Author Archive

Posted on March 14, 2010 - by Tan Kin Lian

Pay TV operators to carry contents of third parties

The Media Development Authority has announced that they will require pay TV operators to carry the contents of third parties, but this will only apply to future contents.

This is a good move, but does not go far enough. The biggest damage is going to occur in respect of existing content, specifically the English Premier League. Over the next few months, many households will have to go through the expensive exercise of switching their platform (from Starhub to Singtel) or installing a new set of cables. It is wasteful and inconvenient.

Singtel is likely to face serious resource issues in meeting the heavy demand and also in addressing the technical issues of connectivity and customer experience. Already, they faced glitches. This is bound to increase significantly. Read more…

Posted on February 16, 2010 - by Tan Kin Lian

Achive top position in life insurance sales

Life insurance companies compete yearly to achieve the top position in life insurance sales. This is an indicator of success and the productivity of the sales force. Several decades ago, the competition was based on annual premium on new policies, but in recent years, 10% of the single premiums are added to the annual premium to get the weighted premium as a measure of the sales.

To achieve sales and energize the sales agents, the life insurance companies introduce new and innovative products every year. These new products are variations of the old products, but have some changes to allow the agents to market the product. The variations may take the following forms:

a) a shorter period to pay the insurance premium
b) additional risks that are being covered
c) change from guaranteed to investment-linked payouts or back
(more…)

Posted on January 19, 2010 - by Tan Kin Lian

Managing investment risks

Many people are risk averse. They are afraid of taking investment risks and making a loss. The investments that gives the best long term return are equities, but they are also the most volatile, i.e. the price can go up and down by a large percentage in a few days or weeks.

A long term investor should not worry about the short term changes in the price of the shares. As long as they keep the shares, they do not have to take a loss. The value of the shares will eventually recover and give an attractive return. This has been the trend over the past years.

There is the risk of selecting the wrong shares, which may perform worse than the market or may even go bankrupt. This risk can be minimized through diversification, i.e. investing in a fund comprising of 10 or more shares. Some shares in the fund may perform badly, but they will be offset by the other shares that perform better than the market.

There is still the market risk. In a bad stock market, most shares will perform badly. The bad market may last for a few months or even a few years. A long term investor is able to ride out the bad years and will be compensated by the good years, to get an above average return. I describe this strategy as “averaging out the good and bad years”. Read more…

Posted on December 27, 2009 - by Tan Kin Lian

Advice on making insurance claims

Thee are three types of insurance claims that can cause you a big surprise and out-of-pocket payment. They are:
a) health care
b) personal accident or travel
c) motor repair
d) home repair or reinstatement

Here is a common example. You have been paying premiums for an expensive health insurance policy for many years. You went into hospital thinking that the entire bill is covered. When you submit your claim for reimbursement, you are told of the items that are not covered, the caps, exclusions, deductibles and other items. Your claim can be less than half of the amount that you spent.

Your claim for personal accident or travel is also subject to exclusions, limits and deductibles. A similar situation can occur with a motor repair bill. You are told about the Excess, exclusion or other limits.
The hospital and motor repair bills can occur every few years, so many people have been taken aback by their poor claim experience. Read more…

Posted on December 25, 2009 - by Tan Kin Lian

Investing in properties

Many people made huge gains by investing in properties in the past. This was achieved at a time when property prices were relatively low, compared to today. At today’s prices, it will be difficult to expect further appreciation along the scale as was achieved in the past.

The trend of interest rate is also going against property investments. During the past twenty years, there was a decline in interest rate globally. This decline contributed to appreciation in property prices. For example, if interest rate dropped from 6% to 3%, the prices of properties will double.

Interest rate is very low now. At the short end, it is near zero. For longer terms, it is around 3%.  In the future, it is likely to increase. This will result in a drop in property prices. It could drop by 50%, if the long term interest rate were to double from today’s level.

Interest rate is expected to remain low, due to deflation, but may increase from the highly depressed level of today, so you can expect some correction in property prices in the year’s ahead. Read more…

Posted on December 20, 2009 - by Tan Kin Lian

Financial planning – buying a property for own occupation

Here is a financial planning tip that applies to most families. If you buy a property (for your own occupation) at age 30 and repay the  mortgage loan over 25 years with 25% of your monthly income, you can take a loan of up to 5 years of your income. If both spouses are working, you can use the combined income, but deduct $1,000 for the cost of employing a maid and other expenses.

If the family income is $5,000 a month, you can buy a property of up to $300,000. If you buy a more expensive property, the repayment will take up more than 25% of the income, leaving less to save for retirement or for current expenses, or the repayment will take more than 25 years.

Although most people expect a working career to be 35 years, it is useful to plan for 25 years of repayment, to allow for some disruptions in the income stream during your working career, caused by unexpected events, such as unemployment or disability.

If you really need to pay more for the property, you can stretch up to 6 years of family income, after you have done your budgeting carefully.

Tan Kin Lian

Source: http://tankinlian.blogspot.com/2009/12/financial-planning-buying-property-for.html

Posted on November 11, 2009 - by Tan Kin Lian

Increase in motor insurance premiums

Many motorists have seen a large increase in motor insurance premiums in recent years. Some have their renewals rejected, due to bad luck or bad driving that have resulted in two or more claims. In some cases, the large claims were due to fraudulent claims lodged by third parties.

I have received e-mails of this nature from motorists over the past years, “Mr. Tan, I have been driving without any claims for more than 15 years. Last year, I had an accident. The other party lodged a large claim. The insurance company paid the claim, but did not check with me. This year, they want to increase my premium by 30%. What should I do?”

I usually advised them to find another insurance company and provided them this list of hotline numbers. However, they were unsuccessful in most cases, and most insurance companies would not want to take a motorist with a claim.

Some motorists have their renewals rejected due to two or more claims. They were not able to get another company to take over the insurance. Read more…

Posted on November 7, 2009 - by Tan Kin Lian

GST is unnecessary for Singapore

I have always considered GST to be unnecessary and unsuitable for Singapore since its introduction many years ago. Here are my reasons:

a) GST is a wasteful and inefficient method of collecting tax. It requires every transactions to be counted. Each person handles many transactions every day. It cause a lot of work for consumers, business, and tax collectors.

b) It is better to collect adequate tax using the income tax system. Collecting tax by GST adds another layer of administration.

c) Singapore already had an efficient system of collecting tax from income, property, workers levy, vehicle taxes (ERP, COE) and land premiums. There is no need for GST as the government already collected sufficient tax for its needs.

d) Singapore does not spend much on social welfare. There is no need to collect GST to fund the government expenses, unlike other countries that have high welfare benefits. Read more…

Posted on October 14, 2009 - by Tan Kin Lian

Financial Planning (2) – What are your future needs?

Your savings are required to meet your future financial needs, of which the most important are:

a) to provide an income after retirement
b) for your children’s education
c) for unexpected events, such as unemployment, disability, medical expenses

The amount of savings that you have to set aside from your monthly income will depend on how much money is needed for the future. What kind of lifestyle do you plan for the future? What is the future cost of educating your child?

You have a range of choices. If you want to have more money for retirement, you have to save more and spend less now. You should have a balanced approach. You need to enjoy some luxuries now, while you are young, instead of keeping most of the money to spend when you are old (and weak).

Educating a child can be very expensive at a good overseas university. You may want to give the best for your child, but is this a sensible way to spend the money? Will the investment in an expensive education give a good return? Will this money be taken away from your own retirement fund? Read more…

Posted on October 13, 2009 - by Tan Kin Lian

Financial Planning (1) – How much to save?

The first step in financial planning is to decide on the proportion of the current income that should be saved for the future. The answer is “as much as possible”.

Some people are frugal. They spend only to meet the essential expenses and save the remainder of their earnings for the future. They are willing to forgo their current spending and enjoyment – no vacations, search for cheap offers and bargains, take public transport, find inexpensive eating places.

There are many opportunities to leave frugally and still enjoy the pleasures of life. The parks and public spaces are free. Activities and courses in community and sport centers are affordable. Walking is free and good for the body.

As a rule of thumb, you should save 10% to 15% of your earnings and keep it for future needs. After meeting your essential expenses and savings, you can still have a balance for the discretionary spending, such as vacations, branded goods, tuition, entertainment or the pleasures that do cost money.

It is very important to avoid getting into debt, including borrowing on credit cards, that charges a high interest burden. It is already difficult to earn money and set aside savings, yet some people have to pay interest that takes away 10% or more of their earnings! Read more…