Singapore Savings Bonds, Retail Investor Apathy, and Insurance
With the announcement from MAS regarding the launch of the Singapore Savings Bonds and the launch of Direct Purchase Insurance early last week, I’d like to give my personal opinions regarding these two pieces of news. Additionally, I would like to cover on the recent move by Keppel Corp to take Keppel Land private.
Singapore Savings Bonds
As mentioned by other bloggers, it really is a free lunch for the layman – or more appropriately, it seems to be targeted for those who are risk-adverse, less financially-literate and are fretting about the low interest rates banks are offering for their fixed deposits. My take on this is that it shouldn’t act as a fixed deposit, nor should it replace the fixed deposit – there are uses for a fixed deposit, as compared to a government-backed bond. I for one, appreciate the uses of a fixed deposit, simply because I tend to be more risk-taking in investment, as compared to most people here in Singapore. Sometimes, a “locked chest” can save you from crying over spilt milk on a bad investment, from my 10-year observation of the local stock market.
Investors who know the basic financial instruments used in investments know that in general, money tends to flow towards less-risky instruments such as bonds in a bear market, and in a bull market, the stock market takes in the money. Therefore, shrewd investors who wish to have a more stable and less volatile portfolio often take up bonds to counter the volatility of the stock market. The question is then, which bond issuer, or type of bonds should he/she buy from?
Thankfully, with the Singapore Savings Bonds, the risk of bond defaults is near-zero (attributed to the AAA rating for the Singapore government’s default probability), has no fees and/or commissions, and also has a rather affordable “minimum unit size” of half a grand. The coupon also increases over time the longer you leave it vested, which makes it very tempting for a person like me to consider swapping out my “locked chest” for a “locked suitcase of money”.
However, given all these advantages, there surely is a catch – there is a cap on how much one person can be vested in the bonds (to be decided at a later date by MAS), and also liquidating your position would take a month as stipulated by MAS. On the whole however, the benefits outweigh the costs substantially.
With this “risk-free” bond offering straight from the government themselves, I hope that the local banks will get their acts together to offer better interest rates for their fixed deposits. Perhaps this was planned a long time ago, given that property cooling measures are in place and the rise in SIBOR rates in anticipation of the US Federal Reserve bringing up their interest rates.
Direct Purchase Insurance
This is also another good thing for everyone, but this seems to be catered more for those who have some financial literacy, as they are sold without commissions (and no insurance agent advice), and thus, enjoy lower premiums. Lowering prices on insurance premiums is a good thing, but as with each tool that’s available to the common man on the street, the most important thing is to choose which tool is the best for your needs.
This also leads to my own personal opinion that most insurance agents who start out selling products to their clients are often only trained in the art of selling their product, without understanding the underlying fundamentals or features that make up the product, and especially so for ILP plans. A truly good agent would be one who recommends well-balanced and properly diversified funds for their ILPs with the lowest management and sales charges for each fund, and as well as taking into account their client’s risk profile and wants.
With the Direct Purchase Insurance scheme, and the launch of the compareFIRST website for comparing life insurance products, I would think that agents who are solely focused on sales would be slowly weeded out of the system, leaving only the passionate and hardworking few who choose to remain in the line, thereby bringing up the service quality of insurance advisers across the board over time.
Keppel Corp – A Victim of Retail Investor Apathy?
Keppel Corp’s failure to take Keppel Land private entirely is an interesting observation – assuming that the institutional and HNW investors have already thrown their hat into the ring, the most logical conclusion is that the remaining shareholders of Keppel Land who either chose to hold, or ignore (more likely the latter) are the retail investors, the everyday man/woman on the street who have ploughed their hard-earned savings into a company that they trust will use them to generate a higher return for them. More than likely, they wouldn’t understand what’s happening recently, and those strange, green/orange/red coloured letters and full-page advertisments in the local newspapers are often ignored. What would be more effective (and sincere) would be a nice door-to-door visit and a chat with the shareholder, like what they do with their larger investors. A longer time period for acceptance for the shares would be nice as well.
In my opinion, ultimately, this exercise in delisting Keppel Land may eventually end up costing more than what Keppel Corp had expected, though it would be just a small dent in their balance sheets.