Finance 101: What is a portfolio?

Hi friends, 

I bet that you have heard of it before. "I have a portfolio of blah blah blah", or "How big is your portfolio?" So... What is this "portfolio" that everyone who is investing/ planning their finances is talking about? Today I shall be tackling this question:

Definition:
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art, and private investments. - Investopedia

A portfolio refers to a collection of investments or financial assets held by an individual, investment company, financial institution or hedge fund. This grouping of financial assets can include everything from gold and property to stocks, bonds, and cash equivalents. In essence, an investment portfolio acts as a big briefcase-carrying all of these financial assets. - Capital

These are the essential points.

1. Group of financial assets (Financial instruments that can be anything that we discussed and more, like real estates, arts, whiskey, etc)

2. Held by an individual, company, funds. 

For today, we will be talking about your individual portfolio. As per the definition, your portfolio is a combination of the different financial instruments that you are holding. A portfolio is also something that you should build based on your preferences. It should be in line with your investment beliefs and your risk appetite

Here are some of the things you should consider before setting off to build your portfolio:

1. What is your risk tolerance? 

How much gain/loss are you able to tolerate? Are you ok with a portfolio that can give you large returns and losses?

2. What is your time horizon?

A longer time horizon would mean that you can create a portfolio that has a higher potential for appreciations. 

3. What assets are you comfortable/ familiar with?

If you are competent and have a lot of experience with a particular financial instrument, you can consider having more of your portfolio allocation to the instrument that you are familiar with. 

Here are some of the financial instruments that you can have in your portfolio. We have actually gone through the majority of them in the other Finance 101 articles:

1. Stocks, etfs, mutual funds, index funds, Reits 

2. Bonds, bond funds

3. Gold, precious metals

4. Crypto (Bitcoin, ethereum)

5. Real estates 

6. Other financial instruments like alcohol, art, etc

7. Commodities like copper, steel, oil

8. Insurance

As we are talking about the personal portfolio, in which I would assume that you do not have the need to invest in commodities, alcohol, art etc. We will focus on 1,2,3,4,5,8 I will analyse it from the POV of a) Aggressive investors (with a long time horizon) b) Conservative investor (with a shorter time horizon) c) Investor who is looking to pass intergenerational wealth d) ultra-aggressive investor

Do note that the allocations are just for example. You should do your own research. 

a) Aggressive Investor (For those who wants :

1. Stocks (85% in etf, individual stocks)

2. Bonds (0%)

3. Precious metals (4% in gold)

4. Crypto (1%, treat it as a gamble)
5. Real Estates (5%)

8. Insurance (5%, to protect against sudden events)

b) Conservative Investor (For those who wants to have some returns but cannot take too many losses)

1. Stocks (20% in etfs, and reits etfs)

2. bonds (60% in bond funds)

3. Precious metals (5% in gold)

4. Crypto (0%)

5. Real Estates (5%)

8. Insurance (10%)

c) Generational Wealth Investors (For those who wishes to pass to their offsprings without incurring taxes)

We do not have inheritance tax in Singapore. But do know that if you pass on properties, your offsprings might need to pay property taxes on it, or pay for the maintenance fees. 

Hence, you might want to consider holding on to stocks and bonds. 

d) Ultra-aggressive Investors (me, with about 30-40 years of investing)

1. Stocks (95% in etf, individual stocks/ reits)

2. Bonds (0%)

3. Precious metals (0%)

4. Crypto (0%)
5. Real Estates (0%)

8. Insurance (5%, to protect against sudden events)

I will reiterate this again. Your portfolio would be reflective of your investment beliefs. Your portfolio should be tailored to your needs. Of course, with a portfolio, you should always look at it every now and then to rebalance it. The rebalancing would allow your portfolio realigned with your chosen allocations. This rebalancing should be around once per 3 months. 

As always, do take note that the allocations are just examples, you should always do your own research before making any financial decisions. 

Also, now that we have settled a majority of the financial instruments, I will be moving on to the most famous financial portfolios that are held by famous investors like Warren Buffett, Ray Dalios, etc. It will be named "Finance 201". I am an Engineer for goodness sake. How creative do you think I am :')  Don't worry. Finance 101 series will still run on, just keep sending in request so that I know to explain some of the basic terms that I have used in my posts

With that, 

I end today's topic

Stay vested, Stay frugal my friends,

Dionysius

Sources:
https://capital.com/portfolio-definition
https://www.investopedia.com/terms/p/portfolio.asp

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Finance 101: What is a Bond?

Hi friends, 

Bond, James Bond

Up to this point, I hope that you have benefitted from this series. I have also benefitted from the series as I learned about infographics design for this series and reinforced my financial knowledge as well. Do let me know if you have any ideas for Finance 101 or any other series that I can do. 

With that out of the way, let's look at the financial instrument that allows you to be a loan shark - Bonds. So, what is a bond? 

Definition:
A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. - Investopedia

Bonds are debt instruments. When you buy a bond, you are lending money to the company or government institution issuing the bond for a fixed rate of return. -DBS

The keywords are:
1. Loan/debt
2. From company/government to investor
3. Fixed-rate of return

Essentially, you are lending a sum of money to a company or government, in which you will receive interests annually for the period and you will receive the sum of money that you lent at the end of the period. The entity that issued the bonds would use the money and invest in projects/infrastructures that they believe will have a better return compared to the interest they pay you. (i.e, I borrow $5,000 at 1% interest, to invest for a return of 8%. Profit for me 7%)

Furthermore, in the event where the entity is unable to pay its debt (default), bondholders have higher priority over stockholders over the liquidated asset of that company. When the company makes money, bondholders are also prioritised over stockholders in receiving the money. 

"That's great! Why does everyone not rush to bonds?" Good question, that's because historically, bonds have an average return of 5% but stocks have an average return of 10%. Furthermore, low risk doesn't mean no risk. There are cases where companies or countries that have defaulted on their loans (Does the name Hyflux ring a bell?).

Hence, bonds as a financial instrument would be suited for a conservative investment approach. This is the reason why we are recommended to allocate more of our portfolio to bonds as we age. Furthermore, bonds are income-generating assets rather than growth assets. Hence, if your desire is to have passive income, you may look at bonds as a valid option. 

BUT, if you would refer to my 4% Rule article, you would know that bonds are unable to last you that long into retirement based on historical data. Furthermore, Warran Buffett has not incorporated bonds into his portfolio at his age as well. So you might want to take that into consideration. 

After this long period of voicing my opinion, let's look at the advantages and disadvantages of owning bonds. 

Advantages: 
1. Safe and consistent income - due to the interest rate (coupon) that you will receive
2. Higher on the priority list in the event of liquidation
3. Passive income 
4. Diversify your portfolio as it is a different financial product from stocks

Disadvantages:
1. Lower returns as well
2. Default is still probable
3. Some bonds are not available to retail investors (Some bonds are too high in value, $250,000 for one bond)

These are the priority of bonds payout (A higher priority would mean that you would be paid first in the event of liquidation) 
1. Senior secured bonds (secured means that that debt is backed with collateral)
2. Senior unsecured bonds 
3. Junior Subordinated bonds
4. Guaranteed and insured bonds (The guaranty is from a third-party, but not 100% insured.)
5. Convertible bonds (Can be converted to common stock)

How to find the right bond?
1. Coupon Rate: It is the interest rate paid on the bond (3% of $1000 would be $30)
2. The seniority of the bond: If you have higher priority if the company is liquidated
3. Outlook of the company: If the company is over-leveraged on debt, income statement etc. 
4. Inflation trend: If inflation is at 3% and your bond has an interest rate of 3%, your effective return is 0
5. Liquidity of the bond: If you require money in a short amount of time, are you able to redeem the bond for cash? You can look at the daily trading volume of that bond. 

Thoughts and comments:
As bonds are currently not in my portfolio, I am not that familiar. However, if you wish to diversify your risk, you might want to consider using bond ETFs which has a lower chance of losing your money. 

Sources:
https://www.investopedia.com/terms/b/bond.asp
https://www.dbs.com.sg/personal/investments/fixed-income/understanding-bonds
https://www.investopedia.com/articles/investing/121815/understand-security-types-corporate-bonds.asp
https://www.investopedia.com/articles/bonds/09/bear-on-bonds.asp
https://www.investopedia.com/articles/bonds/07/fixedincome.asp

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Finance 101: What is a Hedge Fund?

Hi friends, 

I will be diving into hedge funds for this post. I'm not sure about you, but in my perception, a Hedge fund is really prestigious and yet shrouded in mystery. Like, what do they do and what are they for? Allow me to answer that in today's post:

Definition:

Hedge funds are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns - Investopedia

A hedge fund is a sort of investment partnership or pooled investment structure that is setup by a money manager or registered investment advisor. - DrWealth

Here are the keywords:
1. Pooled funds/investment - From other investors and the fund's manager
2. Aim to generate high returns - By going into derivatives and leverage (Hedging)
3. Only accessible to accredited investors - You have to be really rich to gain access
4. Less regulated than mutual funds - They can invest using a wider set of financial instruments
5. Actively-managed investment style

So... What is a Hedge Fund?
Imagine: I discovered a way to exploit the market (I honestly don't know in what way) by using derivatives that would allow me to above-average return. That would be my strategy. From there, I put in $20 million and pooled $200 million from other investors and set up a fund where I promise to deliver returns given a fee for my services. 

The benefit for me is that I am paid a fee for my services and from the original fund, I can leverage (let's say I borrow another $400 million from the bank) to make even more return. Because of the less regulation of Hedge Funds, I can look at other instruments, beyond stocks, bonds, etc. Usually, a fund would specialise in one particular field (like junk bonds, real estate, wine, whiskey, patents, etc)

So now that we know what is a hedge fund, let us look at the advantages and disadvantages:

Advantages:
1. Alignment of interest (As the fund manager has his money inside the fund, his aim is to increase his wealth)
2. Flexibility (Due to the lesser regulations, Hedge Funds can be flexible in their investment approach)
3. Professional Management (You have a manager that professionally manages your money)
4. Diversification (Hedge Funds may use other instruments to diversify their risk)
5. Potential to do better than the market

Disadvantages:
1. Less Transparency (Due to the lax regulation, there is not much transparency in Hedge Funds)
2. Fees (You would have to pay for the manager's services)
3. Understanding of Strategy (You might not understand the strategy employed by the fund due to the complexity) 
4. Low liquidity (You can only redeem quarterly or a set period)
5. Potential to do worse than the market 

Thoughts and comments:
In Singapore, you would have to be an accredited investor before you are allowed to invest in Hedge Funds. This would mean that you have either S$2 million in net personal asset or income of S$300,000 in the past 12 months or a corporation with net asset more than S$10 million.  I am definitely not one. Hence, I do not have any reasons to invest in them. 

If you are interested, these are the criteria to select a good hedge fund:

1. Investment Approach - Do you believe in the strategies applied by the fund?
2. Fund Manager - How much is the manager vested in the fund? Why should you put your money with him?
3. Fund's liquidity - What is the redemption period in the year?
4. Amount of marketing/ pitching the managers have to do - If the manager is that good, does he need to market his hedge fund to you?


Personal Portfolio:
As mentioned, I am not an accredited investor (when I am, I'll tell you k?) As you guys have already known, I am a firm believer of the efficient market hypothesis, that no investor can consistently exploit the market. Hence, even when I am an accredited investor, I would not have a big portion of my investment in hedge funds 

There a lot of famous hedge fund managers out there. I'll just list a couple out here:
1. Ray Dalio (famous for predicting the 2007 Global Financial Crisis, He has also managed one of the biggest hedge funds in the world - Bridgewater Associates)
2. Michael Burry (famous for being portrayed by Christian Bale in the "Big Short", he also managed Scion Capital from 2000 to 2008. He successfully took advantage of the 2007 financial crisis and shorted the housing market.)

On the other side of the spectrum, Warren Buffett did make a bet with the top Hedge Fund managers that investing in the market index would generate a larger return compared to Hedge Funds. If you are interested, you can take a look at this article: https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp. It also shows us that fees really do play a huge role in the returns that we get from our investors. 

I hope that you now have a better understanding of Hedge Funds

With that, 
I end today's topic. 

Stay vested, Stay frugal my friends,
Dionysius



https://www.straitstimes.com/business/banking/worlds-biggest-hedge-fund-returns-found-in-singapore
https://www.drwealth.com/hedge-fund-singapore/
https://www.fa-mag.com/news/how-o-select-hedge-funds-5267.html
https://seekingalpha.com/article/4266569-how-to-pick-hedge-funds-3-common-traps-to-avoid
https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp
https://www.investopedia.com/terms/h/hedgefund.asp
https://infoforinvestors.com/investing/alternative-investments/hedge-funds-pros-cons/
https://seekingalpha.com/article/4266569-how-to-pick-hedge-funds-3-common-traps-to-avoid
https://insidermonkey.com

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Finance 101: What is a Mutual Fund/ Unit Trust?

Hi friends, 

Today, I will be talking about Mutual Funds (MFs)/ Unit Trusts (UTs). It is effectively own a pool of stock managed by a fund manager. 

By definition:
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors - Investopedia

A unit trust (or “mutual fund”, as the wacky Americans call it) is a fund where multiple investors pool their money. A fund manager takes that pool and channels it into a whole bunch of different investments. -Money Smart

Here are the keywords:
1. A pool of money - UTs get their capital from a pool of investors
2. Invest in securities (Stocks, bonds, money market instruments, and other assets) - buying assets to generate returns
3. Operated by managers - The assets are selected by professionals, they would decide when the purchase will take place, the portfolio allocations and how long to hold it for. 

So... What is a Mutual Fund?
Essentially, imagine you and a bunch of other investors invest a sum of money. Through that, a manager of the fund would decide what stocks to buy, how much to buy, how long to hold. The manager's aim is to beat the market and generate returns for you. It may be in his interest to beat the market, as his salary may be pegged to how much he can outperform the market. This is unlike ETFs, where you are buying the market. 

Now that we know what are Mutual funds, allow me to elaborate on their advantages and disadvantages:

Advantages:
1. Quick Diversification - You buy into all the stocks under that fund. 
2. Professional Management - By paying the fees, you can have a professional team of managers/ analyst that is working to maximise your profits. 
3. Reinvested Dividends - Some funds allow for your dividends to be reinvested and purchase it at a lower price. This would further increase the units that you are holding. 
4. Low barrier to entry - Similar to ETFs, mutual funds are relatively cheaper to invest. You can even do a $100 investment every month. 
5. Potential to beat the market - As mutual funds would steer away from the market index, this would give them the potential to do better than the market. 

Disadvantages:
1. High expense ratios and Sales charges - Research has shown that a high expense ratio would negatively impact your returns. The picture below shows the correlation, not including the sales charges. 
2. Bad fund Management - Some fund managers may use techniques to make their funds appear to be doing better than it is.
3. Limited trade execution - As you can only buy and sell units of a mutual fund at the end of the trading day. You might not be able to execute buy and sell orders immediately. 
4. Potential to do worse than the market - As mutual funds would steer away from the market index, this would also give them the potential to do worse than the market. 

How to determine a good mutual fund?
This would be tough to write about. There is a module in my university that talks about this. Students that went through that have to research and find 3 mutual funds based on criteria and present what mutual funds they think will perform well. 

Thankfully, I didn't have to take that module. But here are things that I found from my research:

1. The mutual fund's investment style:
If your focus is on receiving dividends, you shouldn't be looking at growth mutual funds. Likewise, if you are seeking capital appreciation, you should not be looking at income mutual funds. If you have a long time horizon and the mutual fund seeks to make returns in a short time, that would be a conflict in the investing approach. You should choose one that suits your style. 

2. Size of the fund:
Warren Buffett has famously said that if he only had a mere $1 million to invest, he could guarantee 50% annual returns. He then explained that having a large fund size would hinder the purchasing process. This is as your investment would make a substantial impact on the company's market cap - Imagine you have $1 billion, you want to find 5 companies to invest in. You would be limited to companies whose values are more than $200 million. Hence, even if there are good stocks that are under $200 million, you would not be able to buy them. 

Hence, a mutual fund needs to be small enough to be flexible in taking advantage of smaller companies. aka. Flexibility.

3. History of the fund manager and his trading frequency:
A fund manager that has been managing the fund for a long time may indicate that he knows the values of the assets that he is managing. A lower trading frequency would indicate that he is adopting the buying and holding approach to investing and that he is confident in the stocks that he chose.

4. The number of holdings:
A larger number of holdings would indicate diversification, this would generate a more consistent return in the long run. This is important as this is one of the advantages of mutual funds - quick diversification

5. Fees and Expense ratio:
You would want the fees and expense ratio to be as low as possible. As we can see the correlation between fee, expense ratio and the return that you receive from your mutual funds. 

6. Outlook on the market/sector that fund is investing in:
If you believe that the market/sector that the fund is investing in has the potential to do well in the future (ahem, China, India, Indonesia, etc), you can invest in those markets. Emerging markets are generally less efficient and mutual funds usually perform better under those conditions.

Thoughts and opinion:
As we have discussed in the SPIVA scorecard, mutual funds are unable to outperform the market in the long run. Fees and expense ratios are one of the reasons that contribute to this observation. Furthermore, I am a believer of the Efficient Market Hypothesis, especially in the efficient US market, no investor can consistently take advantage of the market. Plus, the success of a fund in one year does not translate to the next year (from the SPIVA scorecard), which means it is extremely hard for you to choose a fund that will earn you higher than market returns.

Yes, there are fund managers that consistently do well and deliver higher-than-market returns to their investors. They are Peter Lynch (who wrote a book on how to perform better than fund managers) and...... 

Sorry, I only know one mutual fund manager that was really successful and popular. 

If you're thinking of Ray Dalio and Warren Buffett, no. They are not mutual fund managers. they are hedge fund managers. This is a topic for a different day. 

Personal Portfolio:
As you can see from the way that I wrote, I sincerely do not believe in the value of mutual funds. It is my belief that mutual funds still exist as a lot of money is paid in the advertisement and marketing to sell to the public. As we become more financially savvy, we should see a decline in mutual funds. Just like in the US. 

With that, 
I end today's topic. 

Stay vested, Stay frugal my friends,
Dionysius



Taken from the morningstar white paper titled "study on investing expense ratio"

Sources:
https://blog.moneysmart.sg/invest/unit-trust-singapore-invest-guide/
https://www.dbs.com.sg/personal/investments/unit-trusts/get-to-know-unit-trusts
https://www.valuechampion.sg/introduction-funds-singapore-what-are-unit-trusts-and-etfs
https://www.moneysense.gov.sg/articles/2018/10/unit-trusts-guide-to-pricing-and-fees
https://www.investopedia.com/terms/m/mutualfund.asp
https://www.sec.gov/reportspubs/investor-publications/investorpubsinwsmfhtm.html#Common
http://oreillywa.com/wp-content/uploads/2017/08/morningstar-study-on-investing-expense-ratios-2016.pdf
https://www.thebalance.com/how-to-choose-the-best-mutual-funds-2466456
https://www.investopedia.com/investing/how-pick-best-mutual-fund/

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Fundamental Analysis: Using PE and PEG ratio to gauge an ETF

Hi friends, 

As most of you can tell from my writing, I am a firm believer of passive investing. I believe in it as I do not have the skills nor the time to pick the correct stocks to beat the market. However, recently, I have been reading quite a bit of using the P/E (Price-to-earnings ratio) to gauge the state of an ETF. 

For those of us who are not familiar, the P/E ratio is a metric that measures the market price of the stock against the company's earnings. A higher P/E ratio would mean that the stock price is relatively higher compared to the company's earning, vice versa. This would mean that the stock may be over-valued. Investors would also expect a company with a high PE ratio to have a higher growth rate. 

Formula: 
1. PE 
(Price for one share)/(Earnings per share) 

2. PEG
(PE ratio)/(Earnings growth rate) 

Earnings growth rate = (EPS this year - EPS last year) / (EPS last year) 

A recommendation by the legendary investor - Peter Lynch has said that you would want PEG to be less than 1. It would mean that the growth rate is higher compared to the PE ratio. 

So, if we were to apply this to my most favourite index in the world. The S&P 500, we get the following graph:


From the picture above, we can see that the recent PEG ratio has been really really high if we used the Peter Lynch benchmark of 1.0 Hence, this might mean that the market might have really been over-valued.

With the recent prices, we can see that there has been a correction due to the bear market. But we shouldn't be diving straight in just because it is lower. It is not the time yet. 

If we were to look at the PE ratio, we can see that the current PE ratio is still within the mean of the historical PE ratio. Hence, further reinforcing my opinion that we shouldn't be rushing into the market yet. Do note that I am not recommending anything, do your own research and studies for your own investment.

Limitations:
The P/E and PEG ratios use the market price and earnings. The market prices are easier to determine. But the earnings are harder to obtain as earnings are only updated on a quarterly basis and there is a need to determine the long-term and short-term earnings.

Thoughts and comments:
It was a fun exercise learning about the PE and PEG ratio. But if I were to consider the impact that this knowledge has on my investing approach, there would not be much changes. At most I will be more aware of whether the market is over or undervalued and would attempt investing more during the undervalued phase. 

You can also look at these videos created by my friend Linus Lim about the same topic:
1. PEG Ratio:  https://www.youtube.com/watch?v=jflc_hF__f0
2. PE Ratio: https://www.youtube.com/watch?v=9N6C4VCHaFI

With that, 

Stay vested, stay frugal my friends.
Dionysius  

Sources:
http://www.yardeni.com/pub/spearnrevalgrpeg.pdf
https://www.investopedia.com/terms/p/pegratio.asp
https://www.investopedia.com/investing/use-pe-ratio-and-peg-to-tell-stocks-future/
https://www.forbes.com/sites/greatspeculations/2018/11/19/pe-ratios-are-misleading-especially-right-now/#5a223a4a2281
https://www.sgmoneymatters.com/pe-ratio-investment/
https://www.dummies.com/personal-finance/investing/investing-in-etfs-for-dummies-cheat-sheet/
https://www.dummies.com/personal-finance/investing/the-all-important-pe-ratio-in-etf-investing/
https://www.advisorperspectives.com/dshort/updates/2020/04/01/is-the-stock-market-cheap
http://www.munknee.com/sp-500s-peg-ratio-suggests-overvaluation-coming-correction/
https://markets.businessinsider.com/news/stocks/stocks-most-expensive-price-earnings-growth-ratio-bank-america-valuation-2020-1-1028824543

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Finance 101: What is an Insurance?

Hi friends, 

In the 3rd part of my Finance 101 series, I shall be talking about insurance. Oh, I would like to reiterate that I do not receive any commission or money from any financial institutions for my post. I am also not a financial agent or a financial consultant. I do not sell any products/ insurance/ investment plans. Hence, you can expect objective opinions. The finance 101 series is an educational series to spread awareness of the financial instruments available to us.

By definition 
Protection against loss for which you pay a certain sum periodically in exchange for a guarantee that you'll be compensated under stipulated conditions for any specified loss by fire, accident, death, etc - Entrepreneur.com

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured. -
Investopedia

Term insurance: No cash values insurance
Whole life insurance: Cash value
Participating insurance: Entitled to the profits of the insurance company
Non-participating insurance: Not entitled to the profits of the insurance company 

The keywords are: 
1. Protection against losses
2. Pay a certain sum periodically

So insurance works as a form of protection against losses (Death, accidents, critical illnesses, income replacements, hospitalisation, fire, car, etc.) by a periodic (monthly, quarterly, half-yearly, yearly) payment to the insurer. 

How I think of insurance is like this: 
For different types of fire, we would use different types of fire extinguishers right? Hence, for different types of losses, we would also have different types of insurance. If I feel that I have a higher susceptibility to cancer due to family history, I would purchase critical illness insurance to protect myself. 

Here are the different types of insurance available in the market. I will be judging them in terms of 5 Midas’ touch. The categories are Price, Payout, Ease of application. I will also write about the protection purpose of the particular insurance type:

Category A: (Term Insurance)

1. Term Life (Against death, terminal illness and Total Permanent Disability (TPD))

•  It covers for a chosen period of time, usually up to a certain age - 65,70 etc. It does not have cash values.
• There can be an option to convert term life to a whole life plan
• A recommended coverage would be how long it will take your dependents (children) to reach an age where they can earn their income. 

2. Term Personal Accident (Against loss of income due to an accident that results in loss of body parts, death, and permanent disabilities.)

• It can also cover up to a certain age.
• A recommended coverage amount should be around 5 times of your yearly expenses

3. Term Critical Illness (Against loss of income or to seek alternate forms of treatment not covered by hospitalisation plans)

• The payout would occur if the insured is diagnosed with a defined critical illness under the policy (It is possible that a critical illness occurs and there is no coverage because the critical illness does not fall in the definition 
• A recommended coverage amount should be around 5 times of your yearly expenses
• There can be features like coverage for early forms of critical illness (Stage 1, 2 cancers etc.), continued coverage after the first diagnosis.

4. Hospitalisation ( Price - 2/5, Payout - 0/5, Ease of application 4/5, Against the cost of sudden hospitalisation due to many reasons)

• This plan covers your hospitlisation fee upon checking into a hospital, up to a certain period after your discharge, up to a certain annual amount. 
• You can opt for "better" coverage by paying more. The plan covers private hospitals too.
• How you choose this plan would be highly dependent on your preference. It is hard for me to make a recommendation. For me, I would go for the private hospitalisation coverage. 

#This plan is only appliable to Singaporean/ Singapore PR. 

5. Loss of income (Price - 2/5, Payout - 3/5, Ease of application 3/5, Against daily living cost if you are unable to perform your original role due to an accident/illness)

# I am unable to give an adequate opinion about this as I do not have this
You may look at this link if you want to:
https://www.moneyline.sg/disability-income-insurance/

Category B: (Whole life / Participating Insurance)

1. Whole Life ( Price - 5/5, Payout 5/5, Ease of application 5/5, Against death, accident, critical illness using riders)

• As the name implies, this is a life plan that covers you for your whole life. 
• There is also a cash value component to the plan as well. 
• You can customise the plan to your needs by adding accidents, critical illness and multipliers riders to your plan.

2. Endowment ( Price - 3/5. Payout 3.1/5, Ease of application 5/5, Think of it as a saving plan)

• Essentially: You hand a sum of money to the insurance company every year, you will receive guaranteed and non-guaranteed return after a while. 
• There are two major types in Singapore, one where you can receive "cashback" every year and towards the end of your policy, and the other where you receive return at the end of your policy or near the end of your policy. 
• There are also death benefits to it (Usually 105% of the amount that you paid)

3. Investment-linked policies - ILPs ( Price 5/5, payout 1.1/5, Ease of application 5/5, think of it as linking investment to insurance)

• There are two components to this plan; Insurance (Which acts similar to a whole life plan) and Investment (Which you are able to choose mutual funds that you believe would give you good returns for your money)
• ILPs can include attractive sign-up bonuses, loyalty bonuses - These differ from insurer to insurer, hence, I shall not talk about them. 

Thoughts and comments:

From my point of view, insurance should serve as a form of protection. If you wish to invest, you should take matters into your own hands and invest yourself. With that logic, you should choose the best price-coverage insurance, such that you may get the best protection for the least amount of money.

Here are some of the objections that I have heard when I voice this opinion of mine to different insurant agents:

1.  What if the company that you choose yourself goes bankrupt? Ans: What if I buy my insurance from you and your company goes bankrupt? If they try to convince you by saying that their company is AAA-rated and it will definitely not fail. Avoid them at all cost, they do not understand how these ratings work.  
2. How do you know that your investment will make money? Ans: How do I know if I put my money with you guys that it will confirm make money? (Shameless reference to my active vs passive investment article. Do take a look at that)
3. All the products in the market are similar because it is governed by MAS, there's no need to choose? Ans: Just run far far away. To compare insurance, you can use some of the websites available or seek advice from an independent financial consultant. They can help you compare insurance across different insurers. Compare yourself and see if there is a difference. 
4. Would you do your own heart surgery? You need someone to be with you on this "journey" Ans: -Facepalm Even heart surgeons would not do their own heart surgery. 

Limitations of this post:

• I have mostly dived into life insurance and not general insurance (Simply because I do not have a need to research into them.). 
• I have written this post from the POV of someone that knows how to invest, the financial instrument out there to reach my goals and risk management. If you do not know all these things, I would recommend buying the endowment insurance rather than allowing your money to lose value to inflation

In my belief, you should learn to take your own personal finance into your own hands. I am speaking from my own personal experience, having family members cheated by insurance agents who preyed on their ignorance. That is one of the reasons why I started this blog, to teach you about finance and such that you may take your money in your own hands. 

From what I can see: there is a generation of more financially-savvy people entering the workforce who are more willing to understand their own finances. This would force insurers to come up with competitive/ more comprehensive policies. This would be great for consumers.

With that, 

Till next time, 

Stay vested, stay frugal my friends. 

Dionysius


Sources:
https://www.investopedia.com/terms/i/insurance.asp
https://www.moneysense.gov.sg/insurance
https://blog.moneysmart.sg/life-insurance/insurance-singapore-beginners-guide/

https://www.entrepreneur.com/encyclopedia/insurance

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