Outsourcing and drop in standard

I went to Paris for a board meeting. The company arranged for me to be picked up at the airport. I was to look for a person holding a sign with my name.

When I arrived, I could not find the pick up person. I searched for him. He arrived 15 minutes later and was clearly not a local person. After driving for some time, he appeared to be driving me to the wrong destination. I checked with him and gave him the correct address.

I reported the matter to the hotel for investigation. Apparently, they have arranged the pick-up to a contractor who must have outsourced it to a third party (who used an immigrant to do the work).

This was probably done in the interest of brining down the cost or making a bigger profit margin. This has led to a drop in standard and quality. There is a need to have better control on outsourcing!

Buying a property on dual income

Many people depend on dual income to calculate the affordability of their property purchase. This is highly risky as any one party may lose the income, causing financial difficulty. Read this article.

Tip: when you use dual income to calculate affordability, you should apply a discounting factor for the dual income. I suggest a discount of 30%. You should take only 70% of the dual income to calculate the amount of the property that you can afford to buy. 

Buying gold bar at inflated price

Mr. Tee had a friend who introduced an attractive investment scheme to him. The friend, whom he trusted, told him to invest in a gold bar. It promised to pay 2% interest every 3 months. After 12 months, the company promised to buy back the gold bar at its full value. This allowed him to earn a return of 8% for 12 months. There is also a certificate for him to take out the gold bar from a trusted third party if the company did not honour the buy back promise.

At the end of the period, the company did not buy back the investment. Mr. Tee took out the gold bar and found that he had paid for the gold bar at a price that is 50% higher than the real value of the gold. He was not aware that the price, quoted in $ per gram, was much higher than the price in USD per ounce that was quoted in the world market.

Fortunately for Mr. Tee, the value of the gold had appreciated, so he did was somewhat compensated. But, he could have made a larger gain by investing in gold directly, rather than investing in this scam. The friend who sold the investment to him was honest and did not realise the scam. She had also invested her own money and found out later about the scam.

There are many investment scams of this kind. They distract the investor with some gimmick, such as an attractive yield and a buy-back scheme. There is usually a catch that the investor was not aware of.

Life insurance - past and today

I have been asked many times about why I find life insurance policies to be a bad investment, when I had been selling life insurance for 30 years.

The life insurance policies sold during my time gave a yield of about 5% per annum. The expenses were low and high rates of bonuses were distributed to the policyholders. This was an attractive yield.

Today, the yield for most policies is about 2.5% per annum. This is unattractive when it is possible for the consumer to earn more than 4% per annum from other types of investments, e.g. in an index fund or exchange traded fund.

If you can find a life insurance policy that gives a yield of 4% per annum today, it is all right. But 2.5% is too low.

High reduction in yield

A life insurance company in Singapore specialised in selling investment linked policies (ILP). They also advertised regularly to improve their corporate image - as caring for their customers.

In my book on life insurance, there is an example of a typical policy that is sold by this insurance company. The projected cash value based on an investment yield of 5% gives a net yield of 1.2%. The reduction in yield is 3.8%. Based on an investment yield of 9%, the net yield is 4.8%, giving a reduction of 4.2%.

Any investment that takes away more than 1.5% in yield (to provide the investment service and insurance coverage) is bad for consumers. The reduction of 4% is far too much.

The difference in payout at the end of 25 years, based on a reduction of yield of 1.5% (which is far) and a reduction of 4% (which is far too much) is 40%. If your cash value at the end of 25 years is $200,000, you should be getting $280,000 under a fairer contract. Most consumers do not even know the difference! The insurance agent does not tell you about this.

You can find a few examples of this type in my book, Get Value from your Life Insurance.

The Finnish education system

Here is an interesting comparison of the Finnish system and the Singapore system - may by a Singaporean who now works in Finnland.

Live streaming of talk - Get Value for your Life Insurance

CHANGE OF DATE.
Live streaming of Talk - Get Value for your Life Insurance
Channel http://www.ustream.tv/channel/straight-talk-with-mr-tan-kin-lian
Date: Friday 23 September 2011
Time: 9 to 10 pm
Click here to get the handout for the talk
Questions can be submitted via on-line chat and will be answered at end of the talk.