Read this story about the burden that will be shouldered by the US tax payers over the losses that are suffered by Fannie Mae and Freddie Mac: http://www.cnbc.com//id/46106075Here is the background to this state of affairs:

• The real estate market in the US was a bubble for one or two decades before it finally burst in 2008
• During this period, large profits were made by developers, real estate agents, mortgage bankers and other people connected with the trade
• The home owners were enticed to pay high and unsustainable prices for the property
• The purchases were funded by mortgage banks and insured with Fannie Mae, Freddie Mac and other insurers
• Bad financial products such as sub-prime mortgages and collateralized debt obligations (CDOs) were created to fund these unsustainable prices

Analysts have written about Japan’s lost decades, after the collapse of the property and stock market bubbles in the early 1990s. The economy was supposed to be in the doldrums.

But some analysts are starting to realize that the so-called lost decades might have been a wrong description. Japan has been doing quite well, economically and socially, during these “lost decades”. This is explained in the article here. http://www.todayonline.com/Commentary/EDC120109-0000010/The-myth-of-Japans-failure

This is a good lesson not only for America and Europe, but for Singapore as well. It is possible to have the bursting of the bubbles, and for the underlying economy to do well. The benefit of the burst asset bubbles is that the country will focus on the productive sectors of the economy, and that the top earners are not skimming the economic system to the detriment of the ordinary people in the street. The cost of …

I read that Nokia has decided to move its Asian headquarters from Singapore to Beijing, citing high operating cost and other reasons. Google choose Kuala Lumpur to be their regional base, instead of Singapore.A friend, who was in charge of planning for a large multi-national company with wafer fab operations in various countries in Asia told me that it is too costly to manufacture in Singapore. He said that a factory in Singapore that requires spare parts pay 2 to 3 times of the price that a Taiwan factory pays to their local suppliers. Someone, the Singapore suppliers charge too much, even for spare parts that are imported from overseas.

A few people have told me that they can buy electronic products from Hong Kong at a price 20% lower than Singapore.

These are all signs of Singapore becoming too costly for business. I hope that our Ministry of …

Latest: an edited version of this letter was published in the Straits Times Forum page on 4 January 2011. See
http://www.straitstimes.com/STForum/Story/STIStory_751527.html

I received a desperate plea for help from an widow who lost a lot of money on failed investments made on the advice of the relationship manager of a bank. The victim was advised to invest in dual currency and other linked products on the assurance that they were “safe”. The bad advice was given in spite of her constant reminder to the relationship manager that she did not want to take risk!I gave this reply to her.

I have come across many cases that are similar to yours. It is indeed very sad that our Government allowed this type of environment to continue for so long and does not step in to check the abuse.
The only way for a victim to get justice is to take the case to court. Here the odds are overwhelming. It is costly to fight against the big legal firms engaged by …

There is a general worry that slow growth in US and Europe will cause problem to Asia, and especially to China being the largest manufacturer in the world. This could lead to unemployment and unrest.

Think again. Why are we having an economic system where people have to work long hours, just to earn enough money to survive, and along the way, other people have to be unemployed? And we need to keep growing faster, so that they is enough work for people to work long hours just to be employed?

The simple answer is “the majority of people have to work long hours, as slaves, just to earn enough to get by, so that the 1% can be super rich. The worst countries are those with the largest disparity of income between the top 1% and the bottom 99%. Sad to say, Singapore fared among the worst in the …

Hi Mr Tan.
I am signing a policy soon. But I don’t understand what the effect of deduction is. It’s a AXA policy called INSPIRE FLEXI 2. After reading your blog, I tried to do the calculation but am more puzzled. Attached are the 3 pages of the illustrations. I hope that you can advise me.REPLY
The Effect of Deduction is the amount taken away from your future savings. You can see that this is a large amount. Why are you investing in a life insurance policy when so much is being taken away?

It is better for you to invest on your own, e.g. in the STI ETF, as advised in my book. You can buy term insurance for your life insurance protection. Please read my books for a better understanding on this matter. www.tankinlian.com/ishop

You can also attend the FISCA talk on 26 Nov …

The Sunday Times carried a story about young people who were investing in stocks and CFD (contract for differences). Some made trading losses but are still keen to continue “investing” in the market.It is important to use the correct term to describe the activity. It should be called “trading” or “speculating” and not “investing”.

When one “invest” in a company, one has to study the fundamentals of the company with the intention of holding it for many years to earn its dividend and the long term capital gain. I  know of people who bought blue chip shares and kept them for 40 years. That is “investing”.

Those who buy and sell shares to make a short term gain should be called “speculators” or “traders” and not “investors”. There is nothing wrong with speculating or trading in shares, or gambling in the casino, if the speculator is aware about the …

Many people had bad experience with forex training courses. They paid a high fee to get the training and lost money  in the trading activities (as the methods are not reliable). Here is an exception. This student still lost money, but he felt that the training provided was worth the money spent:

Dear Mr Tan,It would be my pleasure to share my experience with you.
Let me tell you upfront that I am not yet profitable trading forex.  Please allow me to explain why I was still happy with the course.
I took up the forex training course with X in December 2010.  At that time, I was retrenched for about 3 months and was unsuccessful in finding a new job.  With time on my hands and not knowing what else to do, I attended a few forex sales seminars and eventually signed up with X….

I do not like to invest in options. My reasons are:

• The price of the option is decided by an expert who takes the other side of the trade. This expert is likely to fix a price that will give him a profit (after allowing for the future possible outcomes). As the other party to this “bet”, the retail investor is likely to make a loss.
• It is possible for the option issuer to manipulate the price of the underlying shares to avoid making a loss. For example, if the option pays out a large sum of money when the underlying share hits a certain price, the option issuer will buy or sell the underlying share to avoid hitting the strike price. The cost of buying the manipulating the price of the underlying share will be lower than the  payout on the option strike.

Read Lucky Tan’s article here.The collapse of MF Global in the USA have a direct impact on retail investors in Singapore. They have money in their accounts with this brokerage firm and are worried that they may not be able to get their money back.

This brokerage firm lost a lot of money in the European bonds. It was reported that they might have transferred some of their client money to cover these loses.  It could be a big mess.

600 million missing in MF Global

This raises the issue about financial institutions, such as banks and brokerage firms, being involved in large scale speculation with their shareholder’s money and, through illegally means, with their client’s money. How can it be prevented?

I recall reading about the Glass Stegall Act in the USA which used to separate investment banking (where the speculation is carried out) from commercial banking (which …

Dear Mr Tan,
Recently I asked my friend to send me a quotation on income’s vivolife policy.

Something that I don’t really understand is the “terminal bonus” shown. On page 9, it showed the duration and the percentage of terminal bonuses for the years 2008 – 2010. What I don’t understand is a percentage of what? A percentage of the reversionary bonus that had been declared thru’out the years or a percentage of the sum assured per $1,000?

Is the reversionary bonuses that is declared annually same amount for both death and surrendered portion? What I meant is that if for example, year 2010, the insurance company declared $7 per $1000 S.A for this particular policy. Regardless of if I were to surrender or make a claim, the bonus that is still payable in whichever situation is still $7 per $1,000 S.A.

If the above hold truths, then …

A student bought a PruFlexi Cash policy and after paying the premiums for 8 months, he asked my views about terminating the policy.I asked him to send the benefit illustration to me. The total premium for 3 years would have been $3,600 and the cash value would have been $800, giving a loss of $2,800. If he terminate the policy now, after 8 months, the loss would have been $800. It seemed to be better for him to terminate the policy. The sum insured under the policy was only $15,000.What was the purpose of buying a policy that offered a miserably low sum insured and resulting in a loss of $2,800 in savings for 3 years? There is a complicated series of cash payments which can be accumulated with interest at 1.5% p.a. After taking all of these payments into account, the yield on the policy …

At the CNA program on financial planning, a panel speaker said that consumers should look at the guaranteed and the non-guaranteed portion of the benefits under an endowment policy.

This is only partly true. The consumer should also look at the following figures (available from the benefit illustration):

a) The distribution cost
b) The effect of deduction.

The consumer will be shocked that the distribution cost is usually more than one year’s premium. What is this figure? It is the amount taken from your savings to pay the insurance agent. Imagine that you work hard to save $6,000 a year. Do you want more than $6,000 of your savings to be taken away to pay the agent?

What does the agent do for the consumer to earn such a large sum of money? Frankly, the agent does not help the consumer to get a higher yield. The consumer can get …

I gave a talk on “Financial Planning for the Young” at the National University of Singapore. My key points are:

1. Save 15% of your earnings after you start work
2. Keep the earnings in a bank account until you have accumulated an emergency fund of 6 months earnings
3. It will take you about 3 years to accumulate this fund. Just keep your savings liquid. Do not think about investing the money.
4. You should avoid investing the money in a life insurance policy or investment-linked policy – as you may need the money in an emergency and there is heavy penalty on early withdrawal.
5. You do not have to worry about buying life insurance until  you start a family. But, if you wish to have life insurance earlier, you should buy a term insurance and pay not more than $30 a month for $300,000 of insurance cover.
…

Recently, I decided use my spare cash, which was earning a low rate of interest, to invest in the stock market. My reasons were:

• The stock market had dropped by 20% from its peak
• I am investing for the long term, more than 10 years
• Warren Buffett had said that the companies under Berkshire Hathaway’s portfolio were showing good results (except for those involved in the housing market).