2. Reading materials
• Read chapters 19 to 24 of the book, Practical
Guide on Financial Planning, written by Mr.
Tan Kin Lian
3. Investing in life insurance
• You are allowed a free look period of 14 days to
cancel the policy for a full refund of the premium
• You are given a benefit illustration. Look at the
distribution cost and the effect of deductin.
• The distribution cost is the money that is taken
from your savings to pay the commission and
marketing expenses.
• The effect of deduction are the total charges,
including interest.
• Do not buy a policy that shows a deduction of
over 20% of the accumulated premium.
4. Life annuity
• The consumer pays a single premium to buy the
life annuity and receives a monthly payout for a
lifetime.
• A basic life annuity does not provide any refund
of the capital on death.
• A guaranteed life annuity provides a partial
refund of the capital on early death. The payout is
lower than a basic life annuity.
• A participating life annuity pays a lower payout
initially, but it a bonus is added each year to
increase the payout.
5. Types of structured products
• The structured products were created by
banks and were sold to consumers
• Different types of structured products
– Capital guaranteed
– Capital protected
– Equity linked
– Currency linked
– Credit linked
6. Capital guaranteed
• The consumer invests a lump sum for 5 years.
• The return on maturity depends on the
outcome of certain events. The principal is
guaranteed by a financial institution.
• Many investors had been disappointed with
the poor return on these products on
maturity, and received less than 2% in total for
5 years.
7. Capital protected
• This is similar to the capital guaranteed
product, but does not provide any guarantee
by a financial institution.
• There is a risk of loss of part of the principal, if
the investments perform poorly.
• The return is slightly better than a capital
guaranteed product, but the risk is higher
• Most investors had been disappointed with
the poor yield; some have suffered losses.
8. Equity-linked
• This contract link your investment to a specified
share.
• If the price of the linked share stays above a
certain level, the consumer earns a return of
about 5% per annum
• If it falls below that level, the consumer has to
take the delivery of the linked equity and hope
that it will recover.
• Some investors have lost a lot of money on this
type of contract.
9. Currency-linked
• This contract link your investment to a specified
currency.
• If the price of the linked currency stays above a
certain level, the consumer earns a return of
about 5% per annum
• If it falls below that level, the consumer has to
take the delivery of the linked currency and hope
that it will recover.
• Some investors have lost a lot of money on this
type of contract.
10. Credit-linked
• This contract pays an interest rate of about 5% per
annum.
• It is linked to several reference entities. If any entity
goes into default, the total principal will be lost. The
risk increases with the number of entities.
• Some investors were wrongly advised that the loss will
only be in proportion to the number of entities.
• Many investors have lost a large part of all of their
investments in these contracts during the Global
Financial Crisis of 2008
11. Leveraged investment
• Some investors are advised to take a loan from
the bank, at a low interest rate, to invest in the
structured products.
• The amount of loan offered is up to 4 times of the
initial investment
• If the linked contracts fall by 10%, the total loss
on a leveraged investment can be 50%.
• Some investors had lost half or all of their
investment in this type of leveraged investment.
12. Unregulated products
• The following products are not regulated by
the government:
– Land banking plots
– Gold investments
– Wine investments
• Investors should avoid investing in
unregulated products as they may be a scam
or a Ponzi scheme.
13. Land banking
• The land plots were in overseas locations; the
price looked attractive compared to land in
Singapore.
• The investor were told that the investment will
appreciate by 2 to 3 times, when planning
approval is obtained in 5 to 7 years.
• Most investors had waited for the period, but
found that the approval was not given.
• They learned that the actual value of the land is
less than 10% of the amount that they paid.
14. Gold bars
• The contract gives the investor a monthly return
of 2% and a full return of the invested sum at the
end of the contract period of 3 to 12 months.
• The investor can hold a gold bar as security.
However, the actual value of the gold bar is less
than the invested sum, unknown to the investor.
• The promoter uses the money from the later
investors to pay the return to the earlier investors
and keeps the differences.
• Several of these schemes have collapsed, leading
to large losses for the investors.
15. Wine investments
• The investors are asked to buy a collection of
wine and are told that the wine can be sold for a
profit at an auction to be held in 2 to 3 years
time.
• In most cases, the auction did not materialize; the
investors were pressured to add to the collection
to get a better chance at the auction.
• The wine are usually sold to the investor at twice
of the actual market price, unknown to the
investor.
16. Writing a will
• If a person dies without a will, the assets will be
distributed in accordance with the Intestate Law.
• If a person dies with a will, the estate will be
distributed in accordance with the will.
• A person can change the will at any time, or make
amendments to an existing will.
• A person can write the will on his own or have it
written by a lawyer.
• You should write a will and to revise it every few
years according to changes in circumstances.
17. End of lesson 4
• Read the chapters of the book again in more
detail.
• When you are ready, you can do the Quiz.
