Wednesday, August 31, 2016

5 Questions You Were Too Embarrased To Ask About Mutual Funds


It’s okay if you don’t know what a mutual fund is. But you shouldn’t be too shy to ask questions before investing in one. It must be sales season in the finance industry. Visit any MRT station in Singapore, and you’re sure to come across a roadshow with a dozen financial advisors trying to sell you a product. Chances are, you’ve probably been approached with dozens of offers to invest in a mutual fund. Here are some questions you should ask before investing in a mutual fund, but feel too embarrassed to:
 
1. Wait, What is a Mutual Fund?
A mutual fund is a portfolio of assets, which many participants collectively pool their money to invest in. While mutual funds have many names and descriptions, these are the main qualities that they all share:
    They are collective investments. These products are sold to hundreds or thousands of people, who pool their money to invest in it.
    They are managed by a professional. The thousands of people who invest in the fund have no control over its day-to-day operations; these operations are placed in the hands of a paid fund manager(s). The fund manager is sometimes a computer.
    Investors purchase “units” in the fund. In a mutual fund, you do not purchase specific stocks, bonds, or other such assets. Rather, you purchase “units”, which are priced according to the fund’s Net Asset Value (NAV). There may be rules in place, to
control when the investors can sell their units, and in what quantity.
    A mutual fund always comes with a prospectus for the investor. This details what the fund is engaged in, along with reports about its various assets and past performance. Funds have an obligation to disclose information that would affect investor 
decisions via the prospectus.
 
2. Why are Mutual Funds Everywhere in Singapore?
There are many reasons why mutual funds are aggressively advertised right now. The first is that mutual funds make a lot of money, for the fund managers as well as the people selling them. Consider that a fund manager may make one per cent of the fund’s portfolio of managed assets, every year: that may not sound like much, but if the fund has assets totalling S$35 million, that’s S$350,000 a year. The second reason is that Singaporeans have begun to worry about retirement. 2015 and (so far) 2016 have proven to be difficult, with record numbers of layoffs and uncertainty in the global economy. In such an environment, more people worry about their financial future, and start to seek alternative solutions. Mutual funds are often presented as a supplement to retirement funds (like your CPF), or are positioned as a retirement product themselves. And many finance companies know that, in difficult times, people will show more interest in these products. When times are good, all of this fund stuff is boring and no one wants to listen.
 
3. So, I Think I Want to Invest in a Mutual Fund. Which One Should I Get?
We’re not in a position to give advice about what mutual fund to invest in. This decision entirely depends on your unique circumstances. But we will tell you not to buy the first mutual fund that is shown to you. Some funds may be able to give you a comparable rate of return, for a much lower Total Expense Ratio (TER). The TER is the amount you are paying for the marketing and management of the fund. So if the fund provides returns of five per cent but the TER is high at two per cent, your returns are actually just three per cent. You may, however, find another similar fund with five per cent returns, but in which the fee is just 1.5 per cent (thus securing returns of 3.5 per cent instead). As with any financial commitment, make sure you are getting the best deal, not just the most convenient. There are thousands of these funds on the market at any one time – make sure to compare your options. Do not assume the performance you see will be repeated. Bear in mind that fund managers move around a lot – the person who managed the fund and made it a success in 2010 may no longer be around, and the top manager it has today may be gone in three to five years. Aak to know the fund’s annualised returns over a 10 year period. This is a more realistic reflection of the fund’s performance.
 
4. How Do I Know If I’m Investing in a Legit Mutual Fund?
First, check to see if the product is regulated by the Monetary Authority of Singapore (MAS). Collective Investment Schemes (CIS) should be licensed by the MAS. Check their watch-list to ensure you are not investing in a blacklisted product. If you are in doubt, call or email the MAS helpline and make an enquiry. Do not agree to buy into unregulated mutual funds or unregulated investment products of any kind. Because you are often signing a contract when you buy-in, it can be difficult to hold the seller to account later (you agreed and signed on the dotted line!). If you have a current financial advisor or wealth manager, consult them before buying the product. Sometimes, a mutual fund contains assets that you have already invested in. For example, many Investment Linked Policies (ILPs) will hold blue chip assets, such as shares in DBS and Singtel. If you have such an ILP, and you buy into a mutual fund that invests in the same companies, you are basically buying the same thing twice. There’s no diversification in that. Likewise, some actively managed mutual funds may carry higher risk, as the manager attempts to outperform the market. This may not be idea for retirees. On the other hand, some mutual funds give consistent but low returns, which may not be ideal for young investors (the returns don’t keep pace with inflation). Seek expert help to determine if the fund matches your existing portfolio.
 
5. What Happens If I Change My Mind About My Mutual Fund?
For how long must your money remain in the fund? What if you need to pull your money out part-way? Many funds have rules about when you can sell your units, and to whom. There may be penalties involved in selling, or you simply may not be able to sell at all. These are all important considerations before you commit the money. Mutual funds are one of several tools that can supplement your retirement income. But used wrongly, it can have the opposite effect and damage your wealth instead. The simplest rule is that, when you are in doubt or unclear, don’t buy.
If you want to test that, explain the fund to someone else. If you cannot clearly describe it, you don’t know enough about it.
 
 
Singsaver.com.sg, Singapore's leading personal finance comparison platform, provides free and easily accessible resources such as its up-to-date credit card product page and the latest personal loan packages available in real-time.

Thursday, August 25, 2016

Why Is It So Difficult To Control Your Spending?


Thanks to the limits of human willpower, saying no to our impulses is much harder than we think. How is it that Singaporeans can win an Olympic gold medal, raise a child, or go through National Service, but not save a bit of money every month? What makes it so darn difficult? As it turns out, personal finance is a whole different world from regular finance. It’s incredible how hard your mind fights back against thrift. Here’s why even the most thrifty Singaporeans have a tough time controlling their spending.


 
1. We See Values in Context
How much is the value of 50 cents? Logic says it’s worth 50 cents, but your brain doesn’t think so. Consider the price of hawker food. When a bowl of fishball noodles rises from S$3.50 to S$4, there are complaints up the wazoo. Some people are even willing to walk another block or two, just to get cheaper noodles. But if you want a laptop worth $1,800 and the store price is $1,800.50, chances are you’ll shrug it off. No need to walk to another shop to get it 50 cents cheaper. But why? 50 cents is 50 cents, regardless of what you buy. The objective value of the money hasn’t changed. The issue is context. When you are dealing with large numbers, your mind starts working on a different scale. At a restaurant where dinner is S$70 per head, S$12 for dessert no longer seems as outrageous (although you’d probably complain if one scoop costs S$12 at an ice cream stand). Whenever you are buying something expensive, it’s a good idea to take a deep breath, and compare prices to what you would normally pay. Don’t make the context or situation make you lose track of value.
 
2. Ego Depletion
Ego depletion refers to the way in which willpower is depleted. We all have a limited store of will, and if we spend it on one thing, we lose it for another. For example: if you use all your willpower to diet, there is a significant chance you will be distracted at work or while studying. If you are struggling to quit smoking, it takes up so much willpower that you don’t have enough to control your emotions. This also affects your finances. For some people, it takes a tremendous strength of will to control their spending. It is not easier than dieting, or anger management for the short-tempered. Ego depletion means that when you are stressed or tired, your spending is likely to go out of control. Hence the term retail therapy: it is not just that shopping makes you feel better, it’s that you no longer have the willpower to be thrifty. The only way to beat it? Don’t shop after a stressful day.
 
3. Distracted Shopping
We tend to spend more when we are distracted. This is one reason why tourists spend more: when we are fascinated with new sights and sounds, we stop paying attention to our spending. We end up hoarding useless souvenirs and wonder why we bought so many when we get home. But tourism isn’t the only cause of distracted shopping. We also do it when we are shopping during festive seasons (the lights, music, and re-arranged aisles are specifically designed to distract you), and when we visit a new mall. Also useful for distracting us? Spectacles, like a stage event. Now you know why malls love to stage live events. How do you help it? Well you can’t, short of controlling how much cash you have on you.
 
4. The Sunk Cost Fallacy
Would you believe people keep buying things because they already bought things? It’s called the sunk cost fallacy. It commonly manifests in collectors. For example, consider someone who buys a lot of watches. One day he buys a watch worth S$5,000. Why? Because he likes watches and has already spent so much on his collection. Next, he comes across a S$10,000 watch, and he buys that too. Why? Because he’s already spent S$5,000 along with those other watches. It would be silly to stop now. Then he comes across a S$15,000 watch, and…you see where we’re going with this. This tends to happen with “groups” of products. People who spend significant sums on a home theatre system, for example, often end up spending even more to upgrade an already expensive set. Part of the reason being that they’ve invested too much to quit. The only way around this is to not feel obliged to “carry on” something. If you can’t shake the need to keep buying, sell off what you already have and end it – before the addiction gets worse.
 
 
 
5. Peer Encouragement
Most of us match our spending habits and even brand preferences to our friends. This is the reason many brands try to build fan communities. The followers of the brand exude peer pressure and encourage one another to buy more. Apple is one of those companies best known for this, with their large and vocal fan following. Entertainers practically live off this principle, with fans of a particular celebrity pressuring one another to buy more records, see more concerts, etc. Some companies market to a specific age demographic, such as young adults (19 to 25). This is the age group which is believed to be most susceptible to peer pressure. Purchasing decisions are largely, if not entirely, influenced by friends. The only way to avoid this is to move away from the influence. Stop hanging around friends who encourage you to spend. Of course, for a younger crowd, that’s easier said than done.

Wednesday, August 17, 2016

5 Financial Mistakes Singaporeans Typically Regret In Their 30s


 
Many Singaporeans don’t take care of their money until they hit 30. Don’t be one of them. Most Singaporeans don’t pay attention to savings and investments in our 20s. This is because it’s hard to think through the perpetual Korean drama that is early boyfriend or girlfriend relationships, or to think of retirement within an alcohol-fuelled haze. But in the few lucid moments between drinks, see if you can manage to avoid the following financial mistakes. Otherwise, you’ll have the same regrets as most Singaporeans at 30.
 
 
1. Buying Insurance Only After You’ve Developed a Smoking, Drinking or Binge Eating Habit
Many of us will develop some kind of medical condition before we’re 30. This could range from something genetic and unavoidable, to something we’ve done to ourselves (e.g. becoming a smoker, becoming overweight, drinking too much, and so on). Whatever the case, our joyfully acquired conditions will add a hefty amount to insurance premiums. In some cases, it may even result in becoming uninsurable. For example, once your BMI goes above a certain level, many insurers will not consider covering you for anything beyond death. This is why it’s always a good idea* to buy a good insurance policy early on, before you develop any such issues. *A better idea is to not become a smoker, drinker, binge eater, etc. But what are we, your dad? This is a finance site. We look after wallets, not lifestyle choices.
 
2. Living Paycheque to Paycheque Until You’re 30
If you haven’t saved a penny by the time you’re 30, you’re in for a world of (financial) hurt. The reason is simple: Your mid-30s will be the time when you need to make a lot of crucial financial decisions. This could be purchasing your first house at 35 (or even earlier if you’re getting married), having your first child, starting to take care of your parents, etc. It’s an incredibly rough time for most of us, and it’s a hundred times worse if your savings at this point are $0. If it really annoys you to save money constantly, here’s what you can do: spend just two years hoarding money, until you’ve accumulated about six months of your income. After you have this amount stowed away, you can go ahead and spend as you wish with your paycheque with some modicum of safety.
 
3. Leaving Your Money in a Fixed Deposit for a Decade
On the upside, this at least means you’re saving money. On the downside, this means you’re losing as much as 2 to 3% of your savings every year from inflation. Most fixed deposits don’t even have interest rates of 1%. Singapore’s inflation rate is about 3% (and that’s being optimistic). Trying to fight inflation with fixed deposits is like trying to put out a forest fire with nothing but a full bladder. So where you should put your cash instead? The best places to keep your retirement savings are passive investments like POSB or OCBC’s blue chip programme*. You can also talk to a financial adviser on how to use your money more actively. *This article is not sponsored by either POSB or OCBC. The writer does invest using OCBC’s blue chip programme.
 
4. Not Paying Your Credit Card Debts in Full or On Time
Credit card debt is even worse than leaving your money to stagnate in fixed deposits. At an interest rate of 24% per annum (which can be more if you are late with repayments), rollover debt is the surest way to haemorrhage money. The greatest risk with credit card use is missing repayments. Not because of the potential $60 late fees, but because of the damage to your credit rating. By the time you have received your first warning letters, your much treasured “A” credit rating may have slipped to a “C”. This could drastically impact what banks are willing to lend you on bigger loans, such as property loans, car loans, and personal loans. You may recognise those things as being quite important to a 30+ year old. This could drastically impact what banks are willing to lend you on bigger loans, such as property loans, car loans, and personal loans. You may recognise those things as being quite important to a 30+ year old.
 
5. Getting Heavily in Debt by Buying Cars, Fancy Watches, or Other Depreciating Assets
We’re aware that you look totally cool owning your own car, motorcycle or even powerboat. Now if you’re rich enough to buy these things then more power to you, and did you know some of our writers are single and very attractive? Chat us up on Facebook. Otherwise, one of the silliest things you can do is to owe a huge amount on a depreciating asset. That is, an asset that decreases in value over time. A car, for example, depreciates by as much as 60% the moment it’s delivered and you start it up. As for watches, almost all of them (even limited edition ones) will probably result in you losing money upon resale. Critical financial planning, such as planning for retirement, should be on your mind by the time you are 30. By then, you will be so sick of bosses and morning meetings that the mere thought of working past 62 will make you call the Human Rights Commission and weep. It will be a massive relief at that point to have a nest egg, which you can place into a well-diversified portfolio. This will give you some hope of retiring at 62 or even earlier. But you can’t do that if you find you’re paying off debt till your mid-30’s.
 

Wednesday, August 10, 2016

How Will VendCafes In Singapore Impact Your Wallet?


VendCafes are the future of fast and cheap food in Singapore. What will this mean for your wallet? The first vending machine cafe in Singapore is now open at the void deck of Block 320C Anchorvale Drive. VendCafes are a new dining concept, in which the eatery consists of just vending machines and tables to eat at. But is this a viable replacement for a proper eatery, and how will it affect your wallet?
 

Source: The Straits Times
 
VendCafes Minimises the Service Element from Eateries
The two biggest costs in the food industry are rent and manpower. Ever since the 1990s, when Japan took the lead with robot cafes and conveyor belt sushi, the food industry has sought alternatives to hiring staff. VendCafes are an outgrowth of that. The pilot VendCafe at Anchorvale provides local foods like hor fun, nasi goreng, and chicken rice. There is also a brown rice and braised chicken version, which has the Health Promotion Board’s Healthier Choice stamp. The food is actually prepared fresh in the morning, in a central kitchen with 60 chefs. It is then put through blast chilling – this is a process by which food is reduced from 70 degrees centigrade to three degrees centigrade or below, within less than 90 minutes. Blast chilling is used as the standard for restaurants that precook food, in the European Union (EU). Unlike freezing, blast chilling preserves the nutritional value of the food, while inhibiting bacterial growth. Most food items are priced between S$3.50 and S$5. You can pay with NETs, cash, or credit cards. VendCafes can have an impact on Singaporeans’ wallets by:
 
1. Cutting Down on Delivery Costs
If you need a bite at two in the morning, odds are you won’t want to travel. The solution is usually to order from 24/7 food delivery options, which are mostly online. Most of these come with delivery charges, which range from S$2 to well over S$5. But because VendCafes are open 24/7, they give you the option of popping downstairs for a bite whenever you like. On top of that, it seems VendCafes can fit into void decks everywhere. Imagine if we get to a point where there’s one of these below every few blocks: there’ll be no need to pay extra for deliveries, or on taking the bus or train to a nearby eatery.
 
2. Keeping Prices Low By Competing with Convenience Stores
Convenience stores currently sell quick food as well. These are usually bought and microwaved in the store itself. Prices have crept up over the five years: where once these were priced in the S$3 to S$5 range, comparable to the current VendCafe, there are now products priced as high as S$7 or S$10. Inflation aside, a lot of this is due to lack of competition. When it’s midnight and there’s no coffee shop open, your option is either the convenience store food or delivery (in which case see point 1). At present, VendCafes are a cheaper alternative to convenience stores. In the long run, the competition may see convenience stores lower prices or freeze price hikes. Either way, the consumers win.
 
3. Trimming the Old Instant Noodle Budget
If you have a VendCafe downstairs, you can trim the budget for canned food and instant noodles. A lot of these items – while cheap – are also much less healthy and sold in unnecessary bulk (many of us have gone from buying three-packs to buying 10-packs).
 
4. More Options for Students and Those on a Tight Budget
VendCafes provide a cheaper alternative to fast food, which will appeal to students and those on a budget. At present, hawker food is the only close competitor in price and dollar value. But for those without access to such amenities (not everyone has a good kopitiam next door), this is salvation from a S$7 or S$10 fast food meal set.
 
But Will VendCafes Be Good For Your Wallet?
Assuming food standards remain good, VendCafes do have the potential to change consumer habits. Combining low cost and convenience is a tried and tested formula. If we see more of these in the coming years, it’s plausible that the days of a S$6 convenience store sandwich are truly over. This means more value out of your money when you need a quick meal and are strapped for cash.
 

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