Investing your CPF with Unit Trusts

Is investing your CPF with unit trusts a good thing? In my opinion, it's not a good idea especially if you have no time to monitor it. When I first started investing 20 years ago, the first instrument that I got hold of was unit trusts. At that time, I thought that buying a unit trust would be a form of diversifying your portfolio. I thought that it would be the job of the fund manager to decide how to allocate the number of stocks, bonds and index funds for each portfolio and we won't have to worry a thing. So naturally I had thought that unit trusts are for beginners if you have no idea how to invest in stocks. Boy, was I wrong. 

Most unit trust funds did not perform so well and the CPF board started removing a lot of approved funds as time went by. I had made losses too. Even those that require cash. I'm not saying that all unit trust funds will cause you to have losses. You need lots of time to know how to rebalance it. I did not spend any time rebalancing it for many many years and that was a dangerous thing to do. Seriously.

I had bought some funds through an online platform and some through an insurance agent. After selling me the funds, the agent was reluctant to provide me advice on which funds I should switch to. I was on my own and I thought it was a bad decision to even buy it from the insurance agent. After all, she had already earned her commission and didn't want to have anything more to do with me. She said I could just go online to switch the funds on my own and her advice was to just 'leave it there'.  Leaving it there without any action is a very dangerous thing to do. I found that the money would be better off earning the 2.5% interest in the ordinary account. Also, if you have no idea what you're doing, trusting the fund manager to balancing the fund is really a bad idea.

So I decided to read some books on unit trusts investing as well as visiting several websites. I learnt about rebalancing and decided to take some action. First I liquidated most of my units in cash and those that I bought from the online platforms. I felt that I would rather invest them elsewhere. The only ones I kept are the insurance based unit trusts. I switched my units to 2 basic type of funds: Global Bonds and Global Equities. That's because I have no time or knowledge to keep up which country, continent or theme is doing well for each timeframe. The Global portfolio would cover everything world wide. Then at every time frame, I made sure that I would maintain the same amount of distribution between Bonds and Equities. 

By doing that, I started seeing results. I notice that the results would be even more obvious whenever the markets does a flip. For example in March 2020 when the markets crashed by 30% worldwide, the value of the bonds was higher than the value of the equities. I had to sell the bonds to buy more equities. But in the following months, equities started recovering and I had to sell off the stocks to buy the bonds again.  The overall value of the portfolio started to go up. It became higher that what it was before the crash.

As at end of last year, when I compared the opportunity cost of putting money in unit trusts versus leaving it with CPF, I found that I was able to catch up with 2.5% interest rate of what CPF board pays. Perhaps I should have quickly liquidated the funds back then but I was having so much fun.

Then in the past few months, Russia invaded Ukraine and inflation went up. Even bank interests were affected. The equities versus bonds thingy started getting shaky again. So I guess I should ride through another storm again.  

So yeah.....I'd say if you're a beginner and have no idea how to invest, do not use your CPF to invest in unit trusts. It took me years and experience to figure how to get it done and I won't say I have a foolproof method of maintaining it. I'm still learning each day. I'm still monitoring it regularly to rebalance it. So far it has been ok for me. I shudder to think what would happen if I had taken the insurance agent's advice to 'just leave it' there.  Never do that. You'll have to keep checking and monitoring it regularly. Rebalancing it is a must. You cannot let it sit there and do nothing. 

Till the next post.....

The Easiest Way to Fail Financially

There you are, walking down the store aisle, and you see it. "It" can be anything from a candy bar to a magazine to some tool you've wanted for months. It doesn't cost much, so you go ahead and buy it.

It's called impulse buying, and it's one of the biggest hindrances to your financial wellbeing. While each item may not cost much, impulse buying is one of the primary reasons so many people are in serious debt. Credit cards make impulse buying all too easy. So how can you control the impulse? Here are a few easy steps:

1. Don't go to the store. It's tough to get impulses if you don't subject yourself to the temptation. Of course, you can't avoid stores altogether, but you can limit your trips to only those times when you really need something. This really helped me cut down on impulse buying. I used to stop by a store just to see what was on sale. When I made the decision not to go shopping unless I really needed something, my spending was cut significantly.

2. Make a list -- and stick to it. When you do go to the store, make a list and buy only those things on the list. It's simple. And it works!

3. Take only enough cash to buy exactly what you need. Leave those credit cards at home. If you don't have them, you won't be able to follow-through on any impulses you may have. Taking the right amount of cash will help you stick to your list.

4. Make a rule to delay all unnecessary purchases for at least one day. When you see something you really want, tell yourself you'll think about it and come back later when you know you need it. Well-known financial author Larry Burkett says this made a huge impact on his spending when he started using it. He said in his book Your Finances in Changing Times, "The reason (it made such an impact) was obvious: once I left the store, the impulse passed."

Those people who plan out their spending and follow their plan the closest are the ones who find the most financial success in life. Impulse spending is what happens when you either have no plan or don't follow your plan. And it will set you back every time.

Budgets are a great way to impede impulse buying. But they aren't a sure-fire answer. In fact, if budgets aren't handled properly, they can actually tempt you to spend frivolously, so make sure you use them wisely.

About the Author
Steve Kroening writes for Success magazine and also publishes Wisdom's Edge. You can get Biblical tips on health, finance, relationships, parenting, and success, delivered to your email inbox every week. Simply visit http://www.wisdomsedge.com and sign up for this free e-zine.

How You Can Turn One Dollar Into Eight

If I told you there's a way to turn one dollar into eight and it's practically risk free, would you be interested? Of course you would. Well, there is a way to do it. It's easy. And it is practically risk free.

Here's all you have to do. Hewitt Associates just released a study that shows how investing in your early years can make you wealthy in your retirement. The study says that any dollar you save at the age of 25 will be worth $8 at the age of 65. So if you have $10,000 in the bank at age 25, you will have $80,000 by the time you're 65. All you have to do is leave the money in the bank. It doesn't get much easier than that.

What if you're not 25 anymore? As you age, the returns will be less. Still, every dollar invested at age 35 will be worth $5 at age 65. And if you start at age 45, that dollar will be worth $3.

If you're in your 30s or 40s, please don't let this discourage you. It is far better to start saving now than to just give up completely and not save at all. It's never too late. Why turn down $5 or $3 just because it's not $8? And if your children are grown, show them this information and encourage them to start saving now.

Just as it's never too late to start saving, it's also never too early. If your children are young, every dollar they save now could be worth $10-$12 when they retire. So take the time to teach your children about saving for the future. The book of Proverbs tells us to "Train up a child in the way he should go; even when he is old he will not depart from it" (22:6). Most parents relate this just to spiritual training. Few will extend it to finances. However, training your children to handle finances biblically is one of the best things you can do for them. Start them young and it will be a habit they continue the rest of their life.

And don't forget that one of the best teaching tools is to lead by example. We all should be saving at least 10% of our income. Kids can easily save from 50% to 90%. And the younger they start, the more they'll have in the future.

About the Author
Steve Kroening writes for Success magazine and also publishes Wisdom's Edge. You can get Biblical tips on health, finance, relationships, parenting, and success, delivered to your email inbox every week. Simply visit http://www.wisdomsedge.com and sign up for this free e-zine.

Stock Market Fundamentals

by: JohnPorter

As so many people opt for online trading one wonders what are the reasons for so many people going for something new leaving the traditional method. A little investigation throws up quite a few reasons.

First of all it is convenient and easy. You don't have to leave your room. Who could have imagined a few years before to trade on stocks while lying on his bed with his laptop in front of him? But this is how easy online trading has become. And who wouldn't want that extra bit of comfort. With online trading you can trade at whatever time you feel. Yes, you can trade beyond actual trading hours of the market. So now you can come back from you regular work, take a shower, have your dinner, spend time with your family and before you go to bed spend an hour looking at your investments.

But whatever the comfort may be and however convenient it is to carry out trade online, you still will require to know the fundamentals of the stock market. We discuss a few here.

Growth Buying Stocks are shares or stocks of companies which are making healthy profits over the recent few years. Since the companies are generating more revenue and are growing at a rapid rate, there stocks are on high demand. This pushes up the price because investors think even a high price is okay cause the stocks will keep on rising. Though that might be true for the recent future, there is a time when the prices will stop to rise or may even start to decline. To predict that time is what separates a good investor from an ordinary one.

Unloved Stocks are shares of companies that have not been doing well in the recent past, and hence investors are not to keen. When there is a lack of interest, the price per share drops and many investors believe that this is the right time to invest on them when you buy the shares for less, wait for the company to recover and regain its feet and then sell them at a high profit when the price begins to climb as the company generates higher revenue.

Then you will also need to learn about the small-cap, mid-cap and large-cap shares. And then there are the micro-cap shares which are mostly involved in the various share market scams.
However, the fact that fundamental analysis shows that a stock is undervalued does not guarantee that it will trade at its intrinsic value any time soon. Things are not so simple. In reality, real share price behavior relentlessly calls into question almost every stock holding, and even the most independently minded investor can start doubting the merits of fundamental analysis. There is no magic formula for figuring out intrinsic value.

When the stock market is booming, it is easy for investors to fool themselves into thinking they have a knack for picking winners. But when the market falls and the outlook is uncertain, investors cannot rely on luck. They actually need to know what they're doing.

That said, there is much that the investor can do to learn about fundamentals. Investors who roll up their sleeves and tackle the terminology, tools and techniques of fundamental analysis will enjoy greater confidence in using financial information and, at the same time, will probably become better stock pickers. At the very least, investors will have a better idea of what is meant when someone recommends a stock on strong fundamentals.

About the AuthorFind more Online Trading and Online Trading info online. For Online trading related articles: http://www.online-trading101-fyi.info

Options Trading 101

by: amaramar

Options trading is much like stock and bond trading. Trading strategies can range from a simple buy and hold to a highly advanced use of technical analysis. Then there is everything in between. Although options trading may be similar to stock and bond trading, there are some distinctions that make options a desirable investment opportunity.

They are a contract that confers the right to buy which is a call option, or sell, a put option an instrument. This instrument could be a stock or bond, but the instrument is sold at a predetermined price which is referred to as the strike price, on or before an expiration date.

Options that may be exercised at anytime prior to the expiration are referred to as American options. European options, on the other hand, are exercised precisely on the expiration date. Although the terms refer to regional or geographical implications, the exact association or meaning has been long forgotten through the passage of time. Still, American style options are written for stocks and bonds while European options are generally written on indexes.

When options expire, they do so on the Saturday following the third Friday of the expiration month that is on the contract. Investors will be hard pressed to find a broker who is available on a Saturday, plus, the US exchanges are closed. These factors force that expiration day to be pushed up on day - The Friday before the expiration.

When determining a selling strategy for an option, there are two choices. The holder can keep the option until its maturity date or expiration date, or they can sell before the expiration date. For ease of understanding, this information will pertain to American options only.
Most investors do hold their options until the mature then they trade the underlying asset. Say the buyer purchased a call option at $2 on a stock with a strike price of $25. Options contracts are typically set on 100 share lots. Therefore, in order to purchase the stock, the total investment is:

($2 + $25) x 100 = $2700 (Ignoring commissions.)
This strategy works as long as the market price remains above $27.

If the investor speculates that there is a peak in the price before the expiration date; if the price has risen above $27 but appears to be on the decline with no hope of recovering then it is preferable to sell.

On the other hand, if the market price is below the strike price and the option's expiration date is near or the price is expected to decline further, then it would also be a desirable condition for selling. In this case, it is best to sell before the price falls any lower to curb any further loss. The loss can be minimized, however, by using it to offset capital gains taxes.

Of course, another alternative is to allow the contract to expire. Options are not like futures. The investor is under no obligation to buy an asset or sell it; they only have the right to do so. When taking into account the premium, strike price and current market price, it may yield a more minimal loss for the investor to simply "eat the premium."

It should be noted that options do still carry a certain degree of risk. These uncertainties are the same as are associated with stocks. In reality, stock prices can rise or fall, a little or a lot and show erratic, unpredictable behavior over fluctuating time frames, but, these risks are exacerbated with the fact that, like bonds, options have an expiration date.

The reality is that the price of the option itself may change over the passage of time. The contracts are traded just like stocks or bonds and both the price of the underlying stock amount and the amount of time left until the expiration date are both influential factors in the rate and amount of change.

A way to offset the premium loss or even profit is to sell the option but not the underlying asset.

About the AuthorVisit 123OnlineTrading.com - Options, Stocks, Forex to find books, tips and advice about online options trading. Besides a large selection of free educational articles you can also find powerful books about online trading in general. Other Resources: 123OnlineStockTrading.com - Stock Trading Links

Options Trading Strategies, Basic Concepts

When venturing into the options market, the best way to get the lay of the land is to be acquainted with at least some of the more elementary concepts. These will aid the new investor in successfully executing basic trading strategies.

Two basic terms, the call and the put, are the epicenter of the trading strategies. To buy a call confers the right, not the obligation, to buy at a price that is pre set. Conversely, puts give the buyer the right to sell at a pre set price.

Options are both sold and bought, meaning that the seller grants the buyer the right and takes on an obligation to fulfill the other side of the trade. The variations to this maneuver include: Long Calls The long call is the easiest to understand and is the most basic concept. MSFT (Microsoft) traded at $28 with June 31 options that were to expire on the third Friday of June. The strike price was $31, meaning that it was pre set so if exercised it had to be bought at that price.

Short (Naked) Calls When the writer, the person selling the option, does not own the underlying stock and the option is exercised, then he or she is obligated to sell. Under those circumstances, that action is considered a naked call. Because the person is on the selling side of the contract, his position is considered to be short. The short call status incurs the most profit by the amount of the premium if the market price of the underlying asset decreases. When the price exceeds the strike price by more than the premium, then the short position takes a loss. Long Put When a trader anticipates that the future market price of an asset, such as a stock, will fall before the expiration date is able to sell the stock at a fixed price.

The buyer, put buyer, is not obligated to sell the stock, but he or she does have the right. If the market price does drop below the strike price before the option expires and the decrease is more than the premium paid, then the seller profits. If the price increases or fails to drop enough to cover the premium then the trader will allow the contract to expire worthless. Short Put

When a trader speculates that the future market price will rise, they can sell the right to sell an asset at the predetermined price. If the asset's market price increases, the short put position incurs a profit that is equal to the amount of the premium. This amount excludes any transaction costs and commissions. However, if the price drops below the strike price by more than the premium amount then the writer loses the money.

There are several trading strategies that are basic to the market. These strategies employ the characteristics of four basic trading positions. These strategies have one of several outcomes: pure profit plays, speculating on gaining a profit or creating a combination of speculation and hedging. When positions move in opposite directions, it is called hedging. Hedging bears a profit less that sheer speculation, but they do compensate by offloading a certain degree of the risk.

Bull spreads and bear spreads are common strategies that can help the trader manipulate the market, depending on the market emotion. Bull spreads utilize a long call with a low strike price and combine it with a short call at a higher strike price and a short put with a higher strike price. On the other hand, bear spreads use a short call with a low strike price and a long call with a high strike price.

Alternatively, the short put can be used with a low strike price and a long put can be used with a higher strike price. There is a great deal of software on the market that can aid in these types of trades. Options trading software can offer users concrete demonstrations of the how these strategies work. They show how they behave under different assumptions regarding future prices, volume and other factors, combined with various expiration dates and strike prices to show how these different scenarios can result in a profit or a loss.

About the AuthorVisit 123OnlineTrading.com - Options, Stocks, Forex to find books, tips and advice about online options trading. Besides a large selection of free educational articles you can also find powerful books about online trading in general. Other Resources: 123OnlineStockTrading.com - Stock Trading Links

Stocks

The thing about stocks is that the risk factor is a lot higher and the fluctuation rate is a lot higher too. However, higher risks means higher returns and you should only buy stocks if you have a strong heart and are willing to ride the waves of volatility.

In my opinion, if you're a first time investor and are afraid of risks but still want to try buying at least a stock counter, try buying blue chips first. This is because they are pretty steady and tend to fluctuate slightly lesser. However, blue chips can be rather expensive. They do sometimes pay a decent amount of dividends too. Unlike most unit trusts, the dividend rate is higher and more regular. Plus not all unit trusts pay dividends at all compared with stocks.

Buying stocks means to focus on only one company in a single country. Unit trusts on the other hand, tend to focus on many stocks from either one or several industries in one or several countries. The risk spread is therefore different. There is no hard and fast rule on which option is the best. I would therefore say that it would be good to have a good mix of stocks and unit trusts in your portfolio.

My friend's encounter with a dishonest financial planner

Recently a colleague of mine shared with me that her financial planner had been paying her a fixed sum of money every quarter for her CPF investments in OA and SA accounts. She was quite happy about it until she wanted to upgrade her home. When she got to HDB, she was shocked to find that there was zero amount of money in her account when there should be some balance left after financing her current HDB loans. To her surprise, more CPF money had been recently deducted from her account for more investments which she didn't know about. It turned out that her financial planner had keyed in her PIN without her knowledge to approve of the trades on her behalf. He did this without informing her at all. She was so furious. She scolded him and he apologized several times. She immediately went down to the IFAST office to lodge a complain but they could not do anything at all for this FA was from an agent's office. All her investments were immediately sold off the following week because she wanted to close her account. All-in all, she made some losses in her CPF investments.

The following week after that, I read from somewhere that it is wrong for an FA to promise a cashback from CPF investments because CPF is only meant for the retirement. Oh dear... my colleague's been cheated...

So the next time you pick out a financial planner to do your investments, make sure you do some research first and understand what is going on in the financial world. You'll never know what sort of rouges you might meet out there.

Well, I'm not saying that all FAs are bad. There are good guys out there too. It's just good to always understand what your FA is doing for you and all those financial jargons...

The Unit Trust – The Money Hamper.

A unit trust is like a hamper of financial products. It’s usually known as a mutual fund in some countries. The fund manager goes out to do the shopping. He usually buys some stocks and bonds from a few stock markets and then packages them nicely into nice little hampers. Each unit (hamper) can contain a certain % of each sort of stock and bond. Along with the packaging, it will be given a fanciful name such as “Beverly Hills Asian Equities” or “Tan Ah Kow Europe Emerging Markets”.

There is usually a first time subscription fee of 5% for equity unit trusts and 3% for bond unit trusts. Other charges such as management fees are usually internally deducted from the number of units that you have. It is usually cheaper to buy unit trusts online or through a financial intermediary such as banks or financial planners. The reason is these companies are able to purchase the investments in bulk and resell them to you at a cheaper sales charge.

UT Funds (a.k.a Unit trusts) can be packaged in many different ways. For example: Equities, Bonds, Balanced Funds which are a mixed of equities and bonds, country specific funds, special themed funds such as technology funds, emerging markets or even REITS.

Unit Trusts are generally less risky than owning stocks. It like owning a mini portfolio of stocks and bonds all nicely packaged for you. However, to spread the risk further, it’s good to have a portfolio of many types of unit trusts to cover different areas of investments. If you’re not sure which funds to pick out, you could try using the services of a financial planner. Otherwise, there are online resources and magazines to refer to on suggestions of what sort of investments to purchase.

Anybody like to share what are your favourite sort of funds that you have?