Investment vs Insurance- Which is More Important?

Whether we like it or not, when we become adults, we have to start thinking about our personal finances and planning our future. For those who have not been taught about finances (I know pretty much none of us learnt this in school), planning finances could be a daunting task. The words ‘investment’ and ‘insurance’ often fill people with dread; is it a scam? Why should I spend my money on that? Do I need it?

The long and short of it is, both are important and you need both. But is one more important than the other? Let’s look at both and see for ourselves.

There are lots of kinds of insurance products but they all cover one thing- loss. The whole point of insurance is that it covers us if something goes wrong. This may be a hospitalisation, a disability, an illness, or some other kind of liability that would set us back financially. It is meant for protection; protecting us from the adverse effects of not being able to work or financial hardships. Many people think that planning for these things, such as death or disability, is a morbid topic and a worst-case scenario. But good health is never guaranteed, and it’s always best to get these things sorted before it’s too late. Insurance products also become more expensive as you get older, so it’s best to start early, so that these payments don’t interfere with any of your future life stages like purchasing a house or sending your kids to school.

Investing is all about growing money for our future- we can either plan for a passive income stream, so that we don’t have to rely on work so much. Or, we can plan for capital gains, so that we have a nice chunk of money when we want it. The idea of making money with not necessarily putting too much effort in (check out my articles about passive investing), is an attractive one. And, if we make all this money, why do we even need insurance?

Unfortunately, the truth of the matter is, it is unwise to have one without the other; investment increases our upsides, but insurance protects our downside. If you invest without being insured, you run the risk of losing it all should you fall sick or become hospitalised (also, can I just say, it’s very naïve to think you will stay healthy forever), especially if your investments are not enough to pay for your bills. If you just insure yourself without investing, you are selling yourself short, only planning for the bad things that can happen, and not planning for the good times ahead. It also means that you may have to constantly work and never be able to retire. Neither insurance nor investments will work on their own; you need to plan and review both in order to be financially successful.

A very important thing to take note of is that investments take a long time to accumulate, especially if you cannot set aside a lot of money to invest. Insurance policies cover you pretty much as soon as you get them. So, it’s always important to sort your insurance out first; once you are protected you can focus on growing your money.

But do remember that investing and insurance is never fixed and one-size-fits all. You need to constantly review your finances in order to keep up with your changing needs!

Why do Expats Need Financial Planning in Singapore?

As an expat, and a financial consultant, I have seen both sides of the coin when it comes to financial planning. 30% of Singapore’s population is made up of expats; and, being the fourth most expensive city in the world, means that non-residents really need to understand and adapt to the way of living here.

  Here are some main differences between locals’ and expats’ expenses that you should take into consideration.

Housing

Houses takes up the main bulk of expenses moving to Singapore; rental is expensive, especially in the downtown area, where a lot of offices and expat’s place of work is. Singaporeans and PRs can buy a HDB at an affordable price using their CPF money, but if an expat wishes to buy a property, they are not allowed to buy a HDB, and executive condos and landed property can be in the millions. Clearly, for a foreigner, more often than not purchasing a property is not an option. So be cautious when you begin to start renting here- the rental and bills should never exceed 50% of your monthly income.

School Fees and Childcare

If you are in Singapore with your family, you need to understand the differences between local and international schooling. As local schools are funded by the government, the fees are a lot cheaper than international schools. Sending your child to international school can cost roughly $2,000-$4,000 per month. While there is some debate as to which schooling system is better (which I’m not going to go into), it is certainly more economical to send your child to local school. However, do take note that in order for an expat child to go to a local school, they have to pass exams, and places are competitive.

Healthcare

I often hear outrage from expats in regards to the cost of healthcare in Singapore. In 2018 Singapore was announced to have the second-best healthcare in the world, second to Hong Kong. All of this comes at a price, and Singapore is not a welfare state. While there are government subsides for locals, it is crucial that expats get a comprehensive healthcare insurance. The average hospital bill in Singapore is about $40,000, so to avoid paying out of pocket- get insurance! I know it may seem annoying but paying for healthcare is unavoidable in this country.

A Holistic Need For Planning

While most expats earn more here in Singapore than they would back in their home country, it is imperative that we plan correctly and not live paycheque to paycheque. This may often be difficult; Singapore has a plethora of amazing places to eat out, visit and experience, which can really burn a hole in our pockets. Simply saving a bit each month is not enough. Think long term, why did you move to Singapore? What do you plan on achieving? And where to plan on staying for the rest of your years?

Long-term planning may be daunting, but there is a reason why Singaporeans are some of the most well-off people in the world…they did the uncomfortable and planned their finances early!

How To Take Emotion Out Of Investing

As you may already be aware, many of my articles are about investments; how much you should invest and what you should invest in. I’ve even brushed on a little bit how you can be a disciplined investor. Today I want to delve further into this topic…how to take emotion out of investing. This may seem like a simple thing to do but, when money is involved, feelings are bound to get hurt.

A CFA Institute study showed that over a 30-year period, the average US equity investor achieved a return of 3.8% per year. But, surprisingly, the S&P 500 gave 11.1% returns. What’s the reason for the huge difference? Why did people not reap the full rewards? The answer is very simple…bad timing of the market.

Emotional investing is a bad strategy that I would not advise to anyone. Many people panic if the media hypes up a stock, or predicts that a market will crash. This is almost a self-fulfilling prophecy. If anyone remembers about Y2K, or has read up on the Dot-Com Bubble, you will know that the media told everyone that computers would crash (due to the computers thinking the year ‘00’ would mean ‘1990’) and that everyone’s bank accounts would be wiped when the servers had this tech error. Of course, this didn’t happen. But the media phrenzy caused stocks to plummet, and when there were so many web giants, we were only left with a few, like Google, Apple and Amazon. Playing into this fear caused thousands and thousands of people to lose their money on the stocks they had.

Fear is very often the driving force behind bad investing, and its co-pilot is greed. These two emotions can cause investors to buy at a high price (in hope it will go higher) and sell low (panicking that it won’t go back up). This clearly is not going to be fruitful or give you decent returns in the long run, so how can you avoid this?

There are two key ways to take the emotion out of investing and think rationally with your investing. The first is diversification. This is a word I have mentioned a lot in previous articles. Diversification is the investment strategy of buying an array of investment types; stocks, bonds, buying equities in different countries, different industries and just generally not putting all your eggs in one basket. There are only a handful of times in human history, when all markets have moved up or down in unison, so this method provides a buffer against volatility. Because one investment’s losses are offset by another’s gains, your portfolio will survive long term.

The next method to remove emotion from investing is dollar-cost averaging. I have also mentioned this several times before in previous articles. This idea is simple; invest the same amount of money in regular intervals. This strategy can be used during any market trend, up or down. The key is to not change or falter from the amount and the time intervals. Don’t tamper with it at all, and be disciplined to follow this method long term. This will remove all emotion out of your investments and you don’t have to worry about timing the market.

To conclude, we are humans, it is almost impossible not to factor emotion into our day to day lives. However, using these simple methods of dollar-cost averaging and diversification, you will stop these bad investing habits and succeed in the long run. To further remove emotion, I suggest doing passive investments, so that you are not the one looking over your funds.

What Happens If I Leave My Money In The Bank?

Money saved is money earned…right? Not necessarily in the long run. Rising inflation rates can mean that you’re actually losing money by leaving it in your bank account.

If we take my DBS account as an example; the interest rate is a lousy 0.05%. The average rate of inflation in Singapore is projected to increase to 2%. In theory, if I leave $100,000 in my bank account for 5 years, I will have $100,250 after interest. However, this amount of money will have lost buying power. In theory, my money in 5 years will actually be worth $90,622; I will have lost $9,378 just by leaving my money alone! (It has a negative rate of -1.95% when inflation is taken into account.)

While inflation shows an upward trend in the economy, it can be a massive hindrance to our bank accounts! So what do we do? There are a couple of ways to take action today! The first one is to find a savings account that offers you a higher interest rate. Some offer 2%-3%.

The second and most effective way is to put your money in instruments that will get you a much higher rate of return. This is why I feel that investing is key; even if you find something that yields a conservative 4%, your $100,000 in 5 years would be $121,665.

I will be writing about in a future article the benefits of different investment instruments.

Hindsight is bitter sweet; it’s very easy to sit back and relax and leave your money alone…but you will regret it in the long run.

The Pros and Cons of Crypto!

Cryptocurrency….the buzz word that is on everyone’s lips. Cryptocurrency gained popularity a few years ago, but since the pandemic more and more people are interested and wanting to know more on how to earn some money with crypto.

But, is investing in crypto for you? Cryptocurrency is, in short, a digital or virtual currency, which are mostly decentralised and based on blockchain technology. There are many reasons why people use and invest in different coins. Here is a list of some pros and cons of crypto, so that you can make an informed decision as to whether you want to go ahead and buy!

Pros

Transparency

This may be the top reason why people want to invest in cyrpto; cryptocurrency offers much more potential for societal change. All digital currency transactions are stored on the blockchain. This means the data is available for anyone to view at any time. For those who want more transparency in the banking system, this is a very big plus.

Instant Accessibility

There are so many platforms to access digital currencies, such as Binance, Coinbase and Bisq, meaning that you can sell and buy crypto anytime, anywhere. This means that users can make financial decisions in real time, instead of missing a trend because they’re not near a computer. This also means that digital currency is available to everyone, not just investment bankers. For those who want a piece of the pie, but don’t want the fat cats to get any of their money, cryptocurrency is a great option.

Potential of High Returns

From 2016 to December 2020, Bitcoin in USD has compounded at an annualised growth rate of 131.5%. In comparison, the S&P 500 index of large cap US equities has compounded at an annualised growth rate of 14.5%. Clearly, the potential to gain on a crypto investment is a lot higher than traditional investment methods.

Cons

Potential of High Losses and Volatility

With high returns comes higher risk. The maximum monthly bitcoin return over the 60 months to end December 2020 was 76.1% and the minimum -37.6%. This shows that users will have to constantly check on their coins- as just as quickly can they make a massive profit, then can also plummet at the same rate. Users have to be able to time the market correctly to avoid major losses. This means that a lot of knowledge and research is needed before hand. Not only this, cryptocurrency aims to be used like you would a dollar. Imagine if you bought a coffee for $4 one day, and the next day the same cup of coffee cost $36…would you buy it? This extreme volatility means that it seems unlikely that crypto will be able to be used as actual currency anytime soon.

Legal Status

The legality of cryptocurrency varies country to country. Some countries, like Saudi Arabia, India, Bolivia and Algeria have all banned the use of crypto. There are many reasons why a country would ban digital currency; cryptocurrency cannot be regulated by the government. If a country wants to maintain financial control, of course they would want to ban it. Because of the anonymity of crypto (more on this later), it can be used as a method of money laundering or tax evasion, which is why some countries ban the use. Laws around digital currency are ever changing, which means that one day it could become illegal in your country, and all that money that you’ve made could be inaccessible.

Ethical Issues

Because cryptocurrencies have no official oversight or regulation, they are wide open to being exploited by criminals as a means to scam unwary investors. A 2019 study showed that 46% of bitcoin transactions are associated with illegal activity. Not only this, it has been proven that crypto is quite detrimental to the environment. Cryptocurrency blocks are added to the blockchains through crypto mining, where high-powered computers solve intricate mathematical puzzles. This technology takes a lot of energy to power these computers. Mining bitcoin now consumes more energy per year than the whole country of Argentina. Bitcoin’s emissions could increase the Earth’s temperature by 2 degrees. This brings to question the sustainability of this industry.

There are of course many more pros and cons to cryptocurrency, but there are too many to mention. Of course, if you want to know more about investing in cryptocurrency, please do your own research.

What are your opinions on cryptocurrency?

How To Be A Successful Investor!

You may think that investing is not for you; maybe you’re not experienced enough, maybe you don’t have enough capital. But, the whole process of investing is not as scary as you think. Follow these simple tips and start investing successfully.

Start Before You’re Ready

This may seem counter-productive, but hear me out. Have you ever refrained from doing something, for fear of the risks? And then the thing you didn’t do, happened, and you regretted it? Hindsight is a fickle friend, so don’t miss an opportunity to start investing. Tackle your fear and start before you’re ready, because, to be honest, you will never be ready; “I’ll wait until next month…Let me do it after I’ve paid my bills…Maybe next year.” Take the plunge! If you don’t, you’ve already missed out on so much time you could have been investing.

Don’t Be Emotional

This point is crucial. You have to take all emotion out of investing, mainly fear and greed. If you see your investment plunging, your first response may be to sell, out of fear of losing even more. If you see stocks going up, you may want to buy before they go up higher, out of greed. Doing this eventually leads to buying high and selling low, losing you money in the long run.

  Instead, take advantage of dollar-cost averaging (the concept of buying the same amount at regular intervals). This method makes your investment almost robotic. Another thing you can do as well, is to make your payments into your investments automatic. Set up GIROs or transfer straight away after you get paid, so that you don’t even think about it.

Plan Situations In Advance

Another great tip is to have a set of ‘rules’ before you invest, so that if X was to happen, you already have a Y. For example, if you have a target buy price of a stock in mind, stick toit and do not deviate. This forward planning also helps you take emotion out of investing and manages your fear and greed.

Use Volatility To Your Advantage

Volatility is inevitable with investments, similar to if you go to a theme park you know there will be rollercoasters. A quality of a true investor is being able to hold onto their investments through times of great volatility. Even though it’s scary when investments go down, it’s not permanent. Stocks do not permanently lose their value. Use times of volatility to define your objectives, focus on what stocks are trending and always remember to be prepared for these situations. It’s all part of the game!

Do Some Homework!

Learn about the world around you; politics, technology, science, all have an effect on the financial world. Read up on current affairs and look out for things that could affect the economy and stock markets. The more you read, the more you will start to see trends in the market. I recommend reading The Economist, Business Insider and Bloomberg.

Know What Kind Of Investor You Want To Be

There are two types of investors; passive or active. Passive investors invest in mutual and index funds. If you’re unsure what these things are, check out my article “Investing Terms You Need To Know”. Passive investors benefit from long-term growing financial markets. Their investments are managed by fund managers, shuffling their money around for them on a regular basis. I would consider myself a passive investor; I leave the experts to do their job and just put my money in these funds over regular intervals. This, along with dollar-cost averaging, helps me remove my emotion from investing.

  An active investor has to be very committed, professional and knowledgeable in what they are doing. If you decide to be an active investor, do your research! Know which stocks you want to invest in and be prepared to keep an eye on them. Try to be robotic about it and apply the previous tips.

Have A Long Time Horizon

I’ve mentioned it before but an investor who holds onto their investments longer, usually benefits the most. While the stock market is often volatile over shorter periods of time, the economy generally grows year by year; the inflation rate in the US in 2010 was 1.64%. In 2021, it is currently 2.21%. While inflation rate is annoying in terms of making things more expensive, it is an indicator that the economy is doing well. A higher inflation rate means more spending, more demand for products and triggers more production to meet the demand.

  This means that if you hold onto your investments for longer, you are avoiding short-term losses and in turn benefitting from the growth of the economy.

To conclude, no one can be the perfect investor (if that was the case we’d all be rich), but if you follow these steps you are more likely to make better choices and become a successful investor!

How To Cope With Co-Payment

A few weeks ago, I wrote an article about the changes to medical insurance here in Singapore. If you haven’t read it yet, please go and have a read. As of April 2021, all insurance companies in Singapore will have to introduce a co-payment system; whereby the patient will have to fork out a portion of the hospital bill, which cannot be claimed or reimbursed.

So how do we tackle this problem? I will explore a couple of solutions here; long and short term.

Short-term Solution

To counteract the impact of losing some of your money to co-insurance and deductible on a medical bill, you can choose to include a hospital income plan to your insurance policy. This plan will pay you cash each day you are hospitalised and recovering at home, regardless of the cost of the hospital bill. This is a good way to fill the shortfall that you cannot claim, and it can be used for each time you are hospitalised. This is a quick and cheap option to save on that bit of cash.

Long-term Solution

Medical inflation increases year by year, and it is a problem that will not go away. Obviously, a hospital income plan can only go so far to counteract the rising cost of healthcare in Singapore. There are some ways in which you can prepare for a bit hospital bill in the long run.

Consider adding an extra plan to your insurance portfolio that is kept only for long term use and emergencies only. You can start by putting a small amount of your savings into a plan that will grow this cash for you at a better rate than the bank. Not only that, you can include insurance coverage in this plan. So, if the worst should happen and you are diagnosed with a critical illness or become disabled, you have a lump sum pay-out to supplement the cost of treatment, or help you with adjusting to your new lifestyle. No one likes thinking about these things happening, but it is best to prepare for the worst before you run into any problems. Hindsight is a wonderful thing, but it will not help when it comes to paying for a hospital bill.

I have posted a QR Code below to my WhatsApp should you have any questions or need help planning this out. If you would like me to review your current policy I would be more than happy to do that also.

Singapore: Important Updates to Insurance You Need To Know About!

As we all know, Singapore does not offer free healthcare; for locals, a lot is subsidised by their Medisave but for expats we must pay the full cost and wait for reimbursement from our insurers.

But there will be some new changes this year that all insurers in Singapore will have to follow, which will affect the consumer. Here’s what you need to know.

In March 2018, the Ministry of Health announced that insurers will have to stop offering plans that cover the full cost of hospital bills, and riders that do so will have to contain a ‘co-payment’ feature. This means that patients will have to foot part of their hospital bill, in order to keep healthcare costs sustainable.

From now on, if policyholders are hospitalised, they will have to pay 5% (at least) of the hospital bill. This co-payment is the government’s attempt to maintain policy premiums, and encourage responsible usage of the Singapore Healthcare System…doctors and patients alike.

So what can we, as a customer, do to ensure that we can keep up with these changes? The first is to double-check what your company provides in terms of insurance coverage, as company plans will often cover different things than personal. Second, ensure you have an accident plan that includes some medical reimbursement benefit. Therefore, if you are hospitalised due to an accident, you can claim somewhat off this plan. The third and, in my opinion, the best method is to ensure you have some sort of plan you can use as an ‘emergency medical fund’. Pay into this fund for a few years and, should anything happen, you can use this to cover the co-payment. It can also include features that will cover you should you become disabled, or suffer from a critical illness.

Have you readjusted your medical planning? Do you have any questions in regards to your insurance or future planning? If so, comment below or send me a message!

Covid Vaccine Cover!

Hi There! Are you planning to take the COVID-19 Vaccine? I’m here to give you a confidence boost as you take this brave step. AIA is now offering a COVID-19 Vaccine Cover for FREE!

Apply by 30 April 2021 to enjoy the following benefits up till 31 December 2021.

1)      Up to $1,000 cash pay-out if you’re hospitalised due to COVID-19 Vaccine Complications.

2)      $500 lump sum cash pay-out if you’re hospitalised due to COVID-19.

*T&Cs apply. Please refer to the application website for full details. Protected up to specified limits by SDIC.

Contact me to find out more or simply click on the link below to apply now!

https://www.aia.com.sg/en/AIACovid19VaccineCover-app.html?unique=79672