Saturday, March 20, 2010

Handling financial product promoters

Lately, my phone has been bombarded with calls from strangers to promote financial products. I normally tell them "Sorry, I am not interested" and hang up the phone.

If the financial products are aggressively sold to me, I reject it outright. I do not want to spend any more time to learn about it.

If someone aggressively promotes a financial product, he is usually getting paid handsome commission for it. This commission comes out of your pocket when you buy the product. A good deal for the seller is usually a bad deal for the buyer. Good financial deals never come looking for you. You have to actively seek them out yourself. If somebody knows of a wonderful bargain, he is going to buy all that he can himself. The last thing he wants to do is to let the secret out. The next time you hear of a deal-you-can't-miss from a stranger, just walk away. He is somebody you better miss.

This is why I never buy products sold by the bank relationship managers. In fact, the sort of financial products they sell can be used as a contrarian indicator. In the early part of 2008, commodity investment funds were popularly sold by the banks. Commodity prices collapsed in the later part of 2008.

The next time you receive cold calls from strangers selling financial products, just hang up. Time is better spent hunting for the best deals yourself than expecting good deals from strangers.

Saturday, March 6, 2010

When unsure, don't buy the cheapest

I am a cheapskate. I like to buy things on the cheap. However, this can be a dangerous practice if you do not know what you are doing, especially when it comes to insurance.

The risk of buying the cheapest insurance comes when you try to make claims but cannot because of certain clauses in the contract which the agent conveniently miss out to warn you. The cheaper the contract, the more exclusion clauses it includes and the more stringent are the conditions in which you can make claims. You do not want to buy an umbrella that cannot open when it starts to rain. In matters of life and death for your wallet, the consequences will be disastrous.

I have a general rule when it comes to buying things of vital importance to me. If you are not familiar with the merchandise but still insist on buying it because it is important to you, don't buy cheap. On the other hand, if you are familiar with the merchandise and able to gauge its quality on examination, go ahead to buy on the cheap.

Thursday, March 4, 2010

Retirement nest-egg before children's college fees

It has been my experience that couples with kids will be aggressively sold financial products designed to help them pay for their children's education and college fees. My natural inclination as a parent is to buy these plans for my children out of love.

On second thoughts, I rejected these plans.

Firstly, I had to weigh my own retirement needs over my children's education fees. In developed countries, it is unlikely the child will lose the opportunity to get a degree because the parents cannot pay for it. There are many options in America that are cheaper for these children nowadays like taking college courses online or attending a community college. But if they want to go through a four-year university course, being young with decades ahead, he is a low-risk borrower to the bank. The bank will loan him money with little hesitation. I can be assured that there will be no lack of help from financial institutions to finance my kid's education.

However, what if I end up with little savings after sacrificing my retirement nest-egg to pay for my kids' education? No bank is going to help me. No bank is going to loan money to retirees with no income and no hope of paying back.

The reasoning is clear. If my children have no money for their education, they get help. If I have no money for my retirement, I get no help. Who should I help first? Myself, of course. I must build up a sufficiently large retirement nest egg before money is allocated for the children's education fees. Take note that once you pay for the first child's education, you got to do the same for the rest. Otherwise, the other kids will cry UNFAIR and this shall become a bone of contention within the family for decades to come. Therefore, if you want to pay for your children's education, then the money set aside must be enough to pay for ALL of them, not just the lucky first few.

Getting children to borrow to pay for their own education is not a bad idea too. A little debt teaches financial discipline. When totally unburdened, a young kid just starting out work may spend without restrain. He is like a teenage boy who just discovered sex. Some debt will check his spending habits.

Picking the right Valentine. A much more difficult task than picking the right stocks

9 years ago, I wrote about choosing your Valentine from a value investing standpoint. What I wrote then still stands today, Beauty is over...