6 points in response to Sumiko Tan's "expensive lesson".

I read an article in the newspapers by Sumiko Tan and felt the pain she must have felt. 

It is about her experience of buying an endowment policy and cancelling it, losing quite a bit of money in the process. 







Here are a few paragraphs taken from the article:

"I bought the plan from a financial adviser from a bank I have accounts with. He had cold-called me to arrange a meeting. He was patient in explaining the scheme. The returns looked decent and I didn't ask many questions.

"What really clinched it for me, though, was the shopping voucher... I would get a $1,800 Takashimaya shopping voucher. Shopping here I come, I thought gleefully."






By now, regular readers of my blog would be shaking their heads. Here are three points in response:

1. Always ask questions. 

No one cares more about our money than we do. 

If we don't care to ask questions, no one will do it for us.







2. Of course, don't ever ask a barber if we need a haircut. 

Get second opinions. 

Oh, we will be doing ourselves a BIG favour by making sure they are not from barbers too.







3. Don't succumb to the instant gratification of yield. 

If they come in the form of shopping vouchers, run away in double quick time.

Anyway, the writer, Sumiko Tan, bit the bullet and terminated the policy after agonising over it. 

I could feel the angst in her writing:

"What I had regarded as welcomed enforced monthly savings suddenly felt like a debt I owed the insurer. I felt burdened. I hate being in debt.

"I decided to bite the bullet and backed out, and said goodbye to the two months worth of premiums.

"... at my age and given how I'm childless, waiting 23 years to experience its full benefits is foolhardy. I wish I had realised that earlier.

"It was an expensive lesson, but next time, I will read all the documents, compare products and ask more questions first.

"Needless to say, I also don't get the Takashimaya shopping voucher."






There is sadness but there is also a sigh of relief. 

I believe she did the right thing if for no other reason than the fact that the purchase robbed her of her peace of mind. 

Of course, she will be doing the right thing in future after this experience.






I would like to share 3 points a friend shared with me before:

Point number one:


Fallacy:
Insurance is for savings and investments.

Truth:
Insurance is a risk management tool.







Point number two:

Fallacy:
Be insured for the highest sum we can afford.

Truth:
Get sufficient coverage. Don't over insure.







Point number three:


Fallacy:
All of us need all the different types of insurance.

Truth: 
We go through life stages and needs will change.







All very pertinent points and we will do well to remember them.

Here are some blog posts related to the points raised above:

1. Nobody cares more about our money than we do.
2. The instant gratification of yield.
3. Disastrous investments in the property market.
4. A true story about insurance and grapes.
5. Free "e-book": Retiring before 60 is not a dream.

Read the full article by Sumiko Tan: here.

Aiyoh, so tempting lor.

Alamak. What am I going to do?

AK likes freebies but are these really free? Or are they a return of capital? Hmmm...

Take a break with AK and recharge our spirits.

I like Japanese anime and I shared some soundtracks here in my blog before. It has been quite a while since the last time I did this.

The last couple of soundtracks I shared were from Sword Art Online and Log Horizon. That was more than a year ago. Since then, I have watched Sword Art Online (Part 2) and Log Horizon (Part 2).

A few days ago, I decided to watch again an anime I watched a few years ago. It is a very heartwarming anime which I enjoyed but time has dulled my memory of the story. Well, watching it again and enjoying it as much as the first time I watched it shows what a wonderful piece of work it is.

In case you are interested, the name is "So Ra No Wo To" (The Sounds of the Skies). Even if you do not usually watch Japanese anime, I think you will enjoy the melodies of the following songs and find inspiration in the words of the second song:





Prendre le bien, le mal et sans trier, accepter.

I find the anime spiritually uplifting and it fills me with hope that the world could become a better place for all of us to live harmoniously together in future (which is what the anime is about, ultimately).

A reader who is quite an accomplished musician recently asked me if I played music? I said I tried but the interest didn't last very long. I was a bit like Sherlock Holmes trying to learn the violin.

He said I can listen to music, then. That, I can certainly do. He sent me this clip:



Hope you enjoyed this as much as I did.

Related posts:
1. Sword Art Online and Log Horizon.
2. Fairy Tail.
3. Full Metal Alchemist.

To make 20% per annum, we could lose our capital.

The low interest rate environment has been going on forever in Singapore and many savers are frustrated. 

Some of them could end up putting their money in ventures they know little or nothing about to get higher yields.

Remember, unlike a commercial bank which assumes responsibility for our savings deposited with them, the middle man in the example above has no such responsibility.





If a bank makes a bad loan decision, they have to bear the responsibility. 

The middle man in a crowd funding situation has no such responsibility. 

The risk is borne by the crowd (i.e. the lenders).





It would, therefore, be interesting to know if the middle man is putting a meaningful amount of money where his mouth is or is he just interested in the commission the deal could generate for him. 

So, if it should be a bad loan decision, he would feel the pain too just like a bank that made a bad loan decision would.






If the business is so lucrative and so promising, why can't the borrower get a loan from the local banks? 

To pay 20% per annum to lenders, surely, is a lot higher than what the local banks might charge in interest.

Of course, in a crowd funding situation, the crowd are lenders. 

They are not investors. 





They will not have a bigger share of earnings if the business venture should turn out to be very successful but, if the business should fail, they would definitely feel the loss.

When presented with a business proposal, always look at the risks involved. 

Don't think of only the possible monetary gains.




Related post:
Questions to ask when tempted by high yields.

"Unemployed but still need insurance because of my child."

Reader says...

I am 48 this year. I have a child, a girl age 9. 

I have lost my job for almost a year. 

I also have a life whole life insurance policy that is over 20 years. 





As I have no job at the moment, I am thinking of terminating it to help my cash flow.

You may say that my girl and my spouse need the death coverage but I am currently also paying for a term insurance of $1 million on my life with only death benefit. 

I feel that this should be sufficient for my family should I leave this world before them.

If you were in my shoes, what would you advise yourself? Thank you.

AK says...

I believe you have thought this over carefully.

I would also suggest that you find out how much a term life insurance for a smaller amount of say $500,000 might cost for your age for the next 12 years. 

This is an idea with your girl in mind. 





She will be age 21 in 12 years' time and will probably be able to take care of herself by then.

Ask about a reducing term which is less costly.

 A reducing term basically sees coverage reducing over the years. 

In this case, 12 years. 

Of course, the cost of such an insurance policy should also reduce over the years. 

You might even decide at some point that you don't need that $1m term life insurance.







"I am still of the opinion that we need insurance but we do not want to overpay for insurance. If I had known this in my younger days, I would not have bought whole life insurance or endowment products when I was in NS and as a fresh graduate."

Source: Comments Section of "Free ILP or Term Life?"





Related posts:
1. Free ILPs or Term Life?
2. Consider terminating whole life policies.
3. Why buy term? How much to buy?

How did STE who is married with children retire at age 44?

It has been a while since STE last wrote to me. STE is now enjoying his early retirement and has generously decided to share some thoughts with us here:

Hi AK ,

Yes , is me , STE. I have stop working since end last year and still on “sabbatical leave“ till now (it might become a “permanent leave without ending date“ haha ..

Escaping from 9-5 working environment is really something different and is a big change for me and my life style. Now, I have more time with my kids and doing more exercise (be more healthy now, I guess less stress also partly contributed to my better health, I used to have migraine and gastric for long time, but after almost 6 months after staying at home and doing nothing, all these medical symptoms seem gone. :)

Well, I thought of sharing my latest financial portfolio and some thoughts on investment strategies. 

My friends wonder how am I going to survive without a job for past 6 months. the answer is, yes, “Passive income through long term investment.“

Allow me to tabulate my “passive income“. Since day 1 of my investing journey, I like dividend very much, you may notice from my earlier post, the share I brought in early days on Malaysia stock market for counters like “Perlis Plantation / BJ TOTO/ PB Bank / Oriental Holding / Tan Chong / Malakoff /BAT etc “ were those with high Dividend Yield and good fundamentals.

Dividend Matters:

To show the importance of Dividend in process of wealth accumulation through investment, I would like to append below table. YTD accumulative Dividend and Qtrly dividend I received. I kept record on all the dividend I received since day one of my investing journey.

• Current Qtr dividend range from $40-50 K and total accumulated dividend is hitting $ 1 MIL soon
• About 42 % of total profit from our portfolio came from Dividend Income .
• Notes : Jump in dividend collected since 2009 was due to fund transferred from my Malaysia’s share portfolio and house since we decided to convert our citizenship. I was really "Lucky" as mentioned in my previous post on your blog.
• Notes : Quarterly dividend seems smooth out from early 2015 after Asia Pay TV change to pay their dividend on Qtrly basis.

Does size matter? Definitely. To have such amount of quarterly dividend, one needs to have quite substantial amount of portfolio but look at the chart, everything must start with “small steps“  and remember “Rome was not built in a day“. "Gamba Teh"!

What is your CAGR  and “power of compounding “ …

I think all the serious investor need to know what is their own investment CAGR. Well, our portfolio manage to achieve 11.13 % for past 17 years. Gone through various market cycles … dot com/ SARs/ 911/ GFC / etc. I hope my portfolio could sustain in next crisis.

Since market’s long term return on investing was around 8-9%, sorry, I have taken some of your money from market. Based on quotes from the book  “The incredible shrinking Alpha“, ”Alpha is a Zero-sum game (before cost ), meaning that for some investors to generate Alpha, they must exploit the mistakes of others“.

Picture worth more than thousand words :

Other than two investment strategies I have shared previously ie "Margin of safety" and "Mean Reversion vs Market Cycle", I would like to share few pictures which I deem important for all serious investors.

< On Market>

< Andre Kostolany: "Psychological create 90% market ">

"I can calculate the movement of the stars, but not the madness of men.” , Sir Isaac Newton

"Investors want certainty, and we cannot give them certainty. We can give them high probability; we cannot give them certainty" by Charles William Hamilton

Note: Of course, one needs to know how to avoid the “pit fall“ of investing in “hot or hype“ stocks from time to time.

< Sun Zhi : Know yourself , Know your enemy (market ), hundred battles, hundred wins.> 

< On Forecasting :>

Warren Buffet : “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

< Short term vs Long term >

• Short term is full of noise and volatility, only long term will show result.

When we invest in property or setting up own business, we could afford to wait for years to see the result, but our expectation change when we invest in stock. We buy today and hope the price will increase much tomorrow.

Patience. Wait for the durian to drop.

< Investing during Crisis time >

Investing in crisis time can be really rewarding and it has shortened my journey to Financial Freedom. I still hold most of stock I bought during crisis which gave me double digit Yield on cost.

Warren Buffett: 
The incorrect lesson often preached that volatility is a proxy to Risk is dead wrong. Volatility is far from synonymous with Risk. Volatility can create opportunities or risk at the same time.

I am holding approximately 20% cash now. I was 100% fully invested 2 years ago. Since then, I have taken some money off the table and keeping my dividend received as War Chest as well.
I always look at CPF money as “investing in triple A rated bond“. I’m not using any of my CPF money to invest at this moment but I will use that once crisis hits same as during GFC.

AK’s idea of maximising our CPF-SA account is absolutely right. $25K of interest p.a (both me and my wife ) is really a good money to accumulate in next 10 years before we hit 55 . By then , we would have more than $1 MIL in our CPF accounts combined. This is another cushion in case market crashes drastically. Not forgetting the "power of compounding ", the CPF returns around 3% average (combine OA/SA/MA) is good money in the long run.

Last but not the least, on <Money Management and Life style >

As I mentioned in previous blogs, our lifestyle is rather simple and I’m staying in a HDB flat and eating at hawker centres or cook our own meals. With current our dividend income, we still could save up to 60% from total dividend amount. I think that is another cushion in case market crashes and dividend drop by half. I guess we still can survive .

Even before we talk about investing, living below our means and saving the difference for investing is the most important or key to Financial Freedom .

Cheers to all and I hope all could have smooth and wonderful journey to achieve your own financial freedom (and knowing how much is enough in your life).

NOTE: I think some readers did ask me on what books I recommend to read in previous blogs where I failed to answer that time. Below is a list of books I would recommend for all the serious investors. One may notice that I would recommend more Market History and Psychology as compare to Economics or pure Finance / Stock analysis. As I mentioned before, Market is 90% of people and 10 of Economy. And History repeats itself without fail.

- END -

I am sure we get a bit tired of hearing the same old stuff from AK all the time. So, thanks to STE for sharing. Much appreciated. Some points STE made are great reminders for me too.

So, make some time to meditate on what STE has shared with us and maybe read a few of the books he has listed too. Go to a nearby public library or do a bit of charity by buying pre-owned copies from BetterWorldBooks.

We also want to remember what Charlie Munger said before:

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger

Oh, most importantly, congratulations to STE on his early retirement and improving physical health!

Related posts:
1. "Patience is the hardest part..."
2. Mystical art of wealth accumulation.
3. STE's story: Millionaire Next Door.
4. STE's story: Investment strategy.
5. STE's story" Personal finance.

How to meet 2 requirements with 1 act for OCBC 360?

A conversation with a regular reader of my blog:

Hi AK,

How's it going for you AK?

This is in regards to the OCBC 360 account and in particular to the criteria of generating an additional 0.5% interest amid the payment of 3 unique bills in a calendar month. 

I am wondering do you know that the topping up of our CPF-SA is considered a bill payment because I was so amazed when i discovered it.

My excitement behind this is that most bill payments are expenses and the topping up of our CPF-SA is not an expense at least in my opinion, considering that it is our own money at the end of the day.

In addition, for the younger ones who do not own a house and have minimum bills to pay yet (no utilities or mortgage), clocking three unique bills in a month may be a challenge. 

The discovery of this means that a single person like myself can essentially use a combination of monthly CPF-SA top up, credit card bill payment and mobile phone plan to qualify for the 0.5% additional interest!

What's even sweeter is that, other forms of mandatory payments can be soaked into my credit card component where an individual is required to incur a $500 monthy expenditure through an OCBC credit card in order to qualify for the separate 0.5% additional interest.

1% additional interest could never have been easier!

Warmest Regards,

P

AK asked for some clarification as his ageing brain couldn't keep up with the excitement:

Hi P,

I would like to share your discoveries in my blog very much. LOL.

I didn't know that topping up of the CPF-SA is considered a bill payment.

What "other forms of mandatory payments can be soaked into my credit card component"? Could you provide some examples?

Best wishes,
AK

P readily obliged:

Hi AK,

Yea for sure!

There is a very big list of organisations here, http://ocbc.com/personal-banking/help-and-support/payments-billing-organizations.html?#billing-organisations

Maybe using the word like "mandatory" may not be the most appropriate word, I think a better one would be "common". 

1) I paid a household utility bill which amounted to $50 in May with my Ocbc credit card (that's 1 out of 3 bills clocked to qualify for that 0.5% additional interest rate )

2) the same 50 dollars will also be counted as an expenditure on my Ocbc credit card since I used the card to pay for it. ( that's 50 out of 500 dollars of expenditure "soaked" into my credit card to qualify for the other 0.5% interest rate)

So my example previously was that for a single person who may not or has yet to own a property, may encounter difficulties when finding for 3 unique bills to pay. In this case, he or she may top up his cpf account and choose the option to pay via billing an Ocbc credit card to qualify for the additional interests. I like this option a lot because topping up our cpf is our money at the very end of the day isn't it?

I'm not sure would you find this useful since ur sa is probably maxed out, but for someone like me since I'm single, I think this is one of the very useful discoveries I have made for myself to qualify for higher interest rates on a savings account.

B,
P

If you have an OCBC 360 account, I think P has shared some pretty amazing stuff. :)

Related posts:
1. Attain financial freedom sooner.
2. Do the right things and transform our lives.
3. UOB ONE Account or OCBC 360 Account?

A chat on FDs, SSBs, OCBC 360 and CPF Top Ups.

Solace is a regular guest blogger here at ASSI and he has shared generously, without any agenda, his thoughts on personal finance and investment matters. He is sharing with us a conversation he had with a friend recently:

I had a conversation with a friend recently about FD, Singapore Saving Bonds (SSB), OCBC 360 and CPF.

Friend: u know hor, now got SSB, very good, very stupid to put money in FD.

Me: if u aim 10yrs, then it is better than FD, but if gt saving targets of 1-4 yrs, yearly renewal in FD for 1.X% is higher.

Friend: Then like that, isn't OCBC 360 better than FD. But I think I looking for long term risk free like 10 yrs.

Me: ocbc 360 can be better than FD only if u meet all their criteria plus they could change their terms and conditions anytime. since u want to look at risk free rate for long term time frame, why not consider your CPF SA risk free rate 4%?

Friend: erm, I don't trust or like CPF system, I might not even get my money back. I think Singapore bonds more "Reliable" than CPF

 

Me (internal thoughts): wah Lao aey, Singapore bonds more reliable than CPF? CPF is used mainly to buy govt bonds. Their nature is the same......

 

I gave up without speaking further. Cos need to spend too much time to explain further. Plus my friend might not listen to it as I sense that he is fixed in his views......

We need to do a very common sense when treating topping up SA

U know ppl in their 30s and 40s easily earn mid 4 figure pay. I am sure they hit the 7% tax bracket one of the year. U know what I talking abt right.

A 7% tax saving and a 4% interest, combine together, isn't it like 11% return in a year!

Sth we can't even get in equities market!

Or I shld say, majority cannot achieve 11% return in a yr....

Count it as my short version of guest blog haha

This is my version of "common sense investing" LOL

"Starting 2016, members 55 and above will enjoy an additional 1% extra interest on the first $30,000 of their combined balances. This is on top of the current 1% extra interest earned on the first $60,000 of their combined balances." CPF Board.

It seems that many more CPF members are warming up to the idea of topping up their CPF-SA and RA. This, I believe, is a good thing.

We should make full use of the CPF and make it a cornerstone in our plan for retirement adequacy. It is, quite simply, the sensible thing to do.

In investments, we go for low hanging fruits first. Why should it be different when it comes to planning for retirement adequacy?

Some blog posts in which CPF-SA was discussed:
1. Do you want to be richer? (2010)
2. Build a bigger retirement fund with CPF-SA. (2012)
3. Don't see money, won't spend money. (2013)
4. Upsize $100K to $225K in 20 years. (2014)
5. AK reveals his CPF-SA numbers. (2015)

Related posts:
1. Singapore Savings Bonds: Good or not?
2. Why fixed deposits over structured deposits?
3. UOB ONE Account or OCBC 360 Account?

Get ready for investment with Solace: here.

Happiness and slavery: A story about a lady in my life.

In replying to a comment here in my blog, I was inspired to share this story about someone I know. 

I know I have not been very good when it comes to giving protagonists in my stories a name. 

It is either no name or just a letter from the alphabet.

OK, for this blog post, let's see. 

What about "Posh"? 

I don't think I know anyone who has that name and it seems appropriate for the story I am going to tell.

Right, "Posh" it is.





I knew Posh for maybe a year or two but we have not been in touch for a while now. 

I remember she told me before that friends who don't bother to keep in touch will become strangers to her after a while. 

So, I could be in her list of "strangers to be" by now.

Anyway, Posh had a good career and made very good money. 







She knew how to have the good life too or so she said. A meal at a posh Japanese restaurant could cost $500 for two and she wouldn't bat an eyelid. 

An overseas holiday must be to countries where she could shop for branded goods at the same time. 

So, spending $20,000 on a 2 weeks trip to Italy? That was not extravagant to her.

So, it is not hard to imagine that for a person like AK who thinks that posh Japanese restaurants are the likes of Ichiban Boshi (and I recently paid $140 for dinner with 4 friends at one of their outlets) and that overseas holidays are meaningful if they are spent appreciating nature, trying street food, visiting cultural sites and museums, to feel very differently.

Posh eagerly anticipated social events, especially those which would allow her to rub shoulders with members of the high society. 

I was told that she built her contacts and made quite a bit of money because of the rich people she got to know. 

I actually appreciate that but not everyone is good at that. I felt like a fish out of water.

I still remember one incident when a wealthy gentleman told me, "If you help me to do this, I will let you drive my Jaguar." 

I wanted to ask, "Why would I want to drive your Jaguar?" 

Something stopped me and I managed a smile. 

The very rich are just different, maybe.





Whenever Posh closed a deal, she would go shopping and she would be happy. It could be LV, Gucci, Prada, Aigner or Salvatore. 

For the record, it took me a while to remember these names and if many of my grey cells died in the process, I wouldn't be surprised.

Now, don't get me wrong, I know what retail therapy is about. 

However, for AK, if he needs retail therapy, he goes to a supermarket. 

I could end up buying some atas grocery. I might buy strawberries instead of apples, for example. 

Actually, yesterday, I bought some dried figs which cost about $7.00 for 200 grams. Atas!

What led to the ice age in my friendship with Posh was when I told her that she was a slave. 

She was offended. 

The more I talked, the more offended she was.

Posh made good money, like I said. She was happy when she spent money on expensive goods and services. 

Was there a problem? 

The problem, to me, was that the happiness was bought with money and that it was temporal. 





Could there come a day when she ran out of money and she couldn't buy happiness anymore?

Running out of money? 

Posh couldn't imagine that. 

I felt that it was more likely that she could not accept that. 

Posh was no bimbo. 

She was very intelligent. 

She knew.





We might understand something but for reasons only known to us, we might or might not accept it.

Specifically, I told Posh she was a slave to materialism. 

She said slaves were unhappy people but she was happy. It was wrong to call her a slave. It was a matter of perspective. 

I couldn't disagree with that.





So, I said she was a happy slave and that I was sure there were many other happy slaves like her in the world.

Rather abruptly, Posh left the conversation.

Alamak, I forgot to mention how much money she regularly spent on atas cosmetics and facial sessions too. 

Oh, never mind.




Related posts:
1. Wage slaves should be fearful.
2. Buy a $500,000 watch.
3. How to retire comfortably?

Greater financial well-being is not beyond most of us.

I know that some people are very critical of me. 

Some have also been verbally abusive. 

I used to confront them (online) but, these days, I don't bother.

These critics say that I try too hard to save money and that the savings couldn't possibly amount to anything significant. 

I must admit that they could be right. 

What did AK just say? 

Well, I am just being rational.

To the very rich, $5,000 a year might indeed be a drop in the ocean and I do know that there are some very rich people reading my blog. 

They are millionaires and many have income of $50,000 or more a month. 

Yes, not in a year but in a month.

我的天阿!

Well, most of us are not like that but it does not mean that financial well-being is beyond our reach.

Take an hour or two to reflect on the way we are spending money and explore ways in which we could do things differently, if we have not done so before. 

We could surprise ourselves with how much money we could save if we just do two things:

1. Cutting down on wants. 

"Is it something we can do without?"


Example: 
I really want a home theatre system but I know I can do without it.

2. Simplify our needs. 

"Is there a less costly alternative?" 


Example: 
Meals at home or the kopitiam is just as good as meals at restaurants.

The Chinese people have a saying:

"万丈高楼从地起。"

It means that even the construction of very tall buildings will start from the ground up.

Greater financial well-being could be closer to most of us than we think.





Related posts:

Habit to becoming richer.

"Keep our needs simple and our wants few." AK

Buy a condominium unit or stocks for investment?

A conversation with a reader:

Hi Ak71,

I would like to get some advice weather I should get a private apartment and do long term investment at the same time.

As for the apartment I would like to rent it out and sell it. I am still very green in these area. Hope we can have a small talk help me understand and look at the bigger picture.

Some information total cost of the unit 4xx k, getting 80% loan from bank.  

Regards,

L

My reply:

Hi L,

Welcome to my blog. :)

I won't say too much. I will just ask you to consider the following:

1. You want to go to my blog's right side bar and look for the box labelled "Investing in real estate".

2. If you are interested in long term investment for passive income, you might want to go to my blog's right side bar and look for the box labelled "Passive Income: A Journey."

3. Of course, make sure you have your personal finances in order first before proceeding to try your hand at investments. This is very important. Anyway, you might want to look for the box labelled "My Methods and Philosophy."

If you read up on the links in the boxes suggested, you will get an idea what I might say to you in your case. ;)

Best wishes,
AK

I have published more than 2,000 blog posts and counting. Do a search and you might find the stuff you have in mind. Please read disclaimer found at the bottom of this blog too.

Related posts:
1. To rent or to buy? Rule of 15.
2. To retire by age 45, start with a plan.
3. How to have peace of mind as an investor?
4. When to buy a private residential property?
5. Ask two questions when buying an investment property.