Financial Advice

[msekree]

Hello all,

I'm a British financial adviser and am now working over here in Singapore. Although I don't use this forum much I do enjoy the Wednesday Night Drinking Club outings and so you're likely to meet me at one of those sooner or later.

I thought it would be helpful for those relocating here, or any ex-pats already here, to start a thread. Everybody has got financial questions but not everyone has a financial adviser- often people feel that they don't have the time, they don't want to feel pressured into any decisions or they don't want to waste the adviser's time for a small matter. Here's your chance to ask without any of those problems.

Typical questions I expect are those such as:

Where should I invest if I'm feeling adventurous?
Is there anywhere I can put my cash that's safe but will beat the lousy rate of interest in Singapore?
What can I do about my CPF fund which is just sitting there and gathering a bit of interest?
How much life assurance should I have?
What's the big deal about starting to save for retirement young?
How are any investments I make in Singapore taxed?
etc etc

Ask away...

Mark

[Baron Greenback]

I have one I have always wondered about:

I quite like the idea of buying shares in companies that I spend money with, utilities for example. So in effect I get a bit back.

Do you have any idea (wildest guess ok) how much I would need to spend on say telecom shares so that I earn enough from the shares to pay off my phone bill. Let's say it is $100 per month.

And then take the idea further and include electricity, supermarket shopping etc. So in effect your existance is paid for by investments in the companies you use.

If that makes no sense at all.... I will get my coat.

[msekree]

Great question, and nice idea!

You'd have to look at the dividends (distribution of earnings to shareholders) being paid by the companies you use- 3% pa is a reasonable assumption. Then just run through the figures:

What you spend per year on that company x (100/dividend yield of that company's shares)= the value of those shares you'd have to own

So, if you spend $100 pm on one utility and the dividend is 3%:

$1200 x 33.33 = $40,000

You'd have to own $40k of their shares for them to pay their own utility bill!

[msekree]

One decent question. Any more?

[Bonbon]

Renting vs. Buying

Looking for a place to buy, not sure Singapore is THE place, capital gain seems to be limited???

sometimes you wonder whether it is worth to put the rent you pay into paying off the mortgage, but then if the intention of staying in Singapore is uncertain...not sure it's a good idea???

Any thoughts?

[msekree]

Hi Bonbon,

The top end of the Singapore market seems to be moving very nicely at the moment. I have no personal experience of this (I'm just renting myself) but it's just what I hear from my clients/the papers. It would make sense to me since property values have been depressed for a while and are due for a 'bounce' considering the current strength of the economy.

There is more to this than finances though. There are all the 'soft' factors such as feeling like you have a home, being able to decorate how you like, getting a 'foot on the housing ladder', not being able to move easily, being liable for any repairs, having to choose the damn place!

Also you say your future in Singapore is uncertain. Should you buy here and then leave in a year you would face the difficult decision as to whether to cash in and take all the selling expenses/hassle or rent the place out through an agent at 'arm's length'- which is tricky.

I think there is plenty of room for capital appreciation in Singapore property- but this is by no means a professional opinion- Singapore real estate is not my speciality! Added to this is the chance to 'gear' your investment by borrowing money against the property to increase your returns.

Example:
Paying cash (like a normal investment):
Price at year 0- $100,000
Price at year 1- $110,000 (10% increase)

Cash in at begining- $100,000
Cash out at end- $110,000 (10% return)


Borrowing 90% to buy your place:
Price at year 0- $100,000 ($10k cash, $90k mortgage)
Price at year 1- $110,000 (the same 10% increase)

Cash in at begining- $10,000
Cash out at end= $110k-$93.6k (paying back loan and interest)= $16,400 (64% return)

Property is one of the few investments which is easy to gear and that's why people can make a lot of money on it. Of course it also makes it much more risky!

So in short:
Buying property= more risk, more hassle and less flexibility but potentially high returns
Renting= less hassle (especially if you're likely to move) but no chance to make (or lose) money

Your call...

[jpatokal]

Is there anywhere I can put my cash that's safe but will beat the lousy rate of interest in Singapore?

So how? I used to go for Singapore T-bills, which pay out around 3% p.a., but interest rates are going up and you can get over 3% on ordinary SGD fixed deposits now.

[Bonbon]

Is there anywhere I can put my cash that's safe but will beat the lousy rate of interest in Singapore?

So how? I used to go for Singapore T-bills, which pay out around 3% p.a., but interest rates are going up and you can get over 3% on ordinary SGD fixed deposits now.

yup hear hear.....where should I put money in, ever considered management funds, with investments in different products etc...but is it really better? taking the admin , manager fund costs into consideration?

[msekree]

Ok, two slightly different questions here.

The first seems to ask if there is a good alternative to cash on deposit in Singapore. Very, very briefly- there is. Part of my job is to examine all sorts of funds from pretty risky ones to very safe ones. If you’re looking for an alternative to cash you are looking for safety and there are a couple of good ones that can offer this. One returns a steady 7-8% per year and is valued in sterling; another returns different amounts depending on which currency you invest in (about 6% for £, 4% for Sing $) and both are very safe. A full explanation of them would take too long but there are a few more details on page 12 of my firm’s latest newsletter- http://www.affinity-consulting.com/news ... letter.pdf, and for the 7-8% £ one here- http://www.patf.co.im/newsiteframeset.htm?Agree=on

The second question is much wider- where should I put my money? I can only answer in generalities but:

You should always try to keep access to some cash as an ‘emergency fund’. 2-3 month’s normal expenditure is a good benchmark.

After that you should ask yourself when you are likely to want to spend this money. If it is going to be in a few years time you may not wish to pay up-front charges to invest in Unit Trusts and risk these going down in the meanwhile. If however it’s going to be a long time before you need it (typically saving up to retire) it is best to invest the money rather than leave it in cash. It is true that there are costs to this, and decisions to be made, but the expected benefits outweigh these costs.

An easy way to work out the growth of your money is to use the ‘rule of 72’. Roughly speaking, money growing at 7.2% pa will double every 10 years. In exactly the same way, money growing at 14.4% doubles every 5 years. Again in the same way, money growing at just 3.6% will take 20 years to double. This is crucial to your plans if you’re a long way off spending the money. All these figures are very rough, but the principle holds:

Return on the money Start 10yrs 20yrs 30yrs 40yrs

0% $100 $100 $100 $100 $100 You’d be daft
3.6% $100 $141 $200 $280 $400 Not very exciting.
7.2% $100 $200 $400 $800 $1,600 Much more like it
14.4% $100 $400 $1,600 $6,400 $25,600 Incredible

You need three things for your final amount to be large (to ‘get rich’):

The amount you start with to be large- This comes from saving your money rather than spending it.

To have a long time for it to grow- This comes from investing from a young age.

For the return on the money to be high- This comes from investing it rather than holding it in cash. Everyone knows how they can get a few percent return- from putting it in a bank rather than keeping it in the cookie jar. To get higher returns you need to take some risks with your money and put it into Unit Trusts, which means that the value of your investment will go down sometimes as well as up. Luckily, over 5/10yrs+ the risk of a sensible, medium risk investment having gone down and not come back up is low. With this kind of investment an expected return of about 7.2% pa is reasonable. As for getting an average return of 14.4% pa or more? If anyone says they can guarantee you this they’d be lying. It can be achieved but it takes careful management, an acceptance of higher risks and a dose of good luck.

All these things you can do yourself, but an adviser will encourage you to do the first two and can certainly help you with the last.

Talking more specifically now is a great time to be investing. Investing from Singapore has never been easier and certain regions of the world, Asia in particular, are growing very strongly and the funds invested into those regions are growing with them. Many Asian funds have averaged over 30% pa returns over the last three years, and the very best performing funds have returned 70% in just one year. Be warned- don’t expect this to continue! But you may as well get in and enjoy the initial growth to offset any future downturns and improve your average long-term return.

[jpatokal]

The PATF thing is interesting -- especially the small print:

The value of shares and the income produced by them can fall as well as rise. Investors may not get back the value of their original investment. PATF is not subject to any form of regulation or approval in the Isle of Man and investors are not protected by any statutory compensation arrangements in the event of PATF’s failure. The Isle of Man Financial Supervision Commission does not vouch for the financial soundness of PATF nor for the correctness of any statements made or opinions expressed with regard to it.

Professional Services Fees payable in respect of the Fund are as follows:
Administrator 0.20% plus VAT per annum of the NAV of the Fund
Custodian 0.125% per annum of the NAV of the Fund up to £25 million and 0.0625% per annum of the NAV of the Fund in excess of £25 million
Policy 0.65% plus VAT per annum of the NAV of the Fund (see Section 34C for the fees Administrator applicable to the SG Life TEP Fund and the No.2 Fund) ...

D. Remuneration of the Promoter
PATF will pay to the Promoter a periodic fee equal to 1 per cent per annum of the net asset value of the No.2 Fund (and not the Fund). In addition to this periodic fee, the Promoter may be paid a fee calculated as a percentage (which may be up to 8 per cent) of subscription moneys for Shares in the No.2 Fund (and not the Fund), from which introductory fees may be paid to intermediaries.

So no guarantees whatsoever, except that 2% of your investment will be hoovered up every year as charges?

[msekree]

Blimey, tough crowd!

You're right to always read the small print but I'd like to point out that this refers to the PATF2 fund whereas I was refering to the straightforward PATF. The difference is that PATF2 has a 2% ongoing charge (by the way, all performance is net of these charges), no initial fee but penalties if you exit within 5 years. I don't tend to promote this as those looking for low risk funds also tend to like to get hold of their money pretty quickly as well. PATF does have a 2.5% initial charge but no further bid/offer spread or redemption penalties and only a 1% pa management charge, which is more popular.

Regarding not being covered for compensation in the Isle of Man? This is true and that's why it is an experienced investor fund. Why not? Because to be part of the compensation scheme costs, and this would eat into the returns of the fund. So is it legitimate? It is audited by Deloitte & Touche and the fund's custodian is the Royal Bank of Scotland, so- yes. As for the guarantees- although the fund isn't explicitly guaranteed the underlying assets are. Of course all of this is spelt out and explained to clients before any investment is made.

All of the above information is available on that website if you would like to confirm it.

[msekree]

Does it make any difference?

[Oriental]

Does it make any difference?

It most certainly does.

Example: Say you have a share with a nominal value of $1. The share is traded on the stock market at $3. Now if the “normal”

[msekree]

The nominal value of a share is almost meaningless. Dividend yields always relate to market value.

[Oriental]

"O"