Friday, July 28, 2017

Can You Afford To Retire At Age 50 In Singapore?

Some Singaporeans want to retire at age 50 instead of the usual 65. Here’s how to make a realistic estimate of how much you need to earn and save. Most Singaporeans expect to retire at 62 or 65. However, some Singaporeans are ambitious or have other goals. It’s hard to climb mountains at age 65! This means there are a few Singaporeans who aim to retire by 50 at the latest. But can you actually do that, and how much would you need? We take a realistic guesstimate.


 
First, Work Out the Income Replacement Rate (IRR) After Retirement
The IRR is, quite simply, the percentage of the income you have right now. The “correct” IRR is not the same for everybody, as we all have different goals. If you want a particularly lavish lifestyle at retirement, the IRR can be well over 100 per cent (that is, you want to have a higher income than you have now, when you retire). If you are content to live a simple life, with no travel and only home cooked meals, your IRR can be as low as 35 per cent (it is inadvisable to aim any lower, due to the hardship it would inflict). Most people would be comfortable at an IRR of 70 per cent (because even before retirement, most of us only have 70 per cent disposable income). This would more or less allow you to live at the same quality of life you have now. The median income in Singapore is around S$4,000 a month, or S$48,000 a year. Therefore, an IRR of 70 per cent for most of us would mean S$33,600 a year after retirement.
 
Work Out the Sum Total We’d Need to Last Till 90
It’s predicted that Singaporeans could live to the age of 90. It’s better to overestimate your lifespan than underestimate it. To be blunt, dying with excess money is not as difficult as living without it. Now assuming you retire at age 50, this means you have another 40 years to live. Your money has to last throughout that entire time. Earlier, we deduced that you need S$33,600 a year in order to maintain your lifestyle. Over 40 years, this would seem to mean you need around S$1.34 million. However, this isn’t enough because you also need to factor inflation. In developed countries like Singapore, the cost of goods tends to increase by around three per cent per annum. $1.34 million in the year, say, 2037 will buy you a lot less than it will today. So let’s say you are 30 years old today, and have 20 years to build up sufficient funds to retire at 50. The total you would need to accumulate over the next two decades is: S$1.344 million x (1+3) ^ 20 = $2.42 million
 
Now That’s Still Not Entirely Accurate
Remember, inflation still keeps going, even after you reach 50. This means your retirement fund of $2.42 million must – even as you spend it – keep pace with the three per cent rate of inflation. To do that, you’d need a balanced portfolio of different assets, which provides a regular income stream. You’ll have to talk to a qualified financial adviser for details on how to do that. But at least now, we have a ballpark figure as to how much we need to have by 50; and S$2.42 million sure seems like a lot.
 
The Bad News is, at S$4,000 a Month You Just Aren’t Earning Enough to Retire at 50
We’re going to exclude windfalls, like winning the lottery or inheriting a load of money. Let’s assume you have to do it the hard way. You have a target of $2.42 million, and you can reliably obtain a return of about four per cent per annum on your investments. Mind you, there are many products out there – such as Investment Linked Policies (ILPs) or stock trading algorithms – that will claim you can get much higher returns. However, these are risky, and we’re going with an amount that most people can safely manage. (It’s not our place to endorse financial products that give higher rates of return; you’ll have to decide which qualified wealth manager or financial planner to trust for that). At returns of around four per cent per annum, over 20 years, you would need to be investing somewhere around S$78,500 per annum, in order to reach S$2.42 million on time. This means that, at the very least, you would need to set aside S$6,541 a month to reach your target. Given that most people can afford to set aside 30 per cent of their paycheque for investment, this means you’d need a monthly income of about S$22,000 to retire at age 50.
 
That Sounds Really Hard
That’s because it is. Trying to retire 12 or 14 years before the usual retirement age is no mean feat. After all, there’s a reason most people don’t manage to do it. However, difficult is not the same as impossible, and there are ways some people have managed this. For example, you can lower some of the amount you need, by working less instead of not working at all, once you retire. You could also consider moves such as downgrading to a smaller house – given the appreciation of your property, this could cover a large portion of the retirement fund you need. Perhaps the most important consideration, however, is to stay insured and keep healthy. A chronic medical condition, or severe illness, is a common factor that could change this goal from being just difficult, to being impossible.


SingSaver.com.sgSingapore's #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Monday, July 17, 2017

Is Investing Better Than Saving Money?

It’s important to know the difference between investing and saving. Each serves different functions, and one isn’t always better than the other. Investing and saving can seem like two different worlds sometimes. However, it’s important for Singaporeans – even if they aren’t in the finance industry – to know the difference between the two. The key thing to note is that they serve different functions.


What’s the Difference Between Investing and Saving?
Savings are monies that you set aside for emergencies. These need to be liquid – that is, you must be able to get the cash from savings on short notice. An example would be some extra cash stored in a current account, which you could grab whenever you want. Savings ensure that you have money to cope with immediate financial difficulties, such as medical costs or getting retrenched. When you have savings, you don’t need to borrow money or use personal loans to deal with these situations. Investments serve a totally different purpose. Investments help you to hedge against inflation (i.e. grow your money to match the rising cost of living), and to increase your wealth to last throughout retirement. This means investments are not meant to be fiddled with, except for tasks like portfolio rebalancing. If you get into an emergency, one of the worst things that can happen is having to cash out your investments. If you have a lot of units in a unit trust fund, for example, you don’t know how much they will be worth if you cash them out during an emergency. If you happen to be in a market downturn, you may lose money by having to sell the units at a lower price than you paid for them.

Is Investing Better Than Saving?
No, but this is a common misconception. The reason some people believe investing is better than saving is that savings don’t grow your money. In fact, savings can cost you money. For example, a typical savings fund is capped at six months of your income. This is considered financially prudent for most people. So if you make S$4,000 a month, you should aim to save S$24,000. However, this S$24,000, because it’s not invested, will not grow. Inflation will eat into it every year. We can calculate the real value of S$24,000 with the following formula: Future value = amount /(1+inflation rate)^number years. Assume an inflation rate of three per cent, which is common in developed countries like Singapore, and a period of 15 years. By the end of that time, your S$24,000 in savings would only have real purchasing power of around S$15,404.

Does This Mean You Can’t Rely on Savings Alone to Retire?
Well, yes and no. You can rely on savings alone to retire, but you’d need a lot of money to be able to do that. You need to stash aside enough money that, even with inflation, rising medical costs, diminishing income as you age, etc. can be overcome. For example, let’s say you want at least S$500,000 in real purchasing power, by the time you retire in 30 years (that’s not a lot at all; remember this retirement sum may have to last you around 25 years or more, assuming retirement at 65). You don’t want to invest, and you intend to do this by just literally hoarding money until you reach this amount. Now reversing the above formula*, we find that real purchasing power of S$250,000 in 30 years means you’d need to accumulate about S$1,213,630 in today’s dollars. You’d be setting aside almost S$3,371 per month, every month for the next 30 years. Remember you’d have to set aside this amount on top of paying all your bills, such as your home loan, and using the same money to deal with emergencies. It’s not impossible if your income is to the tune of S$15,000 a month or more. But it’s hardly an easy or comfortable way to live, even if you have an income that high. *amount x (1 + inflation rate)^number years

Investing is Better Than Saving for Retirement Planning
As you can see, using savings alone to build a retirement fund is possible, but not probable for most people. The average Singaporean will need something like an endowment plan, CPF Special Account, or unit trust funds in order grow wealth. However, if savings are not the best tool for retirement, remember that investing is not the best tool for emergencies. Investments are seldom easy to convert to cash, as they tend to be committed for the long term. For example, if you invest heavily in a house, you are hoping it will appreciate in value. You may want to sell it at retirement and live off the returns. But if a loved one gets sick next today and urgently needs cash, how will you get it out of your house? Property is not something you can sell on the spot, and you’re not guaranteed to get a good price selling in such a hurry.

Use the Right Tool For the Right Job
It’s important to both save and invest. If you feel it’s a struggle to do both at once, then focus on saving alone until you have a fund of at least three months of your income. After that, split the money you set aside between your savings and your investments. Once your savings have built up to six months of your income, you can safely shift the money you set aside to more investment related products. Speak to a financial adviser for more help on this, as everyone’s situation is a little different. You may be able to invest a little more or less, based on your own needs.


SingSaver.com.sgSingapore's #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Wednesday, June 28, 2017

Why Giving Up Avocado Toast Won't Bring You Financial Freedom

Nitpicking your expenses doesn’t lead to financial freedom; it’s growing your income and investing your money that will. Last month, Australian millionaire Tim Gurner suggested that young people couldn’t afford their houses because of…get this…avocado toast. This is the same kind of advice that’s in line with “don’t buy expensive coffee”, and “never go on vacation”. Now we’re not against saving money (we’re called SingSaver.com.sg for a reason), but this mindset is all wrong:


Crunching The Numbers
Mr. Gurner says: “When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each”. Now we get it, he’s not literally saying saving on coffee and toast will buy you a house. But he’s suggesting (we’re pretty sure) that not saving on the small things is what costs you a house. The problem is, Mr. Gurner isn’t exactly right. Here’s why. Let’s say you want to go on a small budgeting spree, and cut the following luxuries out of your life:

    No Netflix subscription: save $15 a month
    No Starbucks once a week: save $60 a month
    No using Uber or Grab: Most people save $40 a month this way
    No once-a-month shopping spree: Let’s say you save $150 this way

Total saved every month: $265
Typical price of a four-room flat: $350,000
Amount of time in which your monthly savings will pay off your flat: Approx. 110 years

Now, we’re not saying savings are useless or unimportant; they are. What we’re saying is that trying to save via the small stuff is an ineffective way to buy a house, pay for your education, or find financial freedom.
Let’s put it into perspective:
    Nitpicking is the wrong mindset for saving
    You have to be proactive if you want more than just security
    Small savings have a role, and that’s small luxuries

Nitpicking Is The Wrong Mindset For Saving
Look at the above example of a flat. Considering it’s so expensive, how are over 80 per cent of Singaporeans home owners? The answer is that we don’t try to afford a flat by nitpicking, and buying cheaper socks, single ply toilet paper, etc. Most of us can afford to buy a flat because we set aside a whopping 20 per cent of our monthly income (the CPF makes that mandatory), right when we get paid. So if you want to see a real difference in your life, here’s what we suggest: set aside a sizeable portion (at least 20 per cent) of your income every month, even after CPF contributions. Make sure you do this before you spend a single cent, and put those savings in a separate account. After that, use whatever money remains, however you like. Go ahead and gorge yourself on avocado toast if you want. You’ll find you still have enough for emergencies or financial goals, without getting a daily sense of deprivation.
You Need To Grow And Invest Your Money As Well
Simply stashing your money aside won’t bring financial freedom. If you have big aspirations, like a beach house in California or sending your children to Harvard, then skipping toast is never going to do the job. There’s a limit to how much you can budget. Unless you’re already rich, you’ll never be able to budget enough to retire at 40, own a helicopter, have five houses, etc. If that’s what you want, then your attention shouldn’t be on pinching pennies. You should be focused on starting-up side businesses, investing wisely, and stretching your income. Your response to needing S$100,000 cannot be “what can I cut out from my budget to afford this?” Instead, your response should be “What can I do to try and make an extra S$100,000?” Financial freedom takes a whole different mindset from basic financial security. It requires a proactive, income-seeking mindset, and not just thrift.
Small Savings Are For Small Luxuries
So what’s the role of small time budgeting? Why, small luxuries of course. Hoarding your cashback from credit cards, shaving S$10 off shipping, skipping Starbucks for a week…that all does have a role. It’s role is to afford you the occasional extra trip to Bali, a nicer laptop, or other small (read: non life-changing) luxuries. That has its place in personal finance, as we want to maximise the enjoyment of life. But please don’t fall into the trap of thinking lots of small deprivations (which can snowball into massive misery) is some sort of magic key to your financial woes.
Do What Matters Instead
Save based on a substantial percentage of your income, and work on growing said income. That’s where your attention and willpower should be. Forget about walking two blocks to shave 50 cents off your chicken rice, or feeling guilty that your salad cost S$5 extra for seared tuna; that’s not the stuff that matters.


SingSaver.com.sgSingapore's #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Tuesday, June 6, 2017

Why Cooking At Home Won't Save You Money (At The Start)

Many personal finance articles talk about how cooking at home in Singapore saves money. While it does in the long run, the initial costs can be high.
By now, you’ve read about a thousand personal finance articles that explain how cooking saves you money. And you’re probably wondering why so many Singaporeans – especially those short on cash – still eat at hawker centres so often. What a lot of these articles don’t talk about is that cooking involves a lot of initial costs, and may not save you money at first.


 
How Much Does It Cost to Cook at Home in Singapore?
When most people first work out the cost of a meal, the budget plan goes something like this:
    Mixed vegetables S$5
    Fish (two fillets) S$9
    Chicken (whole) S$8
    Cooking oil (2 litres) S$5
    Rice (5kg) S$12
All in, you can have enough food for three or four days for S$39, and the rice and oil will last much longer than that. But here’s the thing: that’s the way it works after you’ve been cooking for a while. If you have never cooked before, here’s what the budget really looks like at the start:
    Mixed vegetables, which your children refuse eat so you have to toss the previous batch, and buy new vegetables that they will eat – S$10
    Fish, of which you need three fillets, because you burned the previous one – S$27
    Roasted chicken from the coffee shop, because you gave the previous whole chicken to a neighbour, after realising you have no idea how to use that chopper, and would have just end up with badly shredded chicken due to your cutting skills – S$12
    Cooking oil price remains the same, but you’ll probably be using more of it due to errors. Also, you never knew a decent non-stick wok really can cost upward of S$30.
    Rice prices remain the same, but then you realise you’ll need a rice cooker, so you need to fork out an added S$50.
And right when you check the recipe book, you realise you also need six or seven different herbs, a blender, a convection cooker, a toaster-oven, flour, eggs, milk, cut chillies, etc., etc. Now over time, if you keep cooking, this will be less of a shock. You will gradually accumulate the equipment and spice cabinet that every decent cook has. But at the very beginning, the initial setup cost can be much higher than you imagine. It’s not as simple as the cooking shows or recipe books would suggest, especially if you’re cooking for a whole family. Some of the key factors to consider are:

Mistakes Cost Money
If you put sugar instead of salt in the soup, or leave a whole salmon on the pan for too long, you need to start from scratch. That’s an expensive mistake.

Your Family Might Not Like Your Cooking (Especially the Children)
It hurts when you bought and roasted a whole chicken, but your family finds your beginner-level cooking to be, well, inedible. Many people often give up because they get tired of trying to force their cooking on the family, especially the children.

Equipment Can Be Expensive, and Discount Versions are Worse
When it comes to cooking equipment, discounts are for those in the know. A cheap knife or wok can end up costing more money, when you throw them out and replace them. It’s more than likely, however, that an amateur chef will overspend on branded equipment.

The Biggest Cost is Time
Cooking is a skill that takes time to learn. It is not like riding a bicycle, which can be managed in a day or two. This is the number one cost that’s often overlooked. Every dish is different and represents a new learning curve. On top of that, consider that even experienced home cooks can take an hour to prepare a meal. If it’s your first time, you can expect to spend two to three hours on something as simple as lemon chicken and rice. Yes, you can prepare something quicker like sandwiches, but you can’t be having that for dinner all day, every day. And microwaved food doesn’t count as cooking! If you’re working, it may not be an option rush home from the office at 4 or 5 pm, in order to get dinner ready by 7:30 pm sharp. Don’t say you can pre-cook it in the morning, because it’s hard to do that also when you need to be at work by 9 am. Learning to cook also interrupts other opportunities, such as starting a side-business or doing a part-time job.
 
Those Who Need to Cook are Often the Least Inclined to Do So
If you’re financially stable and can afford the “start up costs”, it’s worth learning to cook. The savings will more than make up for the costs in the long run. However, families on a tight budget (e.g.S$1,200 a month) might not be able to afford the initial equipment; and they certainly can’t risk wasting food. When your budget for the day is S$3 a meal, a burned beef patty is something you’ll have to choke down, as you can’t afford to make another. This means that you should learn to cook while you have the time and money. Later on, if you ever get in a dire financial situation, you’ll have the means to save money via home cooked meals.
 
Cashback Credit Cards Can Help You Save on Home Cooking
If you want to save money on cooking, you can put your purchases on a cashback credit card. This way, you can earn back a small percentage of what you spend, especially if it gives rebates for supermarkets. The HSBC Advance Credit Card gives you 2.5% cashback on anything, capped at S$70 per month. Plus, you get a S$150 NTUC voucher when you apply for it through SingSaver.com.sg before 30 June 2017. This goes a long way into helping you offset the initial costs of learning to cook.


SingSaver.com.sgSingapore's #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Monday, June 5, 2017

Why Do Some Companies Like Gong Cha Change Their Name?

It’s often discomforting when companies like Gong Cha change their name, but there are very good business reasons behind it.
You might think it’s a terrible idea for a company like Gong Cha to change their name. They’ve been in business for a few years and developed a cult following in Singapore. To change their name would be a waste of all the marketing and branding they’ve spent on. Sometimes however, there’s a good reason for businesses to change their name.

Companies Change Their Names More Often Than You Think
It’s an exercise called re-branding. It happens quite often, and sometimes it’s so subtle you don’t notice it. For example, not a lot of people noticed that, back in 2011, Starbucks changed its name. It’s no longer Starbucks Coffee, but Starbucks Corp. At present, the local Gong Cha (bubble tea makers) is planning to change its name to LiHO starting in June.
But Why?
Gong Cha is a franchise, and the Singaporean owner of the franchise is RTG Holdings. Recently however, the parent company of Gong Cha (called Royal Tea Taiwan) was bought by Gong Cha Korea. The new owners of the Gong Cha name are imposing new restrictions on franchise owners. We don’t know what these are, but we do know that some companies forbid franchise holders from operating other types of businesses. For example, if you buy the franchise for a famous chain of pizza restaurants. The parent company of said restaurant may not want you owning other fast food franchises. Regardless, RTG Holdings seems to be splitting from the Gong Cha franchise and going their own way. As such, they need a new name, and the Hokkien name “Li Ho” is meant to sound more Singaporean. Some other reasons companies change their names are:
    Name no longer represents the company
    Corporate mergers and acquisitions
    Copyright reasons, or overly generic names
    Negative publicity
    Tax reasons
Name No Longer Represents the Company
Starbucks dropped the “coffee” from its name because it’s no longer just a coffee company. Starbucks long ago started to sell pastries, tea, chocolate, and countless other non-coffee related products. Another example would be Sony, which up to 1958 was called the Tokyo Telecommunications Engineering Corporation. It wouldn’t have made sense for Sony to retain the name, as by that point it was no longer just operating in Tokyo, nor was it focused on telecommunications anymore. Sometimes, the company takes on the name of its most famous product. For example, recruitment firm TMP Worldwide changed its name to Monster Worldwide, as they are best known for running the jobs portal Monster.com.
Corporate Mergers and Acquisitions
Sometimes, companies merge or are bought over. This can result in a name change. When AXA became the majority shareholder in National Mutual (a major insurer) in 1999, National Mutual simply took the name of its parent company. McAfee Associates and Network General merged in 1997, and the new company was called Network Associates International. However, the name changed back to McAfee in around 2004, as the anti-virus software remains their best-known product.
Copyright Reasons or Overly Generic Names
Some names are so generic, they are impossible to copyright. For example, petrol giant Amoco Corp. used to be called Standard Oil Company. Sometimes, the name is so generic that customers can’t tell if it refers to a specific company, or to an entire industry. United Parcel Service (UPS) for example, used to be called American Messenger Company. It also causes problems with regard to online marketing. If you call your education company “Singapore Tuition Agency”, you can bet it’ll get lost in a sea of similar terms during a Google search.
Negative Publicity
Some companies change their name because they’ve acquired a bad reputation, and they don’t feel the name is salvageable. For example, Philip Morris (a tobacco company) caused controversy when it changed its name to Altria – many protested that it was trying to hide tobacco industry involvement in different areas, such as when it donated to political campaigns. Notably, the name change helped to protect companies like Kraft, of which Philip Mor…oops, Altria, is a major shareholder. (Yes, the same Kraft you find in supermarkets). Kentucky Fried Chicken changed its official name to KFC not just for convenience; they wanted to avoid mention of the word “fried”. In Sim Lim Square, many of the blacklisted scam stores repeatedly changed their name, to avoid being identified after their name popped up in the news.
Tax Reasons
We absolutely don’t condone any sort of tax evasion or avoidance. But that being said, some companies repeatedly close down and re-open under a slightly different name, to get tax benefits. It’s common, in most countries, for new companies to get lower taxes in the first few years of business. This is to give them time to get on their feet (most new businesses run at a loss for the first year). Some small companies decide to “extend” these tax breaks, by repeatedly closing and re-opening with a variant name. For example, a restaurant named River Valley might close down after two years, and then re-open as New River Valley. Two years later, they close down and re-open as River Valley Restaurant, and then later as River Valley Family Restaurant, and so on. Besides getting tax breaks, this might also qualify the business for repeated grants and lower interest loans. (Until the authorities notice, and decide to make an example of the owners). What do you think about Gong Cha rebranding to LiHO? Are you looking forward to it, or would you rather Gong Cha stay the same? Tell us in the comments!


SingSaver.com.sgSingapore's #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Wednesday, May 24, 2017

How To Save Money If Your Flight Gets Delayed Or Rescheduled

Delayed flights don’t always happen, but they can cost you a lot when they do. Here’s how Singaporeans can save money if their flights get rescheduled.
Airlines are notorious for last minute changes. This can happen due to overbooking, weather conditions, or even changes in airport charges. Getting your flight delayed or rescheduled can be quite a headache. Besides affecting your travel plans, flight changes will also impact your wallet, especially if it gets pushed back by 12 or more hours. Here’s how to save money when it happens.


Demand to Get Compensated
Airlines generally have a “don’t ask, don’t give” policy. You have to take the initiative, and demand compensation from your airline. Never trust them to do it of their own accord. One advantage to pressuring the airline is that, even if you don’t get compensated in cash, you might get a freebie. This can be a discount on your next flight with them (assuming you want to use them again), or complimentary items from their catalogue. Do note that your airline’s actual legal obligations may be different. For example, some of them clearly specify that you accept the risk of flight changes, and that they’re not obliged to offer any compensation (check the terms and conditions before you buy). However, some good airlines may offer compensation anyway, as a matter of maintaining good customer relations. If you don’t ask and push for it however, you tend to get nothing.
 
Check If Your Travel Insurance Covers Flight Delays
Many travellers, amid a haze of anger and exhaustion, tend to forget about their travel insurance – which can come free with the right credit card. Remember, travel insurance isn’t just about medical expenses and lost luggage. Some policies also cover delays. While most travel insurance policies do not cover schedule changes, some cover delays or cancellations in case of bad weather or if the delay is more than 24 hours. If you’re uncertain, call to ask. And if you haven’t gone on your trip yet, consider buying a policy that covers these circumstances. If you’re self-employed, being unable to go home and run your business for a day or two can cost a lot of money.
 
Call Your Airline Directly to Settle Things
Here’s a special tip from us: the automated instructions that airlines send out are often a waste of time. When your flight is rescheduled, always call the airline directly and raise your issues. You’ll sometimes be able to book an alternative flight on the call, faster than the other people standing in line. You may also get alternatives that are not immediately offered on automated instructions – for example, you may be given the opportunity to leave three days later, but with full compensation for a hotel room (if you’re on vacation and not in a rush to get home, this might be even better than an alternative flight tomorrow, with no accommodations for tonight).
 
Call Your Credit Card Concierge
Sometimes, the delay would just cost you too much. Perhaps you have a concert to attend, and you already paid for the tickets. Or perhaps you have a vital business meeting to get to. If your airline can’t move fast enough, your last resort can be your credit card concierge (if you have one). Call them and let them know your situation; they’re often able to get you last minute flights, which you can’t get on your own. As an aside, the same concierge can also be asked to help with accommodations. For example, get the concierge to look for the cheapest hotel that’s close to the airport; this will save you having to Google things on top your current problem.
 
Using Airbnb? See If Your Host Can Extend Your Stay
Some Airbnb hosts will be open to giving you an extension, if there are no other guests after you. This could be cheaper than looking for a last minute hotel, so always be sure to ask.
 
Ask Friends For Help
Obviously, the first choice should be friends who happen to live at your travel destination. See if anyone can put you up for a night or two if your flight gets rescheduled for the following day. However, don’t forget to call home and use your friends’ contacts. For all you know, your best friend back home has a former colleague who lives near you; or perhaps mum and dad know a distant cousin who’s in the area. It’s not a guarantee, but you may just have a shot at saving on a hotel room. As an aside, try to make friends abroad, wherever you go. It’s good for your social life, and very helpful in situations like these.
 
Check Flight Prices Before Accepting a Refund
If your flight is cancelled or significantly delayed, you may be entitled to a refund. When this happens, the airline will often give you a choice between an alternative flight or accepting the refund. When you are given this choice, always check the price of booking with another airline. You will sometimes save money by taking the refund and booking a new, cheaper flight, rather than taking the existing airline’s alternative.  


SingSaver.com.sgSingapore's #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Wednesday, May 3, 2017

New To Mutual Funds? Here's A Guide To Choosing The Right One

If you’re thinking about investing in mutual funds in Singapore, follow these guidelines to help you choose the right one.
 
Choosing a mutual fund is challenging, because of one unique quality in this industry: most mutual funds will underperform. It’s always a challenge picking the ones that will stay ahead over the long term. For the total beginner, here are some of the key questions to ask:
 
What is the Goal of Your Investment?
There are thousands of mutual funds available on the market, and not all of them cater to the same goals. For example, a pure equities fund may hold only stocks as assets, thus making the fund useful as a long term, retirement-oriented asset. Another fund may hold a large number of properties or bonds, and be focused on generating immediate income (this is useful for people such as retirees). Before you even start to choose a fund, you should have a clear idea of what you’re investing for. Some examples include:
    Investing to send your children abroad to study in 5-10 years
    Investing to ensure you will be ready to purchase your first home by age 35
    Investing to ensure you will have an income of at least S$2,500 a month by the time you retire at age 65
    Investing to make enough money for a car or life ambition (e.g. climbing Mount Everest) within the next five years
Depending on your purpose, different funds will have varying degrees of suitability. If you are investing over a short term (say five years, to buy a house), you might find an equity fund too volatile; stock prices can change dramatically over a short period. If you are investing over the long term, say 30 years, then a fund that holds primarily fixed income assets may have returns that are too low. Note that almost all mutual funds are aimed at an investment horizon (the amount of time you will stay invested) of at least five years.
 
Are There Load Fees?
Funds sometimes require “loading”, which refers to the way you pay for the fund. Besides the regular fees (see below), a fund may require load fees. They are either front-loading (you need to make an upfront payment), or backloading (you need to pay a lump sum toward the end of the investment horizon). It is always preferable to pick a fund with no loading, or at least with very low loads. Here’s why: Say you invest in a fund, with an initial sum of S$20,000. There is three per cent front- loading (S$600). Due to the load, your initial investment is now (S$20,000 – S$600) = S$19,400. Now if you invest the full S$20,000, at returns of around three per cent per annum, you would have around S$23,185. But if you pay the loading and invest S$19,400 over the same time and rate of return, you would only end with up with around S$22,489. That’s a difference S$2,786; so be sure to avoid loading where possible. (Note: most mutual funds that are sold to lay investors should not require loading.)
 
Look for the Total Expense Ratio
The Total Expense Ratio (TER) includes the management fees, the distribution costs, and all the other charges needed to run the fund. This may have a different name, but if you ask for the TER the salesperson will have to point it out to you. The lower the the TER, the higher your returns. For example, if the fund provides a total return of five per cent, but the TER is three per cent, you are only really getting a return of the remaining two per cent. You should always look at the fund’s performance with relation to its TER. Between a fund that provides returns of 5% and has a TER of 3% and a fund that has returns of 3.5% but a TER of just 1%, the latter is actually better.
 
Measure the Performance with Regards to the Benchmark Index
Mutual funds have a benchmark index, against which they measure their performance. For example, a mutual fund may use the Straits Times Index (ST Index) as its benchmark. If this is the case, the returns should be close to the ST Index. If the ST Index has returns of 2.7%, the fund should deliver returns of around 2.5% or 2.9%. A fund is said to have beaten the market if its returns are above the benchmark index. If the fund has returns below the benchmark index, it is said to have underperformed. Note that this is also true for negatives. If the benchmark index has returns of negative 4%, and the fund delivers returns of negative 3.8%, it has still beaten the market (it lost less than the market). Note that, as a norm, most mutual funds do not consistently beat their benchmark index.
 
Look at the 10-15 Year Performance
When comparing mutual funds, ignore histories of just one or two years. It is impossible to gauge the quality of a fund (or fund manager) based on such a short time frame. It’s akin to judging the academic results of a student by looking at just one or two of the exams they’ve taken. Look at results over 10 or 15 years, and have the salesperson explain them to you. If the fund has not been around for that long, you might want to step back and look for something else. Note that there is a common saying that past performance is not an indication of future success. However, it is also a common saying that you should not invest in something with no proven track record. As with many things in finance, both guidelines are contradictory. We will move on the side of caution and suggest you do look at past performance.
 
Check the Rules for Cashing Out
Not all mutual funds allow you to quickly cash out, should you need your money back. Some funds impose steep fees on pulling out before a certain length of time (e.g. five years), and some funds vary the number of units you can sell on a first come, first serve basis. For example, the first 100 people who want to sell can sell all their units, the second batch of 100 people can sell only half their units, and so on. Funds impose these rules because, when times are bad, there may be a rush of people who want to sell and “escape” a bad investment. This could sink the fund before it has a chance to recover. You should be clear on these rules before you buy. In particular, do not commit to a fund that will lock down your money for long periods, if there is a chance you may need the cash if you have no emergency savings.
 
 
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