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Tea with Solace: Getting Ready For Investment. (Part One)

Monday, August 19, 2013

This is Part One of a blog post by a reader, Solace, who recommended a book, "The Little Book That Beats The Market" here in ASSI not too long ago. 

All copies of the book were sold out within a day, I remember. I just checked and a few copies have become available again at US$6.48 each. For anyone who missed out the last time, check it out: The Little Book That Beats The Market.

Cheap Ferrero Rocher!
I can identify with many things that Solace is sharing here including his love for chocolates! I also buy them when they are available at a discount and never at full prices! Apart from this, in investment, I also use a combination of fundamental analysis and technical analysis just like him.

All of us can learn or be reminded of things important about personal finance and investment in this guest blog post. Read on:

Solace says:
I embarked on my journey of investing when I was in my mid-twenties, fresh out from the university.

My objectives in investing are to:

1) Generate a return that can beat inflation

2) Create an income stream through long term stock investing

First, however, I had to get my backyard in order. What do I mean by this?

Emergency Funds

In life, we should expect the unexpected. We could lose our job or become seriously ill, for examples. This is why we need an emergency fund.

Emergency funds should be highly liquid. This allows quick access to funds, which is vital in emergencies. A saving account with any bank would do.

I believe one has to set aside at least 6 months' worth of emergency funds. Some may even set aside 12 to 18 months' worth depending on their situations. If we have children, liabilities or debts, we would have to set aside more, for examples.

I do not recommend that we invest with money that we cannot afford to lose. Such money should stay in the emergency funds. The volatility of the stock market could cause us to lose money leaving us in a fix when we need the money for urgently.

Managing Personal Finance

I believe how rich we are depends on how much we can save at end of each month. In my opinion, managing personal finance comes first before investing.

I always aim to save between 40% - 50% of my take home pay every month. Majority of what I save will go into my investment funds. From there, I can build up my investment fund over time. We should watch our expenses and save as much as possible.

Very often we can make changes to our lifestyles to save more money. For example, I switched from drinking Starbucks coffee to making my own coffee at home. I love chocolates and candies but I only buy them when they are selling at a discount. One can still enjoy life and be happy without excessive spending.

Car ownership is expensive in Singapore. We should avoid owning one unless we really need it.

By staying away from smoking, excessive drinking and gambling, we are also giving our savings a big boost.


Having adequate insurance is important. There are basically three main types of life insurance policies. They are Term Insurance, Endowment Insurance and Whole Life Insurance. One has to know the differences and decide which type is suitable.

Do take a look at the effect of deduction and distribution costs when evaluating a policy. Very often the deduction can be very high!

For me, I prefer Term Insurance. I do not like to mix investment and insurance. Term Insurance premiums are not as high and it does the job of providing insurance protection. With the lower premiums compared to Endowment or Whole Life Insurance, I can have more savings which means I have more money to invest for better returns.

I would like to point out that for young people who have just started working, they might not have so much money. Term Insurance is a viable option, but very often insurance agents/financial advisers will not mention this.

Read Part Two: here.


The Sun said...

Hi Ak,

Once again, a very informative posting. Just like to add that under insurance, we should also consider health insurance (medishield at the very least in my opinion) and perhaps income protection insurance just in case we lose our jobs due to illness or physical disability, even though it may be temporal.

What will you be covering in part 2?

AK71 said...

Hi Sun,

Indeed, a good H&S and critical illness (CI) coverage are important. I have NTUC Income Enhanced Incomeshield with rider and more than $300K of CI coverage.

I decided that I can save on the income protection insurance since I have enough by way of passive income.

Anyway, this is Solace's blog post. So, let us see if he has anything to add to your comment. :)

Part 2 has just been published. ;)

Solace said...

Hi Sun & AK,

I agree that Health Insurance and critical illness (CI) coverage are essential too.

At the very least, all should be covered by medishield. In yesterday ND Rally, i am glad to know that MediShield will be revamped to offer universal coverage, no opting out.

I am covered under a private shield, but i am aware that Private Shield can become very costly at the older ages. At that time, we can have the choice of downgrading to Medishield to pay a lower premium and be covered for the subsidized wards.

Sometimes, i do wonder whether is it absolutely necessary to pay a higher insurance premium to stay in private ward & private hospital. Perhaps other readers can share their view on this topic.

AK71 said...

Hi Solace,

I think that if we can afford it, we should get the best H&S possible and I shared my story about how I got my mom covered by Enhanced Incomeshield:

Enhanced Incomeshield for my mom.

I don't think I want to see her in a Class C ward. I have seen what a Class C ward is like and saying that it isn't very comfortable is an understatement.

It is not necessary to stay in a Class A or B1 ward but if we can afford it, why not? Definitely, with an appropriate H&S policy, it is reachable. :)

Solace said...

Hi AK,

If one can afford, getting the best H&S possible is a good option.

Nothing is more important than a "Peace of mind". :)

My suggestions will only apply to those who have problems paying for the higher premiums at older age group.

AK71 said...

Hi Solace,

I guess that is why it is so important to start early and you are leading by example. :)

I am sure that you will have no problem paying for the best H&S policy in your golden years. :)

AK71 said...

People in Singapore will be able to buy certain types of life insurance products directly from insurance companies starting next year, saving on commissions. This is according to the Monetary Authority of Singapore (MAS), which said on Wednesday (July 30) that all insurance companies that serve the retail market will have to offer the following direct purchase products:

(a) Term life insurance products with Total Permanent Disability (TPD) cover;

(b) Whole life insurance products with TPD cover; and

(c) Optional critical illness (CI) rider attached to term life or whole life insurance products.

Consumers who wish to buy direct purchase products will still be subject to underwriting by the insurer, MAS said. "When direct purchase products are introduced in early 2015, they will provide consumers who do not require advice with cheaper access to selected life insurance products," Mr Lee Boon Ngiap, Assistant Managing Director for Capital Markets at MAS, said in a statement. "Consumers will benefit from the greater price competition that will be introduced between the direct and commission-based channels."


Ricky said...

Very thankful i have read up on similar articles on this emergency fund. Kept about a year's worth of cash in my bank account. Might turn out to be useful as i'm going to be jobless in 6 months :(

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