What To Do With My AIA Policy Now?

Lately I bumped into two friends in a shopping mall. We chat a bit and the next question they asked me was about their AIA insurance policy. They wanted to know my opinion on next course of action - cancel or otherwise. I don't really want to share my opinion as I don't want to be responsible of negative outcome. In fact, some of my ex-colleagues in the Army were asking me what to do with their policies. Should they follow the crowd?

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So before I share my opinion, I would like to disclaim my liability (like all funds or investment products). Make no mistake please, that I'm not a professional, qualified or track-recorded financial expert. Yes I may have experience in equity investment, studied investment management but that's about all. But I have addition skill - commonsense. Like my ACCA lecture used to say: "commonsense is the least common human attirbutes".

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Anyway, if you want to cancel your policy, there are a few things you must understand. Firstly, does your policy comes with cash value? Does it comes with returns? For example, a living policy carries cash value at the end of the policy assuming the policyholder never claims it. It therefore, form part of that policyholder's retirement plan. If you cancel by monkey-see-monkey-do, most probably you'll incur a loss as the policy takes a long time to breakeven and to eventually make a positive returns. Usually it takes more than 10 years. In addition, if you want to switch to another insurance company, you'll also suffer one or both of these:

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1) Due to age and medical history, you may not be able to get the same protection with the same costs.

2) Investment in insurance products such as a living policy requires considerable amount of time to breakeven and to turn into positive contribution. The benefit of a living policy is the protection for critical illnesses and that it form part of a policyholder's retirement, if the policyholder never make a claim on it. And time is needed for it to grow into a big retirement savings. This is the power of compound interest - time is of essence. Well, if you're already 40 or 50 plus.... you certainly running out of time to see your new living policy turned into significant retirement savings at the same costs.

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AIA recently publish in the paper to calm all policyholders by assuring that they have sufficient assets to meet their obligations. Under normal circumstances, I would not take their words and will cancel the policy right away, if I have one. Simply because I don't trust the management's statement. BUT, MAS has also assured Singaporean on AIA's asset to meet obligation. I trust our government. I trust our financial system, and all the rules and regulations governing the financial industry.

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So my ultimate conclusion? Don't cancel your policy with AIA - this is what I told my friends (with disclaimers, as usual). In any case, the damage will be bad if a policyholder cancel it right away - may not get much out of many years of premiums. In that case, might as well trust the MAS and bet on it, that everything will be fine. Lastly, of course if your policy doesn't carry a cash value (no return) such as the term policy, then it doesn't matter if you want to cancel, assuming you are as healthy as before.

The Rich Have Money Work For Them

Lesson From "Rich Dad Poor Dad"

I was reading Robert K's "Rich Dad Poor Dad" again recently. Just like the Bible, we should frequently revisit these teachings to remind ourselves of things that we know but may have forgotten due to our “busy schedule”.

Some of my friends asked me if I have earned my first million after all these readings, sharing and philosophy. I told them I am still working on it. I don't even have a few hundred thousands in my bank account, talking about millionaire! But that does not means I suppose to be ignorant; that does not stop me from reaching that goal – financial freedom. I guess it's like watching TV. My all time favourite ACCA lecturer Mr Fred Keer used TV as an example to illustrate that not knowing how something was constructed does not stop you from using it.

……ok may be this is not a good example. Pardon me.

Solving Long Term Problem

Let me quote page 49 of “Rich Dad Poor Dad” to you – “Remember what I said before: a job is only a short-term solution to a long-term problem. Most people have only one problem in mind, and it's short term………”.

Recently, one of my colleagues mentioned that her husband intends to switch to another company for job security reasons. I overheard it and I kaypo (nosey) and asked her whether if her husband's decision will make any different. This is because job security problem occurs everywhere and everyday. Remember those days when we used to say that the SAF (the Army) offers iron rice bowl? Not any more. Today and most of my ex-SAF colleagues are in the commercial sector. I asked my colleagues again whether if she knows the bigger problem? I ask her why would she (and her husband) wants to earn a higher income? Is it for bigger house or car, or to maintain bigger monthly bills?

Fortunately, she replies that she is aware of the bigger problem – the long-term problem as described by Robert K. If you ask me why I work hard for promotion or seek other sources of income, I assure you that it is not because I need it to support my bills. In fact, my close friends know that I am debt-free. My living cost is extremely low and I can survive working in MacDonald – yes I'll be poor but I can survive.

I want higher income so that with extra money, I can use it to “create” more money. I want to use a short-term solution (higher pay) to solve a long-term problem –financial freedom. Unfortunately, fortune god has not been kind to me during recent S$10 million TOTO draw. I'll try harder next year. Having said that, you must also know how to make your money work hard for you. Otherwise, even if you are rich, you money will leave you someday, somehow.

“The Poor and the middle class work for money. The rich have money work for them” – Rich Dad Poor Dad.

Example Of My Uncles

This afternoon, my uncle came to my house to deliver his son's wedding invitation card. This uncle is my mother's 2nd elder brother. The wedding will be held at in a restaurant in Boon Lay Shopping Centre. For those who stay at western side should know that Boon Lay Shopping Centre is a rather old shopping centre and a little bit run down. It is definitely not like Jurong Point or Causeway Point. I don't mean that couples need to show off and hold their wedding dinner at Fullerton, although I had been encouraging my colleagues such as Kim Song and Valarie to do so. Anyway my point is that all my friends and colleagues will usually hold their wedding dinner either in a respectable hotel or at least a restaurant in town. Any place but a restaurant in Boon Lay Shopping Centre. And please do not think that I am despising them. Let's me share with you a little history on uncles and you'll understand what am I talking about.

When I was still a boy, my four uncles were relatively rich. I don't think they were millionaires but certainly, they were cash rich and had very strong purchasing power. They were able to spend on big car/house, visited big restaurant frequently, and gave bigger red packets during Lunar New Year etc. I understand from my mother that these uncles were doing construction work. I don't know the details but I presumed that they were sub-contractors. Before the slump of the construction sector (that recovers now), many people had earned big bucks by just bidding for a small portion of a construction work and then employed foreign workers to get it done. It was a highly lucrative work and as a result, all these sub-contractors were relatively rich. Big house, big cars, holidays and nightclub were common phenomenon.

Unfortunately, most of them didn't make it today. After the slump of the construction sector, many either bankrupted, or back to the “employee community”. In fact, many listed construction companies had either gone busted, delisted or re-structured. One of my company's drivers also used to be a sub-contractor. He shared with me that those years, his annual income topped $100,000. It was easy money and he spends more time in nightclubs. Today, he is a driver earning a humble income now.

Back to my uncles. Of the four brothers, the eldest passed away a few years ago. According to my mother, he was the ringleader and after he passed away, the rest could not survive. However, I think the slump is the main cause; the outcome is most likely to be the same even if my eldest uncle is still around. The remaining uncles now earn a humble income as a taxi driver. It will be very difficult to revert back to employee status after being a “boss” for many years.

Robert K's Lesson #1: The Rich Don't Work for Money

IMHO, my uncles used to be rich but they continued to work for money. When they are rich, they are not suppose to keep working for money; they should let their resources work hard for them. Instead, with more cash then, my uncles enlarged their spending power and enjoy life in the short term. They failed to divert extra cash into a “money-printing” machine. So even if you are a millionaire, without sound knowledge in financial planning, you can easily re-join the “employee community”. All it takes is a collapse of the stock market, property market, business prospects, economy etc. That's why it is hard to believe that today, the 2nd uncle's son is holding his wedding dinner in a small restuarant.

And please, nothing wrong with that restuarant, ok? It's perfectly fine to hold wedding dinner in that restuarant. My sharing focus on the lesson - financial planning to snowball your resources. Remember – knowledge equals to power. This is the mother of all truths.

Life Insurance

Is Retiring In China The Solution?

Two years ago during our ICT, an ex-colleague in the SAF told me that he planned to migrate to China by the time he retired. He said that with his CPF money, he is able to convert it into lots of Chinese’s Yuan and retired comfortably (in a village). I find his mindset “ostrich” and I educate him. This is because the correct approach should be that he work hard (and smart) and improve his current income-earning situation. Hiding in China for the purpose of comfortable retirement due to favourable exchange rate is definitely not the secret to success.

Successful retirement plan takes more than that. I told him then that by the time we reached retirement age, China’s economy may have reached a state that the exchange rate is on par with the Sing$. And the living standard then in China could be so high that there may be no difference at all. What are you going to do then for the fact that you cannot “undo” or rewind” everything?

Recently, Business Times reported that China’s inflation up to 7.1% in Jan 2008. Food prices, which make up a third of the consumer basket, rose 18.2% cent in January from a year earlier. Non-food prices rose 1.5 per cent. However, authority attributed the acceleration in inflation to the timing of the Lunar New Year holidays this year and to fierce winter weather. Rising food price is a big topic here in Singapore; it is a bigger problem now in China especially in big cities.

Lifelong Income Scheme

Therefore, we should solve the fundamental problem instead of trying to get around it. Besides being personally responsible for one’s retirement plan, here in Singapore we are really fortunate to have capable government taking steps to help Singaporeans to be prepared for retirement. It is important for me to clarify here that I am not in politics, nor am I a glass-root leader or having any connection with any political party. But let’s be real and objective.

On 12 Feb 08, Manpower Minister Ng Eng Hen announced a Lifelong Income scheme that promises a regular income for as long as a member live. I will not go through the detail here. The feelings among our countrymen were mixed. While some cursed and swear, people like me praise the authority. I just had a chat with a friend and we talked about this issue. She said that some of her friends were unhappy about it as more CPF money were shifted away thus they will be getting lesser. I advised her not to be influenced by people who do not see the bigger picture. What’s the bigger picture? Well, if I am the government, managing a country, I could choose not to do anything to help the people to plan their retirement needs. I still get paid (large income) monthly.

Is it better with the new scheme then? Let’s do the following test.

Assumptions:
1) Retirement Account at 55 = $80,000
2) Life expectancy = age of 90
3) CPF RA rate = 4%
4) Any balances in Retirement account goes into estate.

According to my calculation, with the current scheme, you can withdraw $631 per month from 65 – 90, and that’s it. But with the new scheme, you will collect $652 per month (under refund option) as long as you still breath.

Therefore, IMHO, Singaporeans are better off with the new scheme. According to the National Longevity Insurance Committee, “CPF members are likely to receive higher income from their Minimum Sum account without more top-ups, thanks to the extra one percentage point interest on the first $60,000 which CPF is offering and the benefit of pooling”.

So if you target to have $2,000 per month for your retirement plan, about 35% of it has been settled and secured with Lifelong Income Scheme. The remaining will depends on your unclaimed living policy, endowment plan, cash balances, stocks and funds and lastly, your house.

Having said that, there are still some other details that I don’t really understand. I need to meet up with one of my friends who are very analytical. After we analyse the new scheme vigorously, I will update my blog again.

Early Retirement Or Work Till You Die

What do you believe?

When government increases the official retirement age, do you rejoice? I like to discuss this topic whenever I have coffee session with colleagues, friends and even subordinates. In Singapore, our official retirement age moved up from 55 previously to 62 now. The big question I always ask is whether you rejoice over this move? Do you see that as a blessings? Is that what you really want? Somehow, many aunties and uncles are happy about it. They wanted to work for as long as possible. But I am certainly upset when people choose to work forever. Don’t get me wrong. I am upset not because they chose to slog, but because they do know the truth.

So do you think longer retirement age is a blessing? Do not give yourself an answer yet, not until I tell you the truth. There are many people around the world today retired early. It is not isolated cases and certainly not a miracle. There are many people with the power of retiring early and enjoy wonderful life after retirement.

Retire with financial freedom?

For a start, let’s not discuss about early retirement but just to retire with financial freedom. While the former is a great challenge and a difficult task, the latter is easy. I had said many times that the ultimate objective of successful investment is not to buy big houses and cars so that one can show off. Instant gratification has a price to pay – your future. Investment, savings, climbing corporate ladder and buying tottery have only one ultimate objective. Along the way, we set up a family and provide for our family, but ultimately, we want to retire comfortably and preferably early. How often have we seen parents retired with very little savings thus depends heavily on their children?

“But aren’t the children suppose to take care of their retired parents?”

I fully agreed. But think it over again on the term “need” and “want”. Let me give you these two scenarios and you pick one.

1) Parent has very little savings and they seriously need monthly allowance from their children. Their survival depends on it. It is not optional. And this becomes a burden to their children as they also need to provide for their families. And financial hardship compounded on both sides when someone hospitalized.

2) Parents retired financially free. Their children want to give allowance out of love and not because their parents need it for their daily necessities. Parents accepted children’s love offering not because they need it. They take it to show that they accept their children’s love. If the children for whatever reasons have greater financial needs, the parents can choose not to receive monthly allowance from their children. There is always an option.

So which scenario do you prefer? Unless you are a total idiot, the answer is obvious. Is scenario 2) above a “mission impossible”? Definitely not. In fact with proper financial planning, it is very easy to achieve scenario 2). Again, I am not talking about early retirement here but about retiring financially free.

Scenario 1) usually occurs in previous generations or during our father’s time. It happens to many families and we had came across many unfortunate stories reported on newspaper. But with better economic growth/stability and education, scenario 2) is more prominent now.

Early retirement – correct your mindset

Back to the topic on early retirement. No doubt government has been helping people to work longer age. But let’s don’t get involved in political decision. Let’s just focus on personal well-being. To retire early, you and I only need one thing – financial freedom. One great teacher in area of financial freedom is Robert Kiyosaki. And I bet lots of aunties and uncles along the road never heard of him, and certain never heard of the term “financial freedom”. To gain financial freedom, you will need to accumulate passive income. Investment income is only one of it. If you want to know more about financial freedom and passive income, buy Robert Kiyosaki’s “Rich Dad Poor dad”. Today I want to share on the correct mindset on retirement. As to how, I leave it Robert Kiyosaki.

“You think so easy ah, early retirement!”

That is a wrong mindset. It is definitely difficult, but not impossible since many people around the world have made it. Besides Robert Kiyosaki, I know of people in (renowned) network marketing company earning hundreds of thousands and even millions yearly with very minimum effort – after he/she establish the foundation. Adam Khoo, at his mid-20 already earned his first million dollars. His training and books are selling good and I believe he is a potential candidate for early retirement.

“Retired early for what, waiting to die meh!”

That is a terrible mindset. It is an “older generation” mindset. Early retirement has no connection to “waiting to die (等死)”. It all depends on a person’s life style and again, mindset. During my army days, my branch head was a retired senior officer (Lt Col). He holds the appointment because the country needs his service, not because he needs the money. He owned a condo and two sport cars and his wife was then a director of a company. He was looking forward for the day. He shared with us that he hope to spend time meeting up old friends, golfing and going for holidays. His life style will remain the same and active. But he will sell his cars away since he has ample of time after retirement.

What about me? Well, my dream, should I retired early, is to spend my days at the stock exchange wearing jean, sandal and with my laptop. Alternatively I may also conduct my investment activities at the Sentosa while sipping coffee. And if possible, I would like to conduct training for people who want to know more about value investment. Not because I need the money, but I love to. And I waiting to die? Certainly not.

Conclusion

Early retirement is a blessing. Working until you are about to enter the coffin is not. The correct mindset is we should set early retirement as a personal goal and work towards it. Yes, it’s extremely difficult and not many will make it (including myself). But do not use that as an excuse not to try. Get the mindset correct.

CPF Updates - Floating Rate For Special Account

CPF Special Account As Part Of Retirement Planning

I kept telling friends and colleagues to make full use of the CPF Special Account (SA) for retirement planning. The special account gives 4% fixed rate which when compounded annually, it can snowball to a very big sum by the time you retire. With effect from 1 Jan 2008, there are some changes to the CPF rates.

1) The Special Account, Medisave Account and Retirement Account (SMRA) will be pegged to the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1%. Singapore Government Security is the Singapore Government issued bonds which I had covered quite a fair bit last year. The average yield of the 10YSGS over one year, from 1 December 2006 to 30 November 2007, plus 1% works out to be 3.9%.

To help CPF members adjust to the floating SMRA rate, the Government will maintain the 4% floor rate for two years if the 10YSGS yield plus 1% is below 4%. After two years, the 2.5% floor rate will apply for all CPF accounts. Computation illustration:

SMRA interest rates for January to March 2008
Average yield of 10-Year SGS from Dec 06 to Nov 07 --- 2.90%
Plus 1% ------------------------------------------------------------------- 1.00%
Computed SMRA Interest Rate for Jan 08 to Mar 08 ----- 3.90%
SMRA Interest Rate (Jan 08 to Mar 08) - floor -------------- 4.00%

2) An additional 1% interest will be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA). The additional interest received on the OA will go into the member’s Special or Retirement Account to enhance his retirement savings.

Therefore, we stand to gain on our OA (3.5%) but only up to $20,000. Not much of an impact but “no fish prawns also good”. As for the SMRA, you get to enjoy 5% rate for maximum of $60,000 (if you have $0 in your OA) since government maintained 4% floor rate for two years.

“So what happen two years later?”

This is really hard to quantify and predict. Even though government giving out 1% extra for OA and SMRA, it is only limited to $60,000 combine balances. While there is a very small gain on the OA, SMRA will be hard to forecast. It all depends on the 12-month average yield of 10YSGS. The actual result very much depends on the economic performance. It is difficult to use a financial calculator to project our retirement amount now because it is no longer fixed. Take a look on the following annual yield of 10YSGS since 1998.

1998 - 4.48%
1999 - 4.56%
2000 - 4.09%
2001 - 3.97%
2002 - 2.55%
2003 - 3.75%
2004 - 2.58%
2005 - 3.21%
2006 - 3.05%
2007 - 2.68%

From the above data, the yield fluctuates, of course. However, the yield has been quite good for most of the years except for 2002, 2004 and 2007. If we get this kind of yields again, we are actually better off 70% of the time (when you add another 1% to the yield) compare to what we are getting currently. Of course, history is not a guarantee of future performance.

Game Of Interest Rates

Fixed Deposit Rates

One of my colleagues told me that May Bank offers a high fixed deposit rate (nearly 2% p.a.) compare to any commercial bank in Singapore. I didn't believe. So this weekend, I decided to get the facts correct. From their websites, I had put together a few bank's FD rate for your reference.

Assuming an initial investment of S$10,000, no bank offer a rate above 1% for 24 months deposit. Of course, if you have a few hundred thousands to save, then the rate will be slightly higher. Unfortunately for "commoner" like us (including my colleagues), we don't have a few hundred thousands to spare. While collating data, I accidentally discovers that Finatiq.com offers at very high FD rate. It's unbelievable but is stated on its website.

Be A Champion In The World Of Interest Rate

So that's how the bankers become so rich. They offer peanut rates when you parked your money with them. Generally, saving deposit fetched around 0.3% p.a., way below Singapore inflation rate. You actually buy lesser amount of rice (unconsciously) everytime you draw money from your deposit account to spend. I know people will tell me that they don't feel it. That is because they are ignorant; but the fact still exist. And if you borrow from bank for housing, renovation, education, car etc, they charge you very high interest rate. The worst is credit card charges. Remember - ALWAYS PAY YOUR CREDIT CARD BILL IN FULL. In essence, with the pool of deposits, bank lends it out to the mass (business or personal) again at high rate. So one of the basic wealth creation knowledge that everyone should have is this - for spare cash, don't park it in any bank deposit. Spare cash here refers to money that you don't need it for the near future. This is mainly cash put aside for raining days. You are better off buying Singapore Government Bonds, which I will touch on it soon. Make sure your money work hard for you; let the banks feel the margin squeeze.

Wealth Creation - My Learning Curve (final)

SunShine Empire

So what I have learned over the years when comes to investment/business opportunity is this - never be impatient, always get the facts correct. Never invest in anything that your don’t understand and never to succumb to hard-sales tactics. There is no such thing as “this opportunity only happen once in a life time”. I assure you, there are always opportunity presented to us, whether in the form of a scam or otherwise. Greed and fear has always been men’s greatest weakness and one of the main root causes for failure. Everyday, there are people around the globe coming up with fantastic ideas to make good money It can either be a genuine and innovative idea or just a scam for you. You don’t believe? Here I’ve got another opportunity good enough for you to tender your resignation letter after you signed up.

In mid-2007, a few of my colleagues were engrossed in an investment firm known as “Sunshine Empire”. According to them, the company offers investment scheme that comes in different classes – Gold partners, Silver partners and Bronze partners. Comparatively, the Gold partners requires higher investment amount. The returns from the investment is very high. One of them told me that in less than a year, investors will get back their initial capital, and presumably there are still perks after that. Subsequently, I also heard that by sponsoring friends into the investment scheme, you will be rewarded too. I went into Sunshine Empire’s website and they claim that are investing a lucrative broadband business in Taiwan. The latest update is that they are into property investment.

I begin to search through the internet to find more information about this investment scheme. As usual, there are always people claiming that this is a scam, while others do their best to convince you that they had received a few thousands dollars per month from this investment. These investors will “screen-shot” their cheques together with pictures of seminars attended by huge crowd. And there are also heated arguments in forums discussing this scheme.

There is a report in a Chinese website and I had extracted it below for reading pleasure.

“阳光大帝基金”骗局揭秘
发布者：三阳 时间：2007-08-24 09:18

“瑞士共同基金”等黑基金刚刚覆灭，一种名为“阳光大帝基金”最近通过网上又卖得红火。该基金号称投资6万，每月可分红7000元，并在福州设了联络处。据称，福州有几百个投资者买了该基金。收益这么高，这基金靠啥来维持运作？投资者的资金又如何得到保障？连日来，记者做了一番调查。

抽回投资遭到拒绝

福州高先生日前反映，最近“阳光大帝基金”卖得很火，感觉像“瑞士共同基金”变种。他的几个朋友都花了6万买了这只基金，最近也收到了每月7000元的分红。有朋友要求抽回投资金额，但遭到拒绝。

几经周折，记者昨日与“阳光大帝基金”位于广东佛山的中国区负责人于先生取得联系。于先生在电话里自称其公司总部在新加坡，是高科技公司，在全球都有投资，主要做无线宽频、房地产等项目。但记者上网查询“新加坡阳光大帝公司”，却查不到其在新加坡的任何信息。于先生表示，“阳光大帝基金”分三个投资级别，最高级别是投资6万，每月可获得7000元的收益。第二个级别是投资3万。最小的基金投资额是4173元，按照一套复杂的计算方法，两年后按月分红的总额可达2万多。于先生还称，公司运作模式与传销类似，但绝非传销。公司鼓励每个投资者介绍熟人参与投资，并将重奖其中的优秀者。每发展一名自己的下线投资者购买公司6万元基金，可获得2000元奖励。

于先生还透露了在福州联络处联络人陈先生的联系方式，并称福州投资者已经有很多，正准备组织他们到香港分公司去参观。记者昨日找到“阳光大帝基金”福州联络处的陈先生。他说，“阳光大帝基金”在全球有5万多会员，仅仅在福州就有几百人。此后，他又吹了一通基金如何如何赚钱，极力鼓动记者去买。当记者问及为何拒绝投资者收回资金时，陈先生并未回答。另据了解，“阳光大帝基金”网站服务器设在香港…

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Is the above report trustworthy? I don’t know. Like I said, in the internet, we just don’t know who is really telling the truth! This scheme is currently spreading like wild fire in my office and apparently, a few colleagues had resigned when they collected a few thousands per month from this investment. I was told that one of them invested close to a hundred thousand of his retirement savings. This colleague is at retirement age. Putting your retirement savings to someone with such credential, in my opinion, you are walking on a big plot of land mines. Some forums even refer SunShine Empire as a “Ponzi scheme”. From Wikipedia:

A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going. The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more and more investors become involved, the likelihood of the scheme coming to the attention of authorities will continue to increase.

The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in such a large amount of money that it was the first to become known throughout the United States. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit lapses in judgment arising from an investor's lack of information.

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So, you see, there are indeed many people who wanted to help you and me to be rich. Now there are also “Paid Survey” and “Diamond Cash Club”. I am not sure what they are or how they work but I am rather tired of doing more of such research. Some schemes require huge investment layout, others just fifty bucks. And we always have unlimited supply of scammers around the world. Whenever someone tried a new scheme, he will help the creator to be a millionaire. You may say that “it’s only $50 mah, who knows it is real and I can get rich”. But that is exactly the kind of behaviour a scammer is hoping for. Remember that if every China people give you a dollar, you are instantly a billionaire. Still I am always skeptical on those get rich ideas that do not require hard work and/or commitment. It is not that I had a negative mindset. I always do my homework, when I am convinced beyond reasonable, I will try. Well at least I tried the MLM before.

Conclusion

In conclusion, everyone wants to be rich, to be a millionaire, and to achieve financial freedom. That is the ultimate objective of earning more money. I had tried and will keep trying, and to do it intelligently and ethically. I believe very soon we will know if SunShine Empire is in genuine business. A good investment/business based on sound fundamental will survive. But those schemes that promised quick and easy money usually won’t stay long, especially those where the earnings largely comes from new recruits. I don’t want to end up joining a scheme that only serves to help others to be millionaires. No doubt we should always keep an open and positive mind, learn to acquire more knowledge. Again, knowledge equals to power. After years of reading materials on Warren Buffett’s teaching, I had acquired basic knowledge in investment that manages risk as well. I always tell my friends that for all kinds of investments, we must first have answers on “risk factors” before we talk about “rate of returns”. If the first element cannot be ascertained, then we should put our money in the bank. The investment products or asset class may be different, but the principal never change. The fundamental questions that I always ask are:

- How does the investment/business generates income?
- What is the income source? Selling product/services or membership?
- Does that income source make economic sense? Is there a fundamental demand?
- Is that income source reliable and sustainable?
- Do I understand the investment/business? Can I see it or feel it personally? I don't want powerpoint slides or video clip or word of mouth.
- Does the company have code of ethic and professionalism?
- Does the business has a sound track record?
- Is the account audited, by whom and can I study the financial report?

When a very attractive investment/business opportunity presented to me, my first response, and you may not like it, is “I will consider”. I will take some time to conduct due diligence until I am fully satisfied. Hard sales tactics will never work on me. And when I am satisfied, I will go for it - no retreat, no surrender.

Wealth Creation - My Learning Curve (Part V)

Using Google Adsense

Google AdSense is a quick and easy way for website owners to display relevant Google ads on their website's content pages and make money as the ads are related to what your visitors are looking for on your site. How Google Adsense work is simple. If people click on the Google ads on your website, you will make money! If you have a website with information like Race Car, you can place Google ads on your website and when somebody clicks on the ads, you will make money. The Google ads displayed will be related to Race Car. For example, if 20 people click on the Google ads a day and Google pays you $0.50 per click. You will earn $10 a day and $300 a month! If you have 10 websites with Google ads, you could be making US$3000 a month. By the way, Google ads are created by advertisers using Google Adwords.....

Chapter 4 - My 6 proven ways to get more sales

Google Adwords is a tool provided by Google for you to create ads based on the keywords you choose. The keywords that you choose are related to what product you are advertising. When people search on Google using one of your keywords, your ad may appear next to the search results as shown below. People can simply click on your ad which will bring them to a website to buy something or learn more about your product. Advertisers using Google Adword need to bid for keywords related to their product. The higher the bid, the higher the chance the advertiser’s ad will appear next to the search results in the first result page. Some advertisers paid US $100 for certain keywords so that their ads will always appear in the first result page.

Advertising using Google Adwords is called pay per click advertising (PPC). You will have pay to Google everytime visitors click on your ads. If nobody clicks on your ads, Google will not charge you. Google Adwords allows you to set a budget for your ads campaign. Once your budget is reached, your ads will not show up next to the search results.

There is other similar pay per click advertising like Yahoo Overture. But if you are starting new online, I don’t advise you to use Google Adwords or Overture because you may end up paying more for advertising than making money. For example, if visitors click on your ads (selling making money e-book) say 500 times a day and you have to pay $0.50 per click for a competitive keyword like making money, the total advertising cost for the day will be $250. If you only sell 1 item at $50, you are making a loss. Advertising using Google Adwords and Overture is expensive. The good news is I will show you in my tips that you can pay as little as 5 cents for each click instead of 50 cents or more for competitive keywords.

-end-

===========================

“So at the end, is this a scam or not?”

Ok, generally, most people (and my opinion too) will conclude that it is and it is not. It is because it gave empty promise of large income within days or a week. That is not true. It is not because their refund policy was genuine based on many feedbacks and if you work hard for it, created genuine traffic on your website resulting in real purchase order, your really can make good money. Guess who is the banker, the sure-winner here? Google and the guy who came up with this concept! In my opinion, the idea is rather similar to MLM: the product/service must be genuine, it can indeed create lots of money BUT comes with hard work and commitment. The fact is, even in a MLM business, not everyone can climb to “Diamond” or equivalent position easily. It takes lots of hard work and certainly no such thing as auto-pilot and collect bank cheque.



To be continue……

Wealth Creation - My Learning Curve (Part IV)

Ultimate Wealth Package

Sometime in early 2007, one of my friend send an email to me to ask if I know of a an internet money-making business. According to him, just pay around twenty over bucks to own a website and you can earn lots of money, or something like that. And then you get more people to sign up. I asked him why should I pay for something I don’t need. He replied that “it’s just twenty over bucks, what’s the big deal”. He didn’t actually answer my question.

Subsequently, I noticed many information and talks about “Ultimate Wealth Package” (UWP) in the net. It claims guaranteed earnings of a few thousands per month by just following simple steps and then the rest will auto-pilot. So I start to search the net for information and read forums discussion on this matter. Channel NewsAsia’s forum has a thread on this topic. It’s quite interesting actually, reading how people fighting over this topic. As usual, everyone come out with his “valid evidence” to prove that UWP is/is not a scam. There are almost 80 pages for this thread and will probably take a few days to read if you start from the very first one. I lost my patient and jumped straight to the most recent posting. Guess what happen? Well, all the excitement and positive feedback almost died off. There are more people talking about how to get a refund from this UWP.

From the forum, this is what I picked up. You need to pay about US$50 to join the UWP and receive a free website plus ‘e-book”. You are suppose to read the e-book as it is a guide to make lots of money from internet. The income source actually comes from selling this e-book. When someone comes into your website and sign up for UWP, you’ll get a commission. Therefore, high traffic is the key to success. Also when someone visits your website and click on the AdSense, Google is going to pay you (I got one on my blog too). And to create the kind of traffic is not easy (that’s why the traffic on my blog is still pathetic). Your so-called upline will teach you on strategies such as subscribing to Google’s AdWords. But you got to pay for Google AdWords!!! This is how it works. You select a keyword for your website. When someone does a keyword search, your website will surface right on top. For every click by a net surfer, you got to pay for it. For hot keyword like “millionaire” you may even have to bid for it at high price. So every click will cost your based on that price. And as you can see, if you are lured to achieve sales result and use Adwords, your cost will go up further.

Next, this is usually how people sell UWP through their website. They are going to use convincing words, testimony to convince you that they are telling the truth; they will swear to heaven and earth. They claimed that UWP is an idiot-prove method of earning a few thousands within a week (and you can fire your boss right away) by doing nothing. You just go through the steps and everything will “auto-pilot”. You continue to make money even while sleeping. They will show you their cheque (screen-shot) and have others to testify on the website. The host will also use local jargon and may also kindly share with you on how to identify internet scam. All these only for one purpose - to win your trust. You will also be given special discount if you “sign up before midnight”; limited editions. So when you sign up the UWP (and the previous host will earn his/her commission), you will also do exactly what the previous host has been doing. Someone in the forum gave a good account about UWP. It sound genuine and I re-produce it below. It may be lengthy.

============================
Chapter 2 - My 4 proven ways to make money online

Become An Affiliate

When you become an affiliate, you are selling other people’s product online by advertising the product either through your own website or by writing ads using Google Adwords, Traffic Swarm or Instant Buzz which I will cover in chapter 3.

When people buy the product from you, you will earn a commission. The commission can be as high as 75% of the selling price. You can become an affiliate regardless of where you are from. I am from Singapore and I receive a commission cheque every 2 weeks without fail from selling other people’s product. Selling may not be everybody’s cup of tea but selling other people’s product online can be achieved by anyone as you do not need to do cold calling, maintain an inventory, track orders or even ship the product.

If you go to www.clickbank.com, you will see thousands of products that you can promote and earn a nice commission. Most of the products are e-books and software. ClickBank is a super mall selling digital products like e-books and softwares. To become a ClickBank affiliate, you have to sign up for an account at ClickBank http://clickbank.com/signup/. After you have signed up, you can start advertising products.

Let’s say you want to sell the very popular Rich Jerk, create your affiliate link by replacing XXXXX in the link below with your ClickBank ID: http://XXXXX.richjerk.hop.clickbank.net/ Replace XXXXX with your ClickBank ID.

Put the link in your website or ads and start advertising and make money! For example, everytime somebody clicks on the ClickBank link on your website, the link will direct the visitor to the product website and if the visitor makes a purchase, you will earn commission! It is that easy. Let’s say you have a website that sells a product that make US$50 in commission and there are 1000 visitors a day to your website, if 10 visitors buy the product from your website, you will get 10 X US$50 = $500 a day and US$15000 a month! Don’t worry if you do not have a website to promote ClickBank products. You can still promote ClickBank products using ads as described in Chapter 3.

You may be asking everybody is promoting the same product, how can I ever compete with the rest? Yes, this question came to my mind when I started. The strategy is to use my 6 proven ways that I will cover in Chapter 3.


To be continue…..

Wealth Creation - My Learning Curve (Part III)

Email Stock Tips

The wonderful thing about internet is that it brings people all over world closer. It allows information to flow quickly and freely. It allows everyone with internet assess to be updated on world events every single second. Most importantly, it creates millionaires. But there are also problems with such convenience and information overflow. The problem is - you are confused and don’t know who is telling the truth. Internet opens up income opportunities and scams. It allows scumbags to cheat not just on his countrymen, but anyone else living in other part of the world.

For people who are naïve, they will jump into any opportunity that presented to them. Others, including myself, who always get the facts correct and invest based on fundamental and calculated risk, are confused by the large amount of information. On the topic of wealth creation, we are not short of opportunities presented by some “kind-hearted souls” who sincerely want to help you to be rich. Recently, I received many emails spam telling people to buy certain stocks claiming that the stock will surge when market re-open. And there are people who believe in it, bought it and make the whole thing a self-fulfilled prophesy. Until today, when man is about to land on Mars (exaggerated), still there are human beings who believe that someone else is there to help him to get rich for nothing. I received the following email spam on 17 Sep 2007. Whoever wrote it is nothing more than a clown.

Watch UTYW M0nday!

UNITY WIRELESS CORP
Sym: UTYW

This is a REAL COMPANY, REAL EARNINGS, Making thier INVESTORS HUNDREDS OF THOUSANDS!

Current: 0.06
Expected: 0.24
First Half Revenue Grew 53% to $4.8 Million Over the Same Period in 2006

Wireless Technology is and will be the Wave of the FUTURE!
This Company in on the Breaking mark of coming out with a HUGE deal Tuesday!

Monday Is Big Day For UTYW!

-end-

“Then what’s your motive in sharing value investment?”

Firstly, value investing is an open secret. It is also not a quick route to millionaire. There are thousands of books written about it and numerous sharing on the net. You do a Yahoo search and you’ll know what I mean. Secondly, I shared it out of passion, although I do hope that some big-timer may find me useful and employ me as a fund manager. And I do not gain a single cent from my sharing. Most importantly, whether you use my method or otherwise, it has no impact at all on my financial status.

With the internet, anyone including scumbags can reach huge mass easily. We all know that if every China man gives you a dollar, you will be a billionaire instantly. Imagine how lucrative it is if a small fraction of net surfers believe in a “scheme” and willing to surrender their hard-earned money. Just US$10 will do and a scumbag will be more than a billionaires. Another example is fund-raising activities. Singaporeans are famous for been kind-hearted and we are familiar with the NKF issue. If a charitable organization can collect such huge fund for the needy in Singapore, think about global community! You do the math. Recently, there are many fund raising email spam telling story of how unfortunate the sender is, or how he or she wanted to help the needy; a few dollars would mean so much. I say even ten cents would mean so much. I am not saying that they are all scams, but how do you know? You got a copy of their audited report? Audited by whom? The boss himself? For all you know, you may just help another man to be a millionaire.

So again internet is wonderful, but it can be confusing even as you try to find the truth. It is difficult to tell who's right or wrong. But one thing for sure, knowledge equals to power. We have to keep learning and reading and be patient. Only then can we form better judgement on all sorts of opportunities presented to us. Don’t jump into a scheme out of curiosity or greed. Do not subject to sales pressure. There are always opportunities one after another. Find a good and genuine one and then work hard on it.



To be continue…..

Wealth Creation - My Learning Curve (Part II)

It was only after I read Rich Dad Poor Dad that I re-looked into the MLM. I took my time, done some study and attended seminars. Finally I know how to differentiate between a good and lousy MLM: business integrity and product quality.

- Business integrity. An MLM company should have code of ethics and conduct. In addition, there must be clear policies such as refund policy, grievance procedures and rules that govern the way their distributors conduct their business activities. In Singapore context, MLM companies that are registered under the Direct Selling Association of Singapore should be quite reliable although that is not a guarantee.

- Tested product quality. Except for the business model, a good MLM company is no different to Wal-Mart. They are all selling products that are of good quality, of certain commercial value and that people want it. The products must have a reasonable commercial value. If you pay $2,000 for a pen-holder, you may be in a pyramid selling. And the salesmen are rewarded based on their sales result. So the organisational structure is different, but the principal is the same.

Finally I joined an MLM company - Amway. I have done my homework and I have full knowledge of the business. There are no hard-sales tactics, no camera tricks but just selling the (household) products. Hardworking and successful salesmen will finally earn significant passive income. I started to share with a few friends honestly and openly. A few of them joined in but were not motivated to work hard partly because they are in a comfort zone – civil servants. As my mentor adequately put it – if success is not a must, then dream will continue to be just a dream. As a result, my hope of gaining passive income through MLM ended within a year. But my friends, those downlines, continue to be my brothers till now (and forever).

Business Venture

If you have read Rich Dad Poor Dad, you will know that the bottom left quadrant is business venture. Yes, you can make lots of money if the business venture is successful. Compare to employment income, business venture actually make it easier to jump from left to right quadrant (passive income). Naturally, business venture comes with high risk but equally high gains. There are various sources of passive income. In case you ask, I’ll share one that I know. Imagine I strike lottery of say $500,000 to a million, I don’t have to work anymore. I simply put most of the money in high yield and defensive stocks such as bank, SPH, Singapore Airlines etc. In Singapore context, it is not difficult to find companies with stable dividend policy and with the right price, you can get at least 5% yield. Disregard any capital gains, the dividend I expect to collect from these companies will exceeds my annual employment income. I don’t have to do anything. I simply select and invest in wonderful companies and don’t gamble. And I’m free! And when these companies grow and expand…

“That is commonsense, I also know”.

Again I have to repeat my lecturer’s quote “commonsense is the least common human attributes”. One of my colleagues in my office actually strike lottery around end 90s. Without knowledge in investment, his family bought a “big house”. If you are a Singaporean, I am sure your eyes and mouth will open wide. Yes, that’s the worst time to buy property. Indeed, the wrong moves wipe out his windfall. Commonsense you said?

In 2006, Bob, which I mentioned in my previous article was dispatched by his company to emerging countries such as India and Vietnam. His company was expanding into these countries. Shortly after he was back from Vietnam (Da Nang), we met at MacDonald to have coffee. Remember the story of You Tube that made the three founders billionaires? They came out the idea of online video while having a drink in a Pub? During our coffee session, Bob told me that he fell down in the bathroom while he was at Vietnam. So he wanted to find (Chinese) medicated oil to rub on the bruise. Surprisingly, after visited a few pharmacies, none of them sell medicated oil. Naturally, I don’t believe in his story, but he swore on it. And then he said he knew a Sinseh (Chinese Doctor) in Chinatown selling traditional (secret recipe) medicated oil. I said “let’s don’t waste time drinking coffee here, let’s take a walk to Chinatown.

Lucrative Medicated Oil Business

Cut the long story short, we visited the Sinseh and expressed our interest to carry his family’s brand. Although their business is just a small shop in People’s Park Complex, they have made enough money from their business and wanted to quit. The Sinseh intends sell his family brand plus recipe to us (at S$1 million). With a good start, we started planning our business venture. We met once a week to brainstorm on our project; I covered Vietnam’s business environment and regulations, analysis of medicated oil companies (Tiger Balm, Eagle Brand, Axe Brand) plus cashflow forecast while Bob study on marketing strategy and linking up with his connections in Vietnam. Although subsequently our research revealed that there are currently a few medicated oils selling in Vietnam, we were not discouraged. This is because with Vietnam’s tremendous growth (just after China), opportunity is in abundance. Most importantly, my research study suggested that selling medicated oil is a very profitable business that makes Tiger Balm into a blue chip stock. Finally, we established certain (verbal) agreement with the Sinseh, registered a company name and book our air tickets. We wanted to do an actual ground study before we put everything in legal forms. With same mindset, same academic ground, and been friends for numerous years, we believed that we are the best team and we are going to make history.

Unfortunately, like in every movie, something happened at the very last hour. I re-looked into my forecast and felt that it may be too optimistic or not conservative enough. In worst case scenario, our capital layout will not last even for a year. We need additional partners. The problem is we could not agree on each other’s candidates. While Bob has his own choice (ex-Informatic chairman), I have mine (my mentor and a trainer in Neuro-Linguistic Programme). Finally, the deal was off, air-tickets wasted, and company not incorporated. There goes another opportunity to earn big money.

Targeting China's Hot Stock

Sometime in Mar 2007, I met another guy Jeff for coffee. He was doing his own rental business but wanted to know more about stocks. I don’t mind sharing with him. During the coffee session, I realised that he wasn’t actually interested in value investment; he was more interested in quick and easy money. Apparently, Jeff is quite familiar with China. He has been flying there frequently. He also knows that China people are crazy for stocks as a mean to get rich. He has an idea to make money from these people. I thought he was thinking of setting up a broking house or some research company. I was wrong.

Well, his idea was to set up a website providing “insider news”. The news may be true or fake. But genuine insider news can also be acquired through kickbacks; that’s how things work in China. In Singapore, you do this (bribery, insider news, misleading other investors) and you get caught, you go Changi straight away. In case you wonder what is a “Changi”. Changi here refers to Singapore Changi Prison. Anyway, Jeff’s strategy is this: people will surf your website and some will use your so-called “insider news” at no cost. Chances are, some will make money while others may incur losses. For those who made some money, they will come back. Then the website will continue to offer inside information, at a certain fraction of the punter’s profit. As long as a small fraction of the China people believed in the inside news, you do the maths.

I told him that I won’t do it. It’s unethical and who knows the 公安 (Chinese police) may also lock us up. He critised that my approach to business venture is wrong; that I’ve been talking too much but no action. “There is no time to wait, research, planning and forecasting etc. When opportunity comes, you must grab first! If there are problems along the way, then solve it one by one!” I just smile, knowing that if I ever venture into business, he will never be my partner. He may be right, but it doesn’t matter to me. I will continue my search for opportunity to earn big money ethically and then to convert the money into sources of passive income.



To be continue……

Wealth Creation – My Learning Curve (Part I)

Introduction

Everybody wants to be rich. But not everybody can be like Cinderella. This is because we are living in a world where the rich will be richer. And that is fully sensible because the rich owns resources to create more wealth. But the most difficult task is actually to preserve it. From Warren Buffett’s teaching, I learned how to invest my income in stocks to earn higher returns and then preserve my profit from been taken back by Mr. Market. But to depend on employment income to generate wealth, the process is extremely slow and is not likely to reach the ultimate goal. Being rich is only the process, not the ultimate goal.

So what’s the ultimate goal?

When I asked a few colleagues on why they want to be rich, the common answer is to buy bigger house, car and more holidays and may be to attract girls’ attention. That is one of the lousiest answers as it implies higher expenditure with more money. Believe me that many millionaires are sitting on huge debts at the same time. I may be poor but I am debt-free. A few years ago, I bumped into a college friend by the name Bob. Bob is an internal auditor with a big listed company earning good income. He is also working very hard for his direct selling business at the same time and Bob recommended me to read Robert Kiyosaki’s “Rich Dad Poor Dad”. Initially, there was some resistance due to my ego, but very soon I persuaded myself to keep an open mind. Fortunately, and for the first time, I finally understand the true meaning and ultimate goal of wealth creation.

The “Rich Dad Poor Dad” Teaching

Robert Kiyosaki’s Rich Dad Poor Dad is a must read for anyone who wants a breakthrough in his/her financial situation. The book will not turn a person into a millionaire magically but will give an insight on how to reach there. From his book, I finally know how to create wealth and most importantly, the ultimate goal of wealth creation – financial freedom. As I am trained in account and finance, it is not difficult for me to appreciate his concept. In fact, after reading his book, I borrowed his renowned Cash Flow board game from another friend. This friend also believes and understands Robert Kiyosaki’s teaching and working towards that goal. So I played the board game with my mentor and I got out of the “Rat Race” in around 2 hours. My mentor got out an hour after me when he realized my tricks. You see, throughout the game, I was randomly selected to play the role of a cleaner while my mentor was a pilot (if I remember correctly). His has a much higher monthly income than me but I got out of the rat race first. To get out is not difficult as long as you understand how to accumulate passive income and managed risk. When you are out of the rat race, you are financially free (in the game)!

Achieve financial freedom means that a person will be completely freed from any forms of financial crisis such as recession, unemployment, lacking of retirement savings, lousy bosses etc. In fact, when a person reached financial freedom, there is no need to seek employment at all. Robert Kiyosaki was financially freed at the age of 46. Besides his own businesses and investments, Robert Kiyosaki has all his books and board games to sell around the world. That is passive income and these items aren’t cheap. The board game will cost around S$100 and of limited production yearly. Everyday, someone in another part of the world is paying for his products. So there is really no practical reason why he would want to be an employee, even if you are the best employer on earth. Robert Kiyosaki still conducts training and seminar not because he needs that income to survive, but because of his passion. I have a similar dream that one day, I will reached financial freedom and I will spend time doing stock analysis and giving training – simply because I love to do it. But at this stage, I think God is not going to let it happen, no matter how hard I try. That is also the reason why I no longer go to church. Anyway, that’s not my point.

So the open secret of attaining financial freedom is to seek passive income. Certainly, employment income will never lead to financial freedom but slavery to the employer. In his book, Robert Kiyosaki gave detail instructions on how to seek passive income through his cash flow quadrant concept. I don’t think I want to go into the detail. You can get his book from Popular bookstore and contribute to Robert Kiyosaki’s passive income. He deserves it.

Back to Bob, his ultimate objective was to convince me to join his MLM company - Amway. This is because one of the sources of passive income is through MLM business. When a person reached certain level in a (good) network marketing company, he can be financially freed. Kiyosaki also endorsed it (he studied and wrote a book on it even though he did not engage in such business). So if I understand and agree with Robert Kiyosaki, and with positive mindset, certainly I wouldn’t reject MLM business. This leaves him one last task; that is to convince me that Amway is one of the few trustworthy MLM company exist today.

Multi-Level Marketing/Network Marketing/Direct Selling

Why so many terms? Actually they refers to the same thing and used interchangeably. For simplicity, I’ll just use MLM throughout my article. I knew this business concept many years ago when I was still in the government sector. I was very much against MLM then as it resembles a pyramid scam. Besides, I was really disgusted with the way those distributors targeting their very own friends. They engaged unethical tactics to get people to sign up and/or purchase the products. Once this has been achieved, there is no turning back. Ten years of friendship would be cheaper than the sales deal. Suddenly you discovered that the friend you called “brother” is so ugly deep inside. Today, none of these people I know make it in MLM business.

The key difference between a pyramid and MLM lies in the source of earnings. While an MLM company offers various products thus earnings comes from the sales, a pyramid scam earns from the downlines, and more downlines. No product changed hand in the whole process. At some point in time, it will collapse and only those on top will make good money (and run away with it). During those days, many of my friends and colleagues joined the MLM company and subsequently resulted in conflicts among them. I remember a colleague (A) engaged hard-sales tactics and induced another colleague (B) to buy his massage chair that cost above S$1,000 paid by installment. But then something went wrong with the contract and colleague (B) wanted to stop the purchase. Obviously, the MLM company is not going buy it and threaten to sue him if he breached the contract. These two colleagues’ relationship turned sour. And this kind of incidence is plentiful for MLM companies without code of ethics and standard of professional conduct.

In late 90s, another friend called me up to invite me to join his business venture. As I am always interested in doing business, I agreed to attend his “business talk”. Sigh… the seminar was organized by New Skin. The seminar touched on how MLM helps to create huge income and that the business concept will soon replace traditional business model in big waves. They highlighted their plans to enter the un-tapped China market. To become a ‘partner”, I need to fork out more than S$2,000. And when I asked exactly what they meant by “entering China market”, that friend replied that I need to join first to know more. I told them that I need to think about it and discuss with some friends. But his upline discouraged me from doing so claiming that other people may mislead me. Instantly my confidence in this so-called business venture dropped to zero. Thereafter, that friend kept persuading me to join and his upline never fail to follow up with me. I pretended to be friendly, playing around with them depleting their stamina. Finally they gave up and we are not in contact ever again.



To be continue…….

Financial Planning With SRS

Investment Management & Financial Planning

My objective of creating this blog is to share knowledge on investment management and financial planning. What’s the difference? Investment management covers mainly on investment in shares, bonds, unit trust etc. But financial planning covers even wider areas and longer periods. I think investment management is part of financial planning.

Let’s try this, can you tell me the ultimate objective of buying stocks, bonds or any investment products?

“extra money to spend around….”
“banks give peanuts mah, so no choice invest lor….”
“I need more money for my family…..”

Gentlemen, in my opinion, the above remarks are not “ultimate" enough. The true purpose of investment is to prepare us for a comfortable life after retirement age. Many Singaporeans take this topic lightly. And our Government has been worried about ageing problems (and my first stock analysis will be on Pacific Healthcare, soon).

Among my friends and colleagues, I think about less than 20% are really actively monitor and explore ways to enhance retirement savings. One thing I must really tell my countrymen who are reading my blog - our government has created many avenues to prepare for comfortable retirement life. But many just don’t get it. I am not affiliated to any political organizations directly or indirectly but you think about it, do you find this kind of government everywhere?

Financial planning is a huge topic and is impossible to cover most of the things in one page. Moreover, I am still learning. There are lots of wonderful tips I like to share on financial planning but for a start, I will share on how we can, through tax planning, reduce taxes and create wealth for retirement.

Please read carefully, it’s tax planning, not tax evasion. Do you know what's the two things that nobody on the surface of the earth can escape? Answer - death and tax. In fact, you may still have to pay tax after you die. Anyway, whatever I shared here, it's legitimate and those double-MBA guys sitting in IRAS or CPF are in control. They are the gatekeepers.

Supplementary Retirement Scheme

The Supplementary Retirement Scheme (SRS) was launched in 2001 by the authorities and operated by the big 3 banks. It is quite similar to CPF special account but with different characteristics.

So what is it in short? It is a scheme whereby you transfer your CASH (only) into SRS account with a bank and enjoy tax savings. You can use the savings in the account for investment. The ultimate purpose is for retirement planning, although you can withdraw the money anytime. The benefits of SRS:

- Tax relief. A dollar contributed to SRS will reduce your chargeable income by a dollar.
- Investment returns are accumulated tax-free except for Singapore investment where tax had been deducted from the payer company.
- At retirement, only 50% of withdrawal from SRS is taxable. However, the chargeable income can still be massage by spreading up the withdrawal from SRS account. Most probably, you still won’t be taxed at retirement.

What if you withdraw it before retirement?

- 100% of the sum withdraw will be subject to tax.
- A 5% prematured penalty will be imposed, except in the event of death, TPD or bankruptcy. (So if you die, the amount withdrew is still taxable, see what I mean?).

If you want to read in detail, please check this link. Firstly, let’s get focus, I’m still talking about retirement planning. Opening a SRS account is voluntary but it is a way to force yourself to save more for retirement while enjoying tax savings. Remember the one ultimate objective for investment – comfortable retirement.

So by forecasting your tax payable next year, you can decide how much to put into this account. Perhaps at year end, you happened to dispose a fund and thus with more cash holdings. You wanted to invest it again but there is another better option. Based on your forecast, you are going to pay some money to the IRAS next year. By transferring cash into SRS account, you can reduce your tax payable and continue your investment activities. It may not be significant, but I don’t mind that few hundred bucks of savings from you.

When you reached retirement age, you should withdraw the money over 10 years so that your tax payable is either negligible or none. For this, you need to sit down and work out your needs and how it ties in with your other retirement income. I think such tax planning benefits especially those in middle-income group. Almost all of my friends belong to this income group. Unfortunately, I am still far away from it. Don’t ask me why.

Case Study

I created a spreadsheet to forecast tax payable. Its use is quite limited at this stage but enough for someone with simple tax assessment (Singaporean & tax as residence). Firstly, my spreadsheet has an “idiot-proof” Q&A worksheet. By answering those questions with regards to your income and relief status, the calculation will be done automatically.

So let’s assumed that Mr Anderson’s wife is not working. He has a kid, his mother still kicking but not staying with him and he attended his ICT. Based on the estimates, his tax payable for the basis period should be (around) S$1,367.50. If Mr Anderson transfers S$4,000 into his SRS account before 31 Dec, the tax payable will reduced to S$1,027.50. Tax computation is based on calendar year and so your decision for a transfer can and should be made at the end of the year. Mr Anderson effectively saved S$340 (or 8.5% immediate returns) by transferring cash into SRS account.

Other Options To Reduce Tax Further?

Yes. I had deliberately left “CPF cash top-up” empty in my illustration. Now, we all give monthly allowance to our parents. After all, we are still Asians. Let’s say Mr Anderson’s mum is quite independent with personal savings. Mr Anderson can choose to give his mum a CPF top-up instead of giving her cash to sit in the bank earning pathetic interest. And then, he is entitled a further relief!

Assuming he did a CPF top-up of S$4,000 into his mum’s retirement account, his tax payable will reduce further to S$762.50 (now total savings of S$605). And Mr Anderson’s mum will enjoy 4% returns on her retirement account. So change the way you managed your cash holdings, or give the money to IRAS for being ignorant. You decide.

“Are all these planning stuff legal and welcome by our government?”

Yes of course! By taking care of yourself and your family, they got one less social problem. They should nominate me for NDP award. So deploy our money sensibly till the day we retired. Make sure your money work hard for you. You do it, you will be wealthier compare to another person who do nothing about it, all else remains constant. Remember that our ultimate objective is still retirement planning. The old concept of 养儿防老 (yang er fang lao - invest in children as an annuity) doesn’t work anymore. That doesn’t mean that we leave our parents to rot. But it certainly means that everyone must be FINANCIALLY INDEPENDENT right from the day we stepped into the society.

Lastly, if you like to explore my spreadsheet, give me your email address. Take note that it excludes complex tax issues and only meant for Singaporean taxed as residence. At this stage it’s still F.O.C. because I am still developing it (by adding more complex tax situations). So get yourself “unplugged” like Mr. Anderson.