Archives for category: Personal Finance
Is your financial adviser really looking out for your best interest?

Of course, that’s a loaded question. The short answer is no.

Are their incentives aligned?

After all, the incentives for a financial adviser^ is quite different from the clients they serve. This is an example of the principal-agent problem that happens elsewhere where the agent that you hire (i.e. the adviser) is not acting in the best interests of the principal (i.e. you).

The main problem in Singapore is that the bulk of the remuneration that a financial adviser receives is commission-based. This creates two problems – one, your financial adviser has an incentive to sell you more product which you may not necessarily need. Two, your financial adviser has an incentive to sell you products that generate more commissions for them.

In Singapore, I find that the above translates into financial advisers having a tendency to sell products that have some form of savings or investment component rather than a products that merely provide protection.

It’s not surprising once you ask financial advisers which one pays greater commissions and I suppose this happens because the company generates a greater profit from savings/investment products rather than protection.

They may quibble that protection and savings/investment are two entirely different areas of needs but my retort then, is why only focus on products from insurance companies when it comes to savings/investments? If you were truly providing fair and unbiased financial advice, then it should not be limited to the products that you sell.

Many financial advisers tend to proclaim that they love helping their clients overcome some financial issues that arise due to misfortune, I often see insurance companies in Singapore rewarding their advisers based on how much sales they make. Ever heard of “Million-dollar Round Tables”?

In short, the way the industry currently operates, I doubt your financial adviser has your best interests at heart.

Information Asymmetry

The other problem is that for the common person, financial advisers would/should know more about financial advice than they do. This means that what they say may confuse you but the mark of a good salesperson is that you’ll be comfortable enough with the confusion to part your money.

The good news is that the asymmetry can cut both ways. With a little finance training, you may know more than your financial adviser.

I’m not sure if it’s because some advisers are more salespeople than research people but I’m certain that financial advisers don’t come up with the products they sell.

It’s pretty much like how car salespeople don’t know much about what makes the car good from an engineering standpoint and rely on what management or product development tells them about the product.

In some ways, it’s pointless for salespeople to question the product because they aren’t the ones coming up with it. Moreover, they need to put food on the table and therefore, whatever goods they are given to sell, they sell.

Case Study: Company X’s savings/investment product

Recently, my financial adviser from Company X* proposed a product/plan that requires that I put away $5,000 a year for 15 years and thereafter, I have the choice of withdrawing the money either at 60, 65, 70, or 75 years old. The amount of money I would receive is $137,966, $172,471, $214,073, and $260,073 respectively.

In his presentation, my adviser framed each choice as how much I would gain in dollar amounts upon maturity of the plan. My observation is that in every product schedule, dollar amounts are exactly how insurance companies present the returns of every savings/investment product.

What’s wrong with it?

I must admit that it didn’t occur to me right away even though I’m a CFA Charterholder. But that’s what happens when you don’t use your training much in your daily work. =(

Any decent finance student will tell you that the problem with such a presentation is that it obscures the actual yearly return and therefore makes it difficult to compare between alternatives.

After all, if I were to invest/save an amount of money and receive a return over a certain number of years, I must consider all the possible alternatives and pick the best one. The idea of opportunity cost is one of the most fundamental ideas in economics and is important for decision making.

In the above example, a simple calculation in MS Excel or with a financial calculator will reveal that the Internal Rate of Return (IRR) of such a plan ranges from 3.38% p.a. (for the earliest payout) to 3.79% p.a. (for the latest payout).

This plan seems like a raw deal because you could do better by putting your money in your CPF Special Account (SA) which currently pays 4% p.a.** and you could do that with greater confidence that CPF is less likely to default on paying you back. Of course, the CPF may lower their interest rates at some point in the future but if that happens, it might also cause increased pressure on Company X to deliver the promised returns.

Plus, the fact that the IRR calculated above is a nominal rate, the real rate of return (after accounting for inflation) by taking on Company X’s plan is likely to be something pathetic. My financial adviser may argue that it’s just $45,000 spread over 15 years but money is money; A bad deal is a bad deal and this smells like a very bad deal to me.


I think financial advisers hate me.

^Financial advisers in Singapore are more like insurance company representatives that sell insurance, endowments, investment-linked products and the like. They don’t typically advise on equities, bonds, ETFs and such.
*Not naming the company for obvious reasons.
**I know it’s slightly higher for the first $60,000 or something like that but for this argument, it’s not necessary.

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This Former Engineer Retired At 33 With Zero Passive Income Streams And His Net Worth Nearly Doubled In Six Years (Forbes)

These sort of FIRE stories seem all be the trend nowadays. I honestly wish I could say that I’m about to hit some seemingly unrealistic goal like the people profiled in these stories but I’m not. It’s pretty tough to do so in Singapore unless you factor in CPF contributions since that’s 20% of our gross salaries. Of course, the caveat is that you don’t use most of your CPF to pay off your housing loan.

How I Spotted a Fraud (Before It Was Too Late) (Behavioral Value Investor)

Great read for anyone who’s a stock picker. I’ve become less of a stock picker over the years but it’s still interesting to read about these sort of things. I also have the impression/fantasy that equity analysts who try to sift out fraudulent activity are kind of like detectives.

$10,000 (A Wealth of Common Sense)

A cryptic sort of title but the post is fantastic one which serves to highlight that many of the recent tech IPOs we’ve seen probably stands more for “It’s Probably Overpriced” rather than a business that creates value.

The funny thing is, just like the bubble tea mania we’re witnessing in Singapore right now, is that we’ve seen this show before. Bubble tea had it’s mania in the late 1990s and these sort of tech stories were all over the news in the late 90s/ early 00s.

PSC scholars should take courses relevant to S’pore (The Straits Times)

The letter writer must be a troll, professional shit-stirrer or one of those grumpy, old men who always need to find something to write about in order to stroke their ego.

In my opinion, the retort should be that the PSC scholar is studying another religion which promotes religious harmony and that is what Singapore is all about (at least, the politically correct version of Singapore is.)

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The Biggest Returns (Collaborative Fund)

Not exactly a recent piece but Morgan Housel does a nice piece in generalising and summarising how we should be focusing on the thing that gives us the biggest bang for buck – Conservation and Efficiency. In particular, he elaborate on how this is applied to investing/getting wealthy.

What it’s like trying to live on minimum wage—it’s a ‘constant struggle’ (CNBC)

I think this article was written in light of the US passing the bill to raise the federal minimum wage to $15/hour.

I’m not in a position to say whether we need something like this in Singapore or not but in my line of work, I’ve seen how those less well-off in Singapore struggle in school because of financial problems in the family.

While financial aid for such people exists, there is a lot of bureaucracy to get through because the onus is always on those who need help to prove that they need it. But as some economists have shown, this becomes a bandwidth tax on those who are already struggling with other problems.

I really think that the poor in Singapore need more help that is unconditional and forthcoming.

Health spending and life expectancy (The Big Picture)

How did the U.S. get this so wrong? Higher spending and yet lower life expectancy.

Your Chances Of Becoming A Millionaire By Race, Age, And Education (Financial Samurai)

U.S. context and click-baity title but goes to show how important education is in terms of raising your chances to become wealthy. Also shows the importance of having parents provide a headstart in life.

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Gen Y Speaks: At 20, I ran a business with six-figure revenue. Here’s what I learned. (TODAY online)

I love how they’ve run a story on a local entrepreneur who’s candid enough to share her experiences. It’s also a nice story because the writer no longer runs her own business which is a nice contrast to the perspective that entrepreneurs must be married to their businesses forever and ever.

It’s like what I tell my students in economics class – opportunity cost tells us that if you want to start your own business, do it while you’re young because the opportunity cost of doing so is low.

That aside, one day I must rant about how we’re trying to promote and teach entrepreneurship in school. It’s my view that while the skills to be an entrepreneur can be taught, what ultimately makes entrepreneurs is their social and familial environment.

You can’t go out and run a business if putting food on the table is a concern.

3 property statements that don’t hold water (Property Soul)

To be honest, at some point in time, I believed in some of these statement myself.

I kind of learned that statement 1 and 2 didn’t always hold water when I saw my parents’ investment property become a liability instead of an asset.

Statement 3 is the most interesting one for me because I never really thought that hard about the backgrounds of the Asian families whose riches are so closely linked to property.

The other thing I like to point out about those who believe in Statement 3 is that property developers make their money building and SELLING property and not buying it as the common man does.

In short, it’s a different ball game.

Extreme Concentration of Global Wealth (The Big Picture)

Nice infographic.

And a sobering thought that the average Singapore should easily be in the top 10% in terms of wealth if you have a fully-paid up HDB flat and/or meet the retirement sum in your CPF.

Unfortunately for the pro-government types, people can’t eat bricks and their CPF statements.

The Earnings Mirage: Why Corporate Profits are Overstated and What It Means for Investors (OSAM)

Heard about this from this episode of the “Animal Spirits” podcast. I haven’t gotten through it but looks like a worthwhile read.

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Family Inc: Viewing Your Career as Investments (Investment Moats)

I think Kyith at Investment Moats is going through some sort of career transition and chanced upon this book. There is a nice bit at the front part of his post on the importance of human capital.

I written about it before (here and here) but it’s interesting to see how prevalent it is that people don’t consider their human capital as part of their net worth.

This is especially true when it comes to asset allocation. I know far too many people whose incomes don’t vary much and where the threat of redundancy is low with respect to economic cycles (think civil servants, doctors, etc.) and most of their wealth comprises spare cash in the bank or they lock up themselves up in some sort of low-yielding endowments.

On the other hand, it’s the very people whose incomes and jobs vary with economic cycles (think property agents, bankers, traders, business people etc.) that load up on risk assets with leverage to boot.

If there was anything that I learned some the CFA level 3 syllabus, if was this – that if your human capital is bond-like, you can weigh your financial portfolio more towards equities and vice-versa if your human capital tends to be more equity-like.

The Thing That’s Probably Blowing a Hole in Your Budget (A Wealth of Common Sense)

Ben Carlson has a great post on how a car is probably the worst of the three big forms of debt for the average American since a car is a depreciating asset while a mortgage and a study loan, arguably, helps you purchase an asset that increases your net worth.

A wise colleague told me the other day that he read on the papers that owning a car in Singapore is one of the major differences between comfortable retirement and a barely-there retirement for the average Singaporean.

Cars are darn expensive in Singapore and the COE only lasts 10 years. Also, public transportation is relatively affordable. So, yeah, I agree.

Double feature since there are on the same issue. NYT link via The Big Picture and the other sent by a friend.

It’s crazy to see how long and how low interest rates can go. But as I replied to my friend, it’s also this sort of environment that leads to asset bubbles as easy credit means that money has to find a place to be invested no matter how ridiculous the premise.

Initially, I thought that we were at the end of the cycle with all the new tech IPOs but it looks like the powers that be hope that this will continue for some time yet.

The other positive thing that this environment has going for it is that valuations, in general, are not at extremes, the masses aren’t making the easy money, and we don’t have the inflation necessary to force the hand of the central banks.

So perhaps, this party could go on for some time.

Late on this and no post last week because there’s been some changes on the household front. Keeping a kitten is no easy task but she’s been a gem so far.

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Wife in S’pore praises her husband for becoming a private hire driver because it is noble (

While the article may extol the virtues of a young person being a Grab driver, anyone thinking of going down the same path should note that for a relatively younger and better educated person, this would translate into higher costs in the long run as there is a lack of a career path in this industry as economist Walter Theseira pointed out.

Also, it’s better well-known that private-hire driver earnings have come down significantly from when these companies started entering the market. They enticed more people to become full-time drivers through higher incentives at the beginning.

Add to the fact that Grab is the new taxi, I’m pretty sure many more drivers will enter the fray in the coming years as the baby boomers officially retire from the workforce. In Singapore, we never really stop working.

They should come back and ask this same lady if she’s happy with her husband being a Grab driver when he’s 50. Having said that, if you have few prospects because of a lack of academic qualifications, this is not a bad path to take.

Interest Rate Chasing in Your Savings Account (A Wealth of Common Sense)

It’s strange to me to see how some people in Singapore get excited over a 0.25-0.5% difference in interest rates. I know of people who even have spreadsheets to compare which savings accounts give the best interest rates. In recent memory, the comparison is mostly between DBS’s Multiplier account and OCBC’s 360 account.

I’m at the other extreme because for the longest time, I had a lot of cash sitting in an account that paid a paltry interest below 1% and I know that was stupid of me.

But now that I’ve moved to the DBS Multiplier account, I’m not going to fret about whether the OCBC 360 account gives me a better deal. Even if it does, it won’t be by much.

The thing about those people that get excited over 25 to 50 basis points is that they usually also miss out on the 6-7% per year because they focus so much on only savings accounts.

Will Trend-Following Continue to Disappoint? (A Wealth of Common Sense)

If you’ve read the Meb Faber white paper, trend-following works by helping you avoid the large drawdowns that hit investors who are invested all the time.

The downside is the whipsaws you get from entering and exiting positions due to false signals and the utter frustration from this in a prolonged sideways market.

We’re halfway through the year! Time really flies, doesn’t it?

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The Fecundity of Endowments (Northwood Family Office)

A paper on safe withdrawal rates for long-horizon portfolios. The paper proposes a safe, simple, and dynamic approach to the safe withdrawal rate. Totally makes sense and I can’t imagine why no one thought of this before. (h/tip to Investment Moats for this)

Go read the entire paper. It’s only 8 pages long and not very technical.

Georgetown study: ‘To succeed in America, it’s better to be born rich than smart’ (CNBC)

I can’t say that I’m surprised at this finding.

I wonder if we’ll find similar results in Singapore or will we find that our much-vaunted education system is really a social leveller?

Some Good News For Retirement Savers For Once (A Wealth of Common Sense)

Ben Carlson breaks down the findings from a Vanguard paper and notes how stark the difference is between voluntary enrolment and automatic enrolment in 401(K) plans.

Ladies and Gentlemen, this is why CPF is forced upon you.

Unfortunately, along the way, the usefulness of CPF gets diminished by letting people use it for (overpriced) housing. Those who need CPF for retirement will have spent it on housing and those don’t…well, CPF is a drag on compounding wealth.

Take their analysis with a huge pinch of salt and follow their advice at your own risk.

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I’ve lamented about the sad state of financial literacy in Singapore (here, here, and here for example.) and it irks me even more that there are certain websites in Singapore that have wide appeal to retail investors even when they aren’t doing a good job of educating the wider public about financial literacy.

In fact, given some of the poor analysis that is out there on these sites, some retail investors end up with the curse of thinking that they know a lot when they actually know very little.

Much of the analysis on these sites is at best simplistic and at worst, plain wrong and misleading.

Exhibit A (Actually, the only exhibit I have)

Recently, one of these sites published a quick analysis on the results of CapitaMall Trust (CMT) and I took a quick look because I have vested interests in the REIT.

Somewhere further down the article, I came across this horrible section that attempts to value the REIT.

Naming and shaming them but not giving them the benefit of creating a backlink to their article

Problems with Exhibit A’s valuation

The first problem with the valuation presented above is that you cannot compare CMT’s yield to the average of 40 other REITs because not all the other REITs are retail REITs.

It’s like comparing how spicy one stew is to another. Stews can be as diverse as a tomato-based beef stew to a curry, and these can range in spice level from 1 to 10.

Western-style stews such as a chicken or beef stew will always be at the lower end of the spiciness scale (i.e. 1-3) while curries will be at the top end (8-10). So, saying a beef stew is less spicy than the average stew is kind of meaningless because you wouldn’t compare a beef stew with a curry in order to determine how spicy it is.

This is exactly the sort of cardinal sin presented in Exhibit A.

If you’ve compared retails REITs with commercial, industrial or healthcare REITs, you’ll realise that on average, their yields are vastly different as they face very different economic conditions.

It’s pretty well known that Retail REITs tend to trade at lower yields than other types of REITs so naturally, if you compare CMT with a whole basket of REITs, it’ll be perpetually undervalued as compared to the basket.

Ditto for the P/B ratio.

The other problem is that by just focusing on relative valuations, it doesn’t help if the whole REIT sector is overvalued or undervalued. In fact, a valuation should be based on the cashflows or assets held by the REIT and not just based on it’s value relative to other REITs.


I’m not sure what the solution should be when it comes to getting the wider public better educated on financial literacy. Some of the providers out there have vested interests while some of them think they are providing a service when they actually suck.

Maybe there is a role for someone to call out the bullshit that some of the services that these companies are selling.

All the Benjamins (or Yusof Ishaks if you’re Singaporean) in the world wouldn’t be any good unless you’re the only one with it

Lately, I’ve been doing some research on property investment and as a result, my Facebook and instagram feed has been flooded with sponsored ads which promise to teach you how to get rich through property investment with little to no money down.

Obviously, such ads are targeted at the mass-market investor because a common feature of such ads is how a couple with less than average household income in Singapore can afford a second property. A variant would be how “average Singaporeans” can own multiple properties with little to no cash down.

Personally, I’ve not attended any of these workshops but from what I’ve heard, the thing that they’re selling is co-owning multiple properties with numerous other owners or by leveraging up to your eyeballs (within the legal limits, of course) to afford the second mortgage.

Goodhart’s Law explains why the workshops are stupid

If you grew up in Singapore during the 90s, a popular idea at that time was that success meant having the 5Cs – Cash, Credit Card, Condo, Car, and Country Club membership.

Today, the aspirational quality of the credit card and country club membership has fallen by the wayside simple because it’s no longer difficult to obtain one.

I can’t say exactly when this happened but it has become a whole lot easier to get a credit card issued by a bank in Singapore. Although the credit limit wasn’t high, I remember getting two cards in the mail from my bank upon graduating from University. I didn’t even need to fill in an application or have a job. Ditto for the country clubs when NTUC and SAFRA* decided to get in the business and lower the barriers to entry for a membership.

These days, no one talks about getting credit cards or a country club membership because basically everyone has one. If we apply our imagination to cars, we can also conclude that once everyone has a car, it stops becoming an aspiration. After all, if everyone has a car, we would just end up with worse traffic and the rich would have then progressed to helicopters. Jakarta’s a perfect example of this.

In a twisted way, this is a version of Goodhart’s Law where the measure becomes useless when the measure itself becomes the target.

If having a car is a sign that one is rich, we would all work towards having a car to signal that we’re rich. However, that would eventually make having a car a terrible measure of wealth.

So, back to the property workshops that cater to the masses. The same logic means that if the masses could get rich through investing in property, they’ll quickly find themselves back in the middle if most people are able to invest in private property as well.

How to get ahead

Now, I have nothing about attaining material goods or getting wealthy. However, what most people need to recognise is that really wealthy people don’t buy stuff if it’s going to strain them financially.

A rich person wouldn’t own 39 properties on the maximum loan tenure in his/her own name with the solvency dependent on the rental income. If they can’t get tenants, they would still be able to pay off the mortgage and put food on the table.

Similarly, if you drive a fancy car but you have to hustle 14-16 hours a day and take on side gigs just to pay off the car loan and petrol, then owning a car isn’t exactly a sign of wealth.

So getting ahead shouldn’t be measured by something determined by others. You shouldn’t be getting a fancy car or apartment just because others think that’s what it takes to be a successful person.

Your success needs to defined by you.
On your own terms.
At your own pace.

So please, don’t be stupid.

*NTUC is the co-operative that is the de-factor labour union in Singapore while SAFRA is basically the leisure and lifestyle arm of the Singapore Armed Forces. In short, these two organisations are about as mass-market as it gets because they represent the workers and the armed forces service staff.

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How Hard is it to Become a 401(k) Millionaire? (A Wealth of Common Sense)

Basically, the point of the article is that saving more at an earlier age gets you there much more easily. There’s also a guy in Singapore who’s an advocate for tapping your CPF to become a millionaire and I kind of pointed out that while I don’t disagree with the possibility of the feat, his explanation for getting there is a little ‘off’.

The 3 Levels of Wealth (A Wealth of Common Sense)

L1: I’m not stressed by debt.
L2: I don’t care what stuff costs in restaurants.
L3: I don’t care what a vacation costs.

Ben Carlson quotes Slack Founder, Stewart Butterfield on a simple heuristic to determine how wealthy you are. I think it’s a terribly useful rule-of-thumb to follow.

At this point in time, I’m definitely a L1 person. I’m not sure if I’ll ever progress to L2 because I keep telling myself how overpriced certain things are on the menu at some restaurants.

The Problem With Most Financial Advice (Of Dollars and Data)

A really good read about how some popular financial advice doesn’t apply to a wider population at large. I must admit that I’ll probably be guilty of this too because my experience probably doesn’t apply for the average Singaporean.