Friday, July 3, 2009

Financial Beliefs and the job hunt

There is a spam of emails from different companies that are recruiting financial advisors or wealth management consultants. As with the mistrust of the majority of these companies, I have very little faith in most of the advisors nor consultants. Why? Simple, I don't think they know a great deal more than me or you about wealth management. Come on, passing a simple M5 M9 and HI doesn't make you all the more knowledgable.

I have taken and dropped a wealth management course in the states because the later part of the course regarding the tax area is irrelevant to the Singapore market but what i know is this, wealth management consist of a really big area and as mention not many of the advisors or consultants are trained to handle the dynamics of good financial planning. We all know, most financial planning will give you some amazingly big number that will make your jaw drop and then ask you to buy some unit trust or endowment plan because of their prescribe business model. How suitable are the products for you? Well not really because they don't know much and they just want to push a product so the majority of them just do not cater to your needs. That is one reason why i refuse to join them unless i am given my way in being able to really cater to the needs of my clients.

Say for example, the endowment fund matures about 20 to 25 years from today with a profit of maybe $5000 to $10,000 on average. Those who know the time value of money will be able to tell you $5000 to $10,000 in a quarter of a century later is not worth that much. For my understanding, endowment funds are more suitable if you have a specific purpose for the money and you probably won't want to risk it. For example, your children's education which is estimated for tertiary level to cost up to $300,000 per child in about 20 years time. Don't be too shock, the price of education has always risen faster than inflation and there is always demand for it. This also explains why not many people are having children. Can the endowment alone be enough, maybe or maybe not depending on your premiums but is it going to be your best vehicle ot deliver the results, again it depends on the individual. It depends on risk appetiate, spending habits and well your goals.

For me, simple yes i will have my endowment plan but that ain't the first thing i would be purchasing. It would be my parents hospitalizing insurances. Why? This is a no brainer, who do you think is most likely to suffer any illness. For most of us, its our parents and given the cost of healthcare here which is like education can only rise faster, this is going to be the time bomb that will rip you off your entire family savings. Its true what some Singaporeans have lamented about for a long time, you can die in Singapore but not fall ill. Are all the medicare and medisave going to be enough, well if you believe the governement will take care of everything by all means. Not for me. Therefore, i got my friend, one of the few good agents around to help me. Why is he good. Instead of just pushing his companies plan. He gave me a detailed comparison of all the different insurance policies available including those of his rival and explain to me what i should look out for. My advice is to do this and do this early because the later the folks get covered the more likely there will be problem areas which no one would be willing to cover hence increasing your risk. With that covered, now you can start getting yourself insured for other areas depending on the individual needs.

Another area for people to look into is their post marriage arrangement and housing. For most Singaporeans, they will end up working most of their life just to pay the housing loan. My own suggestion subjected of course to circumstances, is this, get a bigger house with a government loan and move the parents in as well. Political landmine with your other half and that is always the harder part to resolve but if you can do that the benefits are substantial. First, you can rent out the old estate and collect rent which you can then invest and roll your money. Second, with everyone staying together, there is less cost in maintaining two houses. Some couples aim to pay off their housing loan as soon as possible because of the compounding interest. However, my view on this is, you will never get another loan at this rate and you are paying this off using your CPF which in the first place you can't touch the majority of it until retirement hence why not just use your cpf and use your cash on other investment. You may even have enough to buy more properties and get passive income.

Another common mistake, youngster make is to get a car when they just started work. The monethly expenses will kill a lot of them. If these money can be invested and as early as possible over the long term, the returns will be substantial. Anyway, these are just some of my thoughts in achieving my financial independence but right now work on the job hunt first and hopefully get a good job which is kinda difficult given that most of the openings are now close.