News, views & reviews

Received a pdf document listing the royalties from my publisher today. It listed the royalties earned for the last year. I wrote the book when I was an educator in a secondary school together with 2 of my colleagues. One of them have left the teaching service since, the other is at an overseas school and still teaching.

When  I came home, I saw the dividend/scrip given out by OCBC. So today has been a good day for passive income. I opted for scrip by OCBC by the way, not the dividends.

I remember a blog post that I read from about the snowball effect of passive income. When you first build this passive income, you sniff and think that it is just a small amount, but later, it can form the bedrock of your retirement income.

I remember reading an article from a blog that talked about how savings can increase even more as passive income increases. I think that is a point that I haven’t even thought about.

But it is true.

Imagine that you have saved a quarter of a million dollars and invested the amount which earns you a pretty conservative dividend of 2% per annum. That is $5000 a year which is around $416 a month. Not something you ought to sniff at.

Over time, with an increase in your income through contributions from passive income and a normal return from investment, you would have built up a sizeable amount for retirement.

The earlier you start, the longer the passive income runs.

I hope that the passive income I have increases every year and one day it is big enough for my wife and me to consider ourselves financially free. 

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This is a post from our guest writer Lemizeraq who runs the website Financial Freedom SG. The original post can be found here.If you want to be a guest writer as well, or if you have a story to share that will help our readers understand financial matters better, please contact us.

Consumerism commentary has just published an article on how to intelligently and responsibly buy a car. I think before you even think of buying a car, consider the following questions.

What is your PURPOSE of owning a car?

Do you want to get from A to B only? Do you want to bring your family around? Is it a status symbol? Is it to improve your business? Do you need it for convenience? Do you just have money to burn?

It is very important that you know why exactly you want to own a car, even if it is just for convenience. Once you establish your true purpose, this purpose will drive the decisions that follow. In particular:

Are there other ALTERNATIVES that will meet your purpose without owning a car?

Do you absolutely need the car to achieve your purpose? Is public transport a good substitute for a car to meet your purpose? Can working from home be an alternative arrangement? Is there a closer work place you can work from? Can you improve your business by having a more prestigious address rather than a prestigious car? Can you burn your money somewhere else, like donating to FiSCA?

Do you have other PRIORITIES?

Once you have exhausted the alternatives, and you have decided that a car is still the best option for you, have a look at your priorities. Do you have other priorities that might compete with your financial resources? Are you getting married soon? Are you planning to have kids? Are you in the process of buying a home? Do you want to take further education? Do you have kids that depend on you for further education? Do you have other dependents that might tap into your financial resources? Do you feel strongly about the environment that owning a car is now lower in your list of priorities?

And if your answer is still yes to a car, then you can begin to look at the financial impact of owning a car. You can try Edmunds.com for a guide on the True Cost of Owning a car.

Buying a car is likely going to be your second largest financial commitment (after your home). Be sure to exercise your own independent thinking when purchasing one. Make it a happy, conscious, decision, not one that you will regret down the road.

We had a great response on Saturday for this event. We had to put in additional seats into the theatre just to accomodate all those who have registered. We would like to extend a big thank you to your support. We hope that you have found the talk useful.

If you would like to feedback on the talk, please do not hesitate to contact us. Your comments (good and bad!) are welcome so that we are inspired to bring you more talks, and so that we can improve on our next talk, which is coming up very soon!

Stay tuned for more details. Members will get notified earlier about the upcoming talk. Why not join us as a member?

What do you think a millionaire looks like? Do you think he or she:

• spends much on clothes?
• pays mortgage on their home?
• likes to buy fancy cars?
• likes to dine in expensive restaurants?
• loves to own the latest gadgets?

This article seems to suggest otherwise. This reminds me of a book I read about the Millionaire Next Door. You just can't tell who they are, but their financial habits are worth learning from.

So do you want to look like a millionaire or be a millionaire?

Of course, every self-made millionaire started somewhere. Have a look at what are the possible baby steps here.

Books quoted in this article can be borrowed from your local library. (I tried to include the library link, but the search result doesn't "remember". The following is a link to Amazon for your reference.)

• Total Money Makeover by Dave Ramsey
• The Millionaire Next Door by Thomas Stanley

The response to tomorrow's talk has been very good. If you have missed this round, keep a look out. There will be more talks coming up. Our members will be notified first by email. If you are not a member yet, do consider joining us to support our cause.

Will be seeing some of you tomorrow!

Ability to think

Singaporeans are well educated and score high marks in academic subjects. Unfortunately, most are not able to think for themselves, or what is known as being "street smart". They rely on the advice of other people. They are quite trusting and may not even know who can or cannot be trusted. They are easily cheated by people with bad intentions.

This is why so many people are misled into investing in the credit linked notes, such as the mini-bonds. They rely on the advice and assurances of the people who sell the products, not knowing that these people are also ignorant and are mostly interested in the commission on the sales or meeting the sales quota. Their managers of the distributors trusted the investment banks who created the products and failed to do the due diligence.

The inability to think extend beyond the credit-linked notes. Many people are now being deceived by the empty promises made by the promoters of certain products, such as land banking or promises of buyback of the investments with an attractive rate of interest. The buy back options are written with legal loopholes.

For a long time, Singaporeans have been used to an environment where they do not have to exercise their legal or human rights. They trusted the "safe environment" in Singapore. However, this environment has changed and is no longer "safe". It is easy for crooks to go around cheating people under the environment  of "caveat emptor" or "regulate with a light touch".

There is a story about the frog in a pot of water. As the water becomes heated, the frog get used to the environment and is not aware about the danger, until the frog is finally boiled. I am afraid that there is a similar situation to what is heppening in Singapore today.

It is important for Singaporeans to pay attention to the new environment and be aware that they cannot continue to blindly trust people who have their own self interest. Singaporeans should learn to think for themselves. They have to learn to gather the facts and make their own judgement. They have to learn about the legal and human rights that they are guaranteed under the consituttion of Singapore.

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This is what FiSCA aims to do, to help financial consumers have the ability to make better choices on their own. Do join us to support our cause.

Mr Tan Kin Lian, our FiSCA President, also runs his own blog here. The original post can be found here.

If you want to be a guest writer, or if you have a story to share that will help our readers understand financial matters better, please contact us.

The people who end up with mega fortunes have their wealth concentrated around the company that they built or have huge amounts of shares given to them.

Bill Gates, Warren Buffett, John D. Rockefeller, Henry Ford etc are some examples from present and past.

The flip side is that this concentration of wealth can also lose you everything. Just ask the Enron employees who used their savings to buy into their company or the Bear Stearns people who did the same. Ditto for Lehman Brothers. When you lose your job AND your savings it would seem like the end of the world.

The majority of us aren’t Bill Gates or Warren Buffett, so for the ordinary mortals, it is important to learn what is diversification.

According to the Wikipedia, it is a risk management technique related to hedging, that mixes a wide variety of investments within a portfolio. The reason for diversification is so that any drop in one investment will have less impact on your portfolio as this minimizes the risk from any one investment.

The 4 keys to successful diversification are:

1. Non-correlation- that is the investments are not directly correlated with one another. In simple terms, it means that if you have 5 bank stocks it is not as diversified and more risky than a portfolio with 1 bank, 1 transport, 1 medical, 1 food and 1 manufacturing company, all else being equal.
   
2. Use of Multiple Investment Types- a well diversified portfolio should not just consist of just stocks and shares. It should be in the form of unit trust, bonds, money market funds etc. Recently, there are even people who advocate that one should put in commodities, currencies, real estate etc as well into the mix.
   
3. Variation Across Geographical Region- as I was writing this, Greece, Portugal, Spain, Italy (some very cheeky people gave them an acronym as PIGS) are in trouble, which illustrates the need to diversify not just out of your country but also out of your region too. If you are an investor in Greece and fully invested in your own country’s stocks, you should be looking to diversification.
   
4. Time aspect- while this is not really covered under diversification, I believe that this is another aspect of spreading risk. If you have $10,000 right now, do you plonk it all in at one time? Or would you be better off spreading the purchase to 2 or 3 separate ones. Some may argue that you save brokerage and transaction cost by buying at one go. Or that the market may go up and up while you buy later and get less stock. I am a believer of dollar cost averaging which practices this aspect of time diversification by putting a part of my salary into index funds straight away.

With diversification properly done, you spread your risk and decrease it as the fluctuation of your portfolio decreases on the whole and you actually get a higher return. It is about the only time that it is possible to have higher or nearly the same returns with lower risk.

My wife and I have nearly half of our investment out of Singapore, into either the region or the wider world outside. Do you use the portfolio approach to investment?

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This is a post from our guest writer Lemizeraq who runs the website Financial Freedom SG. The original post can be found here.If you want to be a guest writer as well, or if you have a story to share that will help our readers understand financial matters better, please contact us.

We have something special for you today. This is a short Q&A with Mr Tan Kin Lian, our president and speaker for the upcoming talk on 8 May 2010, where he answers candidly about what the upcoming talk is all about.

Q: Thank you for volunteering your time and effort for this talk. Why are you spending so much time on this, and even giving all attendees a free book?

A: I would like to improve the financial literacy among Singaporeans. There has been quite a lot of financial news recently which affected a lot of consumers. Although I think the regulators can do more to protect the consumers, I believe the consumers can learn more to protect themselves.

Q: How do you think this talk will help the financial consumers?

A: This talk will lay out the background that any financial consumer should consider when thinking about their financial situation. It will talk about "when to even start thinking about financial planning" all the way to "how you should think about financial planning when you retire".

Q: Who do you think this talk is suitable for?

A: This talk is most suitable for people who are working till retirees. I am a retired person myself, so I do know a thing or 2 about retirement planning.

Q: You mean only working people should attend this talk?

A: No. In fact, it is best suited to people who are about to work. You can never start your financial planning too early. I would say, the earlier the better, so I do hope to see some teenagers to come as well. :)

Q: If I were to attend this talk, can I ask you questions?

A: Of course! The more the merrier.

Q: What do you say to those attendees who are afraid to ask questions?

A: This is actually the first step towards any financial education. You might be afraid or discouraged at some point to ask questions because you might think you lack the financial knowledge. This is the thing that FiSCA is trying to promote. The financial industry depends on people like you to ask the lay man questions. If the professional cannot answer the lay man questions, you are asking something very important. Please, have the courage to ask questions. FiSCA can help you grow your voice, and together, we can help all financial consumers to be a more intelligent buyer.

Q: Any thing else you want to let us know about the talk?

A: Bring an open mind.

For more details of the talk, please visit the event details page.

Another week has passed. Hope you've had a good week. Below are some articles around the globe which you might want to include in your weekend reading. Have a nice weekend!

• Top ten mistakes seniors make with their finances
• How to buy a house
• Be cautious when using your debit card
• Building your own annuity
• Balance your portfolio: 3 important stock alternatives
• Is money the root of all evil?
• Do you need the help of a financial advisor?
  

A new survey by Russell Investment reported by Channel News Asia shows that 60% of Singaporeans want to retire by 60.

However, only 40% have develop any sort of plan for retirement, and only 20% have accessed professional financial advice regarding retirement. wonder what sort of professional financial advice they are talking about here.

If it was those by banking wealth manager, I think they can do without it. Or even those by unscrupulous insurance agent out to sell them commission heavy investment products, which is only beneficial to the insurance agents.

You can do better by following the advice dished out on the “Blogs of Note” that is listed in the blog on the right. From the newbie investors starting out on their journey to financial freedom to very experienced financial experts like Mr Tan Kin Lian.

More than 500 people between 25 and 55 years old participated in the survey and rightly so, their biggest fear is out-living the sum that they have saved.

So according to the same report, the majority of the respondents are open to working part time even after retirement.

Do you have any plans for retirement?

Or are you one of those who live day by day?

I made a mistake by overselling my bonus stocks. But I made 89% from the Breadtalk counter. That is from less than 2 years of patient wait through a turbulent market and not including dividends. Can just putting money in bank do that?

My belief is that you can do well in stocks by careful selection. You lose some, but when you win big a few times, it can help you reach your retirement goals.

My mantra is ‘To Plan, Save and Invest’. If you do just one of from the three, you can do alright, but if you combine all three, you can reach your goal of financial freedom before retirement.

Have a good journey ahead!

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This is a post from our guest writer Lemizeraq who runs the website Financial Freedom SG. The original post can be found here.

If you want to be a guest writer as well, or if you have a story to share that will help our readers understand financial matters better, please contact us.