What Does Leprechaun Leader Mean?
A corporate manager or an executive who, like the fabled Irish elf, is a mischievous and elusive creature said to possess buried treasures of money and gold.
Also spelled "Lepre-con Leader".
According to Irish folklore, the location of hidden treasure is revealed only when the leprechaun is caught. In the case of a leprechaun leader, the "buried treasure" is not usually buried, but protected in an offshore account!
Examples of leprechaun leaders are the executives of Enron, who stowed away millions of dollars until they were finally caught.
Source: Investopedia
King of the Birds, Lord of the Skies
Gather ye rose buds while ye may, old time is still a flying;
and this same rose that you see today, tomorrow will be dying.
CarpeDiem: Seize the Day!
- Dead Poets Society
Showing posts with label Investment. Show all posts
Showing posts with label Investment. Show all posts
Wednesday, March 17, 2010
Wednesday, August 6, 2008
BTITR – What’s the Plan & Strategy?
I start by stating a statement coined by a professor from NUS as a disclaimer: “A theory that explains all things explain nothing”. To me, a layman with a basic degree only, I would say that “A knife that claims to cut all things actually cuts nothing”. So here am I, trying to offer some strategies for balancing between protection and investment, all with your hard-earned money. Truth be told, there is no "one-knife-cuts-all" solution here.
Please do not take any advice wholesale. The suggestions here are NOT the “be all - and all”. Take what is good or make sense to you, and then apply them. The rest may just be bullshit, for all you know. Sometimes, advises dished out are all over-rated, even from the professionals. Really. So be warned, beware, and be careful. Here we go and roll!
Previously, I established that BTITR is a much preferred option than the traditionally “leaving-it-all” to the insurance company track. So, how much do we allow the insurance company to earn? Or rather, how much insurance you think you need in order to have peace of mind? This is tough, and I am not going that direction. Rather, I choose to do a case study for the sake of illustration.
My subject: Mr X, 35 year-old male, non-smoker.
Assumptions: Earn about $5,000 take home
Using my previous approach, I assumed that if an agent Y approached Mr X with a $300,000 whole life plan (limited pay in 25 years), his premium is $8,700 (That will be $761 per month if you pay monthly!).
His total premium will be $8,700 X 25 years = $217,500.
His projected cash values by then is $286,011.
So technically, Mr X gets back all his premium paid plus a modest gain of $68,511. Not bad for a 25-years “investment”, you may say.
I humbly beg to differ.
So, lets suppose Mr X meets agent Z this time, and offer him instead a BTITR track, how will it pan out? Let do the numbers:
Cost of $300,000 Term Plan, 25 years: $1,800 p.a.
Total premium paid by end 25 years : $1,800 X 25 = $45,000 (gone down the drain)
Balance unused cash flow: $8,700 - $1,800 = $6,900 (or $575 per month)
Invest it into a no-frill Regular Saving-Investment Plan in unit trust for 25 years, at nett rate of 6% p.a. (after deduction of 1.5% sales charge and 1.25% p.a. fund management fee).
The future value factor (for 6%, 25 years) is 58.1564.
Meaning if you invest $6,900 equivalent yearly into an investment that yields 6% p.a. for 25 years, you will get $6,900 X 58.1564 = $401,279!
Now, you have got to subtract the cost of term insurance protection from the above.
Hence, nett returns is $401,279 - $45,000 = $356,279!
So, would you take $356,279 or $68,511?
Your call.
The bottomline is:
Do you think it is realistic to ask somebody to put aside $8,700 a year for anything worthwhile? The answer is YES!
Do you think it is practical or wise to sink the entire amount into a whole life insurance plan?
The answer is NO!
Do you think $8,700 p.a. (about $725) is a huge chuck to cut out for financial planning?
The answer is YES and NO!
No because $725 is only about 14.5% of nett take home income. This $725 comes with a $300,000 coverage some more. I exclude gross income, cos that money goes separately into the CPF OA, SA and MediSave for other utilization (housing, partial retirement and medical needs etc.). Our former Prime Minister Mr Goh CT suggested that Singaporeans should look to saving at least 1/3 of their take home pay for retirement.
Yes, it is really too much, if it all goes into a single whole life insurance plan. It is not only too much, in my opinion, it is wastage. And as always, buying whole life plans only benefits the one who sells it, not so much the one who buys it.
If you can, fire-proof your plan with 2 additional plans:
1. CPF (MediSave) - Approved Hospital & Surgical Plan (Reformed MediShield)
2. Personal Accident Plan
I personally think that if you have about just $272 per year to spare (just another $22 per month), build in a Personal Accident Plan (PA). It gives another $300,000 of death, disability and dismemberment coverage, with extra hospital income and funeral expenses.
Good news is that you can use up to $800 per year for CPF-approved reformed medishield plan. Such plan covers you lifetime with no limit for life, just an annual limit of $500,000.
With that, you are quite earthquake-proof as far as personal risk management is concerned. For more details if you want to know if you are adequately prepared for retirement or protection, email me at thereisonlyonepcm@gmail.com
Good luck in your planning.
Please do not take any advice wholesale. The suggestions here are NOT the “be all - and all”. Take what is good or make sense to you, and then apply them. The rest may just be bullshit, for all you know. Sometimes, advises dished out are all over-rated, even from the professionals. Really. So be warned, beware, and be careful. Here we go and roll!
Previously, I established that BTITR is a much preferred option than the traditionally “leaving-it-all” to the insurance company track. So, how much do we allow the insurance company to earn? Or rather, how much insurance you think you need in order to have peace of mind? This is tough, and I am not going that direction. Rather, I choose to do a case study for the sake of illustration.
My subject: Mr X, 35 year-old male, non-smoker.
Assumptions: Earn about $5,000 take home
Using my previous approach, I assumed that if an agent Y approached Mr X with a $300,000 whole life plan (limited pay in 25 years), his premium is $8,700 (That will be $761 per month if you pay monthly!).
His total premium will be $8,700 X 25 years = $217,500.
His projected cash values by then is $286,011.
So technically, Mr X gets back all his premium paid plus a modest gain of $68,511. Not bad for a 25-years “investment”, you may say.
I humbly beg to differ.
So, lets suppose Mr X meets agent Z this time, and offer him instead a BTITR track, how will it pan out? Let do the numbers:
Cost of $300,000 Term Plan, 25 years: $1,800 p.a.
Total premium paid by end 25 years : $1,800 X 25 = $45,000 (gone down the drain)
Balance unused cash flow: $8,700 - $1,800 = $6,900 (or $575 per month)
Invest it into a no-frill Regular Saving-Investment Plan in unit trust for 25 years, at nett rate of 6% p.a. (after deduction of 1.5% sales charge and 1.25% p.a. fund management fee).
The future value factor (for 6%, 25 years) is 58.1564.
Meaning if you invest $6,900 equivalent yearly into an investment that yields 6% p.a. for 25 years, you will get $6,900 X 58.1564 = $401,279!
Now, you have got to subtract the cost of term insurance protection from the above.
Hence, nett returns is $401,279 - $45,000 = $356,279!
So, would you take $356,279 or $68,511?
Your call.
The bottomline is:
Do you think it is realistic to ask somebody to put aside $8,700 a year for anything worthwhile? The answer is YES!
Do you think it is practical or wise to sink the entire amount into a whole life insurance plan?
The answer is NO!
Do you think $8,700 p.a. (about $725) is a huge chuck to cut out for financial planning?
The answer is YES and NO!
No because $725 is only about 14.5% of nett take home income. This $725 comes with a $300,000 coverage some more. I exclude gross income, cos that money goes separately into the CPF OA, SA and MediSave for other utilization (housing, partial retirement and medical needs etc.). Our former Prime Minister Mr Goh CT suggested that Singaporeans should look to saving at least 1/3 of their take home pay for retirement.
Yes, it is really too much, if it all goes into a single whole life insurance plan. It is not only too much, in my opinion, it is wastage. And as always, buying whole life plans only benefits the one who sells it, not so much the one who buys it.
If you can, fire-proof your plan with 2 additional plans:
1. CPF (MediSave) - Approved Hospital & Surgical Plan (Reformed MediShield)
2. Personal Accident Plan
I personally think that if you have about just $272 per year to spare (just another $22 per month), build in a Personal Accident Plan (PA). It gives another $300,000 of death, disability and dismemberment coverage, with extra hospital income and funeral expenses.
Good news is that you can use up to $800 per year for CPF-approved reformed medishield plan. Such plan covers you lifetime with no limit for life, just an annual limit of $500,000.
With that, you are quite earthquake-proof as far as personal risk management is concerned. For more details if you want to know if you are adequately prepared for retirement or protection, email me at thereisonlyonepcm@gmail.com
Good luck in your planning.
Tuesday, August 5, 2008
Buy Term and Invest the Rest - Where is the Value?
This has been a much debated topic in the financial planning arena since don't know when. As a student and practitioner of financial planning, I am challenged to constantly find a balance in the way I build my convictions on such financial matters. Times change, and with it many variables and components.
A whole life insurance plan that was touted by agents to offer 6-7% returns p.a. no longer holds true. We have to live with the reality that a participating plan (such as a whole life policy) now offers a dismal return of just over 3% - and that's is NOT even guaranteed okay!
Insurance companies are finding it harder to offer higher bonuses and dividends over the last 10 years. Yields have come off drastically. Inflation, on the other hand, is pushing vigilently upward. Things are getting more expensive, with little or no sign of abating. Your savings in the bank is strinking. "Eroding" in value is a better word, technically.
It is against this new or pressing backdrops that I re-evaluated my positions on "Buy Term and Invest the Rest" (BTITR). You see, life is limited, so are its resources. I am talking about income. In financial planning matters, the concept of "income" takes centre stage to and for me. Without income, you are out. Period. Income, income, income. Personal income. Generated by yourself by your hands and with your time. Pocket money from parents, grand-parents and god-parents don't count - we are adults already!
Just this morning during my usual routine run and breakfast with my esteemed associate, Wayne Koh, we talked about the topic on BTITR. We both agree that in current environment, BTITR seems to offer more appeal. Rather than leaving your money totally to the insurance companies, you deconstruct your portfolio allocation and reconstruct your own strategies and approach.
What is BTITR?
Simply, it is separating protection from participation. It is investment without involvement. It is leaving protection to the insurance specialist and investment to the professional fund managers. Let me explain in simple terms.
Protection without participation
When you buy a whole life plan, the plans are usually called "participating policies" - they participate in the returns of the life funds. Life funds is the place where insurance companies invest what is remain from the premiums collected, after commissions and overheads. They invest the funds in a broad range of diversified assets, and then declared a return to policyholders each year. Claims are made out from the life funds too, and hence the funds are not supposed to be subjected to risky investments for fear of high volatility and threats of inability to meet future claims.
When you buy term, the plans are usually called "non-participating policies" - they DO NOT participate in the returns of the life funds. You pay for protection only. Period. No returns. No strings attached. You choose how much and how long you need the coverage. Then the only liability on your part is paying the premium. It is cheap, dirt cheap. When I was a tied agent many years ago, my manager called it "Poor man insurance". Even the poor can afford it.
I call it "Wise man insurance" - Only the wise will purchase it. Buy it for its worth and value. Let me explain later.
Investment without involvement
Now, since term insurance is cheaper, way cheaper, there will be excess cash appeared from "unused" or "un-expensed" premium. Truth is, for the same amount of sum assured, say $300,000, you pay $1,800 p.a., compared to a whole life plan, which cost around $8,700. I am using a 35 year-old male, non-smoker. That's a whopping $6,900 difference. Now, what do you or can you do with this difference call "the rest"? Invest it, of course.
In this manner, you start to explore ways to park this excess cashflow. You terminate your cashflow's involvement with the insurance company's life funds and her fate or rate of returns. Haha...fate of returns, what an appropriate slip of tongue. Therefore, it is considered investment without involvement. Hence, BTITR.
Is it true? Yes!
Is it better? Depends!!
It depends on what you DO with the rest of the unused money. If invested carefully, you will outperform the life funds, with the flexibility of choosing your own portfolio of assets and not to mention the benefits of not needing to stick around with a whole life policy for at least 20-25 years before the cash value becomes visible and mature enough for withdrawal.
Yes, it is true and it can be better.
For those who need to see discreet numbers, please refer to my buddy and esteemed associate, Wayne Koh, and his notes in his blog - http://www.waynekoh.com/2008/07/btitr.html
More ideas later, okay. You must wait if you want good stuff. I don't get paid for writing, okay! Just kidding :)
Coming up next - Recommended Allocation for BTITR.
A whole life insurance plan that was touted by agents to offer 6-7% returns p.a. no longer holds true. We have to live with the reality that a participating plan (such as a whole life policy) now offers a dismal return of just over 3% - and that's is NOT even guaranteed okay!
Insurance companies are finding it harder to offer higher bonuses and dividends over the last 10 years. Yields have come off drastically. Inflation, on the other hand, is pushing vigilently upward. Things are getting more expensive, with little or no sign of abating. Your savings in the bank is strinking. "Eroding" in value is a better word, technically.
It is against this new or pressing backdrops that I re-evaluated my positions on "Buy Term and Invest the Rest" (BTITR). You see, life is limited, so are its resources. I am talking about income. In financial planning matters, the concept of "income" takes centre stage to and for me. Without income, you are out. Period. Income, income, income. Personal income. Generated by yourself by your hands and with your time. Pocket money from parents, grand-parents and god-parents don't count - we are adults already!
Just this morning during my usual routine run and breakfast with my esteemed associate, Wayne Koh, we talked about the topic on BTITR. We both agree that in current environment, BTITR seems to offer more appeal. Rather than leaving your money totally to the insurance companies, you deconstruct your portfolio allocation and reconstruct your own strategies and approach.
What is BTITR?
Simply, it is separating protection from participation. It is investment without involvement. It is leaving protection to the insurance specialist and investment to the professional fund managers. Let me explain in simple terms.
Protection without participation
When you buy a whole life plan, the plans are usually called "participating policies" - they participate in the returns of the life funds. Life funds is the place where insurance companies invest what is remain from the premiums collected, after commissions and overheads. They invest the funds in a broad range of diversified assets, and then declared a return to policyholders each year. Claims are made out from the life funds too, and hence the funds are not supposed to be subjected to risky investments for fear of high volatility and threats of inability to meet future claims.
When you buy term, the plans are usually called "non-participating policies" - they DO NOT participate in the returns of the life funds. You pay for protection only. Period. No returns. No strings attached. You choose how much and how long you need the coverage. Then the only liability on your part is paying the premium. It is cheap, dirt cheap. When I was a tied agent many years ago, my manager called it "Poor man insurance". Even the poor can afford it.
I call it "Wise man insurance" - Only the wise will purchase it. Buy it for its worth and value. Let me explain later.
Investment without involvement
Now, since term insurance is cheaper, way cheaper, there will be excess cash appeared from "unused" or "un-expensed" premium. Truth is, for the same amount of sum assured, say $300,000, you pay $1,800 p.a., compared to a whole life plan, which cost around $8,700. I am using a 35 year-old male, non-smoker. That's a whopping $6,900 difference. Now, what do you or can you do with this difference call "the rest"? Invest it, of course.
In this manner, you start to explore ways to park this excess cashflow. You terminate your cashflow's involvement with the insurance company's life funds and her fate or rate of returns. Haha...fate of returns, what an appropriate slip of tongue. Therefore, it is considered investment without involvement. Hence, BTITR.
Is it true? Yes!
Is it better? Depends!!
It depends on what you DO with the rest of the unused money. If invested carefully, you will outperform the life funds, with the flexibility of choosing your own portfolio of assets and not to mention the benefits of not needing to stick around with a whole life policy for at least 20-25 years before the cash value becomes visible and mature enough for withdrawal.
Yes, it is true and it can be better.
For those who need to see discreet numbers, please refer to my buddy and esteemed associate, Wayne Koh, and his notes in his blog - http://www.waynekoh.com/2008/07/btitr.html
More ideas later, okay. You must wait if you want good stuff. I don't get paid for writing, okay! Just kidding :)
Coming up next - Recommended Allocation for BTITR.
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