5 Tips On Investing Despite The Bear

A financial downturn presents opportunities for savvy investors who bears these pointers in mind.

Article Extracted from Sunday Times

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What Do You Look For In Your Financial Advisor?

Currently, do you have a financial consultant that help in your financial planning? If yes, do they meet the criteria indicated in  this article? If no, do take note of the points and start seeking for one, as financial planning is always good to start young.

Article Extracted from Strait Times

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Are You Struggling With Your Credit Debt?

YOUNGER Singaporeans appear to struggle with managing credit and debt, payment data from last year suggests.

In figures collated by DP Credit Bureau (DPCB), Singaporeans between the age of 21 to 29 years old saw defaults increase from 5.07 per cent in January last year to 7.16 per cent in December. The rate of bad debts in the same group is at 130 per cent, higher than the average rate across all age groups which is 3.11 per cent, a statement from DPCB said yesterday.

Credit card defaults were the most common for all groups with the 21 to 29 year olds leading the pack with a 7.54 per cent default rate. Young married couples in the same segment had even higher rates of defaults on debts than single counterparts, a characteristic unique to only this age group. Across all other age groups, couples had lower rates of default than singles of the same age.

'Unlike their older counterparts, many younger people do not have the financial strength and asset depth to deal with changes in their circumstances,' said DPCB's managing director, Ms Chen Yew Nah.

And since young married couples are more prone to defaulting on payments, 'they need to reassess their spending plans and set themselves more realistic budgets that they can stick to', Ms Chen said.

The 50 to 59 year olds were found to be the biggest credit spenders, mainly by credit card spending, but the group had a moderate rate of bad debts - 2.19 per cent - lower than the 3.11 per cent average stated earlier. Those older than 69 has the lowest rate of default, as they also spent the least using credit.

And where credit is concerned, 'prevention is certainly the better way to go', Ms Chen said, unless consumers genuinely understood how credit tools can be managed carefully.

Article extracted from Straittimes

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Are U A Money Fool Or Warrior?

I will like to share with you all on this article extracted from today's thesundaytimes. This particular article is talking on the type of archetypes ones can have, whether you are a 1) Innocent, 2) Victim, 3) Warrior, 4)Martyr, 5) Fool, 6) Creator/Artist, 7) Tyrant, 8) Magician.

Read more to find out what type of archetypes you are.

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A True Story To Reflect On

A true story to let us reflect on the importance of financial planning.
Article extracted from IM$avvy - from Wilfred Ling

Like any other ordinary family, Ms Tan Mei Mei, aged 35 and her husband Hwee Chye had a happy family of three children. Two of the children were twins born in 2004. Like any other family like yours and mine, they must have similar aspirations. Tragedy struck in 2005 - her husband died just one year after the twins were born leaving the widow to take care of herself and the three small children. Her story was published by WiCare website at this link HERE. Her article will move you to tears when you read about a widow’s struggle with life from then onwards.

In the article, I noticed many lessons which we can identify and learn from. Here are some things we can learn:

Lesson 1 – Manage the risk, not avoid it altogether

When Tan Mei Mei, 35, gave birth to twins in 2004, it seemed life couldn’t be more perfect. She had an adoring husband, a three-year-old girl and then twin boys to complete the picture…. But fate cruelly snatched her husband, Hwee Chye, 43, away from the family just a year later.”

Most of us live in a world of seemingly perfection. Husband and wife have good jobs and both are happily married to each other. Children are growing up and both parents are preoccupied with the children’s progress. Initially parents’ duties are to support the children’s basic physical needs when they are young. Later on, parents also have to meet the children’s emotional, intellectual and social needs. The assumption is that these will carry on undisrupted. Unfortunately, this is not always true.

There are three risks that everyone faces everyday: (1) Risk of death. Death is 100% guaranteed, it is only when. (2) Lost of job. Employment is not 100% guaranteed as it depends on the profitability of your employer which is as volatile as the stock market and (3) risk of ill health. These risks will stop you from providing the physical, emotional, intellectual and social needs of your children.

The lesson we can learn is this: It is not possible to avoid all risks in life. The question is how to manage these risks. Thus, financial planning is about managing risks and not about avoiding it altogether. Unfortunately, risk management is only effective when it is done prior to the occurrence of the risks you wish to manage. Nothing much can be done after the fact.

Lesson 2 – It can happen to YOU

“You always read about women being widowed, but you’d never expect it to happen to you.”

Most of us thinks that death, ill health or lost of job will only occur to someone else and will never occur to our family. Unfortunately, Mother Nature confers no such privilege to anyone. Again, financial planning is not about avoiding this risk altogether but it is about how to manage such risk if it does happen to YOU.

Lesson to learn is: Unfortunate events can happen to YOU.

Lesson 3 – Ensure sufficient assets in the estate
“As the family now lives on Mei Mei’s income of just over $3,000 compared to a combined income of more than $10,000 before, she had to make adjustments. Downgrading to a smaller flat helped her save on utilities and conservancy charges. She compares prices when buying groceries. For example, she goes to Carrefour to buy nappies in bulk.”

It appears to me in the above that this was a case of insufficient insurance coverage. With proper insurance coverage, there is no need for surviving family members to cut down on living standards. While it is morally weird to live a lavish lifestyle by benefiting from an oversized life insurance payout from the decease, it is also not necessary to suffer financially. The emotionally devastation is already difficult to shoulder. Having to be worried about finances will only add to the heavy burden.
By my experience, I’ve never come across anyone who is insured reasonably and paying premium at a reasonable price. In all cases of financial planning, my clients were underinsured and paying extremely hefty premiums. It is a fallacy that you need to pay high premium for high insurance. Actually, if you are paying hefty premium, it is likely you have bought into saving plans rather than insurance.

For insurance related to death, it is only necessary to buy a cheap term insurance. It is not necessary to cover death claims for life since one should not have liabilities and dependents when old. This is the crux of the problem – many financial advisers are not willing to sell term insurance because commissions are negative after taking into consideration of the advisers’ time and effort. If your financial adviser refused to sell you a term insurance, you can always walk directly into the insurer’s business center to buy directly. However, avoid group insurance as it is not guaranteed renewable.

Lesson 4 – Estate Planning is a MUST

“Seven months after Hwee Chye died, when the probate to execute his will was granted, Mei Mei sold their executive flat and bought a three-room flat near her mother’s place”.

Fortunately for Ms Tan Mei Mei, her husband had a Will. Otherwise, the application for Letters of Administration could take much longer than seven months. This lengthy period of at least seven months reminds me that it is important for a person to have sufficient money for emergency cash to tie over this crisis period. Do not forget that bills still have to be paid even if the decease’s estate has not been settled. Moreover, such emergency cash should not be placed in joint-accounts. One particular bank in Singapore will freeze the joint-account if one owner dies. Most of us assume that the surviving owner of the joint-account will have the immediate rights to be able to make withdrawal. This is not true for one particular bank.

Significant complexity will occur if both husband and wife pass away such as in a common accident. ALL parents I know do not have a backup plan if their children become orphans.

The lesson to learn is: Estate Planning is a MUST. Unfortunately, most people have not done estate planning as they assume everything is “autopilot.” Nothing is autopilot, you have to be the pilot even if you are dead. You can only do this if you have an estate plan. In my years of experience, I’ve never come across anyone who has done any estate planning. To me, that’s no different from gambling at the casino in which you bet that nothing will ever happen to you but will happen to someone else. Also, writing a Will isn’t estate planning as it is merely a tool.

Prior to the abolishment of the estate duty on 15 Feb 2008, many financial advisers appeared to provide advice on estate planning. But actually most of the time those advice were to sell products to reduce estate duty. Normally this was done by selling a life insurance or single premium under Section 73 of the Conveyancing and Law of Property Act. After the abolishment of estate duty, hardly any financial advisers ever mention the need for estate planning since they can’t a sell product. Estate planning isn’t about products - it is to make sure your dependents and love ones continue with their livelihood even if you are not there for them.

Should my children become orphan, not only will the children’s guardian receive a cheque every month as allowance, but my children will receive a birthday gift every year so that they would know that their parents loved them even though neither parents are alive. This is how sophisticated an estate plan can be.

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Risk Profiling - Understand Your Attitude To Risk

See what makes a cautious, medium or adventurous investor, and what investment risk you may accept.

Picture - Courtesy of aspinplan.com


Balancing risk and reward
- Sunday Times 24 January 2010

When investing money, consider your need and ability to take risk

Higher returns equals higher risk. It’s a basic fact of investing, yet working out just how much of a gamble you are willing to take with your cash is far harder to pin down.

The other side of the coin is when investors get so caught up chasing high returns that they ignore the risk element.

So it’s worth trying to understand what your personal risk profile is before investing your money.

If you have engaged an adviser, he should try to assess your risk profile before recommending a suitable investment portfolio which gives the returns you need with a level of the volatility that you are able to withstand, said chief executive Christopher Tan of wealth management firm Providend.

‘Doing this well will ensure that clients will stay invested and not get out of the market unnecessarily, which is the main cause of investment failure,’ he added.

‘In a nutshell, it is to make the investment journey comfortable and yet achieving goals.’

But assessing a risk profile is not that simple as emotions can get in the way.

Take Ms Nancy Boon, 50, who parked her money in an ‘aggressive’ portfolio comprising 90 per cent equities and 10 per cent bonds.

It was only when her portfolio headed south during the downturn that she realised that she was unable to stomach the volatility.

Ms Boon’s zest to achieve higher returns had clouded her judgment of her risk appetite and led her into an ‘aggressive’ portfolio.

The willingness to take risk is just one facet in managing risk. It is even more important to ask yourself this: Do you need to? Are you able to?

Here are three factors you should consider before investing:

1 Willingness to take risk

Simply put, the willingness to take risk – called risk tolerance – reflects your attitude towards risk. It is the amount of risk you are comfortable taking, or the degree of uncertainty you can handle.

For example, if you can sleep soundly even when your investments are experiencing dramatic swings in value, you are considered risk-tolerant. But if they keep you up at night, you are risk-averse.

Risk tolerance often varies with age, income and financial goals.

Financial institutions in Singapore typically measure risk tolerance using a profiling questionnaire.

Risk tolerance levels are usually classified as aggressive, balanced or conservative. Each level helps determine the percentage of equities and bonds to hold. Equities are deemed riskier than bonds.

Mr V. Arivazhagan, DBS Bank’s managing director of consumer banking, said risk profiling is part of a fact-find process the bank conducts with customers so it can better understand their needs and assess product suitability.

‘It enables us to determine a customer’s risk appetite and preference which is one criterion in the overall process of recommending suitable products for customers’ consideration and assessing pro-duct suitability,’ he said.

However, Mr Leong Sze Hian, president of the Society of Financial Service Professionals, believes the traditional profiling questionnaire is unable to adequately measure all aspects of risk.

2 How much risk you can take

Besides measuring your risk tolerance, you also need to know how much risk you need to take to achieve your financial objectives.

It is a useful indicator because you may realise that you do not

really need to take the risk of investing in that product after all.

Perhaps your risk profiling score indicates that you are an aggressive investor who can withstand high portfolio volatility.

But there may be no need for you to undertake the new risk because you may be already close to meeting your financial goals.

The need to take risk – called risk capacity – is based on what returns a client needs based on his objectives.

Depending on the returns he needs, his need to take risk can then be determined, said Mr Tan.

The rate of return needed can be estimated by considering your investment time horizon and financial goals.

Say you need $1 million to meet your retirement income goal of $40,000 a year.

Based on current savings of $100,000 and monthly additions of $300, it means you need to achieve a return of 6.4 per cent a year in 30 years, said Mr Patrick Lim, associate director at financial advisory firm PromiseLand Independent.

To reach this, you need to take on a certain level of risk, which is your risk capacity.

The information is then used to decide on the types of investments to buy and the level of risk to take on, which can be low, medium or high.

3 Ability to take risk

The usual risk profiling exercise carried out at most financial institutions helps determine your willingness to take risk but it does not re-present your ability to take risk.

Let’s say the risk profile questionnaire indicates that you are a high-risk investor, but if you look at your financial health and commitments, it may show that you have a lot of debt. This means that you are unable to take high risks even though your risk profile says otherwise.

Mr Tan’s firm gauges a client’s ability to take risk by conducting a comprehensive financial planning process.

At Providend, this usually requires four client meetings spread over two months to learn a client’s investment objectives, phase of investing, financial and physical health, insurance and personal situation such as his family commitments and so on. All these will determine a client’s ability to take risk.

At wealth management firm dollarDex, chief executive Chris Firth said that risk ability should be a ‘holistic’ concept that looks at salary, income, expenses, emergency savings, insurance coverage and goals before determining a client’s ability to lose money on an investment.

Mr Ronnie Lim, Standard Chartered Bank’s (Stanchart) general manager of wealth management in Singapore and Malaysia, said the bank assesses risk ability through understanding a customer’s ability to meet immediate and foreseeable financial obligations after he has committed to an investment.

In DBS’ fact-finding form, the bank assesses risk ability and overall pro-duct suitability by collecting information on a customer’s investment time horizon, income level, employment/income status, financial health such as cash flow and net worth and age.


# Balancing the risk Providend maintains that using the risk profiling questions alone is insufficient to adequately suss out a client’s risk attitude. Besides assessing risk tolerance, it seeks to understand the client’s risk capacity and ability to take risk.It believes that it is able to really understand a client’s risk appetite only after these three factors are aligned.The three factors help determine the amount of risk that should be taken in a portfolio of investments.

The problem many investors face is that their risk tolerance, risk capacity and risk ability are not the same.

This is where the adviser’s responsibility comes in. Even if an investor appears to have an appetite for a product with a certain amount of risk, the adviser must steer him away if he feels that the client does not have the capacity and ability to take the risk, said Mr Stanley Jeremiah, council member of the Singapore Insurance Institute.

‘For instance, the doctor cannot say he prescribed sleeping pills because that was what the client wanted. In the same way, the adviser or the financial institution cannot say that he or it sold a client a high-risk investment which was not suitable for him because of the client’s lack of risk ability, simply because that was what the client wanted,’ said Mr Jeremiah.

‘As professionals, they owe a duty of care and they should give professional advice including advising an eager customer against investments which are unsuitable for the customer.’

Mr Tan agreed, saying: ‘We don’t give in to a client’s wants. Only a salesman does that. We are a fiduciary, we advise clients and sometimes that means going against what they want.’

Mr Lim said that when customising a portfolio, StanChart considers a customer’s risk capacity and ensures that thresholds are adhered to.

In a scenario where making an investment would result in a breach of these thresholds, the bank will either advise the customer to reduce his investment amount to a level within his risk capacity or advise him against making the investment.

Useful tools to access your attitude to Risk

Risk Profile Tool

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What Is ETF?

What Does Exchange-Traded Fund - ETF Mean?

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

See Article "Foreign Markets access made easy with ETFs"

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Hike To Bost CPF Savings

A good new for all employees, it has been announced on May Day rally for the partial restoration of employer CPF contribution. Although it may not be a great amount, but it will definitely be a significant impact on our retirement.



The partial restoration of employers' Central Provident Fund (CPF) contributions will be channelled into the Medisave and Special Accounts to provide for Singaporeans' retirement and medical needs.

This is in the light of rising health-care costs and an ageing population profile.

Explaining the move at the May Day Rally yesterday, Prime Minister Lee Hsien Loong said such challenges made it important to build up the two portions of CPF savings, rather than the Ordinary Account.

'Health-care costs are rising over time, and we are living longer. Many of us will be old for longer, and our medical costs will go up, our expenses will rise and we need to provide not just for elder care but for long-term disability. These are all heavy burdens,' Mr Lee said.

Also, the Government believes the Ordinary Account - 23 per cent of a member's monthly wages if he is 35 years and below - is currently sufficient to meet the housing needs of Singaporeans.

So there was no need to tweak it. National Development Minister Mah Bow Tan had illustrated this, Mr Lee noted.

Article - courtesy of straittimes

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