Author Archive

Posted on March 7, 2010 - by Aaron Lau

Estate Planning (Part 6 of 8)

Estate planning addresses lifetime needs like permanent mental or physical disability and post-death arrangements.

The objectives are unique to the individual but generally include:
- Distribution of property in accordance to one’s wishes
- Sufficient liquidity to pay off debts
- Appointment of executors
- Security for dependents
- Contingencies

The 4 step process:
(1) Determine goals
(2) Preparation of plan
(3) Implementation of plan
(4) Reviewing of plan

Determine Goals
A lot depends on one’s attitude towards security, philanthropy, risk, work and money. Important areas to consider are:
- Any known problems with a particular property (Do not leave the burden behind)
- Unresolved family issues (Relationship problems, children from other relationships, etc)
- Financial security for dependents
- Views towards chartiy
- Attitude about extraordinary life sustaining medical treatment
- Contingencies in the event of mental or physical incapacity

Preparation Of Plan
The following tools are used for the plan
Read more…

Posted on March 4, 2010 - by Aaron Lau

Tax Planning (Part 5 of 8)

The objective of tax planning is to arrange transactions to minimize tax legally.

Tax evasion, on the other hand, involves the use of unlawful methods to eliminate tax. It is illegal and punishable by law.

The Basics (Who, What, When, Where, Why, How?)

(1) Who?
Tax residents include:
- A Singapore citizen or permanent resident who resides permanently in Singapore;
- A foreigner who has worked in Singapore for 183 days or more.

(2) What?

- Total Income: Includes income from business, salary from employment and rental income.
- Assessable Income: Total income less deductible expenses and donations.
- Chargeable Income: Assessable income less qualifying reliefs.
- Tax Rebate: The reduction of the amount of tax payable. Read more…

Posted on February 24, 2010 - by Aaron Lau

Retirement Planning (Part 4 of 8)

Advances in medical science has resulted in people living longer. This increase in life expectancy makes retirement planning even more crucial. Furthermore, with better affluence, there is also an increase in demand for a better lifestyle during retirement.

The objective of retirement planning varies depending on circumstances, and normally includes:
- Maintaining a self sufficient pre-retirement standard of living
- Coping with increasing health care cost
- Protection of property and against personal liability
- Providing for dependents
- Estate planning
Read more…

Posted on February 16, 2010 - by Aaron Lau

Insurance (Part 3 of 8)

Insurance is the most common risk transfer technique in risk management.

There are 3 layers of insurance protection.

Firstly, the social layer, provided by national schemes. For Singapore, it will be the insurance from CPF like DPS, HPS, Medishield, Eldershild, CPF Life. They are usually the most basic required and premiums are most affordable.
Secondly, the group layer. This is coverage provided by employers, unions or associations. Their premiums are also relatively affordable. However, they will no longer cover when leaving the organization and there is usually a age limit, resulting in a drop in coverage when it is most needed. Read more…

Posted on February 14, 2010 - by Aaron Lau

Risk Management (Part 2 of 8)

Risk management in financial planning is the systematic approach to the discovery and treatment of risk.

The objective is to minimize worry by dealing with the possible losses before they happen.

The process involves:
Step 1: Identification
Step 2: Measurement
Step 3: Method
Step 4: Administration

Risk Identification
The process begins by identifying all potential losses that can cause serious financial problems.
(1) Property Losses – The direct loss that requires replacement or repair and indirect loss that requires additional expenses as a result of the loss.
(For example, the damage of the car incurs repair cost and additional expenses to rent another car while the car is being repaired.)
(2) Liability Losses – It arises from the damage of other’ property or personal injury to others.
(For example, the damage to public property as a result of a car accident.)
(3) Personal Losses – The loss of earning power due to death, disability, sickness or unemployment and the extra expenses incurred as a result of injury or illness.
(For example, the loss of employment due to cancer and the required treatment cost in addition to normal living expenses.) Read more…

Posted on February 11, 2010 - by Aaron Lau

Financial Goals (Part 1 of 8)

Dreams will remain dreams unless action is taken towards achieving them. Having financial goals, provides the direction to plan personal finances towards those goals and to measure the performance of achieving them.

Goals should be SMART: Specific, Measurable, Achievable, Realistic and Timely.

Areas to set goals:
- To protect against financial risk
- To protect against living too long
- To pay for raising children and their education
- To save for a specific purpose
- To support retirement
- To pass on wealth
- To minimize taxes
- To be financial independent and achieve financial freedom

Each of the financial goals can be grouped into short, medium and long term goals. Each will also need to be assigned a monetary value using the time value computation and the time frame for its accomplishment. Read more…

Posted on January 30, 2010 - by Aaron Lau

What Is A Good Company?

I like to keep things simple.
So when I look at a company, 5 characteristics that I focus on to determine a relatively safer company to invest in:

1. A Simple Business: The fewer things in motion, the fewer things that can go wrong. Businesses that focuses on maximizing profits from its core operations, rather than massive corporations that have many and often puzzling divisions, diluting efforts away from their strength and taking unnecessary risk into unfamiliar activities. Furthermore, they are easier to understand, and you should not invest in a company you cannot comprehend.

2. Steady Demand: Verify that there is constant and future demand for the product or service. Industries or sectors with recession-proof demand will enjoy consistent demand in good times and bad (eg. consumables, staples, food, utilities, alcohol, tobacco, health care). And especially businesses that have a competitive advantage, a niche, differentiating themselves from the competition.

3. Positive Cash Flow: Read more…

Posted on January 24, 2010 - by Aaron Lau

What should I Invest In?

The textbook answer, according to many “financial planners”, is to first determine your risk appetite and then design a portfolio of funds consisting of a proportion in equities and bonds depending on the results.

In a nutshell:

To determine the risk appetite, a standard questionnaire is normally used which covers areas like age, investment horizon, real life choices, probability pay-off tolerance, etc. Then a score is computed showing if you are risk adverse, balanced, conservative or  aggressive.

Subsequently, a portfolio consisting of 70% bonds – 30% equity for adverse; 50% bonds – 50% equity for balanced; 30% bonds – 70% equity for conservative; and 100% equity for aggressive.

In my opinion, this approach does not make any sense at all.
(more…)

Posted on January 18, 2010 - by Aaron Lau

Should I Be A Trader?

Many envy the life a trader. Who wouldn’t want to set their own hours and enjoy a nice income. So, should I be a trader?

A trader is entirely a label that one adopts for himself. Even some people who lose money trading consider themselves traders. Generally, one decides to be a trader for two reasons:

One, for the money. They feel that they can make more money trading than they could at any other occupation they could acquire.

Two, for the lifestyle. They simply enjoy the trader lifestyle.

The money aspect:

A good trader is fundamentally a businessman. He or she understands how to trade to maximize his or her income. Generally, the factors that affects a trader’s income, as with most business start ups:

1. One’s skill compared to others’ skill
2. One’s luck
(more…)

Posted on January 13, 2010 - by Aaron Lau

Investing In January

When investing in January, do take note of the January Effect and pay special attention to the first five days of January.

The January Effect is a calendar-related anomaly in the financial market where financial security prices increase in the month of January. This rally is generally attributed to an increase in buying, which follows the drop in price that typically happens in December when investors, seeking to create tax losses to offset capital gains, prompt a sell-off.

This type of pattern in price behavior on the financial market supports the fact that financial markets are not fully efficient. The January Effect was first observed in the early 1980s by Donald Keim who, at the time, was a graduate student at the University of Chicago.

The “First Five Days of January Indicator,” which focuses, not surprisingly, on the market’s direction during the first five trading days of the New Year. If its direction is up over this period, the Indicator’s devotees argue, then January as a whole is likely to show a gain — which in turn would bode well for the whole year.

2010 started out strong as the NYSE jumped 3.31% while the NASDAQ climbed 2.21%. Read more…