Recently we received this case study using premium financing to pay for a retirement plan. At age 40, with an initial outlay of $60,000, is able to receive a projected monthly income of $550 (for life). How this works:
Can this really works? We are a bit skeptical as it heavily depends on these 2 main conditions and variables: 1) Non-Guaranteed portion Guaranteed amount is $275 and the loan amount is $311. So the non-guaranteed portion needs to generate minimally $36 to offset the loan totally. Only if the insurer able to generate 4.75% return on their participating funds, then one can get the $239 extra. 2) Interest Rate RHB interest is based on 1.8%. Currently we are at all time low interest rate environment. When interest rates go up, the loan amount will go up as well. To us, though the retirement plan is good but the premium financing part is risky.
Rebalancing of portfolio is one of the fundamentals that an Investor has to carry out with discipline, in order to be successful in investing.
Let's suppose that you have a $100,000 portfolio, made up of 2 funds at 50% allocation each. The 2 funds are of different asset classes and draws varying performances. So let us imagine this over a period of one year: the first fund, called Fund A, fetches a decent gain of 10%; And the second fund, called Fund B, only manages a return of 1%.
As a result of the above stated performances over a year, Fund A is now worth $55,000 and Fund B is now worth $50,500. The total portfolio gain is $105,500. While I can imagine most Investors would just sit on this portfolio and count on the profit, let us review the allocation weighting after a year: Now, Fund A has a weighting of 52.13%, and fund B has a weighting of 47.87%, of your portfolio (PS: Still remember what was the allocation in the beginning?). Maybe this may not look too much of a different with how you had started with, at least not for the first year. But can you imagine if your portfolio continues to be managed unprofessionally (ie. poor discipline/awareness in rebalancing) over time, your risk and reward will become somewhat different with what you have intended.
Allow me to illustrate 3 reasons on why you have to rebalance your portfolio at least once, if not, twice a year. Reason 1: The first reason is what I have probably stated above. That is, as your portfolio moves, your risk and reward moves. The effect spurning off from the absence of rebalancing a portfolio for a short period of time (e.g. 1 year or less) may somewhat appear insignificant, but the failure to do so for a longer period of time would concomitantly result into a very different portfolio with how you had wanted it to be. By rebalancing the portfolio, you are making adjustment to realign with your original intention in investing into that particular portfolio.
Reason 2: By rebalancing your portfolio, you are essentially taking profit on the funds that have made you money and putting more money on the underperforming fund (if you still believe in the thesis of investment in the first place). Such an exercise, also allows you to review all the funds that you have in your portfolio. This is especially essentially as most people harbour a "out of sight, out of mind" mentality when it comes to investing.
Reason 3 If you and/or your advisor is/are diligent enough in rebalancing the portfolio at least once a year, your return on investment would be much smoother than otherwise. It's because each asset class carries different risk profile and return expectation. By doing the above, you are also applying Dollar-Cost-Averaging strategy on the fund that is under-performing.
I hope that you have or would have taken to heart on the above matter (in due time). If you are still not totally convinced or clear with how such an act (rebalancing) could have an effect on your portfolio, please do not hesitate to contact us.
Do you know that other than your Medisave, Medishield Life, Medifund and Eldershield, there are also other schemes that are available for disabled Singaporeans. Just to name a few: IDAPE - Interim Disability Assistance Program for the Elderly Monthly cash payout ($150/m or $250/m) for those who were unable to join Eldershield when it was first introduced in 2002 as they have exceeded the maximum entry age or had pre-existing disabilities Click here for more...
PioneerDAS - Pioneer Generation Disability Scheme Those with severe disability, payout of $100/m. It's automatically given for pioneers who are receiving ElderShield or IDAPE payouts or already benefiting from FDWG Click here for more...
SMF - Senior's Mobility Enabling Fund Financial assistance for Assistive Device (e.g. wheelchair), Transport and consumable subsidies Click here for more...
FDWG - Foreign Domestic Worker Grant Provides a monthly cash grant of $120 for families who hired a domestic worker to care for a person with moderate to severe disability Click here for more...
If both the husband and wife met with an accident, without a Will, how would their estate be distributed? A : Husband's parents
B : Wife's parents The answer is A will get $1mil and B will get $2mil
Since both died together, the older (by age and not by gender) is deemed to die first. As the Wife is younger, and by Intestate Succession Act, Husband is considered to die first. When Husband dies, since there's no children, half will go to the parents and half to the wife. With $2mil assets, $1mil will go to his own parents and $1mil will go to his wife. Next is Wife dies, since there's no children, and since husband is no longer around, all her assets of $2mil ($1mil from the husband whom die together and another $1mil from her own) will go to her parents. More details here can be found in the previous article "Does everybody have a Will?"
