Bonds

Bonds, also known as Fixed Income Securities, is a debt instrument that may or may not give you fixed interest payments (coupons). Most bonds pay interest on a annually basis and the full principle on maturity.

Some variants are:

• Zero-coupon bonds
  Those bonds that does not give fixed interest payments but are sold at deep discount of the maturity (par / face) value. In other words, you don't get the fixed interest payment but do get them at maturity as these interest are paid in terms of the discount, and you only get them at the end of the maturity.
• High Yield / Junk Bonds
  These are in fact from the name itself, junk bonds. They do not provide any security in default payment and the company selling such bonds gives high interest as their credit rating is lower than BBB in general.

Please be aware that Bonds have certain risks and are never "risk-free" as anyone would claim. If anyone ever tries to convince you that that it's "risk-free", make it a point to get their name card and make them write that term down into the contract itself. If they refused to, especially in writing that term down, it's probably a scam. Try asking them, which line in the contract says that it's "risk-free"? Just remind yourself of the lehman brothers' case and be wary of such things.

Some Risks of Bonds includes:

• Interest Rate Risk (when interest rate increase, bond's market price will drop and the inverse if true)
• Reinvestment Risk (you can't be sure if you can reinvest the interest payment in a interest rate of something similar)
• Timing / Call Risk (if you bond has a call option that the issuer can redeem your bond before maturity, you'll lose all future income when the market interest rate drops)
• Default Risk (the issuer may go bankrupt like Lehmen Brothers, or may be unable to pay off your interest / the maturity value on a temporary or permanent basis.)
• Liquidity Risk (If the market lacks people that are willing to buy over your bond readily, you may face such problem if you needs the money and is unable to sell your bond.)
• etc...
  

Treasury Bills

All the below is based on Singapore Govt Treasury Bills, part of Singapore Government Securities.

This is the safest type of instrument especially if the Treasury Bill is issued by our Government. In general, this is something which is considered to be risk-free as it means borrowing our government money. Minimum investment size is $1K depending on where it's being sold.

Such investment instrument is issued on a discount on its maturity value by our government. The investment period is 3 mths and 12 mths. Liquidity is available unlike fixed deposit, they can be sold before maturity. It's just a matter on how much interest you'll get from such sale. But due to the low risk involved, there interest rate is not very high.

The interest aren't very high according to the statistics I've seem today. You may want to put them in those higher interest rate banks instead.

Term Insurance

The cost of such insurance depends on your age but it's by far the cheapest form of insurance available. Normally it covers death and total permanent disability only. Some covers critical illness as well but you will need to confirm this with your agent. There are some policies that you can buy the critical illness as a rider of the term plan. Read more on critical illness.

If you wanted to be covered permanently but is currently can't afford to do so, try finding a term insurance with convertible option that allows you to convert it into permanent insurance without the need to prove that you are still healthy. As in as long as you gets insured and remains insured for the term insurance, you can convert it into a normal life insurance that has cash values built up on the dates available for conversion.

CPF Education Scheme

Hmm as I've mentioned before, unlike normal Tuition Fee Loan and Study Loan Schemes from the bank, CPF Education Scheme incurs interest from the moment it's withdrawn as this is to ensure that the person of whom you borrowed that money from will continue to maintain their original retirement savings. Although some felt better as it means borrowing money from their parents but.. If you can afford to repay back majority of your loans after graduation, it's better to take the bank loan after all. But whichever is the case, it's best to secure your loan repayment from the moment you take it using term insurance policy so that it's a lot more affordable and value for money during the schooling term. After all, we want to protect our family from the debt we incur in our sch fees and we do want to protect their retirement funds as well.

Just make sure that your calculations and plans is right. With the right plan to repay the debts and the right policy bought, that's the best thing we can do at this point in time. :)

Im$avvy Quiz

Get out of Debts Now

This is about how to get out of debts now. Yes, immediately. How? Start from today and you'll be free from the crutches of your debt soon. How soon depends all upon your self discipline and the amount of debts owed.

First of all, take a piece of paper and write down how much debt you have and how much savings you have now. You may wonder why how much savings.. well some people do have savings which are earning the pathetic 0.25 to 0.5% interest from the various banks, at most 2% but their debt are charging interest of 2.6% or even more a year. That's why we need to write them down and see what we can do about it.

Next, calculate how much you spent a month to figure out how much emergency fund you need to keep. The rest will go to debt repayment to gain from the savings in interest rate charged by the debts.

Calculate your monthly expenses to figure out what's wrong:

1. Take a piece of blank paper with lines. Draw a wide left column (Desc) and a narrow right column ($) and label them.
2. Divide the sheet into sections: Food, Transport, Housing, Parents, Utilities Bills, Credit Card Bills, Insurance, Entertainment, Loans, Savings or Investments
3. Put all your Groceries, Dine Out and other food related expenses into Food category.
   Look closely at dine out and see if you can cut this part of the bill.
   
4. Put all your transportation related bills into Transport Category.
   If you have a car and your debt is just the car, consider changing to a smaller car or even sell the car, if it's worth selling.
   If you are taking lots of taxi, try cutting down and take other types of public transports.
   
5. Put your rental / housing installment, and other housing related charges under Housing Category.
6. Put the amount of money you contribute to your parents under the parents category. Add in the average mthly "bonus" or extra money that you give them either in lump sum or 1 time off.
7. Put the phone, internet, tv license, water, electricities etc under Utilities Bill.
8. Put the average monthly credit card bill that you need to pay under Credit Card Bill section. If this is the cause of your problem, pls cancel all your cards immediately. Cut them all up so that you won't use them. Start paying off these bills as soon as possible. You may want to use fund transfer to save on the interest for the time being and start paying them off using that fund transfer installments.
   
9. Put all your insurances payments in monthly average terms under this category. If this amt is > 20% of your monthly pay, you may want to revise all of them and see if you really need them or if you should convert them into something else so as not to spend too much on them.
10. Put all the money to buy presents and treats for others, watch movies, concert, buy CDs, DVDs, VCDs, wedding dinner, birthday party, house warming, KTV, etc under Entertainment.
11. Put all your loans such as study loan, car loan, housing loan, etc well just the mthly amt you spend to pay them off in the Loan section.
12. Put the balance of your monthly pay into the savings section. This amount must be positive if not it indicates that your expenditure is higher than your income. If there's a investment portion of it. See if the investment returns are higher or the debt interest is higher. If the returns are higher, perhaps it's ok to pay off the bills slowly. But please be reminded that not all the time, the investment returns will be this high.

Ok now calculate the amount of expenses incurred every month, don't add in the savings portion unless it's a regular savings plan that you can't stop servicing. Take this figure and multiply by 3 or 6 depending on the type of provision you wish to set. Let's name the result as X.

Ok.. Deduct X from all your current savings and you'll find out if you lack emergency funds (Y).

If that's the case, try cutting down your expenses as much as you possibly can such that you don't compromise your life too much like leading a friguid life, just to scrimp and save that little amount to pay off your debts.

Look at your debts and loans amount now. Ask yourself, which is the loan that you wanted to get out of most. Write the amount down and devise a scheme on how to pay them off using your monthly savings 1st that's not supposed to be part of your emergency fund. If you lack emergency fund but yet u want to pay off your debt, in that case just keep about 1 mth worth of expenses and use the rest to pay off your debts 1st. Clear as much debt as possible so that you can get out of it soon. After which, the emergency fund will follow.

If you have the habit of buying stuff and you just need to buy them to feel satisfied, try transferring the amount of money that you intend to spend in the buying habit into a separate account. Use this money to pay off your debt at the end of every month. You will still get a type of satisfaction from it as it's your freedom from debt that you are buying now. Nothing beats that. Read other chapters as I furbish this site after you cleared your most wanted to clear debts. The whole point is in the desire to be debt free and not a is ok to have some debt type of attitude that you'll need in order for things to work out your way. It's your life. Live it the way you want it to be!

Endowment Plans..

Well, when buying endowment plan, there are really plans out that that seems to be out to con our money.. Imagine, an endowment plan that gives you less than the amount you put in during maturity. The only good thing about it is that it does gives you a basic coverage in the event of death etc. At least not so bad ba.. But the whole point is.. how can the plan give you less than what you put in? This might be the case especially if the plan is bought at a high age and the plan is bought with cash back every 1-2 years. Please beware..

I had a very bad experience with AIA 'cos that's what my dad's endowment plan is. Firstly, his policy gives him a negative return and the potential returns on maturity decreases every single year. Yup, I saw it dropping every time my mum ask me to read, when I told her, she said no choice, since buy already better don't terminate. Then the policy price go up every 5 years, thanks to the 5 year level term coverage. The return, no matter how I calculate also very weird, I think it's about 1.5% or something like that. Confirm cannot even beat inflation one.

I'm not too sure about investment linked type of endowment plan but at least for those participating or non-participating endowment plan, please kindly do the following basic calculation on the returns.

Total yearly payment:

e.g. 2400 (*Please remember to add in all the riders it's normally not calculated as a set in the illustration)

Duration of plan:

e.g. 20 years

Total payment made:

e.g. 48000

Total Cashback: (if any)

e.g. 2000 * 10 (i.e. 2000 every 2 years) = $20000

Total value on maturity:

e.g. 48000

Total Profits:

e.g. $20000 (in simple calculation terms it's about 3.5% per year of interest 'cos we only divide by 10 instead of 20 as the money is not paid in 1 lump sum (Not bad ba at least better than fixed deposit.)

But this is only what our example illustrates. If your return is confirm to be what the document says it's supposed to be then it's still not too bad. At least it's a 3.5% per annual so not that pathetic. But do take note that if inflation is 3% and your return is only 3.5% it just means that your money didn't depreciates, maybe it appreciates by 0.5% per annual. So if inflation is 5%, it means that your money still depreciates by 1.5%. Do ponder over this.

Also take note and ask if the rider will increase in premiums along the years to ensure that the calculation holds in years to come. Please ensure that if your agent tells you it's level insurance they write it down at the document they pass to u and sign off as the proof.

Life Insurance

For Life Insurance, there's various types of them namely:

1. Whole Life Insurance (Such insurance comes mainly with a much high cost but it does entitles you to the "Cash Values" that it builds up. "Cash values" is the amount you will get back should you decide to terminate the policy. If you are into such cash values and wanted to make use of it to save up as well as to be protected, or you wish to be covered and protected for the rest of your life. Then, this is your option)
   
   • Non-Participating
     This is the cheapest in term of premium under this category as the sum assured is fixed, with everything is guaranteed as listed in the contract. So far, I haven't encountered any of such policies available in Singapore yet. If you have seen any, let me know as I'm interested in looking at what's available.
     
   • Participating
     This type of insurance comes with bonus attached that is given and "locked-in" every year on policy anniversary. Which means, once the bonus is given to you, it will remain as part of your "Cash Values" or Sum Assured for the life of that policy. They either gives you bonus calculated purely based on the Sum Assured or calculated based on both existing bonus and the Sum Assured. But of course with such features, comes with a slightly higher price than the non-participating one. During in economic downturn, insurers might not give you bonus but they can't take away your existing bonus. So it's pretty "safe" for in my opinion. But due to the "non-guaranteed" component of things, it's still slightly risky just that it's not as much.
     [If you prefer the insurer to take at least half of the risk (why half? 'cos about 1/2 is guaranteed and half non-guaranteed mah) on your behalf and wants to be insured for life with some upsides in terms of bonus when the insurer makes profit, this may be for you.]
     
     
   • Investment Linked
     This is the riskiest under this category. But it comes with clarity in the expenses etc. However, for such policy, I always felt that one is better off buying the Unit Trust itself along with a Term Insurance especially so for those endowment Investment Linked Policies. 'cos the charges of the underlying unit trust is slightly lower and 100% of what u invested goes into the Unit Trust 'cos the coverage will come from the Term Insurance of course. But, when it comes to whole life policy, then it's a different story.
     [If you are looking for the upsides of "higher" potential returns, savings and insurance coverage for life and don't mind risks, then this may be for you. But I still think that buying term and invest the balance is a wiser choice. Read more on buy term and invest the difference.]
     
     
2. Term Life Insurance (Such insurance is relatively cheaply available in the market but is purely protection for your dependents in the event of death and total permanent disability only, DPS [Dependants’ Protection Scheme] is an example of a cheap Term Life Insurance but it only covers from 16 to 60 years old.)
   The thing about this type is that it does not cover for life. Usually up to age 65 but who really needs coverage after age 65? Your kids / dependents should have been independent by then.
   

In this section, only purely life component of the insurance will be addressed for. The critical illness part will be addressed under "Health / Critical Illness Insurance Coverage" section in the near future.

Study Loans - University

1. Before uni:
   
   • Guys:
     there's NS that feeds you, provide shelter but gives minimal pay (assume 24mths * ($450 - $100 of expenses) = $8400).
     
   • Girls - JC: you'll get about 6 mths worth of holidays ($4.8K), well, get an admin job or something that earns more since it's 6mths straight). Well there'll be a shortfall of 3.2K in our assumption. Please bear this in mind.
     
   • Girls - Poly: No holidays but you may want to choose to work for 1 year after poly before u get into uni so that you can save about $9600 even if it's - $1450 from the poly plan there's about $8150). Well for most courses, you'll save on 1 year worth of school fees ($6K) so it doesn't matter that much after all. Just that the holiday earnings in point 2 needs to deduct about 3 mths ba ($2.4K).
2. Assume that it's the same so we will just take $8K for our assumption.
3. During uni, there's holidays and lots of it. It's on the average about 4 mths a year worth of them, subtract the last year 2 mths. This makes it 14 mths, -4 mths of assuming attachment. Well then make it 10 mths.. but assuming that 2 of the mths you can't get a job so.. make it 8 mths. (8 * 600 as undergrads should have the ability to get more out of part time pay = $4.8K)
4. During attachment, you should be able to get about $700 - $1K worth of pay for about 3 mths. It's not a mistake it's just a buffer sort of thing just in case. (3 * 700 = $2100).
5. We are still short of $9100. Not to worry 'cos with the 6 - 1 year worth of grace period, you should be able to repay the debt within a year. Even without the grace period, you will only incur about $400 worth of interest from the bank loan in this case as compared to the CPF loan if you take it up. Yes.. Why we can get 9100 in 1 year. An average uni grad should be able to get a $30K annual pay job. What's $9100 is only 33% of it. You can spend the rest of that 47% after 20% of CPF. No worries.. :)

Whichever the case, overall it should be quite ok. Unless you really cannot get a job no matter what. In such case just lower your requirements further. Please dun da bao so that you dun waste money unnecessarily.

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Study Loans - Poly

1. Before you get into poly, there's a 3-6 mths break. Yes, make full use of this time to get a part time job, be it MacDonald's, KFC, sales girl / man at the boutiques or any other job that you don't mind doing as long as it's morally right, it should give you some experience in the long run and a step closer to your better future. (3 * 400 = $1200)
   
2. During poly, there's usually long holidays break. Yes, again, make full use of this time to get the earn more money, like the above step. (Assuming a 5 mth of job during the total of about at least 6 mths worth of holidays and $400 a mth. 5 * 400 = $2000)
   
3. During poly, there's also a 3 - 6 mth attachment. Yes, this will bring you some income, from 450 a mth onwards. (3 * 450 = $1350)
4. You should be about $1450 short after executing step 1-3 and have graduated. Yes, take this opportunity to get a job. You are graduated so get yourself a job. The application for job should start about 2 mths before your last exam. So that the holiday period can be a buffer in case you can't get a good job before it's time to pay off your bank loan.) I understand that the market is bad but it shouldn't affect low level employees like us too much.. 'cos it's always business as usual. At most you'll get a lower paid job but it's ok.. Suffer for about 3 mths and you're debt free!! (Assuming a $1.5K job with $1200 take home pay, you should be able to pay off the debt within 2 mths, assuming a $400 per mth expenses) After which, you can then quit and get the job u wanted more..

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Study Loans

Debts is a common problem in Singapore, especially so for those that didn't get scholarships or bursaries to pay off the majority of their studies and didn't get sponsorship from their company or parents. That's all I can think of now.. But if you are one of them.. This may give you a helping hand. This only applies for local govt schools such as poly and local unis.

Prevention Methods:

1. CPF Loans
   
   This is one loan that is preferred not to be taken unless you can't get a bank loan. Why? 'cos it charges you interest the moment you loan the money out, for every school fees payment term. The interest should be around 2.6% per year compound and the moment you graduate, you are already needs to pay about $320 worth of interest (estimated based on 2K sch fees a year with 3 years of studies and 2.6% interest rate) for poly and $1600 worth of interest (estimated based on 6K sch fees a year with 4 years of studies and 2.6% interest) for uni. And the interest continues to compound while you pay off the loan. Yes, some may argue that it's ur parent's money that you are borrowing and you are not worried. But why borrow from them when.. the same amount of money can sit in CPF and earn a similar amount of interest for free?
   
   
2. Bank Loan
   Well this is the loan that I recommends if and only if you are willing to get yourself debt free within the minimum time possible. Why? 'cos bank loans are the only interest free loans during your period of study. Further more, if you are willing to shop for it. You may get yourself something like another interest free period of 6 mths to 1 yr, depending on the economy and our govt's ruling.
   Yes.. This is the best loan you can get apart from a loan from your parents to pay off the study loans as soon as possible. But.. How to do it?

Yes.. how to do it is the main issue discussed in this article. If you want to do it and is willing to do it for all it takes.. This is what you need to do. But please pay off the debt with all your savings 1st only after u secure a job. To ensure that the bank is not mislead that you have the ability to pay off your loan so they can start charging you interest or bill you for the loan.

There are mainly 2 types of path you may want to take:
Poly
University

I'll talk about the cure part another day.

I M $avvy

http://www.cpf.gov.sg/imsavvy/infohub.asp

Financial Info Hub by CPF Board it has some of the stuff you will want to know about financial.

What you should know about the categories covered

• Cash Flow / Debt Management
  
  
  • Inflation (Covered)
    
  • How to manage your cash flow without getting in debt
    
  • Get out of Debts
  • Avoid Bankruptcy (Covered)
• Financial Planning
  
  • Plan for your kids (Covered)
  • Plan for yourselves
  • Protect your loved ones
    
  • Get the most out of recession
  • About recession (Covered)
• Housing
  
  • Housing Loan
    
  • Re-financing your home (Covered for overseas home)
  • Flats demand? (Covered)
  • Which type of housing should you get?
    
• Investment and Insurance
  
  • Life Insurance
  • Health Insurance
  • Endowment Plans
  • Stocks
    
  • Unit Trust
    
  • ETF (Covered)
  • Bonds
  • Money Market Fund
  • Treasuries Bill
    

I've plans to talk about those uncovered areas in the near future when I've enough / more knowledge about it

Singapore Medisave Approved Medishield Plans

MOH: Medisave-approved Insurance

Here's the summary:

We have 5 companies providing such Medishield Plans in order of my ratings towards them:

1. Great Eastern
2. NTUC (Provides Letter of Guarantee to Restructured Hospitals and Institutions)
3. Prudential
4. AVIVA (Does not absorb cost to obtain medical records to process claims)
   
5. AIA (Does not absorb cost to obtain medical records to process claims)

(I'll further rate them after having more details on their plans info, currently they are being rated by efficiency in claims i.e. cumulative returns rate and mean return rate.)

My ratings towards them in terms of pricing (Based on age 19 - 30, 100% coverage if possible):
(Medisave, Cash)

1. NTUC Enhanced Shield with Rider (Enhanced IncomeShield Advantage: $95, Rider: $147 or Assist Rider: $100)
   (Note: Rider (For Renewal only), now cannot be subscribed anymore. Assist Rider (Current for purchase) - you will pay for the 10% of the (co-insurance + deductible) part, up a maximum of $2500)
2. AVIVA (MyShield Plan 2: $104.39, MyShield Plus: $36.60), with free kids coverage if both parents holds the plan (other terms and conditions applies) But the catch is that it's only 100% co-insurance coverage, which means the deductible needs to be paid by urself. (Note: Deductible are charged at $1K - C, $1.5K - B2, $2K - B1 and $3K - A1/Private, plus another $3K if day surgery is required. It's usually higher than co-insurance itself unless the medical bill is really very high, i.e. > $10K - $30K, or even $60K if surgery is involved)
3. Great Eastern (SupremeHealth A Plus: $99 , Total Shield: $209.28)
4. Prudential (PruShield A Plus: $102, PruShield Extra: $219)
   
5. AIA (HealthShield Gold Elite: $149.80, Essential Rider: $201.20)
   

Please note that the above rates are all subjected to changes by the insurer. Also the rates for different age group varies, i.e. the premium increases with a higher age group. It's purely up to the individuals when it comes to which policy they prefer, my opinions are just on the good and bad points of things.
(Correct as at 8 May 2009)

Welcome..

Hi all,

A warm welcome to my new blog. I've decided to start a new blog to provide people with free financial advise via my blog of course.. Feel free to leave ur comments. I've requested to moderate the comments so. Leave me ur email or contacts if you would like me to get back to u on anything otherwise, just feel free to drop a comment and I'll post a reply to it as soon as possible. ;)