Extracted From The Straits Time

Top 10 invest tips

Hopefully, your financial health is of a rich hue of pink and The Sunday Times, through its articles on personal finance, has helped you in this area. Leong Chan Teik delves into the past


Dec 25, 2005
The Straits Times

Always do your homework

THIS is especially important when a deal seems too good to be true. And it could be offered by anyone, from scoundrels to financial advisers. The result is the same: You end up poorer.

Mr Alex Yeo, 36, chief executive of marine business Swissco, told this anecdote: 'During my university days in San Francisco, my room-mate and I were approached by someone who asked if we would like to buy surplus goods he had in his van. These were supposedly video cassette recorders being offered at a great discount.

'We looked into the van and saw boxes shrink-wrapped like they had come out of a factory. We paid US$150 a unit for what would normally cost US$250. As soon as we handed over the money, the man drove off. When we opened the box, we found four bricks inside.'

Start investing early

ASSOCIATE Professor Benedict Koh of the Singapore Management University (SMU) says there are three ways to grow wealth: Reap high yields from your assets, invest large sums of money, or invest for long periods of time.

Of the three, the last one is the most important, he says.

'If you invest in something that can grow consistently, the future value in 20, 30 years is many times the original. It's a staggering figure because it grows exponentially.'

Start with $10,000. If invested in an asset that grows at 10 per cent a year, it will reach $41,772 after 15 years. But if invested for twice as long, namely 30 years, the sum rockets to $174,494 - a fourfold spike.

The balance has to be equivalent to half the prevailing Minimum Sum. The Minimum Sum currently is $90,000, so you have to first set aside $45,000 in your Ordinary Account and/or Special Account (including the amount used for investment) before you can use any excess CPF savings.

This requirement will get tighter over time because the Minimum Sum will rise every year until 2013 when it hits $120,000 in 2003 dollars.

Beyond the Valuation Limit, the excess CPF savings available for mortgage repayment are known as the Available Housing Withdrawal Limit (AHWL).

The AHWL, in turn, is subject to a cap - the ultimate Withdrawal Limit. This year, it is pegged at 138 per cent of the Valuation Limit. This limit will get tighter for future property purchases and refinancings.

It will be 132 per cent next year and 126 per cent in 2007. The rate of 120 per cent will apply from 2008 onwards.

Beware the 90 per cent property loan

HE 90 per cent loan that became available from July costs about a percentage point more than for a loan of up to 80 per cent.

Assume an interest rate of 3.5 per cent a year from the third year for the latter loan. In that case, a 90 per cent loan will charge 4.5 per cent interest.

On the face of it, the increase of one percentage point is not hefty. But what is the interest rate you are effectively paying for the extra 10 per cent loan?

It is roughly 11 per cent a year - if you keep the rest of the loan at the same rate of that for an 80 per cent loan. That is the calculation of Associate Professor Ong Seow Eng and Dr Lum Sau Kim of the department of real estate at the National University of Singapore.

The interest cost on a loan as large as a mortgage is something to be careful about.

Quit smoking, or never start

FOR daily puffers, the average number of cigarettes smoked a day by men is 15, according to a 2001 national survey.

At 15 sticks a day, a male will burn through $2,730 a year, which is enough to pay for a great holiday. If only the cost did not go beyond cigarettes.

In reality, smokers have to cough up extra for life insurance, hospital bills, teeth whitening and breath sprays.

Smokers pay a larger premium for insurance. For example, if they have an endowment policy - which is a savings plan - maturing at age 55, and want to buy a rider to cover against critical illness, male smokers aged 30 may pay $8.68 per $1,000 of coverage a year. That is 46 per cent higher than the $5.96 that a 30-year-old non-smoker could pay, says Ms Carly Tan, a certified financial planner at IPP Financial Advisers.

Then there is the opportunity cost: $10,000 invested in a portfolio of unit trusts or stocks that grows at 8 per cent a year will amount to $110,396 after 30 years.

Shun credit card debt

IT'S very difficult to get ahead financially if you are weighed down by credit card debt.

At as much as 24 per cent a year in interest, the debt often leads to absurd situations where people are still paying for dinners they ate a long time ago, or for holidays almost forgotten.

Singaporeans now owe $2.7 billion in rollover card debt, and have become the most indebted ever. The debt 10 years ago of around $700 million seems like peanuts, in comparison.

The ranks of the young and indebted are growing. Take for example former civil servant Patrick (not his real name) who was bankrupt three years ago at 27, with $33,000 in credit card debt. His marriage broke up soon after. 'When the couple came to me, they were blaming each other for their money woes. He said: 'She knows the high life as much as I do',' says lawyer Lim Choi Ming.

Patrick and his wife had frequently wined and dined at expensive restaurants, and bought a car and expensive goods for their lavishly renovated flat. Trouble was, it was all on credit.

Insist on IOUs when you lend money

MANY people have learnt the hard way that lending money to friends means saying goodbye to the money and the friendship.

Perhaps changed circumstances mean the borrowers cannot repay the debt, perhaps they just do not want to, but that well-meant gesture can backfire, rupturing relationships.

If you do lend, insist on an IOU. Lawyer Tan Chau Yee, a partner at Harry Elias Partnership, suggests this format:

I (name) (NRIC number) of (address) (contact numbers) acknowledge receipt of the sum of S$__ being a friendly interest-free loan given to me, at my request, by my friend, (name) (NRIC number) of (address) today, by way of (bank's name) cheque no. __ dated __ . I promise to repay this sum in full to him/her by (stipulated date of repayment). Dated this __ day of __ (month) (year).

The IOU note should bear a witness' signature, name, NRIC number, address and contact number. Also, ask for several post-dated cheques.

Beware IPO shares

AT THEIR initial public offer (IPO), companies invariably present an alluring track record of rising profitability, but within months, many report falls in profit. Their share prices plunge and investors suffer.

People familiar with IPO workings give several reasons for such post-IPO profit falls. Some firms seek a listing at the peak of a business cycle; others, in the year after receiving a huge contract that boosts the previous year's earnings.

IPO firms might indulge in 'earnings management' and accounting practices that are legal but raise pre-IPO earnings higher than would otherwise be the case.

Says Associate Professor Mak Yuen Teen of the National University of Singapore (NUS) Business School: 'Accountants will tell you there are many ways to paint the best possible picture for pre-IPO profits. Some are grey.'

After the IPO, new and higher expenses are incurred for, say, administration and investor relations. Invariably also, senior management gets paid much more than before.

Billionaire investor Warren Buffett once said: 'Generally, IPOs don't come at a time which is good for you - it's normally good for the sellers.'

Don't pay through your nose

IT IS not a question of whether you can afford it or not. It's about value for money and a mindset that will shield you from needless spending.

Mr Mohamed Salleh Marican, 56, founder and chairman of Second Chance, epitomises that.

He said: 'I'm thrifty by nature. I don't fly business class, though I'm entitled to by my firm. I don't play golf and I'm not a member of a country club. I drive my cars until they are 10 years old. I don't buy branded goods. It doesn't mean I don't spend - I will if it's good value.'

Asked for examples, he said: 'I bought my bungalow in 1999 for $1.8 million. I saw it in 1995 when it was launched and selling for $5 million - it's crazy.

'In my house, we have European furniture. I checked out the price in Singapore: about $120,000. I decided to buy it only when I was on holiday in Spain. There, it cost me 50 per cent less, including transport and insurance costs.'