Retrenchment & Financial Matters

I was retrenched from my job around 3 months ago. It was not an easy experience for me as I went from a daily work routine to a sudden lifestyle of having nothing to do at all. It took a toll on me mentally I guess as our work and occupation forms part of our identity and losing our jobs is akin to having our identity being taken away partially.

Thankfully, I found a new job rather quickly in less than 3 months time and I had a few job offers, of which I settled on a job with a pay increase. I do count myself as really fortunate given the poor economic outlook and job market presently.

Given that losing our job means that the our monthly salary will cease and I believe that the main source of income for the majority of us comes from our salary, this will create financial stress during this time of unemployment. Retrenchment is without doubt, a harrowing experience and I have gained a few financial insights with regards to this experience.

1. Have some savings in the event of adverse risks such as retrenchment

6 months of savings is commonly advocated by financial advisers to cover for the risk of retrenchment. I had some sufficient savings which would be enough to last me for a year of expense. This is really important as knowing that I had sufficient savings, I was not hard-pressed to take on a job quickly even if the job does not pay well or does not interest me. Retrenchment is not uncommon these days given that economic cycles are getting shorter and it is important that you have savings to back you up.

2. Lower your housing consumption

A couple of years ago, I made the decision to opt for a 4 room HDB BTO flat in a non-mature estate, knowing that in the event which either my other half or I would like to stop working for a while, we can do so knowing that our monthly housing loan payment can be covered by just one of our individual CPF account. Fast forward to today, this seems like a prudent move given that at the point of my retrenchment, we had enough in our CPF accounts to cover for the monthly housing loan payment even if I were to stop working for a few years. That being said, I would like to stay in a mature estate due to the proximity to town and no lack of established amenities but I guess my pragmatism got the better of me.

3. Own your career development

For the majority of us, our main source of income usually comes from our employment before we are financially free. As such, it is important to grow and to protect this source of income by taking charge of our career development. During this period of unemployment, I engaged the services of a career coach and what he advised really struck me. He told me that retrenchment is not uncommon these days and it is important to develop yourself and have transferable and multi-faceted skill-sets that can transcend industries so that it will be easier to look for a new job if the industry that you are in is not doing well. Before I was retrenched, I was already taking courses and certifications to expand my skill-sets to switch industries and this really helped me in my job search during my period of retrenchment as I was able to secure job offers in various different industries.

4. Have a war-chest ready that is separate from your savings

I believe I have been preaching for a long time on my blog that it is important to set aside a sum of funds to take advantage of any market opportunities during any economic downturn. Unfortunately, it is also during a economic downturn which we face the highest risk of losing our jobs. If we are not prepared in setting a sum of money to cover our expenses if we are retrenched and in the process of looking for jobs and set aside another sum of money to purchase assets such as stocks, it will be difficult for us to grow our net worth and take another step towards financial freedom. I guess this is how the rich gets richer since their income does not come from their employment and they are able to capitalize on market opportunities during economic downturns.

5. Materialism does not make our lives more fulfilling

This retrenchment really drives home the message in my mind that we do not need a lot in life to be contented and fulfilled. During the period of retrenchment, there was a natural instinct for me to cut back on our expenses and I took this time to re-look at my spending. In my opinion, having more material goods such as clothing, shoes, watches etc. will not make us our lives any more happier. These days, I make a conscious effort to reduce waste in my life such as using water which was used to wash rice to water the plants, repair my pants by sewing any tears, switching off lights when not in use and electrical appliances on standby modes, cook more often and try new recipes to make use of leftovers instead of throwing it away, make a conscious effort to see if I can avoid buying new items by re-using or modifying existing items which I have owned.

Overall, getting retrenched was not an easy experience but I have gained some interesting and valuable insights. In addition, this has also strengthened my resolve to be financially free as soon as possible as I may not be so fortunate to find a job so soon if I am retrenched again in the next economic downturn a couple of years down the road. Coincidentally, I received the biggest amount of dividends to date from my stocks portfolio on the month which I was retrenched and this has certainly add to my resolve.


Car insurance premium

I saw a very useful post on the Hardwarezone forums under the Cars & Cars section on what factors will contribute to the premiums for car insurance.

How premiums for car insurance are calculated

Premium is calculated based on the following factors

1) Age Group

This refers to the age of the car owner. Most company has similar age group factors.

18 to 21 – super expensive
21 to 25 – quite expensive
26 to 30 – a bit expensive
31 to 65 – safe zone

2) Driving Experience

This refers to how long have you had your driving license and has nothing to do with your actual driving experience. This is measured in number of years.

0 to 1 – super super expensive
1 to 2 – super expensive
2 to 4 – quite expensive
more than 4 – safe zone (most insurance companies will charge the lowest rate for drivers with 4 or more years of driving experience, though some other insurance companies will give the lowest rate for drivers with 3 or more years of experience – eg. OAC under Great Eastern)

3) Job occupation (Indoor/Outdoor)

This refers to the nature of work such as desk bounded jobs or sales jobs.

Indoor – cheaper
Outdoor – more expensive

4) NCB Discount

This refers to No Claim Bonus discount or some insurance companies may term it as NCD (No claims Discount). You will get 10% NCB for every year which you do not have an accident. The maximum NCB that you can get is 50%.

For example, your car insurance premium cost $2000 (before NCB) and you have 40% NCB, your premium would be $1284 {[2000 – (2000 * 40)] * 1.07} with GST. Hence the higher the NCB, the lower your premiums will be.

5) NCB Protector

This is applicable to people with 50% NCB. In the event of 1st accident in that policy year, your NCB will remain at 50%. After which, the 2nd accident will cause your NCB to be reduced to 20% (50% – 30%) . If you are very unlucky and meet with a 3rd accident in a year, your NCB will be reduced to 0% (20% – 30%, you cant get -10% so it will be 0%)

It is important to note that NCB protector is only effective if you renew your car insurance with the same insurance company. If your car insurance is with company A and your NCB is 50%, after the 1st accident which is due to your fault, you will still get 50% NCD as you got the NCB protector upon the renewal. However, instead of renewing my insurance with company A, you go with company B, you will only be entitled to 20% NCB.

6) Safe Driver Discount

This is an additional 5% discount if you do not have any traffic offense or demerit points for the past 2 years. You only get this additional 5% when you have a minimum of 30% NCB.

For example, your car insurance cost $2000 (before NCB) and you have 30% NCB and safe driver discount, your premium would be $1423 {[2000 – (2000 * 30%)] * 0.95 * 1.07} with GST.

7) Engine Capacity (cc)

This refers to the capacity of your car engine in cc. The lower the cc, the lower the premium.

8) Year of Manufacture

This generally means the year which your car is made/registered. Generally, the older the car, the cheaper the premium

9) Body Type

This refers to the type of vehicles such as saloon, MPV, SUV etc. Some insurance companies will charge a higher premium for a certain type of vehicle.

10) Engine Type

This usually refers to normal or turbo car engine, It’s important to know that most car insurance company will impose a higher car insurance premium on turbo cars. Some insurance companies will even reject cars with turbo engines.

11) Gender

This is dependent on different insurance companies. Some insurance companies will charge a lower premium for male drivers while others will charge a lower premium for female drivers. For some other companies, the rate remains the same.

11) OPC Car

OPC also know as off peak car (red plate). Some companies give a 5% discount for OPC (eg. NTUC) while other companies does not.

There are a few implications about this factors. Firstly, one should always try to secure a driving licence as early as possible since the number of years that you had your licence irregardless of your actual driving experience plays a part in the premiums. Secondly, it is advisable to get a car after 30 since any age below the age of 30 will result in an increased premium. Thirdly, getting a car with a lower engine capacity will not only lower your insurance premiums, but it will also result in a lower road tax, resulting in savings for both areas.

Genneva Gold

There is a pretty interesting post with a few hundred comments on lioninvestor’s site. The post was about a company called Genneva Gold, which exists in Malaysia and Singapore. The links to the company’s website can be found here. In this post, there were a lot of comments that debate on whether this investment is true or not and there were a lot of heated arguments and debates.

In my opinion, Genneva Gold is likely to be a fradulent company. Firstly, the returns does not corresponds with the risk. It seems to be a high return and low risk investment and that is not possible at all. Secondly, the business model of Genneva Gold seems to be unsustainable. Not much is said about how is the profits of the company being generated. Without being profitable, Genneva Gold will not be able to last long.

There were a lot of interesting insights and detailed analysis made by various parties that explains on why Genneva Gold seems to be a scam. The strange thing is that many still choose to believe that Genneva Gold is workable and not a scam. This is where I think that the greed has blinded them and they choose only to look at the good side of things instead stepping back and take a serious look at this investment. Unfortunately, this is also the very same reason why I think that the majority of people are not likely to do well when it comes to the stock market.

Case study of Capitaland Rights Issue

Capitaland conducted a rights exercise not long ago to raise capital so I thought it will be good to use it as a case study using pictures to illustrate the process. I realize that rights issue can be very confusing thus I hope this post will help.

The important dates for a rights issue are given in a schedule and this can be found in the Offer Information Statement or the OIS.

Once a rights issue is declared, the counter will go on ‘cum-rights‘ and there will be a ‘CR‘ beside the name of the counter.

Subsequently, the counter will go on ‘ex-rights‘ and there will be a ‘XR‘ beside the name of the counter. If you wish to receive the rights, you will have to buy the counter before it goes on ‘XR‘.

Next, the rights will be traded on the market after it is issued to the shareholders who bought before ‘XR‘. This can be seen in the ‘Capitaland R’ and ‘Capitaland R 500‘ counters.

After this, the trading of the rights will be stopped. When the payment of rights is done, the rights will be converted to rights shares and that will be the end of a rights issue exercise.

In this case, Capitaland has a rights issue at a ratio of 2:1. This would mean that shareholders who are holding an odd number of lots for example, 1 lot will receive 500 shares if they subscribe to the rights issue. To facilitate the trading of these 500 shares, a counter labelled ‘Capitaland 500′ with a lot size of 500 shares will be listed temporarily on SGX.

They pay money to learn to make money

They pay money to learn to make money

Financial training courses in demand despite volatile markets; experts warn against get-rich-quick mindset

By Joanna Seow

(Taken from the Straits Times on the 23rd March 2009)

THEY claim to teach you how to become a millionaire, retire rich or even make ‘lots of money’ during a recession.

Whatever the claims, eager participants are lining up for financial training courses, not in the least put off by the economic slump or plunging share markets.
These courses are not cheap – fees range from around $2,000 to more than $7,000 for anywhere from two to eight days of coaching – but the lure of trading riches overrides the cost. Companies say the recession has not dampened demand, with 40 people turning up on average – whether retirees, self-employed, students or managers – all looking for an edge.

Courses usually specialise in a particular market, such as stocks, foreign exchange (forex) or options.

‘Each option contract controls 100 shares, so option trading is low risk, yet gets high returns,’ said one organiser.

‘The forex market has tremendous volume and is open 24 hours a day,’ enthused another.

Or, ‘the US stock market has over 14,000 listed companies for you to choose from, and it’s tax-free’.

While the hooks differ, most courses have one thing in common: selling strategies to help people get the most they can out of financial markets – and at a time when every extra dollar counts.

The training goes further than simply teaching from a textbook, and coaches focus on money management, psychological aspects of trading and software usage.

Sceptics, of course, will cite the old adage: ‘Those who can, do; those who can’t, teach’.

Mr Chris Firth, the chief executive of wealth management firm dollarDEX, is one. He is ‘very dubious about these courses’ and feels that if traders are really so brilliant, they will be spending more time trading rather than training other people.

Yet customers still roll up. At the three free course previews attended by The Straits Times, there were people with trading experience and those without. Most were keen to find ways to boost their income or even switch to full-time trading.

Administrator Diana Woo, 34, said: ‘Now that the economy is so bad, I want to see how I can get more money to supplement my income.’ She has done some share trading in the past, and was at a preview for a forex course.

As course organisers are quick to point out, getting some coaching should not be seen as a get-rich-quick scheme.

Mr Ee Chee Koon, the chief trainer and chief operating officer of Asia Charts, said people desperate for instant cash should not turn to trading, as the wrong mindset could be dangerous.

‘A man came to me in desperation in 2007 after losing 50 per cent of his retirement fund in bad trades,’ he said. ‘He had followed poor advice from someone else. I told him to cool down before starting to trade again, because his psychology would be very weak.’

Investing in a share trading course in January proved worthwhile for area information technology manager Jason Kwok, 38, who recouped the $2,900 he spent on the Asia Charts course within a month and recommended the course to four friends.

Full-time trader Eric Lye, 36, also thinks he got enough bang for his buck. He used to earn a five-figure monthly income at a bank, but after attending a T3B Holdings forex trading course last year, he was able to earn the same or more from trading.

Ms Karen Loh, a marketing manager with a multinational corporation, was also highly impressed with the T3B course she attended last September, which set her back by about $2,500.

The 36-year-old said: ‘The training was thorough and comprehensive, and constant support is provided even after the course through teaching gatherings on Saturdays and an online forum.’

She had attended another forex course, which was a disappointment.

‘Many people think they can just go for a course, then start trading on their own without any support, but it’s actually very tough,’ she said.

People should also be wary of trainers who misrepresent their qualifications, like Mr Clemen Chiang of Freely Business School. He claimed to have a doctorate in option trading but was exposed as getting the degree from an unaccredited university. This month, the Small Claims Tribunal awarded participants of his trading seminars partial refunds of course fees.

Most people told The Straits Times that courses should teach how to invest wisely, including in volatile times like now. They also want continuous after-course support, such as daily coaching, weekly discussion sessions or online trading forums and newsletters.

But skill and nerve come into it as well. Mr Clarence Chee, a forex trader and a coach with T3B, said many people who trade are losing money or are too scared of the risks involved.

‘People need to understand that with the right strategies, the risk is manageable,’ he said.

Frankly, I am skeptical of such trading courses. The line of reasoning is very simple. If the trading strategies and systems that they are employing are indeed that profitable, why would they offer to teach others ? Surely, trading will be much more lucrative than conducting courses.

If they wish to help the public in improving their finances through trading, I think charging a few thousand per head for each course is more than enough to cover the cost of the courses over a few times round. It would be far more cheaper to read some technical analysis and trading books and subsequently, paper trade for a while to see trading is workable for you. If not, it won’t be too late anyway to go for such courses.

I am not doubting the abilities of these traders and since I have not use any of their trading systems or strategies before, I’m not in any position to judge actually. Among the people who attended such courses, there will definitely be people who will become successful traders but I believe they are the minority.

Now this reminds me of investing. If you realize, there are trading courses being advertised online. A flip to the money section of the Straits Times and you can probably see that quite a lot of advertisements in that section are promoting trading courses. So far, I hardly come across any investing courses yet. Perhaps investing is not as appealing as trading ? Anyone wonders how did Warren Buffett ends up as the 2nd richest person on this planet currently

What is contra ?

Contra is the buying or selling of stocks without having to pay for the cost of the stocks. Once you buy the stocks on contra, you will have to sell the stocks after a period of time. At the end of that period, you will have to pay for the difference between your initial buying price and selling price.

Currently, the period of time offered by the local brokerages to settle your payment and pay for the difference between the initial buying and selling price is 3 days although the period of time can be extended depending on your relationship with your broker, credit record and the frequencies of trades that you carried on with the brokerage.

For example, you bought 2 lots of SGX at a price of $5.00 on Monday which is also known as T+0. 3 days later which is on Thursday, also known at T+3, you will have to sell those 2 lots of SGX which you bought on Monday. Assuming you sold those 2 lots of SGX at a price of $5.20 on T+3, your profit before brokerage fees would be ($5.20 – $5.00) * 2 lots * 1000 shares =$400 since 1 lot is equal to 1000 shares and you will not have to pay for the cost of buying the 2 lots of SGX which before brokerage fees is $5.00 * 2 lots * 1000 shares = $10,000.

However, if you sold those 2 lots of SGX at a price of $4.80, you will have to pay for the losses since your selling price is lower than your purchase price. Thus your loss before brokerage fees in this case is ($5.00-$4.80) * 2 lots * 1000 shares = -$400.

Contra can be dangerous when there is a sudden unexpected market movement and you do not have enough funds to pay for it. Let us consider the following case with reference to the previous examples. For example, on T+3, the price of SGX suddenly plunge to $3.50 and you have no choice but to sell it at this price. Thus your loss before brokerage fees in this case is ($5.00-$3.50) * 2 lots * 1000 shares = -$3000 and that will be disastrous if you do not have the funds to pay for it.

Capitaland Rights Issue

Capitaland is doing a rights issue and will offering its shareholders one right share for every two shares that they are holding at an issue price of $1.30. It is at a discount of around 40 percent from the closing price last Friday. Someone on the Channelnewsasia forum has summarize the important things that you should take note.

From now until 18 Feb
Shares trade cum-rights (CR). It’s just an indication that a rights issue exercise is ongoing. Whoever is still holding Capitaland shares as of end trading day 18 Feb will be entitled to apply for the rights shares at a ratio of 1 rights share per 2 existing mother shares. For example, if you are holding 2 lots (2000 shares), you will be entitled to apply for 1 lot (1000 shares). If you have 1 lot, then your entitlement is 500 shares.

19 Feb
Shares trade ex-rights (XR). The price will be adjusted to reflect the inclusion of your rights shares. For example, if it closed at $2.36 on 18 Feb, the fair price when trading starts today will be $2.01 (rounded).

23 Feb
If you were holding any mother shares before 19 Feb, the ownership will be registered in CDP by this date. Based on this record, you will receive your nil-paid rights (also called renounceable rights). These will be deposited into your CDP account before 26 Feb. Nil-paid rights give the owner the choice to accept the rights shares at the issue price of $1.30. You do not have to pay for your nil-paid rights, and they are yours to trade (sell) starting from 26 Feb.

26 Feb to 6 Mar
Trading of nil-paid rights begin. Because it’s a 1 for 2 exercise, the smallest lot size will be 500 shares. So on top of a Capitaland_R, a Capitaland_R500 counter will be set up for trading. For shareholders who do not wish to pay more money to convert his/her rights shares to mother shares, this time window allows you to sell away your nil-paid rights. For shareholders who wish to round up odd lots, they may also choose to do so through nil-paid rights purchases here. For investors who were not holding any mother shares previously but now wish to participate in the rights issue exercise, they can buy these nil-paid rights. Theoretically, nil-paid rights will cost the amount of (mother share price – rights issue price). For example, if the mother share now trades at $2, the nil-paid rights should be trading at $2 – $1.3 = $0.70.

12 Mar
Those holding nil-paid rights have to pay up by this date ($1.30 per share) to apply for the rights. If you do not wish to subscribe, make sure you sell away your nil-paid rights between 26 Feb and 6 Mar. If you still have them as of this date, for whatever reason, pay up and apply for the rights issue. Don’t be an *censored* and hold on to your nil-paid rights and not apply for the rights! You may pay up either via post (using bank drafts or money order, no cheques accepted) or ATM (CDP account should be linked, but note down your CDP account number for keying in manually just in case)

This is also the date by which excess rights applications must be submitted. If you are holding odd lots, my advice is to apply for the excess rights. Priority in excess rights allocation is always given to holders with odd lots.

23 Mar
You may begin trading your rights shares today. You will see them in your CDP account as normal Capitaland shares (code C31). To know the allocation results in advance, check your CDP account on 22 Mar, they should already be in by then.

Philips Share Builders Plan

SBP which stands for Share Builders Plan, is a Dollar Cost Averaging or DCA in short, plan offered by Philips Securities. The whole idea behind the SBP is that you will contribute a fixed amount of funds every month and they will use that amount of funds that you have contributed to purchase shares on your behalf. Any remaining funds not used in the purchase of the shares will be carried over to the next month. Currently, there are 19 counters which are available for purchase under this SBP and the STI ETF is included in it too along with the other blue chips.

The brochure is rather easy to understand thus I would like to point out some other issues which you should take note if you are interested in the SBP.

1. Odd lot shares

Stocks in SGX are usually traded in board lot size. The board lot size is 1000 shares i.e. 1 lot = 1000 shares except for a few exceptions. For these exceptions, there will usually be a number in the name of the counter. For example, the size of 1 lot of SBS Transit 500 is 500 shares and the size of 1 lot of SIA 200 is 200 shares. There are two markets in SGX and they are the common market and the unit share market. If you wish to buy whole number of lots i.e. 1 lot, 2 lots, 3 lots, 4 lots etc, you can buy it on the common market and that is the market which most people will go to purchase stocks. However, if you wish to buy anything other than whole number of lots such as 200 shares of 800 shares which are also known as odd lots, you will have to buy it on the unit share market. Do take note that the unit share market is a totally different market from the common market. One potential problem that can arise is the lack of liquidity. A lack of liquidity will make it harder for you to buy and sell shares since there can be a lack of buyers and sellers for the shares. Furthermore, the difference in the buy price and the sell price can be rather significant and that can result in the purchase and sale of shares at an unfavourable price.

2. Custody of shares

Take note that the shares bought under the SBP is under the custody of Philips Securities and not CDP. If you check your CDP account, the shares which you have bought will not be reflected in there. When you wish to sell your shares, you will have to inform your trading representative before you can sell your shares. Do take note that if you inform your trading representative to sell your shares, you will be subjected to a minimum brokerage charges of $40 currently. If you wish to transfer your shares to CDP, you will have to pay $10.70 to CDP and $10.70 to Philips Securities for each counter that you wish to transfer.

3. Charges

The handling fee can be quite expensive if the amount of funds that you wish to use each month to buy shares is rather small. For example, $500 is set aside every month to purchase 2 counters. The handling fee for the purchase of 2 counters is $6.42 thus the handling fee in terms of percentage will be $6.42 / $500 * 100% = 1.28% and this is rather high. The percentage will be even higher if the amount of funds being set aside every month to buy shares is smaller than $500.

There are also other charges under the SBP. Even though the charges are quite small, they are still rather significant if added together. There are some charges you can avoid such as the Hard Copy Statement charge by opting for an Electronic Statement instead and Insuffcient Funds charge by ensuring sufficient funds in the designated bank account. Some charges are unavoidable such as the Dividend charge and Cash Offer, Rights Issue & Other Corporate Action charge.

4. Buying price of the shares

It is stated in the information sheet that the shares will be purchased on the 18th of every month on a non-discriminatory and non-preferential basis. If the 18th of every month falls on a trading day, the shares will be purchased on the next available trading day. In my opinion, there is a loophole with this. How can one determine whether the shares are purchased on a non-discriminatory and non-preferential basis ? There is always a possibility that they can purchase the shares at a lower price than what is being reflected to you and thus they can profit from the difference between the prices.

Despite of all the issues that I have mentioned regarding the SBP, it is still a rather useful plan. SBP enables the investor to develop some form of discipline by investing in a fixed amount of money every month. Furthermore, it also helps an investor by eliminating the problem of timing the market. Some of the blue chips such as DBS and Keppel Corp are very expensive to purchase since buying just one lot of these counters can cost a lot thus the SBP is a rather feasible plan that enables investors to own these counters by accumulating the odd lot shares over a period of of time.

I hope this post can prove to be useful for those who are interested in the SBP. Do think about it seriously as with any investments if you wish to take part in the SBP. If I have miss out on anything, feel free to leave comments and I will try my best to get back to you.