Category Archives for Insurance

By popular demand: My favourite slides from the Seedly Personal Finance Festival

Many readers have emailed me asking if I could share photos of the slides taken from the festival.

Here are my favourite slides that were presented by the various speakers. I must highlight that it’s easy to take the images out of context if you weren’t present at the festival and heard it first hand from the speakers.

I’d strongly encourage that you contact the speakers directly to find out more about what they have presented if you have any questions.

Speaker information

My 6 key takeaways from the Seedly Personal Finance Festival 2019

Today, I spent 8 hours on a Saturday at Singapore’s largest personal finance event – Seedly Personal Finance Festival 2019. I repeat, 8 whole hours! That’s the number of hours I spend in the office on a work day.

Who would have thought that young adults would pay to wake up early on a Saturday morning to attend a 1-day event to listen about personal finance? Great job, Seedly!

I’m not going to do a full recap of what the speakers have said because that’s 8 hours worth of content and a blog article will not do the speakers justice.

What I’m going to do instead, is to highlight 6 key takeaways that resonated with me and I will take action on.

Please note that this article is my interpretation of what I heard from the speakers and may differ from the original meaning of the presentation.

1. How long do you need to have insurance

When I planned my insurance needs, I looked at it from the perspective of how much do I need to recover from a critical illness or survive when I have problem taking care of myself. What I have not considered, is how long should I keep my insurance policies.

Christopher Tan, CEO of Providend and Executive Director of MoneyOwl shared his approach in deciding how long you need to have insurance. The income replacement component of an insurance plan is no longer relevant if you are of no economic value to anyone.

Let that sink in a bit.

If you are retired and no longer earn an income, you can consider not having some insurance policies such as Disability Income insurance and Critical Illness insurance that are meant events where you need to replace your loss of income.

Likewise, if you no longer have a dependent that needs to be supported by you, why should you continue to maintain a life insurance with a high death insurance coverage?

Action: I will examine my insurance plans and plan a cut-off age where I will reduce the coverage or even terminate some policies based on my retirement plans and dependent needs.

2. Job security may soon be a think of the past

In his presentation, Christopher Ng from Tree of Prosperity talked about how skillsets are deteriorating at a much faster pace. I totally agree with this comment.

In the past, if you were to study accountancy, you could work as an accountant for many years, or even decades using your accountancy skills. Today, if you graduate from university to become an accountant, your skillset will probably last 1-2 years (or less) before you need to learn new skills such as data analytics to perform high-level tasks as the industry continues to embrace automation.

Workplace toxicity is also present in many companies. Employees in Singapore are working much longer working hours than many other developed countries. The work life balance that we yearn for are not materialising.

Action: Identify skillsets that will improve my employability and take up courses to acquire these skillsets.

3. Build a financial safety net first before investing in the stock market

Loo Cheng Chuan from the 1M65 movement shared his story about achieving 1 million in CPF and talked about the benefits of acquiring a financial safety net through CPF before investing in the stock market.

I have to agree that knowing you have 1 million dollars waiting for you in your CPF accounts at 65 can provide you with a peace of mind. This peace of mind can be very powerful as you can afford to take more risk in your investment knowing your life isn’t over even if you incur some losses.

While I’m not planning to accumulate 1 million dollars in my CPF accounts, I intend to continue to pursue my mid term goal of achieving FRS in 5 years.

Action: Continue to top up my CPF Special Account to achieve Full Retirement Sum in 5 years’ time.

4. Grow your financial knowledge stack and don’t outsource your investment activities

Christopher Ng talked about the need to grow what he calls, your financial knowledge stack. Folks from the tech industry know the term, ‘stack’ very well. Essentially you equip yourself with knowledge on a set of technologies and programming knowledge that allows you to create and manage an application.

Likewise when we look at financial knowledge stack, it’s about equipping yourself with a set of financial knowledge to make informed financial decisions that’s tailored to your personal needs.

This is important because if we outsource the work of managing our personal finances and investment portfolio to what he calls, ‘financial salespeople’, these people are going influence you to act against your best interests if it conflicts with theirs (to earn commission).

Here’s the Financial Knowledge Stack that Christopher Ng shared.

Financial Knowledge Stack by Christopher Ng

Action: Put together my own Financial Knowledge Stack, identify what I lack in and work towards equipping myself with the relevant knowledge.

5. Choose an investment strategy, learn and take action

What I loved about the Seedly Personal Finance Festival was the diverse investment topics that the speakers presented. There’s no one-size-fits-all investment strategy that works for everyone. We have look within ourselves to identify the investment strategy that works for us. The one that allows us to sleep peacefully at night.

We had 3 speakers talk about 3 different investment strategies – Alvin Chow from Dr Wealth talked about Value Investing, Joel Sim from Mr Finance Savvy talked about Trend Trading and Victor Chng from The Fifth Person talked about Dividend Income Investing.

These speakers shared about their approach towards investment on a high level given the amount of time allocated for their sessions and provide some insights into why their investment strategies worked for them.

If you’ve been reading my blog, you’d find that I don’t write a lot about investing because that’s not a topic that I am well-versed on. I’ve only invested in index ETFs and done so through a Robo Advisor.

I had the opportunity to chat with Dawn Fiona from SG Budget Babe during the break and her recommendations for a newbie who is learning to invest for the first time. Here are some of her recommendations.

Before starting on your investment journey, ask yourself first these questions. What are you investing for? What’s your time frame in the market? And which methodology matches your personality and lifestyle better?

For some of us who are busy (e.g. parents) and don’t have time to check the markets regularly, strategies like fundamental momentum investing or trading will not be suitable for us because we cannot react in time and grab opportunities when they appear. In such cases, tools like ETF RSS plans or DCA methods would serve us better.

But if you enjoy analysing and have time and effort to spend on it, then why not value or growth investing which might be more suited to us.

Figure out which suits you better, learn more (through books or courses) and then apply and stick to it.

I intend to do something about that this year.

Action: Learn more about the 3 investment strategies shared in the festival and pick 1 that suits my preferences. Spend a lot of time to study on the chosen investment strategy.

6. Build your retirement portfolio, one brick at a time

Most of the festival attendees are young adults who are in the early stages of their careers. That means they don’t necessarily have a large sum of money to invest in their retirement portfolio today.

I love how Christopher Ng presented his lego-brick analogy to help young adults get started on building their retirement portfolio, one brick at a time. His example of ultimately forming a middle finger with 48 bricks that you can show to your unappreciative boss when you FIRE was the icing on the cake.

His take on starting your retirement portfolio was very simple. Save $20,000 and invest it on stocks, bonds, and REITS that yield better than 7%, and you will be able to get at least $1,400 a year.

That’s your first brick.

Action: Take a hard look at my retirement expenses and calculate the number of bricks I need to build in order to retire.

Did you attend the Seedly Personal Finance Festival? What were your takeaways from the festival? I’d love to hear about them in the comments section below.

Understanding insurance: It’s all about risk management

Do you really understand why you need insurance?

I don’t want to say that all insurance agents are¬†unscrupulous and money-minded, because I have a few friends who work as insurance agents and are really good at their job.

The sad reality is that insurers are dishing out very attractive commissions for insurance products that are designed to make you part with more money than what you have to. They make their products more complicated by integrating elements of investment to charge a higher premium and grow their corporate revenue.

For a insurance agent who’s basically an insurer’s sales person, it’s very hard to not focus on selling the more profitable products.

You have to look out for yourself because nobody is doing it for you.

Insurance is all about risk management

Opposed to what many insurance agents are telling you, insurance is actually all about mitigating risk.

You just bought your home and did a nice renovation. Losing your home and belongings to fire or theft could mean losing everything. In order to mitigate that risk, you buy a home insurance to reimburse you for your losses.

That in my opinion, is what insurance is truly meant to do.

What you need to understand about risk

Start by determining the probability and impact of your risk.

TL;DR? Here’s a risk matrix to help you understand risk management in a nutshell.

Avoid risks that have high impact and high probability

If a risk has a high impact to your life and a high probability of occurring, the best way to eliminate this risk is to not participate in the particular activity or own the particular property.

The high impact could cost you everything you worked for (or your life) and the high probability of occurring means that insurers will charge you an arm and a leg just to protect you from the risk.

Reduce the probability of the risk occurring

Obviously we can’t avoid all forms of risks or we’ll never leave our home or cross the street. If the impact of the risk is not devastating, we can try to manage the risk by reducing the chance of it happening.

In most cases, reducing risk is just a matter of using common sense and doing things you know you should have done.

  • Servicing your air conditioning to prevent water leakage
  • Not drinking and driving to reduce the risk of getting into a car accident
  • Not showing off your cash and jewelry in public to reduce the risk of getting robbed

If you can reduce the chance of a risk occurring, you may opt not to get any insurance to protect yourself against it.

Accept that there are some risks you have to take

There are some risks that have a low probability of occurring and low impact on your life should they occur. For these risks do you even need insurance coverage?

In some cases, the answer could be no.

Here’s an example.

You buy a standing fan from Courts for $39 and the cashier tries to sell you their in-house warranty that offers a longer and more comprehensive coverage for $10 (this is a fictitious amount). Personally, I would be willing to accept the risk of the fan breaking down and will either pay out of my own pocket for the repairs or purchase a new standing fan when that happens.

The amount of risks you are willing to accept depends largely on your risk appetite.

For me, I don’t always buy travel insurance for short holiday trips because I am willing to accept the risks involved. You may not want to accept these risks.

Transfer some risks to other parties

For risks that do not have a high probability of occurring but can make a large impact to your life when that happens, you would want to consider transferring these risks from you to another party.

Buying insurance is the most common method of risk transfer.

Insurance allows you to pay a predetermined fee (premium) and in return, the insurer takes over the risks from you. Should the risk occur, the insurer will absorb the losses that you would otherwise have to pay out of pocket.

Insurance makes the most sense when the impact of the risk is large but the cost to transfer the risk is low in perspective.

Here are a few examples:

  • Transferring the risk of having to rebuild your $500,000 home after a fire to an insurer by buying a home insurance for $200 per year
  • Buying a term life insurance to transfer the risk of leaving your family with debts when you pass away
  • Purchasing a health insurance to transfer the risk of incurring hefty hospitalization fees, should you be struck with a major illness

Making your insurance purchasing decisions after understanding risks

You now understand what risk management is all about.

It’s time for you to decide what are the personal risks that you are undertaking today and how you should manage them.

If the insurance product that you are considering to purchase does not transfer away an adequate amount of personal risk for a low cost, then you don’t really need them.

If your insurance agent is talking to you about project returns and profits for purchasing an insurance product, instead of how the product can protect you from certain personal risks, walk away.

Do you agree with my view in this article? I’d love to hear your thoughts in the comment section below.

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