Alvin Soong’s Blog

I summarised some key points from a financial planner who keyed in his points in planning financial planning. In the process, also added some of my points.

1. There are safer higher returns ways than to use fixed deposits
Almost everyone has a need for a safe place for cash. A low-risk investment unit trust that calls itself a ‘money market fund’ that comply with strict guidelines on quality, issuer and tenure, outperforms a fixed deposit if you can live without a guaranteed return. Currently, a 12-month fixed deposit promises you a paltry 0.45 per cent or so. In contrast, the LionGlobal SGD Money Market Fund is averaging around 1.3 per cent and the Phillip Money Market Fund around 1 per cent.

2. I invest when most investors are pessimistic
Crises are good times to buy equities. For example, the Legg Mason Southeast Asia Special Situations Fund is a high beta (moves rapidly compared to the broad market) and the fund manager seems to benefit more than most from rising markets. This fund together with other well-diversifed portfolios gives a good decent returns over the 2nd half of last year

3. Buy only what you understand.
If not otherwise engage the services of a wealth planner/ financial adviser or the experts to do it for you. A lot of people do not know what they are buying and even if they do, they spend a lot of time analysing the financial statements or technical sharts of the company.

4. See fear as a way to hedge
VIX is short for the Chicago Board Options Exchange Volatility Index, a measure of implied volatility. It is sometimes called the ‘fear index’, and is generally high when there is negative sentiment in stock markets. During the recent crisis, the VIX hit 80, compared with its more usual range of 10 to 30.

5. Central Provident Fund (CPF) Ordinary and Special Account savings may be beaten
Over the short or medium term, the current rate of 4 per cent on the CPF Special Account (SA) that is pegged to the government bond, is an extremely good deal on a risk-reward basis. The only rational justification for eschewing the 4 per cent and investing under the CPF Investment Scheme is to have a very long horizon and choose a fund with as much equity exposure as is allowed. An important point here is that returns must be viewed in the context of their risk. A 4 per cent return in Singapore dollars with no risk is great. However if one is to look for higher returns in a diversified funds over the long term (economic cycle of 7-10 years), it may outperform this benchmark.

6. Whole life insurance is a good diversifying investment
It’s been fashionable in the advisory industry to knock whole life insurance. But the smoothing ability and long-term investment horizon of insurance companies shouldn’t be sniffed at. A whole life plan is a good instrument to diversify your portfolio and can insure you for life and pays out when one is disabled/critically illed. However, if I were looking for only protection, I would certainly include term plans in the insurance mix.

7. Try not to take a car loan
Anyone intending to buy a car should try to avoid or minimise a car loan, as they are much more expensive than they may appear. A typical car loan at 2.45 per cent represents an effective borrowing rate of almost double, around 4.65 per cent. Why? All the car loans I have seen charge interest each year on the full amount borrowed, rather than on the balance outstanding. If you avoid borrowing at 4.65 per cent, that is equivalent to investing in a product that guarantees you a 4.65 per cent return. Such a product would be a smash hit if launched today. Hence, not taking a car loan beats even the CPF SA savings rate.

8. I believe short-term returns are mainly random. Take a long term view
No one I have heard of forecasts markets accurately and consistently, nor has anyone been able to create a reliable model of economies. Moreover, the past is a poor guide to the financial future. Investment guru Warren Buffett reportedly said: ‘If past history was all there was to the game, the richest people would be librarians.’ It’s best to take the view that over the short run (for example, the 12 months of this year), there is a huge random element affecting the outcome of the economy and stock markets. Have a long term view when it comes to investing.

9. Alternative Investments
While some look to the foreign lands and properties for investment. One should study the following before investing:
i. types of ownership,
ii. types of land titles (freehold or leasehold),
iii. taxation and acquisition fees,
iv. ownership and selling restrictions

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