A MLM scheme Hi Mr Tan,I came across a few website that claims that a person can earn thousands of dollars in a few month by just working from home. Somehow I managed to find a website that is Singapore based that claimed to do that. The website shows a lot of success stories, comments by Singaporeans and also proof of payment etc. Out of curiosity, I went to try out the offer. The website offer a few packages ranging from Free account to SGD$250 a year. I signed up for the SGD$100 2 years package as it seems to be the popular package for starters.Basically how this thing works is that when you sign up under a specific person, the person will earn commission. The higher the package the referral signed up with, the higher commission they will earn. After which, the person start sending email on tips to get more people sign up i.e. through advertising, words of mouth etc. I tried online advertising and somehow manage to get quite a number of users sign up under me. Most of them sign up the free package (which I suppose will take a lot of years to earn and also I won't earn any commission for that) and also somehow I got 3 person who sign up paid package under me. During that period of time, users under this program need to reach SGD$100 in order to cash out. Once, I reach SGD$100+, I requested for cash out as I'm afraid that this might not last long. It took quite long for the cash out to process but they did pay me. Although my package still left with 1 more + year. I have stop participate in this program though my account still active. The reason is because I just wanted to know more about how this things work and also I have already got back my money (though I earn a few dollars). Most importantly, I'm afraid that this program might cause some people like students who are not working and fork out their savings. They might lose their money if they cannot find people to sign up under them or they may even pester their friend to sign up under them resulting in lose friendship (see the link below on Push MLM and lose a friend). Moreover, I don't think this kind of program will last long and the person who earn the most is the creator of this program.I am just wondering what kind of scheme is this called and is this legal? I do have friends who are in MLM who sell health products that also requires to fork out money for products and additional money for training. When they approach me to attend a talk, I will try to avoid. Friendship starts to become drift apart because of this. I frequent read newspaper also found out there are advertisement on "Earn millions dollar a month/year" by attending their seminar to learn more. I never attend such seminar before so I wonder is this similar to one of the above-mentioned story?It would be glad if you could share your views on the above-mentioned story, Ponzi Scheme, MLM, newspaper ads and related stuff.Best RegardsRayLinksThe package that I signed up under (she is the one I keep contact with and I believe she has a lot of people sign up under her)http://www.richestsg.com/ which links to http://www.whenyouhost.com/member/register.aspxPush MLM and lose a friend                                   http://www.asiaone.com/News/AsiaOne%2BNews/Asian%2BOpinions/Story/A1Story20100308-203169.html  Parker Korean Restaurant, 209 Upper Thomson Road My friends started this restaurant. Please give them your support. Land banking - more investors caught An investor called me. She invested a large sum of money in a land banking project with the promise of 12.5% interest on maturity at the end of 6 months. On maturity, the company did not honor the promise to pay back the investment. They asked her to extend the investment by another 6 months.She visited a section in Hardware zone and was horrified to learn that many other investors was caught in a similar situation. She refused to extend the investment but the company has not paid back her money, in spite of her repeated requests.The investor said that she was deceived because the land banking company had a Singapore Quality class awarded by Spring Singapore. She thought that this classification indicate that the company can be trusted to honor its promise.The land banking company is conducting more road shows and investment talks, and more investors would be caught in this type of investment.Many investors had already complained to the Commercial Affairs Departments of similar investments during the past year. Apparently, the CAD had not acted on these complaints. During this time, more people are being caught in similar dubious investments. It seems that a few million dollars of investments are being collected each month.I am really at a loss on how to help these investors who were deceived by these investments. I hope that the newspapers will write a story about it. It should be a crime for the company to take deposits with the promise to return the money with interest, when they do not have a banking licence. How can the Authority stand by and allow such operations to continue?Tan Kin Lian Issues relating to productivity To be productive means to be able to produce more units of output in a given time, i.e. to reduce the cost of producing each unit. One can produce more by working faster, but this is likely to result in mistakes and poorer quality. It usually means to find a better way to produce the goods, while maintaining the quality of the product.The best way to reduce cost is to eliminate waste, which adds to the total cost of productivity. There are many activities that are wasteful and costly and do not add to the value of the products, such as impractical compliance with safety, health and security. While these functions are important, they have to be examined carefully in terms of cost and usefulness, and are not to be complied blindly. Many activities in Singapore have this hidden burden of compliance, which adds to the cost of production.If the goods are to be produced using a new method, we must be prepared to make a change. Many people are not willing to take the responsibility to make a change in Singapore. They prefer the safety of sticking to the old ways. This tendency to play safe is a negative trait of Singapore and is likely to impede our progress towards productivity.I am not advocating that we go to the other extreme to abandon safety, health, security or to take short cuts in our production. I am asking that we must have an open mind to examine these issues. If we continue to be risk adverse, and to play safe, we will not be able to achieve th quantum leap in productivity.Tan Kin Lian Investing in companies Jack Bogle was the founder of the Vanguard Investment Group -  one of the two largest fund managers in America. Vanguard also pioneered the concept of the indexed funds - funds which are invested to mirror the stock market index, such as the S&P index and carry very low expense ratios.He explained the difference between investing in stocks and investing in companies. The stock investor takes a short term view and trades on the price of the stocks. The investor in companies takes a long term view and looks at the profits earned and dividends distributed by the companies, and is not bothered with the daily price movement of the stocks.It is difficult for an investor to pick the right companies to invest in. Jack Bogle advise them to invest in the indexed fund, which is invested in a large number of companies that represent the economy. For example, the S&P Index contains the top 500 companies in America that has operations around the world.The Vanguard S&P funds have an expense ratio of about 0.3%. This is very low compared to an expense ratio of 2%t o 3% charged by many actively managed funds, including the unit trusts available in Singapore.It may be difficult to find a fund that charges as low as Vanguard. But it is acceptable to invest in a fund with an expense ratio of 0.5% (such as the STI ETF). Here is the accumulated amount from investing $500 a month over 30 years:Net yield of 5.5% (i.e. 6% - 0.5%), total of $459,517Net yield of 3.5% (i.e 6% - 2.5%), total of $320,577You give away 29% of your accumulated savings of $459,517 to get a reduced amount of $320,577 when you invest in a fund that has an expense ratio of 2% higher.When you invest in companies, you should not bother about any the temporary y fluctuation in the share prices. Although the dividend may be cut during an economic recession, it will be restored when the economy recovers. You only need to make sure that your investments are well diversified, i.e. the fund is invested in many companies, so that any failure of a single company will have a small impact on the fund.Tan Kin Lian A tale of two neighboring countries My friend lived in Canada and the United States. Although these two countries are similar in many aspects, they are quite different in their economic philosophy.The Canadians pay higher taxes but are able to enjoy many social services provided free or highly subsidized by the state, such as health care, education and security. The Americans pay lower taxes but have to pay more for their private health care and also to take care of their security. The lower taxes in America results in under funding of their social security and unemployment benefits, resulting in large deficits.Americans dislike the word "socialist". In Canada, socialism is considered to be desirable. He finds the Canadian system to be better for the people.Tan Kin Lian Interest charge on installment payment I saw the following advertisements in the newspaper:Acer netbook, cash price $599, weekly installment of $5.47 over 48 monthsToshiba notebook, cash price $939, weekly installment of $8.58 over 48 monthsIn both cases, the installment payment plan charges an interest rate of 0.7% per week, or 36% per annum. By paying cash, the consumer will save on interest rate of 36%.  The total amount payable over 4 years represent an additional 90% of the cash price.If the consumer pays in cash, he would be able to get two netbooks or notebooks for the same amount payable.Note: you can calculate the interest rate in this type of transaction by using the Excel function called Rate.Tan Kin Lian Singapore Savings Account Rates Dear Mr. Tan,I read your post,asking for readers to post bank interest rate.Below is a website updated now and then about interest rate at different bank:http://singapore-savings-account-rates.blogspot.com/Yours sincerely,Wei En Survey: e-filing of income tax Give your views in this survey. Financial crisis in Ireland and USA This article shows the key causes of the financial crisis in Ireland and USA. Read it, I get the feeling that the same factors apply to Singapore. Decreasing Term Assurance It is difficult to buy Decreasing Term Assurance in Singapore, as many life insurance companies are not keen to offer this product. I hope that this situation will change and some companies may sieze this market opportunity.Let me explain the concept of Decreasing Term Assurance. Suppose you earn $4,000 a month and you need to set aside $2,000 for the upkeep of the family. You should choose a Term of 25 years, so that your youngest child will be independent at the end of that period. You will need a sum assured of $2,000 X 12 X 25 = $600,000. As each year passes, you need a lower cover, as the period of dependency reduces by one year. Your sum assured can reduce by $24,000 a year.I assume that you have bought insurance to cover the mortgage of your home, so the home will be fully paid in the event of premature death. The $2,000 a month is adequate to cover the needs of the family.If you buy insurance for $600,000 at age 30 for 25 years, and you wish to sum assured to remain level, you have to pay an annual premium (estimated) of $1,000. If you buy a Decreasing Term, the annual premium will reduce to $400 (or therabouts). By passing less on the premium, you can have more savings in a low cost fund for your future retirement.Tan Kin Lian Puzzles for school holidays Try to occupy your children with these puzzles during the school holidays. It is fun and challenges their creativity. The puzzles are FREE. Click here. Benefit Illustration of new plans Dear all,Below are the benefit illustration and policy summary for the 4 newer products since 2008 for ntuc income. They are all based on 30 yr-old male customer. Do note that all figures are projected and "hope for the best", unless stated unequivocally as Guaranteed.1.  Vivolife $100K sum assured & pay for 20yrs2.  Revosave $50K sum assured & pay for 25yrs3.  Sail $50K single premium & tenor of 30yrs4.  Vivolink regular ILP $500/mth Consultant Disability income insurance A reader sent to me a brochure about a disability income insurance called PaySecure. It shows an example for a person aged 30 insuring for $3,000 a month payable on disability (excluding the first 90 day) until age 55. The monthly premium is about 1% of the insured sum, i.e. about $30. The premium rate is not guaranteed and may be adjusted based on future experience.The features of this plan looks quite satisfactory, but it is better for the consumer to get a benefit illustration of this plan specific to your age and personal circumstances. You can send the benefit illustration to me.The consumer should also ask the insurance company to provide the loss ratio (i.e. the ratio of claims paid to the premiums received). If the loss ratio is 60% to 70%, the insurance is fairly priced. This method is explained in my book, Practical Guide on Financial Planning. If the insurance company refuses to provide this information, you should not buy the product as you may be unfairly charged. Interest rate on bank deposits Can you share information on the interest rate that you earn on savings account, save-as-you-earn account and fixed deposit of the banks. Show the following:1. type of account2. duration (for fixed deposit)3. bank4. amount invested5. interest rate6. any special condition, e.g. special terms for preferred customer Yield on life insurance policies A consumer sent me the benefit illustration for three plans. I have calculated the yield to be as follows: Plan Term Yieldp.a. Reduction in yield Growth - single premuim 5 yrs 2.94% Growth Link (AIM) - single premium 30 yrs 3.52% 1.73% Revosave - monthly premium 15 yrs 2.82% 2.43% The return on the growth plan is fairly  satisfactory.  The return for the other two plans are not attractive, considering the duration of investment. The are based on a projected yield of 5.25%. If the actual yield is lower, the yield on the policy will be lower than illustrated.If you are investing for 10 years or longer, you should aim to get at least 4% per annum. Tan Kin Lian Promotion at i-Shop The Shape Quiz mini-pak (worth $2) will be given for each $10 of purchase from i-Shop. Applies to all items in i-Shop, including books and rechargeable torchlights.Click here to view the available books and place your order. Shuttle service to Liang Court I drove to Novotel Hotel in Liang Court to attend a conference. I paid a total of $9.50 in ERP charges at 2 gantry points along the CTE and 1 gantry point to enter CBD.I was quite surprised that the parking fee for 3 hours at Liang Court was quite modest at $1 per hour. I also learned that Liang Court provides a shuttle service to Clarke Quay station. If I knew about the shuttle service, I would have avoided driving. Improve productivity in Singapore` Here are my views on how to improve productivity in Singapore.Share your views on how to improve productivity in Singapore. Benefit Illustration - distribution cost and effect of deduction A consumer ask my advice on a new product that is being sold to her. It is a life insurance policy with the benefit paid in installments over a period of years (similar to a life annuity). She sent a 15 page benefit illustration on this product to me. She was confused with the explanation by the financial consultant.I find it difficult to understand the product based on the benefit illustration. There are a lot of information, including items that are not related to the product itself. The additional information gives opportunity to the financial consultant to mislead the consumer when she explains the product.The distribution cost was $14,000 and there is a statement "please note that the distribution cost is not an additional cost to you, it has already been allowed for in calculating the premium". I find this statement to be misleading - it is a cost paid by the consumer and is a lot of money for financial advice that is confusing and detrimental for the consumer. I found the "effect of deduction" after 30 years to be horrendous. Based on projected investment yield of 5.25%, the accumulated premium amounts to $840,000, effect of deduction is shown as $611,000 (73%) and the amount payable to the consumer is $231,000 (23%).What kind of financial product takes away 73% of the accumulated savings from you and leave you with only 27%? I do not know if these figures have been calculated correctly, but they appear in the benefit illustration.I have advised that the "effect of deduction" should not exceed 20% for most types of long term products. I complained when the ratio is 40%. Now I have seen a ratio of 73% for this product. It is tantamount to daylight robbery and cheating of unwary consumers.Perhaps the Monetary Authority of Singapore should contact me so I can ask the consumer to send the  benefit illustration for their study. This type of product should not be allowed to be sold to consumers, as they are clearly unfair. Perhaps the benefit illustration should be changed, so that it contains information that is clearly understood by the consumer, without giving opportunity for the financial consultant to mislead the consumer through verbal explanation.Tan Kin Lian Productivity Read the views by Dr. Wong Wee Nam. Possible double dip recession in USA Watch this video giving the views of Robert Schiller. Personal budget I need some real life examples from Singaporeans who are able to save at least 15% of their earnings, in addition to contributing to CPF: Please send your details to kinlian@gmail.comSingle1. Your monthly income2. Contribution to parents3. Essential personal expenses - e.g. travel, food, clothes4. Repayment of loans - type and amount5. Monthly savings6. Balance available for holidays and other discretionary itemsFamily1. Your monthly income incluidng spouse 2. Number of children3. Essential personal expenses - e.g. travel, food, clothes, mobilephone4. Repayment of loans - type and amount, e.g. house, car5. Household expenses6. Car or transport expenses7. Expenses of children8. Monthly savings9. Balance available for holidays and other discretionary items Cost of owning a car I need your assistance to give some real life examples of the cost of owning a car. Please send your case study to me at kinlian@gmail.com.1. Cost of buying your car - new/ used?2. Initial payment3. Loan taken, repayment period, interest, monthly payment4. Cost of petrol per month5. Cost of insurance (yearly)6. Cost of parking, ERP per month (on average)7. Cost of repairs Advertising and impact on policy bonus When a business spends a lot of money to advertise its products or improve its corporate image, the money comes from the shareholders. They hope to attract more customers and earn the profit to cover the advertising cost.The situation is different when it comes to large advertising by life insurance companies. The marketing expenses comes from the existing policyholders. The large amount that is spent will have a big impact on the bonuses that the policyholders can expect to receive on their savings. The more that is spent, the lower is the bonus.In recent years, many life insurance companies have reduced their bonus rates significantly, but they continue to spend a lot of money on their advertisements. If the insurance company is truly looking after the interest of its policyholders, they should be increasing the bonus rates, rather than spending money on advertisements and marketing that do not benefit the existing policyholders.If you find that you insurance company has big advertisements, you should ask this question. Are they spending my money? Is this affecting my policy bonus? Can I continue to trust this insurance company to look after my interest?I have decided to terminate most of my life insurance policies, as I do not like the large sums that are being spent on advertising, marketing and image building (at the expense of existing policyholders) and the lower rates of bonuses that are now being given to the policyholders.Tan Kin Lian Difficulty in submitting Income Tax statements I just submitted my income tax statement to IRAS through e-filing. Like in previous years, I had a difficult time. The technology used is good for IRAS  but is troublesome for the tax payer. Here are my difficulties:a) I received consultancy income from two sources and I do not know if the client is auto-filing my income. To find out, I had to search through a long PDF document. Rather than search this document, I prefer to enter the amount myself. But the form does not allow me to state the name of the client. If they enter the amount separately through auto-filing, I would have to pay tax twice on the same source.b) There are a few places where I missed a entire section because IRAS hide the details under a button, e.g. rental income and relief. I was reminded by the IRAS prompt, but why hide them in the first place?c) After entering the details of my tax returns, I click on one button my mistake (as it was not clear) and found, to my horror, that all my entries were deleted. I had to painfully enter all the fields again.d) I managed to get to the submission form on my second attempt. I found, to my surprise, that the claim for life insurance premium was not shown. I was quite sure that I had entered the figures. I search the form twice and managed to find a button called "Amend".  After several clicks and doing my best to avoid any mistake, I managed to get to the life insurance form. I found that my earlier entry was recorded - but why did IRAS mislead me with a blank amount in the final submission form?IRAS should realise the stress and trouble their technology is giving to the tax payer. As we submit the form only once a year, we should not be expected to learn the technical features of e-filing.  IRAS seems to forget that the taxpayer has other responsibilities, such as keeping records of all items of income and payments, and it is unfair for IRAS to add the hassle of e-filing on the tax payer.Tan Kin Lian Mortgage Protector from Aviva Dear Mr TanI would appreciate if you can review the above insurance plan for me. (Attached are two benefit illustrations for the Morgage Protector plans from Aviva).REPLYI compared the monthly premium with the benchmark premium (for decreasing term insurance) shown in my book, Practical Guide on Practical Insurance. I find the premium rate charged for Aviva for the Mortgage Protector policy to be reasonable. However, if I were in your shoes, I would probably buy the Mortgage Protector only, without the Critical Illness Accelerator, as the additional premium of 80% does not seem to be worth paying. You can buy my book here. Appreciation to Minister Mah Bow Tan William Tay'National Development Minister Mah Bow Tan's remarkable story about his childhood years is a lesson for the younger generation. Despite his humble beginnings, he was able to uplift himself to become a government minister. This is testimony to our system of meritocracy which has enabled talented young people from humble backgrounds to rise up and serve the nation.'http://www.straitstimes.com/STForum/Story/STIStory_499218.htmlLow Lee SiangI AM a 58-year-old Singaporean who shed tears on reading last Saturday's article, 'Mah's own upgrading story', in which National Development Minister Mah Bow Tan recounted his difficult childhood years growing up in various housing types. Today, I live in an HDB maisonette. Thank you, Singapore. http://www.straitstimes.com/STForum/Story/STIStory_499216.html Replacing a whole life policy When an insurance agent approaches you to tell you that a new policy is better and advise you to give up an existing policy to convert into the new policy, the insurance agent is 99% likely to be cheating you. Do not believe the agent.Ask the agent to give you a benefit illustration and send it to me at kinlian@gmail.com. I will point out on where the agent has been misleading you, and how much you would lose in your savings by taking this type of advice. It can cost you a few thousand dollars.One common practice is to replace a whole life policy by a policy with premium paid for 20 years or shorter. The customer does not know that he has to incur a hefty upfront cost  a second time. The premium for the shorter period is much higher than a whole life policy. Further more, the existing whole life policy has an option to covert into a paid up policy at any time, i.e. the policyholder retain the flexibility to stop the policy at any time (but the agent does not explain this option to you).If you are buying a new policy, you can decide on whether to buy pay a lower premium for a lifetime, or a higher premium for a shorter period. (Frankly, both options are not good for consumers, due to the high upfront cost). But, you should NEVER stop an existing whole policy policy to move into a new policy, as you will be incurring a large cost for the second time.Tan Kin Lian Regulating business practice of banks The US Congress debated the charges and practices of banks relating to credit cards and mortgages. The lofty chamber decided that the banks were acting in a predatory manner (i.e. cheating on the consumers) and decided to pass regulations to forbid some of these practices and to ensure fair treatment of consumers. In the land of free market, the legislators decided that they have to go into the nitty gritty of bank practices, instead of letting the free market sort out these problems.Lesson - free markets ideas can go too far and result in unfair, predatory practices.