracts including commodities, currencies and stock index derivatives. The WisdomTree Managed Futures Strategy (Nasdaq:WDTI) tracks the Diversified Trends Indicator- which is the benchmark managed futures index. So far, performance for WDTI has been pretty poor as commodities have fallen by the wayside and stocks have rallied. However, that highlights WDTI’s non-correlated status.

Finally, market neutral or absolute return strategies could be winners as volatility returns to the market. The new First Trust High Yield Long/Short ETF (Nasdaq:HYLS) goes long on junk bonds while shorting treasury bonds to profit from the spread and reduce interest rate risk, while the Credit Suisse Merger Arbitrage ETN (Nasdaq:CSMA) uses M&A to profit. CSMA seeks to gain from the spread between when an acquisition is announced and the final purchase price is made. Both funds won’t “hit it out of the park,” but will deliver consistent returns for portfolios.

http://www.investopedia.com/stock-analysis/040714/dose-alternatives-may-do-your-portfolio-some-good-qai-hdg-wdti-rly.aspx?utm_source=basics&utm_medium=Email&utm_campaign=Basics-4/11/2014

Is MU right to sack Moysie?/ Long ball is betterest

In Financial competency, Financial planning, Footie on 23/04/2014 at 4:43 am

Yes say I: The choice facing the owners (Jewish and Zionists and mortgaged to their eyeballs) BTW) was stark

Would they really back Moyes for the long term by handing him a transfer kitty worth as much as £100m to invest in rebuilding the squad?

Or would they decide giving all that money to him was too big a risk?

Would anyone sensible trust Moysie with that kind of $ based on this season’s performance which was the mother of nightmares? BTW, I waz happy he was the Chosen One. What was or went wrong: everything http://www.bbc.com/sport/0/football/27109742

No, say the stats and SAF’s cardinal rule of footie mgt.

Ter Weel analysed managerial turnover across 18 seasons (1986-2004) of the Dutch premier division, the Eredivisie. As well as looking at what happened to teams who sacked their manager when the going got tough, he looked at those who had faced a similar slump in form but who stood by their boss to ride out the crisis.

He found that both groups faced a similar pattern of declines and improvements in form.

While Ter Weel’s research focused on Dutch football, he argues that this finding is not specific to the Netherlands. Major football leagues in Europe, including England, Germany, Italy and Spain also bore out the same conclusion – teams suffering an uncharacteristic slump in form will bounce back and return to their normal long-term position in the league, regardless of whether they replace their manager or not.

And his theory seems to work if you look at what happened to other clubs in the English Premier League last season. The same week in March which spurred Sunderland to change the personnel in charge, Aston Villa were sitting at 17th in the table, struggling against relegation.

In the same way that water seeks its own level, numbers and series of numbers will move towards the average, move towards the ordinary.”

David Sally, co-author of The Numbers Game

(http://www.bbc.com/news/magazine-23724517)

In finance, this is called reversion to the mean.

This what AlexF said on the opening night of Ferguson’s book tour, on an October evening at the Lowry theatre, and what he told his audience about the management profession. “It’s a terrible industry. When clubs sack a manager there is no evidence it works. But there is evidence, and it’s hard evidence, that sticking with your manager does work. This is an important issue and it is something I believe in, very strongly. Sacking a manager does not help.”

Well obviously MU isn’t listening. Some serious money (borrowed I may add) is at stake.

Related article: Long ball is betterest:

His data suggested that most goals were scored from fewer than three direct passes, and he therefore recommended the widely-despised “long-ball” game.

In other words, the ugliest type of football imaginable. Hoof the ball forward, hope you get a lucky break, and poke it into the net.

“Unfortunately it kind of brought statistics and football into disrepute,” says Chris Anderson, author of The Numbers Game, an analytical and historical look at the use of data in football.

Now, behind the biggest football teams in the world, lies a sophisticated system of data gathering, metrics and number-crunching. Success on the pitch – and on the balance sheet – is increasingly becoming about algorithms.

The richest 20 clubs in the world bring in combined revenues of 5.4bn euros ($7.4bn, £4.5bn), according to consultancy firm Deloitte. And increasingly, data is being seen as crucial to maximising that potential income by getting the most from football’s prized investments – the players.

http://www.bbc.com/news/business-26771259

Looking for value for $ when studying in US?

In Financial competency, Financial planning on 13/04/2014 at 5:48 am

Check out this link http://www.economist.com/node/21600212

It tells you which colleges offer US students the best, worse returns for the fees they pay. While not directly applicable for S’poreans, some sign-post is better than none. Check out Harvey Mudd, a liberal arts college of science, engineering, and mathematics. Seems to offer bang for the buck.

Whether or not it is worth paying depends on who you are, what you study and where. PayScale, a research firm, has done a big survey of graduates and used it to estimate the financial return on degrees from different American colleges and universities. Our interactive chart below shows the total cost of a degree after financial aid (the beginning of the coloured bar) and the return over 20 years (the end of the bar). The return is defined as the amount that a graduate earns, minus what someone who did not attend college would earn, and minus the cost of attending college. Thus, a wider bar is good. The chart can be sorted by cost, return (annualised and over 20 years) or alphabetically.

PAP govt and S’poreans no ak degrees in arts and humanities, US data shows why:

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.
– See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

So taz why so many FTs teaching here in arts and social science?

 

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Annualised return of 8.4% using CPF*

In ETFs, Financial competency, Financial planning on 01/04/2014 at 4:34 am

(*Terms and conditions apply)

Only problem is that most of it is via capital appreciation i.e. must sell to get the income.

Straits Times Index EFTs getting an annualised 8.4% over the past 10 years.

While our CPF ordinary account is getting a miserly 2.5% that is getting beat by inflation.

Although we can invest amounts above $20,000 in the CPF ordinary account into approved stocks and unit trust, this rule puts a damper on everyone’s CPF accounts, especially those who are starting to work, or those whose pay is low and those who are not investment inclined.

More important is the fact that just the average dividends given by the STI ETF alone will have beat the 2.5% given by the CPF.

The reply by our government that the interest rate is low because our currency is strong is pure hogwash. If you are using the CPF funds to invest all over the world and boasting that you are getting investment returns that is on par or beat that of Warren Buffett’s Berkshire Hathaway, that explanation is laughable.

So why not just put all the CPF funds into STI ETFs, get dividends higher than 2.5%, have a more than even chance of getting capital returns with dividend as high as the 8.4% achieve over the last 10 years?

This is one example of the nanny state trying to be too clever.

http://www.financialfreedomsg.com/2014/03/why-dont-we-get-84-on-our-cpf.html?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+FinancialFreedomSg+%28Financial+Freedom+SG%29&utm_content=FaceBook

 

Got money to retire on after paying 30-yr HDB loan for 99-yr lease?

In Financial competency, Financial planning, Political governance on 06/03/2014 at 4:28 am

Further to this, I tot readers would be interested in the findings of a study commissioned by MoM and conducted by NUS academics. What do you think of the assumptions? Are they reasonable? Yes, I know they assume 30yrs (while 25 yrs is max period), but that make’s it more conservative when thinking of retirement funds.

About half of Singaporeans currently meet the minimum sum to qualify them for the above payout. But most young Singaporean wage earners today will be able to meet the minimum sum by the time they retire, provided they buy property within their means, the government has said.

An independent study on retirement was also commissioned by the Ministry of Manpower and conducted by National University of Singapore professors Chia Ngee Choon and Albert Tsui. It found that young workers today can replace their income upon retirement at rates similar to developed countries.

One major assumption is that a couple of the same income percentile marry, with the male at age 30 and female at age 28. They buy an HDB build-to-order (BTO) flat with a 30-year mortgage, with the 30th, 50th and 70th percentile members buying a three-room, four-room, and five-room BTO flat respectively. The couple do not upgrade to a larger home.

In the study, a male at the 50th percentile earns $2,500 a month at age 25 (or $3,300 at 70th percentile) and is assumed to reach his peak earnings close to age 55, at $3,860 (or $6,800 at 70th percentile). The 50th-percentile male can replace 70 per cent of his age-55 income after he retires at age 65, the study said (63 per cent for the 70th-percentile male). The numbers for females are slightly lower.

Upon retirement, the median male is thus assumed to get a monthly income of around $2,700, and the 70th percentile male, $4,300. This presumes the entire amount of their retirement savings in the CPF is converted into a life-long annuity, instead of up to the Minimum Sum, as is the current practice. Otherwise, income replacement rates fall drastically.

Thus, the study’s authors said that CPF members with savings above the minimum sum cannot withdraw the lump sum and spend extravagantly. If they want to be able to replace a higher proportion of their income, “they must invest their CPF savings above the minimum sum wisely so as to generate a stream of retirement income to supplement CPF Life payouts”.

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={157655219-19765-9502481817}

Here’s the perspective of a flat buyer http://sgyounginvestment.blogspot.sg/2014/02/how-much-money-does-couple-need-to-earn.html

Take advantage of these CPF facilities

In Financial competency, Financial planning on 30/07/2013 at 10:49 am

There are two facilities that S’poreans can take advantage off. The first is for oldies, the other for everyone

Using yr CPF a/c as yr savings, fixed deposit account

(Note that a version of u/m first appeared in 2011)

If you are in a position to withdraw money at age 55 from your CPF accounts, given the pathetic S$ interest rates offered by the banks, you may want to use your CPF Ordinary Account as a savings account or even as a fixed deposit account that pays higher than S$ bank or finance company fixed deposit rates.

But make sure you know how often a year you can withdraw your money if you want to use your OA as a savings account, or more accurately as a “betterest” way of managing your cash. The laziest way to find out is to call up the CPF help line.

You also have to be aware of the following: http://www.asiaone.com/News/AsiaOne+News/Singapore/Story/A1Story20110715-289391.html.

THE scheme is stated in the Central Provident Fund (CPF) website.

But Mr Jerry Low, 58, was not aware of it.

So the retired bank trader got a surprise when the CPF Board transferred $10,000 into his Medisave Account (MA) without his permission, after he applied to withdraw $37,000 from his Ordinary Account (OA) in June this year.

Mr Low had chosen to not withdraw all his money from his OA when he turned 55.

He opted for a partial withdrawal, leaving some money in his OA as the CPF interest rate of 2.5 per cent was higher than what the banks were offering.

He could do this as his Medisave Account and Retirement Account (RA) had the required amount.

Since 2008, Mr Low had used his Medisave to pay for some medical expenses, whittling away his Medisave Required Amount (MRA), which was $14,000 as of Jan 1, 2008.

However, the required amount was raised to $27,500 as of Jan 1 this year [2011].

Said Mr Low: “I was shocked to find that $10,000 from my OA had been moved to my MA without my approval.

“I did not even know that the money was moved, let alone the amount moved.”

As to the danger of the government not allowing you to withdraw your money by changing the rules yet again, assess the risk of the government taking this action in the light of it only getting 60% of the popular vote in the May 2011 GE, and it’s determination to win back Aljunied. Besides, the government actions, so far, on CPF issues, are never retrospective.

As to the CPF being or going bankrupt, remember that Tan Jee Say (25% of voters voted for him at the 2011 presidential election and he was once a senior civil servant specialising in economic matters) doesn’t worry about the solvency of the CPF system. To him, the S$60bn he proposed spending on his plans was “small change”. So the CPF amount due to members, as of August 2011, S$204 billion, cannot be an issue, despite what the SDP (his ex-party) and his supporters at TR and Singapore Election Watch say. Reminder: they say that the CPF is bankrupt because of the losses at Temasek and GIC. Hence the introduction of the Minimum Sum and CPF Life Plans schemes.

Did you know that until a few years ago, once you reached 55, the staff there hassled people to withdraw their surplus funds? It happened to a friend in 2004. He told them he as a Nantah graduate and retired central bank employee, trusted the S’pore government.

Now, the staff encourage people to keep funds they don’t need in their OAs.

BTW, when I first posted this, someone wrote in saying

If you leave money in OA after 55, very high chance you will not get out 100% later.

1. Good chance you will use Medisave for medical expenses after 55, necessitating topping up of MA from OA before you can take out.

2. Medisave Required Amount increases EVERY year on 1st Jan, in line with medical inflation during the previous 12 months. This has resulted about 5%-7% annual increase in MRA for the past few years.

So even if you don’t touch your Medisave after 55, you will need to top up the ever-increasing Medisave Required Amount before you’re allowed to withdraw your OA.

Unless your OA amount is large enough such that the yearly interests are sufficient to cover the yearly increase in MRA. But then, this will effectively reduce the 2.5%. Which defeats the purpose for why you left money in OA in the first place.

He has a gd point. My response is that Medisave account will be used and anyway it attracts 4% interest a yr.

Related post: http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/

Reading BT/ST financial stories for free

Readers may have noticed that I link to ST and BT financial stories (behind paywalls) via CPF.

Check out this link regularly http://www.cpf.gov.sg/imsavvy/infohub.asp if you want read, for free, to ST and BT financial stories.

Life insc buyers deprived of huge savings!

In Financial competency, Financial planning on 15/05/2013 at 5:02 am

The following report from Monday’s ST deserves the widest possible publicity because it shows how buyers of life insurance here have been deprived of the opportunity to buy less expensive life insurance: they could have saved as much as $20,000 when buying a $1m life plan.

FUNDSUPERMART’S move to sell insurance products on its online platform at a 50 per cent rebate off the lifetime commission sparked some unhappiness among industry players who saw it as a price war tactic.

Four days after launching it on April 30, Fundsupermart took down the offer, and has stopped selling insurance products since.

On its insurance webpage, which has been removed, Fund- supermart said it was introducing the distribution of protection products as a value-added service to its customers.

“More importantly, clients who are on the search for transparency on the commissions they pay for purchasing insurance can find this here,” it added.

There were also two examples stating that the 50 per cent commission rebate translates into savings of $2,000 for a $1 million term plan. For the same sum assured, the savings for a whole life plan could be more than $20,000.

The calculations were aggregated across three insurance providers, based on the profile of a 40-year-old, non-smoking male.

The Straits Times understands that Fundsupermart initially intended to continue with this model but later revised it to a one-month promotion, before pulling the plug completely.

A check with Tokio Marine, NTUC Income and Manulife, whose products Fundsupermart was distributing, found that individual financial advisory firms are free to employ different business models.

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={4798875-17383-3900371789}

According to the report, financial advisers (what insurance sales persons call themselves,nowadays, for various reasons) bitched to Fundsupermart: The Association of Financial Advisers (Singapore) said in an e-mail statement that when the advertisement was published on Fundsupermart’s website, the association expressed its members’ concern to Fundsupermart, “noting that the tone and language used in its postings could be detrimental to the reputation and professionalism of other financial advisers”. [Err wondering what reputation and professionalism? What can be lower than the reputation and professionalism of life insc sales persons? Used car dealers? Juz kidding leh.

The industry body, representing nearly half of the financial advisory firms here, added: “We are glad that it has taken our views into consideration and has decided to withdraw the advertisement.

Hopefully some human rights or other kay poh activists will kick up a fuss, though I’m not holding my breath: They focus on things like ISA, capital punishment, FT workers rights and other things fashionable with ang moh social activists, not with the concerns of median S’porean wager earners.

So here’s hoping Tan Kin Lian of Fisca will organise a protest or write to the press to highlight the loss of this scheme; or for Uncle Leong to get Mrs Chiam to ask in parliament that the the competition authorities investigate whether there was undue pressure to remove the offer. Note that the agents’ trade union emphasised that “All financial advisers are free to offer their competitive deals to their customers. We believe that in such an environment, consumers will ultimately benefit in terms of both quality of advice and pricing.” Ya right, so how come no one offers to give such big rebates, and why the bitch to Fundsupermart when it cut its commission rates?

Doesn’t smell right, does it?

Meanwhile, three cheers to ST for highlighting this issue.

How to get poor

In Financial competency, Financial planning on 15/01/2013 at 5:30 am

Ways to destroy yr net wealth: Don’t overspend for one thing.

Oldies use yr CPF acct as savings, fixed deposit account

In Financial competency, Financial planning on 16/10/2012 at 5:28 am

See the low interest rates available in mkt. You get 2.5% minimum with CPF*.

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1225421/1/.html

*Terms and conditions apply.))))

PAP-like quotes on Salaries

In Financial planning, Humour, Political economy on 15/10/2012 at 6:51 am

PAPpies will agree that these three quotes apply to the masses but that the second one doesn’t apply to ministers, the senior civil servants or senior GLC executives.

“Senior management’s job is to pay people. If they fuck a hundred guys out of a hundred grand each, that’s ten million more for them. They have four categories: happy, satisfied, dissatisfied, disgusted. If they hit happy, they’ve screwed up: they never want you happy. On the other hand, they don’t want you so disgusted you quit. The sweet spot is somewhere between dissatisfied and disgusted.”  Greg Lippman, banker, quoted in The Big Short by Michael Lewis (2010)

“Currencies fluctuate; commodity prices fluctuate. Why should we expect earnings to rise in a straight line upward?”  William Shenkir, academic

“The real minimum wage is zero.”  Thomas Sowell, economist (1930–), Controversial Essays (2002)

http://www.economist.com/blogs/schumpeter/2012/10/z-business-quotations-0

Tot those of you slaves who have to go to work need shume cheering up.

Buy super blue chips BUT

In Financial competency, Financial planning on 08/09/2012 at 5:59 am

leverage up to the eyeballs for super. super returns.

Taz the unstated premise of modern portfolio theory.

http://www.economist.com/blogs/buttonwood/2012/09/inefficient-markets

 

Questioning the conventional wisdom on 50-yr loans

In Financial competency, Financial planning, Humour, Property on 17/08/2012 at 5:23 am

When netizens like Ryan Ong and the readers of TRE, the government, and the constructive, nation-building media agree that 50-yr mortgages are bad for the borrowers and S’pore, I had no alternative but to think about the issue. Surely, they can’t all be right. A waste of my time as I’m unlikely ever to want, or to get approved for such a loan: I’m past 55. But then, I got plenty of time.

Let’s start with the most blindly obvious fact. The very long period, more than half the average life span of a S’porean*.

– “Borrowers could easily get stuck … if the market crashes”. This was written by an apprentice of the Dark Side (which confusingly in the context of S’pore belongs to the the Men in White) in yesterday’s ST.

– Or that interest rates can go up beyond our wildest imaginations. Well according to the government, a 30-yr mortgage on a 99-yr lease is “affordable”. So waz another 20 yrs?

– Anything can happen (PAP loses power and Gerald Giam leader of WP becomes PM?).

Seriously, the deified Lord Keynes said the only reasonable response to the question “What will interest rates be in 20 years’ time?” is “We simply do not know”. And he was talking only about 20 yrs. The point I’m trying to make is that even the 20-yr standard mortgage is problematic and risky. So don’t over exaggerate the risk for 50-yr mortgages, when 20-yr mortgages are already risky.

(BTW, roughly 20 yrs after Keynes made that remark that, Britain was fighting the Third Reich: it was losing. Any intelligent nation would have surrendered. After all, the Fourth Reich rules the Eurozone on which Britain depends for its propsperity.)

Next, we are told that the interest payments are “humongous”. True. But has anyone done the sums to see if someone had bot a bungalow in the mid-1950s on a 50-yr mortgage (didn’t exist then: in fact mortgages were for very short periods only, and only available to rich people), would he or she have made money in the mid-2000s? Would the cost of repayments be worth it? I think, we know the answer. http://atans1.wordpress.com/2012/01/08/what-grace-fu-cant-afford/

I’m not saying that history will repeat itself. We are unlikely to have a competent PAP government bullying ruling us for another 50 yrs (And the PAP started getting incompetent 21 yrs ago). And anyway, men like Dr Goh Keng Swee are  dead, or retired like Ngiam Tong Dow and one LKY.

What about nothing left in the CPF account for old age? Seriously, does anyone think that the cash put aside in the account will be worth much?

What I’m not saying is that a 50-yr mortgage is good for borrowers, or S’pore. What I’m saying is that it’s juz the logical extension of a 20 or 30-yr mortgage. Its cons are equally applicable to a 20 or 30 yr mortgage. Does anyone who takes out these mortgages expect to continue financing the mortgage for said period? No, the plan always is to refinance on better terms a few yrs after taking out the mortgage. Same for 50-yr one too. The interest rate and other risks are similar, juz magnified.

The issue in taking out a mortgage is not affordability but one’s risk profile, reasonably and rationally considered. But thinking rationally and reasonably is not easy.

Interesting post: Some useful number crunching http://www.investinpassiveincome.com/further-comments-on-the-50-year-loan/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InvestingInPassiveIncomeAssets+%28Investing+In+Passive+Income+Assets%29

——-

*82.2 for a male S’porean and 85.6 for a female.

How times have changed since the late 70s (Dividends)

In Financial competency, Financial planning on 31/05/2012 at 6:03 am

No this is not going to be a piece abt the governing PAP.  When I first started work, US stocks paid big dividends , and local stocks yields were “peanuts”.

iShares offers its longstanding MSCI Singapore Index Fund and more recently rolled out the MSCI Singapore Small Cap Index Fund. Both funds are heaviest in financial stocks, at 45% and 51% respectively, followed by 24% in industrials for EWS and 13% in that sector for EWSS.

Singaporean equities tend to have high dividend yields, which are somewhat reflected in EWS’ trailing yield of 2.74%. The iShares Web site shows an SEC yield of 4.14% for EWSS, but the fund is too new to have paid any actual dividends yet. This compares to a dividend yield of 2.01% for the SPDR S&P 500.

How to make better investment decisions

In Financial competency, Financial planning on 09/05/2012 at 7:06 pm

Think thru the issues in a language in which you are competent but not fluent.

http://www.economist.com/blogs/johnson/2012/05/foreign-languages-and-thinking

The tendency to take risky, irrational bets to avoid losses nearly disappeared for those tested the foreign language …

Mr Kahneman … posits two general systems of thinking:  System 1, intuitive and quick, good for most purposes, but prone to those pesky cognitive traps; and System 2, deliberative and slow, better at higher reasoning but effortful to activate and keep active. The brain, which minimises effort where it can, leans on System 1 wherever possible. But modern life presents many problems better suited to System 2. 

The hypothesis behind the “foreign-language effect” is that speaking the foreign language activates System 2 in advance of tackling the tricky questions … Another possible result might have been that using the foreign language tires the brain, and that this fatigue might make people more, not less, prone to mistakes. Mr Kahneman, after all, describes “ego depletion” leading to bad choices in other studies. But in this study, the effect of priming System 2 appears to have been stronger than any fatigue effect.

Bond cycle turning?

In Financial competency, Financial planning on 18/03/2012 at 9:25 am

US tresuries are weakening (The interesting issue is the bond market which (as a regular commenter astutely noted on the last post) has seen a steady decline, taking the 10-year Treasury yield to a five-month high) while retail investors here are rushing into perpetual bonds (prices will fall, if interest rates go up) and retail investors globally are piling into bonds or bond funds. They are expecting a Japanese-like scenario with interest rates falling even lower.

http://www.economist.com/blogs/buttonwood/2012/03/financial-markets

Not quite correct, Tharman

In Financial competency, Financial planning, Political economy, Political governance on 06/03/2012 at 6:32 am

(Or “Wrong, Minister”) (Updated at 9.20 am to explain the “premium”)

“The bequest goes to your loved ones, not to other CPF members and not to the Government. You get all of your capital back either through your monthly payouts or in a bequest that you leave to your family and loved ones.”

Err you don’t. What about the “premium”* that one pays to ensure that one is covered for life? This is “lost” if one dies too early to benefit fully from the annuity. The “premium” amounts to 10% of the amount in the Retirement Account (at age 55) for the Basic Plan and 30% for the old Balanced Plan. Both are not “peanuts”.

BTW1, I was not one of those who criticised or raised an eyebrow at Tharman’s remark that one could earn only $1,000 a month and still buy a HDB flat.

BTW2, I know that Tin Pei Ling is not helping to create sound-bites for Tharman, juz as she isn’t helping Vikram Nair with his jokes, Hri Kumar Nair with his research and MoE with gathering data on FT government scholars. She is focusing on helping the uncles and aunties in her self-styled SMC. By all accounts, she is doing a good job.

——-

*”Premium” is the amount that a CPF holder has to pay from his minimum sum in order to get life-long “assurance” of an annuity till death.I put the word “assurance” within quotation marks because technically if the CPF Plan that one is in goes bust, one’s annuity payments ceases. Taz the law.

He traded contracts for differences

In Financial competency, Financial planning on 18/01/2012 at 6:19 am

Ex-billionaire made bankrupt.

Fermanagh businessman Sean Quinn has been declared bankrupt in the Republic of Ireland.

The High Court in Dublin heard the bankruptcy application made by the former Anglo Irish Bank. It was not opposed by Mr Quinn.

Last week, the bank, now Irish Bank Resolution Corporation (IBRC) succeeded in having Mr Quinn’s bankruptcy status in Northern Ireland annulled.

The Republic of Ireland has a more onerous bankruptcy regime than the UK.

Contracts for Difference (CFD) were Quinn’s undoing. They are financial products which allows someone  to bet on shares without having to own the shares. They are derivatives  because they derive their value from the underlying shares.

He tot he was clever.

CFDs have three main advantages:

Privacy – your name does not appear on the share register

Tax – you don’t have to pay stamp duty as you would if you bought the shares

Leverage – As you are not buying the shares you don’t have to put down the full amount of the money. You can ‘lever- up’ with borrowings.

But with leverage always lies danger.

Quinn was betting that the price of the shares would rise and he would profit from the difference between the price at which he bought the derivative contract and the new price. Hence ‘contract for difference’.

But when the Anglo Irish Bank share price nosedived Quinn was in trouble. He was hit with a series of ‘margin calls’ which meant he had to keep putting up more and more of his money.

Eventually things got so bad he had to crystallise his losses by buying the shares outright – which he did by borrowing the 2bn euros from the Anglo Irish Bank.

And it’s due to those borrowings that he’s bust.

BBC Online reports

UBS: View of 2012

In Economy, Financial competency, Financial planning on 10/01/2012 at 1:17 pm

With equity markets likely to be trading sideways albeit in a high volatility range, investors should continue to invest in defensive, high-dividend stocks and complement that with exposure to the fixed income space.

The stock dividends and bond coupon payments will provide a valuable income stream for investors as we expect the current environment of almost zero deposit rates, relatively high inflation to persist amidst slowing economic growth.

http://www.bbc.co.uk/news/business-16381119

My tots exactly: Go buy stocks that pay good, sustainable dividends http://atans1.wordpress.com/2011/08/12/a-broker-who-almost-got-it-right

 

Strategy for 2012: Same as in 2011

In Financial competency, Financial planning, Investments on 05/01/2012 at 5:54 am

Go buy stocks that pay good, sustainable dividends http://atans1.wordpress.com/2011/08/12/a-broker-who-almost-got-it-right/

BTW same as for 2010 http://atans1.wordpress.com/2009/12/31/investment-strategy-for-2010/

Also read

http://atans1.wordpress.com/2011/12/12/primer-on-yields-of-reits-biz-trusts/

http://atans1.wordpress.com/2011/01/02/investing-in-reits/

http://atans1.wordpress.com/2010/11/10/high-yield-low-pay-out-stocks-are-best/

http://atans1.wordpress.com/2010/08/24/buying-for-dividends-know-the-cos-balance-sheet/

http://atans1.wordpress.com/2010/06/30/buying-for-dividends-diversify-too/

Using yr CPF OA as a savings account

In CPF, Financial competency, Financial planning on 05/12/2011 at 5:49 am

If you are in a position to withdraw money at age 55 from your CPF accounts, given the pathetic S$ interest rates offered by the banks, you may want to use your CPF Ordinary Account as a savings account that pays higher than S$ bank or finance company fixed deposit rates.

But make sure you know how often a year you can withdraw your money if you want to use your OA as a savings account, or more accurately as a “betterest” way of managing your cash. The laziest way to find out is to call up the CPF help line.

You also have to be aware of the following: http://www.asiaone.com/News/AsiaOne+News/Singapore/Story/A1Story20110715-289391.html.

THE scheme is stated in the Central Provident Fund (CPF) website.

But Mr Jerry Low, 58, was not aware of it.

So the retired bank trader got a surprise when the CPF Board transferred $10,000 into his Medisave Account (MA) without his permission, after he applied to withdraw $37,000 from his Ordinary Account (OA) in June this year.

Mr Low had chosen to not withdraw all his money from his OA when he turned 55.

He opted for a partial withdrawal, leaving some money in his OA as the CPF interest rate of 2.5 per cent was higher than what the banks were offering.

He could do this as his Medisave Account and Retirement Account (RA) had the required amount.

Since 2008, Mr Low had used his Medisave to pay for some medical expenses, whittling away his Medisave Required Amount (MRA), which was $14,000 as of Jan 1, 2008.

However, the required amount was raised to $27,500 as of Jan 1 this year [2011].

Said Mr Low: “I was shocked to find that $10,000 from my OA had been moved to my MA without my approval.

“I did not even know that the money was moved, let alone the amount moved.”

As to the danger of the government not allowing you to withdraw your money by changing the rules yet again, assess the risk of the government taking this action in the light of it only getting 60% of the popular vote in the May 2011 GE, and it’s determination to win back Aljunied. Besides, the government actions, so far, on CPF issues, are never retrospective.

As to the CPF being or going bankrupt, remember that Tan Jee Say (25% of voters voted for him at the 2011 presidential election and he was once a senior civil servant specialising in economic matters) doesn’t worry about the solvency of the CPF system. To him, the S$60bn he proposed spending on his plans was “small change”. So the CPF amount due to members, as of August 2011, S$204 billion, cannot be an issue, despite what the SDP (his ex-party) and his supporters at TR and Singapore Election Watch say. Reminder: they say that the CPF is bankrupt because of the losses at Temasek and GIC. Hence the introduction of the Minimum Sum and CPF Life Plans schemes.

Did you know that until a few years ago, once you reached 55, the staff there hassled people to withdraw their surplus funds? It happened to a friend in 2004. He told them he as a Nantah graduate and retired central bank employee, trusted the S’pore government.

Now, the staff encourage people to keep funds they don’t need in their OAs.

Aftertot 5th December 2011 at 12.55pm

See abc’s comment below. He has a point on Medisave increases. My counterpoint is that Medisave account sure to be used and anyway it attracts 4% interest a yr.

Related post: http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/

 

Best CPF Life Plan?

In CPF, Financial competency, Financial planning on 03/12/2011 at 6:36 am

 CPF Life Plans

CPF LIFE Plans (With Refund) Monthly Payout Bequest
LIFE Basic Low High
LIFE Balanced Medium Medium
LIFE Plus High Low
CPF LIFE Plans (Without Refund) Monthly Payout Bequest
LIFE Income Highest No bequest

Source: CPF Board

From 1 January 2013, those turning 55 will have to opt for one of the CPF Life Plans. They will no longer have the choice between the Minimum Sum scheme (payouts for about 20 years from age 65) or the CPF Life Plans. “With rising life expectancy, 1 in 5 Singaporeans is expected to be aged 65 and above by 2030. Out of which half can expect to live beyond 85. Therefore, an income for life to help you meet your basic retirement needsis very important,” is what the CPF Board says.

Various people (self included, a retired senior bank executive, and a scholar working in a GLC ) who have the choice of choosing between the CPF Life Plans and the MS scheme, have opted for the latter because the CPF Life Plans’ calculations are in a black-box. As a financial planner pointed out, “The CPF Life Plans come without a benefits illustration, something the law requires insurance agents and financial planners to show life insurance buyers”. The plans could be better, but we just don’t know.

The CPF Life Plans are also more risky.  There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the MS scheme, where account holders are legally entitled to the monies in their CPF accounts. Though accessing the monies in one lump sum after 55 is an issue.

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it?

Of course those who opt for the MS assume that in the event they are still alive in their late 80s and even 90s, they can support themselves financially, or have children and grandchildren that will support them

If

– longevity* runs in your family and you think you can live well past 80; and

– ‘you think you will run out of money in your 80s,

you are probably better off with a CPF Life Plan.

If you choose a plan, or have no choice to choose a plan, you may want to opt for the “Basic” plan. This is the closest to the MS scheme. In fact, Doctor Money, Larry Haverkamp (whose views I respect) thinks it is superior to the MS scheme.

 Remember, if you don’t opt, the default is the “Balanced” plan. In this, the annuity element starts from age 80, while in the “Basic” plan the annuity starts from age 90. Hence one of the reasons why your beneficiaries should get more under the latter plan. Another is that the latter attracts a smaller premium, 10% versus the former’s 30%.

—————————-

*Some useful statistics (from a 2008 Department of Statistics paper based on 2006 preliminary data) on how long you have live:

– If male aged 65 – can expect to live another 17.2 years – 82.2

– If female aged 65 – can expect to live another 20.6 years. — 85.6

– Proportion of Singaporeans aged 65 expected to be alive at age 85 is

      — Male 39%

      — Female 55%

Still relevant today

In Financial competency, Financial planning on 30/11/2011 at 5:46 am

This interview with Jack Bogle appeared in 2007. He makes points that are still relevant today.

http://money.cnn.com/2007/03/20/pf/funds/bogle.moneymag/index.htm?postversion=2007070616

Think you know it all financially, read this

In Financial competency, Financial planning on 22/11/2011 at 9:56 am

A US financial planner messes up his finances. Could be any S’pore property “owner” with a mortgage.

http://www.nytimes.com/2011/11/09/business/how-a-financial-pro-lost-his-house.html?pagewanted=5&ref=business&src=me

The experience has changed just about everything about how I do financial planning and the advice I give in public … I’ve … learned some things about risk. Risk is an arbitrary concept, until you experience it. And I’ve noticed myself focusing more on the consequences of something going wrong than just the probability of that happening. As a result, I tend to urge my clients to make decisions that err on the side of caution.

… For one thing, I am less quick to judge other people’s financial behavior. I’m also more inclined to take into account personal factors that determine how people behave around money.

… The process of making financial decisions is about more than building a spreadsheet to calculate the answer, because life rarely fits cleanly into a spreadsheet. Our decisions often appear irrational until we understand the whole story.

I have a friend who is going through a tough time financially. He has a high income, but is burdened by debt from a few real estate deals that went south. He continues to take fairly expensive ski trips. That would seem irresponsible in his situation, and maybe they are.

But I now realize that it is not that simple. Maybe those trips are keeping the guy alive, or saving his marriage or keeping him sane enough to work.

I have another good friend who borrowed against his house to pay for a therapist. Unless you were walking in his shoes you might think that was stupid, but it saved his life and changed his career. It ended up being one of the best investments he ever made.

Financial Competency: What TKL is gd at

In Financial competency, Financial planning on 30/08/2011 at 7:26 am

Hopefully after losing his deposit, he will focus on what he is very gd at.Teaching S’poreans especially the young on how to plan for their financial future.

Examples

http://tankinlian.com/admin/file.aspx?id=553

http://tankinlian.com/admin/file.aspx?id=434

Waz new in investing?

In Financial competency, Financial planning on 02/07/2011 at 8:46 am

End of the world funds otherwise known as tail risk or black swan funds.

Although the names tail risk funds and black swan funds are often used interchangeably, they are distinct. Tail risk events are situations that, while conceivable, are highly unlikely based on mathematical modeling. By contrast, a black swan — a concept popularized by Nassim N. Taleb’s 2007 book “The Black Swan” — is an event that models fail to predict.

This piece explains the latest fad to hit the US and which will very soon come the wayof private banking clients here.

So how do such Armageddon funds work? Take a situation like the collapse of China’s economy, an event considered highly unlikely. While most American investors do not own Chinese stocks, real estate or currency, the fear is that a shock to China would spread to the rest of the world. As the stock markets fell, a tail risk or black swan fund would profit because it owned the options to sell shares in the Standard & Poor’s 500-stock index at far higher levels. The more the index dropped, the more valuable those options would become.

 

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