A true story about life insurance and grapes.

There are a few big ticket items in life. The biggest is probably the apartment or house we stay in. Another one is a car, for those who choose to have one. 

I know this may not sit well with some of you going by some of the response my blog post on the topic got but children are big ticket items too. 

Another thing that could become a big ticket item for some is the cost of insurance.

In all these, consume because we have to but if we over-consume, we are jeopardizing our finances. Do the necessary research before committing to any big ticket items. 

An apartment, a car, children or insurance. You name it. 

Don't just jump into it and think that things will sort themselves out.

The following is an email from a reader who wants to share with us why it is important to know what we are buying and if we have all the facts before making a decision:



Reader:
It's been a while since I last emailed you - I hope you have been keeping well.

I saw that you were getting a bit of flak in the comments section of your recent ILP blog entry. I just wanted to share with you that I thought it was a well written, informative and balanced post (no matter whoever who keeps challenging you to show figures that ILP investments ain't great).

Just thought i should let you know that i wished that i had read such a post like your four, five years ago as I was just graduating from school and entering the workforce.

You see, the first piece of advice we hear as we are entering the workforce is: you gotta buy some insurance. 

Everyone was doing it, my parents told me to do it. But at that time I was seriously misinformed - I had no idea at all what the difference was between endowment plans, ILPs or term (in fact my agent did not even bring up term insurance!). 

I signed what I believe to be an endowment plan that had some cover on dread diseases, death etc. There were funny things like yearly bonuses (if the market did well cos the plan was linked to some share investments too). 

Well it has been 4 years since and I have no idea how the plan is doing in terms of returns/yields at all. I suppose it is probably hard to distill out a yearly return because there is an element of health insurance to it (see how confusing it is for me).



So what I'm saying is: I wish I had read such a post like yours just as I was starting out. I wish I had been more informed. I would have bought term, invest the rest. Seriously.

But I'm not blaming anyone. We could look back and say that my insurance agent should have laid down the variety of plans for me, but at the end of the day, they work for commissions - so why would they bother to explain more, if not required as such by regulations? I don't blame them either.

And while I cant go back in time and buy term insurance, I'm really glad that somewhere out there a young person entering the workforce will hear about term insurance and the possible downsides of ILPs from your blog post and make an informed decision.

I guess financial sale persons are up in arms when they read postings like that because they feel they are being vilified as agents who put their own interest ahead of their clients. But but but, isn't that true? Don't all salespersons do that? 

That day, on the outskirts of a Japanese village, I chanced on a roadside store selling Kyoho grapes. I selected a bunch of juicy grapes and handed it to the store owner for payment. 

She put down the bunch I selected, motioned to another bunch and said it was better. And she packed it. Initially I was like, "Wah, so honest!", thinking that she was trying to help me select better grapes. 

When I came back home and opened the packaging, turned out that the hidden grapes behind were all rotten and giving out a foul smell. I had to throw half away.





So the moral of the story is: unless it is obvious to the sales person that you are going to be a repeat customer/ going to intro more customers to them, you are better off selecting your own grapes. 

And you best be knowing a thing or two about grapes, before buying grapes.

Related posts:
1. FREE Investment Linked Polices or Term Life Polices?
2. Slaving to stay in a condominium?
3. Sophisticated consumers lease cars, not buy.
4. What is our attitude towards having children?
5. Financially prepared to be married?

OUE Limited: An asset play that could be cheaper?

I have been eyeing OUE Limited since May this year but I haven't bought its stock. What attracted me is the big discount to NAV (NAV/share is $4.04) although its earnings per share is nothing to shout about. In fact, I estimated the PE ratio to be about 30x when I was crunching some numbers.

So, if the NAV is realistic, to me, OUE Limited is an asset play and with asset plays, the question is really whether the value will be unlocked at some point in the future. There is a likelihood that this would happen as OUE Limited hold stakes in OUE H-Trust (43%) and OUE C-REIT (42.5%).



Regular readers know I scribble my research on scrap paper.

A bug bear for OUE Limited now is Twin Peaks. This 99 year leasehold project (from 2010) is a luxury condominium they are developing near Orchard Boulevard in Singapore. They are having a hard time moving unsold units and of the 462 units available, only 20% or so have managed to find buyers.

The condominium is near completion and I think OUE Limited will then have 2 more years to sell all units or face yearly penalties. Already, they have written down the value of Twin Peaks by $105 million in the face of a challenging environment this year.

At an average selling price of about $3,000 psf and a GFA of about 436,000 sq ft (including balconies), I estimate the value of Twin Peaks to be about $1.3 billion, if fully sold. However, I doubt that it is going to happen without a deep price cut if the big discount given by Bukit Sembawang to sell its completed condominium in Cairnhill recently was anything to go by.

To be fair, however, Twin Peaks is just one part of OUE Limited's portfolio. The company owns many commercial properties and if their values are realistic, OUE Limited could turn out to be a very rewarding asset play for investors in time to come when their values are unlocked. When will it happen? Your guess is as good as mine.

Click to enlarge.

Technically, OUE Limited's share price is in a downtrend and it is one that shows no sign of weakening. So, although already trading at a big discount to NAV, I wonder if its share price could sink lower for me to get a dollar for fifty cents.

I wasn't going to blog about OUE Limited until I have initiated a long position, if I do at all. However, reading a blog by Brian Halim gave me a little push to share my thoughts.

Read Brian's blog on OUE Limited: here.

Related posts:
1. OUE H-Trust.
2. OUE C-REIT.

Develop habits now that will ensure we retire comfortably. (How to have a comfortable retirement?)

(Even when we are richer, keep our frugal habits acquired during leaner times.)
There are many ways to have enough money to retire comfortably from active employment. Win the top prize in the national lottery or inherit a similar amount from a rich relative, perhaps? Unfortunately, the chances of either case happening for the vast majority of us would probably be quite low.






However, this does not mean that a comfortable retirement is beyond us?

In an earlier blog post, I suggested that all of us have a chance to save 100% of our earned income and although it sounded unrealistic at first, after going through some numbers, it wasn't so unrealistic after all. Now, how does that blog post tie in with a comfortable retirement?

The beauty of the idea behind that blog post is that it isn't discriminatory. A person could be 25, 35 or 45 years in age, it simply doesn't matter. A person could put the plan in motion today and 13 years later, as long as the conditions are met, he would be receiving income from his investments that equals his earned income today.

So, if we think that we are able to retire quite comfortably with our current level of earned income, put the plan into action and 13 years later, we would be ready for retirement as we would be receiving an income from our investments that is equal to our earned income today.

For readers who are new to my blog and who have no idea what I am talking about, please read: Save 100% of your take home pay! What? Oh, I should have included people who have a bad memory. Er, ok, I will read it too.

Pause.

Pause.

Pause.

Read it? Then, let's continue.

So, if we are sure that our current level of take home pay is good enough to provide us with a comfortable retirement, we have to start saving 50% of this sum every month. That is one of the assumptions for the plan to work.

Probably, for people who have yet to enter into any big financial commitment, this would be an easier task. For most people who are married with a kid or a few, who have a huge mortgage or (heavens forbid) a few and a car or two, it could be quite difficult. I like to think that it is never impossible but it could be very difficult.

The biggest problem that I see is that people get used to lifestyles which are too expensive and scaling back would mean much discomfort which probably includes a loss of face which could be unacceptable to many people.







For example, I know a friend's dad who lived the high life, had expensive cars like SAABs and BMWs, had expensive watches, dined at fine restaurants, went to casinos and bet on horses. Today, he doesn't have much savings and if not for mandatory contributions to his CPF account, he wouldn't even have any money in his old age. Is he having a comfortable retirement? He doesn't think so.

Money not enough. What to do?

I have readers of different ages who write to me and, from my observation, I feel that readers in their 30s and 40s feel the most stressed out. They could be making $6,000 to $10,000 a month but many of them are not able to save more than 10% of their take home pay. So, asking them to save 50% of their take home pay is a tall order.

What would AK say to them?







The first thing that I would tell them is to go through all their expenses and decide which of them are needs and which of them are wants. The wants ought to be cut out and, then, see if there are alternative options which are less expensive to meet the needs. 

The second thing I would tell them to do is to stick to this simplified lifestyle and do not scale up with the next salary increment which they might get. The reason why many people don't ever seem to save any money is that they upgrade their lifestyles as they make more money in life.

Recently, a reader in his early 40s who makes more than $8,000 a month told me that he used to save about $500 a month of his take home pay but now he saves $2,000. This is not 50% of his take home pay but it is already a vast improvement.

Most of his annual bonuses were spent on family trips to faraway places and "don't know what" (his words) but he has decided to save these in future. This would increase his annual savings to be about 50% of his take home pay.

So, how did he achieve an additional $1,500 in savings a month?

1. He downgraded his car. He is used to having a car but he didn't need a luxury European make. It was a want. All in, he estimates that he now saves $700 a month because of this.

2. His family used to dine in restaurants every Sunday. This is now reduced to only once a month. This helps him save more than $200 each month.

3. He discussed with his wife on whether some of the enrichment classes they sent their two children to were necessary. He knew they were spending a lot of money on such classes but he was surprised at how much they actually spent. So, apart from classes which were deemed essential, lifestyle classes such as tennis lessons were axed. This helped them save about $600 a month.

The reader has also decided to cancel plans to buy a condominium and to stay put in his HDB 5 room flat. He feels more confident now about his ability to retire comfortably with his wife when he turns 55 and, by then, his children should be working and supporting themselves.

Of course, I reminded him that he would be getting some money from his CPF savings at age 55 and also a lifelong income from CPF-Life at age 65. That will certainly help fund his retirement.







While we are still able bodied and making plenty of money, our expensive lifestyles might seem affordable but get used to such expensive lifestyles now and we might not be able to retire comfortably many years later when things become more expensive.

Related posts:
1. A common piece of advice on saving.
2. Do you want to be richer?
3. Tea with AK71: A three point turn.
4. Free e-book: Retiring before 60 is not a dream.
5. To retire by age 45, start with a plan.