27 August 2014

Endowment Plans for Child Education

DIYInsurance published an article recently comparing several Child Education Endowment Plans (see 4 Endowment Plans Specially Designed for Your Child's Education). Plans seem logical and helpful to provide the financial support for education at different points of a child's typical education profile. The scheme from NTUC offer additional supplements upon entering the first year of each level progressed. Good plans I think for those who prefer to completely outsource their financial needs (a.k.a. financially challenged?).

But the one thing that struck me was that all the plans are projected at internal rates of return of below 4%. I have also recently examined all my existing insurance plans and came to a similar conclusion as well (see Can Insurance Policies Return Better Than 4%?).

4% is also the current interest rate for CPF-SA/MA.

4% seems to be a magic number - i.e. a risk free rate.

Hard to appreciate why I would want to place my money giving return of <4% when I would probably be better of buying say the STI ETF?  For that matter, a good soccer team of SGX stocks would probably do as well (My World Cup Team (of Dividend Value Stocks). Of course, these do come with risks.

19 August 2014

Buying Term Insurance Direct

Looks like the means to buy Term Insurance directly online will soon be a reality. Alf wondered why he should be feeling excited about this? He had started work not long ago and barely had enough savings left at the end of each month as it is. It was very hard for him to be thinking about paying money for something where there will not be any return if he didn't die! What's the point he wondered?

Over lunch, he bounced this subject off with his colleagues and gathered some interesting insights. The various views he gathered were as follows:

  • Waste of money, because no returns.
  • It's your beneficiary who will gain, not you.
  • The insurance is only to protect your dependents, in case anything happen to you; and only if they are dependent on you for the lost income.
  • It's best to start term insurance early, the rates are low, and will remain so.
  • It's best to start term insurance early, while you're healthy; else there will be exclusions or become more expensive due to loading.
  • You don't need the term insurance when you have sufficient retirement funds and income.
  • You would still need a hospitalisation and surgery insurance; term doesn't cover those. [Didn't die, was saved, but hospitalisation is expensive! Duh.]
  • You would still need complementary insurance for critical illnesses [Dying slowly, likely will eventually die! But meanwhile ... sheesh.]

One of his colleagues, Roy, met his insurance agent over lunch just a week ago and had asked his insurance friend, Melvin, this very same question. In particular, Roy had asked Melvin how this would affect his insurance sales?

Melvin was apparently not too perturbed. He recounted a recent experience. His client had bought a hospitalisation plan from him seven years ago. Unfortunately, the client suffered a stroke recently and was hospitalised. In the process, his doctor told him that his ECG showed that he had in fact suffered a stroke before, and this wasn't the first time. It came as quite a shock to his client. Unfortunately, the doctor would not be able to tell him when the last incident occurred. And this became the crux of a problem!

Because of this past history of a prior stroke, the insurance company rejected his client's claim for this latest hospitalisation! The issue was whether the prior stroke had occurred before he took up the policy, or after. Seems the onus was on the client to show proof. The client wasn't aware of any incident before and was very perplexed.

Melvin asked Roy how would he feel if this had happened to Roy. Roy felt that he would be very upset and would probably have terminated his policy there and then!

"Precisely!" said Melvin. He went on to relate that his client had not done any medical check-up throughout this time, and could not produce any evidence to show proof that he was healthy at the point that he took up the insurance policy.

Melvin said that as he probed further, he found out that his client had gone for his National Service medical check-up in the year after he took up the policy. The check-up included an ECG. Hope! He was able to help his client obtain his medical record from MINDEF which showed that he was totally healthy then. With that, Melvin was able to help his client secure approval from the insurance company. So it ended on a happy note. Or perhaps not, since his client still had to recover from the stroke anyway. But at least, the medical costs had been alleviated.

The point, as Melvin related to Roy, was that if one was to buy direct, the client would be very much on his own and would not have the benefit of an experienced insurance agent to advise him/her. Melvin felt that there was a role for the insurance agent to provide value add services. He feared that as the new scheme kicked in, there would be many people who would not realise the importance of making the necessary declarations, and ill equipped to deal with claims downstream. They would face frustration and disappointment when faced with difficulties like this.

Alf wondered very hard as he pondered this story that Roy had shared with him. In his head however, the phrase "buy term, invest the rest" was nonetheless rolling through his thoughts.

18 August 2014

Post National Day Rally 2014 - Education, CPF and Infrastructure

The National Day Rally 2014 has come and gone.


So we started with the subject of "education" and discovered the line that multiple pathways to success need not necessarily require a degree. Can't have a whole country of just managers and no doers isn't it? Skilled labour need to be respected in a balanced world. And for a first, we find Prime Minister interviewing a cohort from a wide spectrum. Keppel had a field day of free advertisement. We are re-educated.


Then we have Prime Minister becoming a Financial Adviser. As he said, last year he was a Property Agent, but things haven't been looking up, so he has switched to become a Financial Adviser. I thought he did a fantastic job to link the logic behind why property is part of the CPF system, and the many options to monetise the property for retirement income.

I felt his advise for a retiree to continue to own a property, even if staying with their children, a particular insightful remark. He must surely have seen the many cases when the parents had fall-outs with their children, or worse, cheated by their children, and then having no roof over their head. Abandoned.

And so we have the declaration that the Minimum Sum for the CPF Special Account would be raised to $161,000 in 2015, and the statement that there would not be a further increase thereafter, subject to a review from time to time (ah, always leave the option open!). For me, this was a boo-hoo-hoo moment. I had so looked forward to continuing benefiting from the 4% return with a continually revised ceiling. Where else to get this kind of returns for a risk-free investment? Unfortunately that is not to be.

$161,000 it shall be. And no way am I going to pledge my property to cash out half the sum at age 55. I want my full return of $1,200 per month from age 62 onwards (I was previously under the impression that this sum would only be received from age 65).


Finally, the great infrastructure development. Having discussed about the great airport move from Paya Lebar Airport/Airbase to the expanded Changi Airport over the next few decades along with the Jewel of the East last year, Prime Minister described with much graphical details the great Jewel of the West this year.

We already have Jem and Big Box, and the new but delayed General Hospital at Jurong East. But the elaborate plan looked like the creation of a New York Central Park in the form of the Jurong Lake Gardens. A new monumental go-to place in the form of a new Science Centre, and the possibility of a future Express Train terminal to Malaysia. Certainly a major transformation from the current drab and boring looking Chinese and Japanese Gardens, which for years have languished in a never changing state, seldom used, venues of zero excitement. Transformed, it shall be. "There is only do, or do not", as Yoda might say.

Concluding Remarks

As a foreign dignitary once said, each year he come by Singapore, he sees something new and exciting. The landscape is ever changing. This trend looks set to continue. Change is certainly a consistency.

Looks like the construction industry will continue to have positive prospects in the years ahead. Major infrastructure development will continue to place demand - numerous MRT lines criss-crossing our tiny island, highways realigned and expanded, monumental artistic buildings and gardens rebuilt, bigger and better. The list goes on.

I am inspired by the exciting future of our country with each passing year. Toast!

p/s: Tat Hong (cranes), Kingsmen Creatives (artwork), Pan-United (cement) could be potential beneficiaries?

14 August 2014

Views on Youngsters Not Having Enough Savings

On the radio this morning, the DJ was talking about our youngsters not having much savings and invited callers to share their views. The comments that came in include:
  • CPF is good enough.
  • I'll save, if only my boss is prepared to pay me more!
  • I love online shopping, how to save?
CPF is Good Enough

Oh dear, oh dear. CPF, where got enough? It's only enough for the lower income groups. They don't demand as much and so they can get by with the little income stream post retirement. Alternatively, you better have a lot of kids who are good to you. These youngsters might want to read (1) CPF as an asset that generates income (by SGYI), and (2) my past musings on CPF.


I'll Save, if my Boss is Prepared to Pay Me More!

If he/she does pay you more, you think you'll save? The more you get, the more you spend. That's lifestyle inflation. It's the discipline to always set aside a sum for investment or savings that's going to make it work. Pay yourself first. Take a pay cut - i.e. slice a portion away from the monthly salary to park into savings or investments.

Lack of ownership.

I Love Online Shopping, How to Save?

I don't know how much online shopping one needs. Are those wants or needs? Beyond a certain point, it's just an addiction. Piles of junk and untouched items taking up space and collecting dust thereafter. The pack rat in a modern form.


Concluding Remarks

It seems the young can't see the need to save and invest. Retirement needs is a future that is still far away.

It is really hard to ask the young to think so far ahead. Living by the day is pretty normal isn't it? Each eve to the next paycheck, the bank account tends towards zero.

We learn so much maths in school, but we never taught our kids to apply the same maths towards financial planning. Wouldn't it be so much more interesting?

Chapter 1 - Algebra, zzz.
Chapter 2 - Calculus, zzz.
Chapter 3 - Graphs, zzz.
Chapter 10 - Financial Planning - how it all comes together!?


4 Ways to Reduce Spending (aka Spend to Save?)

Spend to Save? That's a tagline that's such an oxymoron. But here goes with my 4 ways to reduce spending.

Credit Cards

Dr Wealth shared about 6 ways to reduce monthly expenses without compromising lifestyle. One idea was to use credit cards whenever we can so that we can score points and benefit from the card discounts. He also made an important point that this would go well only if one has the discipline to pay off in full each month, and not to allow ourselves to fall into the debt trap. It's really a silly idea to owe credit card debts. It's a downhill spiral that squeezes away our hard earned money paying interests. Worse, it's easily 24% per annum! I'm pretty disciplined.

I use a few Visa credit cards and found several to be good deals. The UOB One card and the Citibank Dividend card offer various cash rebates. Comes in the form of either a quarterly cash-back to offset the bills, or credits to offset the next payment at selected merchants. So I use the credit cards wherever possible for payments and have benefited substantively from these rebates. It all adds up. Worth a thought?

And, be stingy. Don't pay the annual card fees. The banks are going to hate me for this. Seek the waiver when the fee is due. Often, it's just a phone call away. Most banks have automated this process. I'm not even going to agree to pay half. They've always waived the fee, so long as there has been some spending. I'm 'ngiaow'.


We need to buy groceries and numerous household items on a regular basis, unless you're the type of family that doesn't even cook at home. One of my brothers is like that. He has a fetish about keeping the whole house clean, all the time. We say he's "ko tak". His kitchen is really a museum, for display only.

I believe the wider community of modern working class is almost certainly going to buy a lot of stuff from the supermarkets. Their omni-presence and ubiquity is really a blessed convenience. Thank god for urbanisation! Whether it's NTUC, Cold Storage or any of the smaller chains, I guess we'll shop. When spoilt for choice, parking convenience, store crowded-ness, cleanliness, variety and freshness of food are perhaps other considerations by which we differentiate them.

I would advise, go get the darn NTUC Fairprice Card if you're shopping at NTUC supermarkets frequently. The points really add up very quickly. And it gets bigger, the bigger your family is. The points are redeemable to offset against payments and can be done at their check-out lines. Quite convenient, really. Except, when the cashier happens to be blur. Which happens, often enough. The elderly aunties (cashiers), sometimes a bit lost with technology. Forgive them, they're earning a tough living. Try again with a different cashier next time. The money is still there. Or as my daughter would say, "Chill."

And speaking of "chill", for Cold Storage, use the Citibank Dividend Visa Card. It's a few percent worth of rebate.

I'm sure there are many more options like these.


Credit cards often have offers for restaurants. Many restaurants also offer their own membership cards. I mentioned before the pleasant surprise I had when I bought shares in Soup and Japan Foods. Both offer their store discount cards to shareholders. See (1) Soup Restaurant - Slurping with a Discount and (2) Japan Foods - Ajisen Discount. The discounts feel like a form of dividend aren't they? Slurp slurp.


And finally, transportation. Need to travel right? Our legs can only take us so far.

If you commute by train, you might want to sign up with Travel Smart Rewards.  It used to be called InSinc (see Insinc with the Times). Points are generated based on the time of travel on the MRT. These points are then spun in a snake-and-ladder game to generate prizes. Prizes are good and seems frequent enough. I've been receiving a few dollars a month. They have enabled a crediting arrangement so that the winnings can be credited into your bank account directly.

If you drive, then back to using your credit card. I get additional discounts when I use the Citibank Dividend Visa Card to pay for petrol at Shell stations, along with the Shell Card for points (redeemable rebates). I've a Shell station right round the corner, so that works really great for me. Again, there are various credit cards with similar arrangements with different petrol stations. Pick one that works for you.

Concluding Remarks

So there you have it, 4 ways to reduce spending. It's coming to lunch time. Time to go fetch my daughter and to run some errands. Let's see now, supermarket, lunch, petrol, and ...

Disclaimer: As far as buying the above shares go, study the companies carefully and make your own decision. The price may not be right. I'm not advocating a buy or sell. I bought Soup way back when it's price was far lower.

11 August 2014

A Stock That's Worth a Closer Look - Handbags or Trash?

About two weeks ago, I posted the financial data of a particular stock and wondered if it was A Stock That's Worth a Closer Look?

The company is experiencing positive free cash flow, has negligible debts, and pays out a decent yield of 3.9% at a payout ratio of about 40%. Its PE ratio is in the region of 11x, distributions have stayed below earnings, and earnings continue to grow. All the above would be "green" by my book for a stock screening.

The only blips: (a) a price to book value of almost 4x; and more significantly (b) it has experienced a drop in price of more than 40% in the past year! The question is, why?

The company has pretty decent margins and likely has some brand attractiveness. The financials as mentioned above would suggest that it is well managed as well. So why the sharp drop, of a magnitude not unlike the Great Financial Crisis?

Is it a hoard behaviour? A gathering of Orcs welcoming Doomslayer? Does it then create an opportunity?

The stock concerned is none other than Coach, traded on the NYSE. It is facing intense competition from Michael Kors and Kate Spade. Has it gone out of fashion?

Supposedly it has diluted its branding due to its over dependency on discount store sales. Its sales in the US have dropped somewhat. But its Japan and China sales appear to be doing well.

When last I visited one of their US outlet stores a few years back, it was filled with tourists - of the Chinese kind. The store was crowded, and noisy. The check out queue, had a queue.

I see many ladies slinging one to work, though I wouldn't be able to tell if it's an "original" or a "chiong" ('copy original'?) item. My wife tells me however that Coach is passe. She's the one who knows the fashion of the day. Me, I just pay. If the ladies don't bite, they must really be in serious trouble.

So is this a McDonalds facing off the challenge of Chipotle and Yum? Or is this a Kodak facing the challenge of a digital age? Is this a Buy or a Sell? For now, my wife is holding onto her Coach bags, and I'm holding on to my Coach shares. Hers may be suffering from depreciation, mine may be suffering from deprecation. Time will once again tell.

Disclaimer: The usual reminder - do your own analysis and decide for yourself.

07 August 2014

Giving from the Heart - 80 Good Deeds

It was another one of those evening. Tired from another day of work, Alf reached home at the throes of sunset. Each evening, he would open the mailbox at the lift lobby. Always, looking forward to one day receiving a letter that says, "You've won a million dollars!"

There was never any reason to believe it would happen. He didn't have any known rich relative, nor done anything to expect such unexpected gratitude. But there was always "hope". Then again, "hope" was a 4-letter word. But one could always hope for some long lost but rich distant relative to appear one day. Never know.

On opening his mailbox, he was faced with the usual stack of letters. "Bah, tree killers." But it was certainly more acceptable than receiving numerous unsolicited phone calls in the past.

There was the usual sprinkling of letters promoting some new condo sales at all ends of the island, and property agents touting sales made at his condo with bold declarations of several units sold at a million bucks each. "Looks like a lot of millionaires from here" he thought.

Some of these leaflets used to include lovely magnets with nice photos of the agent and contact numbers. Some certainly looked more pleasing to his eyes than others. He had loads of those pasted on his refrigerator. So that was a lot of nice looking people on his refrigerator. Seems like there were less of these nowadays. Must be a cost cutting thing going on. Times must be getting hard for property agents.

And then, a letter seeking donation to a charity organisation.

"Dear, you think we should make a donation?"

Alf's wife glanced over and peeked at the letter, "Good to do good deeds."

Alf studied the letter further and made up his mind to do so. The letter also indicated that the organisation would automatically update IRAS for income tax purposes.

Curious, what's that about he wondered?  Researching further on his Samsung S5, he discovered that for every dollar donated to recognised charities, he would receive 2.5 times the value in deductibles to his taxable income.

"Dear, did you know that if I donate $4,000, I would receive $10,000 deduction off my taxable income? At a tax bracket of 18% that I'm at now, that means I would avoid $1,800 of tax I otherwise have to pay.

"You mean you only need to spend $2,200 to donate $4,000?"

"Guess that's one way to look at it." He shrugged.

Alf's wife contemplated this new insight. "You know what? If you donate $50 to each charity, you can donate to 80 organisations?"

"That's a fascinating idea!" He was feeling excited already. 80 good deeds. Why not? Good karma too. He was getting really excited.

With apologies to much better written stories by other financial bloggers (esp. Bully the Bear) for the inspiration. 8)

Try this:
Secrets of Millionaire Dwarfs [Bully the Bear]

04 August 2014

2 Great News from Changes to the SGX Stock Market

I couldn't be happier with the latest announcements on the changes for SGX. There are several changes upcoming but I would single out two in particular: (a) the minimum value of a share will be 20 cents, and (b) the minimum lot size would be reduced to 100 (it's typically 1,000 today).

A Penny for Your Thoughts

With share prices requiring a floor of 20 cents, it means that many penny stocks would have to ante up to consolidate the shares to get above the minimum sum.

It's a real bugbear when you're trying to buy 50,000 shares at 10 cents a piece and somebody decides to sell you just 1,000 shares! On my gawd, that's only $100 in total and the sales charge alone add another $30 to it. Geez. [Palm slap face]

Wonder what's the impact for Qian Hu? Hmmm .....

100 is a Good Number

Then there's the minimum lot size. Some shares are trading at over $10 per share. Buying 1,000 shares today would require an outlay of $10,000. Worse are those Jardine family of shares, with many trading at several tens of dollars per shares. Takes a family fortune to buy anything.

Granted, I could try my luck buying from the "Unit Share" board on POEMS. But liquidity is just too low. Trying to get anything transacted is like balloting for a new flat in the good old days. Wait long long. But of course, not as bad as waiting to strike Toto.

With the latest changes announced, I look forward to getting my hands on Jardine Matheson Holdings (JMH) and Dairy Farm at some point in the near future. 100 shares of JMH at US$60 would still be a pretty hefty sum. But at least, it would be more within reach.

Would the greater accessibility cause these stocks to suffer increased volatility? It could work both ways.

Santa Claus is Coming to Town

The later change is actually detrimental to the earlier. 100 shares at 20 cents is $20. We really need to get to a minimum of $1 per share to make any sense. Alternatively, can sales charges drop even lower?

Looks like two of my X'mas wishes are coming true (Wish List for X'mas 2014). Three more to go. Got to believe there's a Santa Claus living in the North Pole.