Mas Calls For Clarity Over Charges For Investment Linked Policies – International Adviser

Investment-linked policies(ILPs) are insurance policies that are linked to investments such as unit trust.

One of the main advantages of such policies is the returns on the policies is dependent on the funds it invested and the market outlook rather than the performance of the insurance company.

One of the main disadvantages is the under-lying charges which can be confusing for the policy holder.

MAS recently proposed to insurers to have a standard the way fees and charges for ILPs. Read here for more details

Mas Calls For Clarity Over Charges For Investment Linked Policies – International Adviser.

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Fiscal Cliff

One of the most famous cliff must be ‘The Red Cliff”. It was made famous by Zhuge Liang, Zhou Yu & Cao Cao where the latters army was defeated by  Zhuge Liang & Zhou Yu’s combined forces that were grossly under strength. That happened in the Three Kingdom Period. More than Two thousand years later, the next most often mentioned cliff globally must be the “Fiscal Cliff” by Obama’s administration.

The “Fiscal Cliff” refers to the sharp decline in the US budget deficit. Some of the measures to reduce this deficit includes

  • an increased tax bill for married couples earning more than $450,000—$400,000 for single filers from the current top rate of 35% to 39.6%
  • they also pay 5% more on dividends and capital gains from the current 15%

In additional, tax exemptions and deductions will be reduced while estate duties will be increased. There are more drastic measures taken to save the US from going into recession. While I believe every cents counts, I also believe the main problem needs to be ironed out before measures can be implemented. I happen to see a good picture that illustrates my view on the  fiscal cliff issue. And here it it to share with you.

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A simple saving plan

I saw this interesting idea yet simple idea to start a saving plan. It is easily achievable and for those who feel the initial plan is too small to start, you can always start the plan with $10, $100 or even $1,000 whichever is comfortable for you.

Capture

Please share around if you think it is useful. For the less discipline, you might not stick to this till the 52nd week. Nevertheless, you will still get something if not everything at the day you stop.

Gold trading firm taken to court by customer.

I got a message from one of my advisers on the following news.  This news never came as a suprise for most of us as we foresee it to happen. The question is when. We advised our clients to avoid this investment but sadly, there are a few who did not heed our advice.

Back in Sep’ 2010, I had written about entering this investment with both eyes and your mind open. Here’s the article.

When you are not guaranteed by guarantee?

There was an article on some alternative investment in the papers recently. It offers two guarantees to the product.

Firstly, it guarantees a 15%p.a. This is seriously good stuff!!!

When most sovereign funds struggle to return a double-digit growth consistently and our funds in CPF gives a guarantees a max of 4.5% p.a (T&C apply), this investment guarantees 15% p.a. Let’s look at our own GIC, the Compounded Annual Returns (& not annual returns) in SGD is 17% as dated the financial year ended in 2011. These returns were made possible after allocations were made to different asset classes and sectors which requires a significant amount of funding and hedging. While this investment may have some secret formula to do what it promises, I will still prefer to believe that anything that sounds too good to be true is usually too good to be true. Do read my another article titled “Elephants never forget“.

The second guarantee was capital guaranteed. This is another great stuff!!! Capital guarantee PLUS guaranteed 15% p.a! I may be wrong but if someone had told Warren Buffet about this investment, he may be tempted to close down his investment unit and just dump every single cent he have into this great stuff.

As I read on, it was reported that it was able to have capital guarantee because they had bought insurance for it. Now…this is interesting! I know hedging MAY allow capital guarantee but what kind of insurance can do that??? I found out that ” we have bought insurance against natural disaster strikes and wipe out the farm” & “the insurance also pays if there are frauds committed by the directors”….well, it’s not the exactly wordings but closed to it.

With that, how guaranteed is your guarantee?

Commentary – Japanese Crisis

 As we pray for the nation, we are also concern about how it affects our investment. Here’s an investment commentary on the Japanese crisis by my company. I believe it is the first commentary from an Independent Financial Advisory firm since the crisis.

FPF Commentary – Japanese Crisis

Elephants never forget

If the phrase ‘Elephants never forget’ is a maths equation than it equals to ‘Human never learn’.

When things sounds too good to be true then its likely too good to be true. However, humans never learn from it. From the internet scams to Lehman Brothers Bonds. The recent Sunshine Empire where the investors gets a regular income source from ‘investments’ & the principal is guaranteed . The Ponzi scheme of Madoff where it consistently provides an up North returns while the world is in a financial crisis.

The most recent talk about investment is on Gold. There is a particular company that pays 2% every month or 24% per year on your investment. Possible? Personally, I would not touch this & I strongly encourage my clients to walk away from it. Maybe they have a strategy to provide such a strong returns of 24% per year while the top brains in GIC are doing only 7.1% in average over the last 20 years.

Before we consider an investment to be good or bad, let us first consider these…

1) Is the returns equal to the risk you are subjected to?

Everyone  knows the theory of  ‘low risk, low return’  but not many believe in it and they think it is possible to do wonders like  low or no risk with high returns.( Those who want to understand more about ‘low risk, low returns’ may do a search on Efficient Frontier to understand about Risk.)

Can we get a close to double-digit returns if we wants capital guaranteed? If yes, why are you not getting even a single digit returns on your fixed deposits?

2) Is your returns in line with the instrument you are investing?

Let’s take two similar class of assets as example. If I had invested in a piece of land then I would not expect any form of revenue other than capital appreciation that is when I sell off my land to another party at a profit. However, if I had invested in a property, I could see a in flow of regular income through rentals. Therefore, if I had invested in land and someone tells me I can get a regular inflow of cash then I would want to know how this income source is generated.

Likewise, gold in itself is not an income generating assets. You may want to understand how the product manufacturer generates  2% regularly. Is it from a capital sales and the profit is distributed over a year or what?

3) Investor risk vs asset class.

Gold are not just equities but traded as commodities like crude oil. The underlying investment of these asset class tends to be more complicated and more risky than equities. However, most investor enter into this investment scheme mainly because it gives a guaranteed return and guaranteed capital. These are traits of a risk averse investor who would usually think twice putting a dollar on an equity but here they are placing almost their life saving in this gold investment. 

The list goes on for your consideration to decide if this is a good investment(or even an investment). It is a guaranteed profit product but the question is who is the one making the profit. You may also read more about these investment at http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={650966209-3021-6971094011}

Last but not least, most people recognise the fact that gold is an asset that is good to keep as investment as it hedge against market risk and it is the only asset one will want to have in time of uncertainty. If this is already such a great investment asset which we can easily buy in a bank, why is there a need to further enhanced its packaging? Some similarities that appears in other Ponzi Scheme like sunshine empire is that these companies will claim that they are not related to some companies that are under investigation but the shareholders of the companies are the same person.

What’s your game plan?

Aberdeen introduces yet another investor education piece entitled: What is your game plan?, it’s about how asset allocation can be utilised to enhance a investment portfolio.The concept of asset allocation isn’t new, what this serves is a reminder that asset allocation plays an important role in any investment strategy. Here, our aim is to promote and raise the awareness surrounding the use of asset allocation as well as capture investors’ attention with regards to the various asset classes available.

So have a look at What is your game plan, take part in the challenge & may you win the ipad!

Investment Planning

I had remember that a common question that was thrown at me in my earlier years of my practice was how long will I be in the business and what happens if I quit. I am proud to say that I am still in the business serving the same group of people who may had asked me that more than a decade ago. One of the strangest thought I had seen in financial advisors is that financial advisors assume they will never quit the business, they will never retire or they will live longer than any of their clients. We advocate legacy planning but not many advisors actually practice it. I will share briefly how our company investment services minimise the concern the client have such as when the advisor quits the business.

An insurance policy is a legal contract binding between the policy holder and the insurance company. What this means is that the policy holder can purchase a policy, keep it in the safe deposit and never ever to see it again till a claim arises. However, that is not true for an investment plan. 

 If there are two gardeners and both planted a seed on the same day. The first gardener took pains to water the seed daily, put fertilizer and remove any weeds growing around it while the second garden leave the watering to mother nature that is to water only when it rains. I believe both seeds will still grow to a strong tree in 10 or 20 years but which tree would you think will bear more and sweeter fruits?  Investment planning is like planting a tree. Both investors can invest an initial of $20,000 and the first investor does a regular review with his financial advisor while the second investor don’t. Which investor is likely to see a better returns for their investment?

What I believe is not only a review of investment but there must be a system in place for investment. That is the reason why I am with First Principal Financial because we practice responsible investing thru assets allocation, diversification and re-balancing at a company level done by an investment committee. The client will recieve consistent reporting, monitoring and review of their investment that is done at coporate level.   Which means that in the event that the financial advisor is not around to service the investor because he had left the business by choice or by chance, the next servicing advisor will have the same investment philosophy and method of review for the client even if he happens to be inexperience.