Estate Planning - Part 1

Hi Fellow Automated Millionaires,

This is the preliminary results of my research on Estate Planning:

1. According to IRAS, our life insurance is NOT exempted from estate duty tax,unless if the beneficary is either your children or wife. Hence, if beneficary is you and the total other assets (excluding CPF and dwelling house) is more than S$600,000, it is due for estate duty tax. (click here for more info)
2. According to IRAS, voluntary CPF contribution is also due for estate duty tax.
3. In addition, money situated at CPFIS will be also due for estate duty tax unless it has been transfer back to your CPF account before hand :)
4. IRAS informed me that unlike America where Living Trust is transparent to IRAS, in Singapore, any income from the Trust is deemed for tax at 20%! OMG!

All are fine except point 4. Let me talk to some professionals in living trust area to see if there is any way to avoid the tax. Maybe a Living Will or a Pour-over Will might help in this? :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Market Volatility

Hi Fellow Automated Millionaires,

Recently, the market went down and down. Acorns of Asia Balanced Fund went down by 5.82% in November. To tell you I am not affected by the whole situation is bullsh*t, my returns are affected of course. But then, I am not cashing out on the investment now anyway. The principle behind the whole Automated Millionaire System is time is on our side, hence history shows that if time is on our side, we are the ultimate winners :)

Both David Bach and Suze Orman recommends RSP so that we can dollar average our investment to diversify the risk and with time on our side, the percentage of getting a ROI of 8% or more (compounded) using Balanced Fund is greatly increase. (Side Note: Accumulative ROI of Acorns of Asia Balanced Fund from August to November 2007 is 3.31%)

This market fall makes me really consider what David Bach and Suze Orman recommendation on ETF. Because according to SGX, ETF has no sales charges, low management fees (less than 1%), diversified portfolio, price transparency, etc. Let me research more in this area before coming back here :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

October Quick Review

Hi Fellow Automated Millionaires,

Confucius once said, "By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."

Hence, let us learn by imitation and review what an Automated Millionaire should do by now:

1. Have Life Insurance to cover Death, Total Permanent Disability & Critical Illnesses, Personal Accident Plan and Hospitalisation Plan to protect one's wealth
2. Have a Citibank Step-Up Account and have your salary credited to this account
3. Have at least 2 e$aver and 2 xSaver accounts
4. Have the following accounts for Long Term Savings, Financial Freedom, Education, Play, Charity and Bills (Though some of them can share the same account).
5. Set a x% of your income for above accounts except Bills of course ;)
6. Invest a x% of your income to at least a Balanced Fund with a ROI of more than 8%p.a. (compounded) with the Goal of building a neat retirement fund in 25 or 30 years time
7. Automate the process of transferring the money *KEY factor to the whole process*

If a person wants to be an Automated Millionaire but have not done these 5 steps, then no way he/she can become one in the near future. Start Young, Just do it!

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Pre-Tax Investing - Part 2

Hi Fellow Automated Millionaires,

I have calculated the differences of yearly investment through CPF versus Cash as below:

1. CPF
Amount Invested: S$10,000
Tax Incurred*: S$0
Employer CPF*: S$954 (subtracted S$3,396 for repayment of HDB loan of 4-room HDB flat)
Sub Total: S$10,954
ROI: 8%
Grand Total: S$11,831

2. Cash
Amount Invested: S$10,000
Tax Incurred*: S$350
Employer CPF*: S$0
Sub Total: S$9,650
ROI: 8%
Grand Total: S$10,422

*Taking an annual income of S$30,000.

DIFFERENCE: S$1,409

This difference for 1 year is already S$1,409.00. The difference in 10 years is S$22,044.49. What about 25 years later? The amount is S$111,246. The difference in 30 years is S$172,385.33. Are you willing to throw S$172K away? :) Definitely not me. Let us find a good solution to counter the CPF lock of the 1st S$20,000.

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Is Estate Planning important?

Hi Fellow Automated Millionaires,

I used to think that Estate Planning is only for old people or rich people and can be settled by just writing a will as shown on TV. Alas! But things are not true in that way in reality.

In reality, in simplified form, when a person die, the government will take all the assets of that person into a probate. According to Probate Enterprise, Probate is a process of application for the release of assets to the beneficiaries, which have been frozen upon the death of our loved ones. Probate might take at at least 1 year and even longer if a person die without a will or leave behind a complex estate! After all these hassles, the loved ones of the person has to pay estate duty (though there is exemption, click here to find out more).

Hence, to avoid the probate and reduce the estate duty (which potentially can run to tens of thousands of dollars, if not handle properly) legally, Estate Planning is one of the most important part of one's Financial Planning. As of how to do a proper Estate Planning, of course, seek professional help as I always recommend. But as usual, I will write down in this Blog on how I will do it :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Pre-tax Investing - Part 1

Hi Fellow Automated Millionaires,

David Bach, in his books mentioned about pre-tax investing. So what is pre-tax investing and is it relevant in Asia context? Pre-tax investing, according to David Bach, means that bypassing the government tax to do investing. This is relatively a very important concept in UK and US as the tax is very high (about 30%). But, in Singapore, though there is tax but it is relatively low (for more info, check out MOF website) and there is so many reliefs & rebates (for more info, click here).

With the change to CPF rules in April 2008 (1st S$20,000 in Ordinary Account cannot be invested), we cannot leverage on CPF to do investment anymore. So Sad. Because CPF to me is the mother of all investment accounts. Anyway, so what about SRS? Well, it really doesn't make sense to leverage on SRS to investment too.

Why? Simple, first to draw out the money, you have to wait until the statutory retirement age, which is 62 (7 years later than CPF) otherwise, you will be penalised. Second, if I am not taxed (due to low income plus reliefs & rebates) and invested about S$10,000p.a., after 26years compounded at 8%, I should have S$863,507.68. Now, if I invest using just plain Cash, I would have S$863K all tax-free as there is no capital gain tax in Singapore (ok, even I am taxed, I am taxed 3.5~5.5% on my current income and not the whole S$863K). However, if I invest using my SRS account, I am TAXED on my S$863K! Ain't this incredible?

Maybe SRS do make sense when a person is a high income earner who wants to deferred tax. But, I am still not yet a high income earner, hence, SRS doesn't make sense to low-to-average income earners as a pre-tax investment tool. Cash, at least for low-to-average income earners, is still the best form of investment now :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

How much I need to be covered for my Life Insurance?

Hi Fellow Automated Millionaires,

There are 3 major questions regarding about Life Insurance: 1. Do I need it? 2. If I need it, how much coverage is enough? 3. How long will I need it?

1. Do I need it?
According to Suze Orman, US Acclaimed Personal Finance Expert, said,"Life insurance was never meant to be a permanent need. Its original purpose was to protect people while they were younger, before they had a chance to build up a nest egg, in case the family breadwinner died early and unexpectedly."

Hence, if you have no dependents (e.g. young kids, old parents, etc.) and is still single, then there's no need for a life insurance!

2. How much is needed?
So how much is enough? Suze Orman came out with a very ingenious way of calculating how much coverage is enough. But please bear in mind, neither Suze nor I have to live your loved ones' lives, hence, its better safe than sorry :) According to Suze Orman, you will need about S$120,000* in insurance for every S$500 of monthly income required.

Say, for me, to survive I need S$1,500 per month to cover all my expenses. Divided by S$500 and Multiply by S$120,000. So my Life Insurance coverage should be S$360,000.

*Singapore Context

3. How long will I need it?
If you follow this Automated Millionaire Plan, the money that you invested for your retirement fund should be accumulated to close to S$1 Million as least by the age of 65. Hence, the need of a Life Insurance should be zero. So according to Suze Orman, by the time when you are 65 at the latest, your need for life insurance and your need to pay the premiums on your life insurance should be gone.

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Top Balanced/Managed Funds

Hi Fellow Automated Millionaires,

I realised that there is a need to select a good fund to generate a stable 8~10% returns in order to achieve the status of Automated Millionaire. Below is the Top 9 Balanced/Managed funds that based on their past performance history that are above 8% returns (compounded) dated 7th Nov 2008.

1. AIA Acorns of Asia Balanced Fund (since 2001) - 18.36%p.a.
2. AIA Greater China Balanced Fund (since 2003) - 16.76%p.a.
3. PRU Asian Balanced Fund (since 2003) - 12.47%p.a.
4. Lion Capital Singapore Balanced Fund (since 2001) - 11.26%p.a.
5. AIA India Balanced Fund (since 2005) - 10.25%p.a.
6. AIA Emerging Markets Balanced Fund (since 2006) - 10.00%p.a.
7. NTUC Income Combined Fund - Balanced (since 2003) - 9.72%p.a.
8. Lion Capital Target Return (since 2001) - 9.35%p.a.
9. Prulink Singapore Managed Fund (since 1992) - 8.18%p.a.

I have put my money on AIA Acorns of Asia Balanced Fund since this is the highest growing Balanced Fund I know (Thanks Financial Coach!). But please do your own research before putting your money :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.