In Singapore, you can invest in gold in a few ways:

1) Buy physical gold (coins and bars);

2) Invest in gold ETF;

3) Open a Gold Savings Account;

4) Buy gold certificates.

PHYSICAL GOLD:

The best way to invest in physical gold is to buy them from UOB bank.

UOB sells readily recognisable gold bullion coins like the Gold American Eagle, Canadian Maple Leaf, Australian Kangaroo Gold Nuggets and Singapore Lion Gold Bullion coins, in weights ranging from 1/20 oz to one oz (two oz coins are sometimes available).

Investors should take note that there are two categories of gold coins, namely, gold bullion coins and numismatic coins. You will want to buy gold bullion coins, which are sold at a small mark-up to the spot price. Numismatic coins are sold at very high prices relative to spot and are meant for coin collectors. You should avoid buying numismatic coins unless you are a coin collector or numismatic coin expert.

PROS:

Owning physical gold is probably the safest way to invest.

UOB issues receipts for the gold that they sell and is committed to buy them back at a small discount to the spot price of gold at any time, as long as the receipts are presented. That means you can sell your gold back to UOB at your convenience without having to look for a buyer yourself.

CONS:

You will be charged GST (presently at 7%) when buying  gold bullions in Singapore. Physical gold may not be easy to sell for a good price when you need money urgently, unless you buy them from UOB.  Physical gold may also be susceptible to theft or burglary.

CONCLUSION:

Owing physical gold is one of the safest and fun way to invest.

The best way is to buy them from UOB since they are committed to buy back the gold at any time. Just make sure you keep the receipts and the gold bullions in good condition. I personally think UOB is providing a very good service for investors by selling the gold at a competitive price for buyers and providing a ready buy-in market for sellers.

I will try to buy physical gold at as close to the spot price as possible (price is my number one consideration). I will also prefer to buy an internationally “recognisable” or well known legal tender coins, such as the Gold American Eagle, Canadian Maple Leaf and Australian Kangroo if they are sold at the same price as other “less known” bullion coins.

Gold American Eagle

Canadian Maple Leaf

Australian Kangaroo

GOLD SAVINGS ACCOUNT (GSA):

This is another service provided by UOB. Investors can open a Gold Savings Account from OUB just like opening a cash savings account. The difference is that your savings will be recorded in “gold grams” instead of dollars and cents.

PROS:

GSA is another convenient and liquid way to invest in gold. Investors can deposit or withdraw gold grams at their convenience in cash form.

Investors can also open a GSA using part of their CPF money under the CPF Investment Scheme.

CONS:

Gold grams cannot be exchanged for physical gold for retail investors. They can only be deposited or withdrawn in cash. UOB also charges a small monthly fee for GSA.

I have heard critics saying that GSA is just another form of gold derivative and is therefore not as safe as investing in physical gold. Furthermore, unlike cash deposits, GSAs are not covered under the Deposit Insurance Scheme. The risk therefore lies in the solvency of UOB. I personally would not worry too much as long as UOB remains a stable and well-managed bank. In fact I have invested part of my CPF money in a GSA account with UOB.

CONCLUSION:

GSA is a convenient and low-cost way to invest in gold (derivative). The safety of your investment  is tied to the solvency of the bank (UOB).

GOLD CERTIFICATES:

UOB bank sells unallocated gold certificates in Singapore. These certificates are sold in kilobars and are redeemable for physical gold at any time (Note: I believe the redemption is on a “best effort” basis though, ie. non-guaranteed).

GOLD ETF (SPDR):

Investors can buy Gold ETF listed in the Singapore Exchange under the ticker symbol GLD 10US$, also known as SPDR (prounounced as “spider”) Gold Shares. This is a low cost fund backed by physical gold (held in custody in the US) and is traded in US dollar.

PROS:

Gold ETF is one of the most convenient ways to invest without having to take physical delivery of gold. All you need is a share trading account and you can buy or sell it at anytime, just like buying or selling shares of any other publicly listed companies. Investors have assurance that the fund is 100% backed by physical gold. Investors can also buy SPDR using part of their CPF money under the CPF Investment Scheme.

CONS:

Since it’s traded in US dollars, you will have to incur a foreign exchange fee. There are also other fees built into the fund (eg. audit and storage fees) which, in my opinion is quite negligible.

Even though the fund provides for the possibility of taking physical possession of the gold bars, it is generally unrealistic in practise, since under the fund agreement, physical gold can only be redeemed in blocks of 100,000 shares (ie. close to SGD$2 mil at today’s price).

There is also a concern that it is susceptible to fraud, just like any other listed companies.

I personally think that the possibility of fraud is very slim as long as proper safety measures are in place. In the case of SPDR, the gold is held in the form of a “Trust” and the trustees are allowed to visit and inspect the gold held by the custodian, HSBC bank USA, twice a year. The Trust’s independent auditors may also audit the Gold holdings in the vault as part of their audit of the Financial Statements of the Trust.

However, US has a precedent of gold confiscation which investors may want to take into account. This happened in the year 1933 during the Great Depression.

Executive Order 6102 (Gold Confiscation Order, 5th April 1933)

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Robert writes about, among other things, the founding of the Federal Reserve (which was under a high level of secrecy) and the fiat monetary system. Until today the Federal Reserve continues to operate in a highly secretive manner.

What caught my attention is Robert’s contention that the public school system is designed by the rich for their own benefits.

According to Robert, the public school system trains people to be employees and self-employed rather than to be entrepreneurs and investors. In other words, financial education has been deliberately left out of the school system and we are being brainwashed and conditioned to “submissively surrender our hard-earned money” to the rich.

I do not know whether the school system is indeed part of the “conspiracy of the rich” but I have to agree with the author that it is strange that the subject of “money” or financial literacy is not being taught in school.

Many years ago I read Robert’s best-selling book “Rich Dad, Poor Dad” and it helped me look at the world from the perspective of the rich. I began to see the world in a different light and it stirred in my heart a desire to be financially free.

Since then I had read dozens of books on economics, personal finance and investing. The more I learn, the more I find it unbelievable that the public schools do not teach financial literacy. Like Robert, I believe that financial management should be made a compulsory subject to be taught in every school.

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1. The Money Game

- Robert Allen

Income can be categorised into 3 broad types:

1) Active (earned) income;

2) Passive income and;

3) Portfolio income.

Most people are familiar with only one type of income, that is, active income.

However, it is often the second and third types of income, passive income and portfolio income, that will help us accumulate wealth. That is perhaps one of the reasons there is a widening rich-poor divide? The rich knows the rules of the money game and concentrate their efforts on building passive and portfolio income streams.

In his book “Multiple Streams Of Income”, Robert Allen says that in order to be financially secure, a person needs to build multiple income streams, in the form of passive and portfolio income.

What are the differences between these 3 types of income?

Active income:

This is the type of income we earn as employees or self-employed (eg. a hawker). We exchange our efforts and time for money. The moment we stop working, our income stream gets cut off (aka. the rat race).

Passive income:

This is the type of income we get when we do the work once but get paid many times over. For example:

i) An author writes a book once and get paid royalties for many years, for every book that is being sold (eg. Robert Allen);

ii) An artiste performs once and have the performance recorded and made into CDs and VCDs, screened in cinemas and televisions, and get paid royalties for many years (eg. Michael Jackson);

iii) An entrepreneur builds a business system and, instead of doing all the work himself, he hires others (employees or other small business owners) to work for him.

Portfolio income:

This is the type of investment income we earn when we own securities, such as stocks and bonds. We get paid interests or dividends. There is also a potential for capital gains.

Have you been building your passive and portfolio income?

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1. Conspiracy of the rich
2. Money, Banking and the Federal Reserve
3. The Richest Man In Babylon

Life insurance policies can be broadly divided into 2 main types, namely particpating policies and non-participating policies.

A participating policy is an insurance policy that participates in the profits of the insurance fund, for example a Whole Life Policy or an Endowment Policy. They typically pay a yearly “bonus” or dividend.

A Non-Participating Policy is an insurance policy that does not participate in the profits of the insurance fund, typically a renewable term insurance policy.

Here are the reasons I don’t buy participating insurance policies:

1) The premiums are too high;

2) The insurer may cease operation or go bankrupt;

3) I don’t believe in “forced savings” for the following reasons:

a) If I become unemployed, or am unable to service the monthly premium for whatever reason, I stand to lose up to 90% or more of the premiums I’ve already paid, especially during the first few years upon purchasing the policy;

b) The “bonuse rates” or dividend rates of participating insurance policies (eg. whole life or endowment) are non-guaranteed. Furthermore, the rates are unattractive to me;

d) If I should need to withdraw the money prematurely for whatever reason, I may not be able to do so without a paying a heavy penalty. To surrender the policy would mean I stand to lose up to 90% or more of the premiums I’ve paid. To borrow against the policy doesn’t make sense to me since I will have to pay interest for borrowing against my own “savings”;

4) Most participating insurance policies only pay the insured upon what is known as a “total and permanent disability”, which typically means I only get paid if I lost two of my eyes, arms or legs. What if I lost one arm, one eye or one leg? I don’t get paid at all, even though the “partial” disability can be just as devastating financially. Needless to say, it’s many times more likely for a person to sustain partial disability than “total and permanent disability”. Meanwhile I still have to continue servicing the insurance premiums on top of the medical bills I’ll have to pay out of my own pocket. Of course, I can add a “rider” to cover the partial disability but that would mean I’ve to pay a higher premium. A term insurance policy would be a much cheaper and better choice to insure against a partial disability. Also, an insurance rider to cover “critical illnesses” typically pays only upon the end stage of an illness, for example, the end stage of cancer. That means I won’t be paid the moment my illness is diagnosed. Meanwhile I’ll still have to pay my medical bills and continue servicing the insurance premiums.

Investment-linked Policies (ILPs) are essentially professionally managed investment funds (can be likened to Unit Trusts) that comes with insurance benefits. Studies have shown that the majority of professionally managed investment funds consistently underperform market indices over long periods. I would rather invest the money myself or buy ETFs instead.

In my opinion, an insurance policy is a lousy vehicle to save money. Insurance can and should be used solely for insuring against unexpected medical expenses.

For such a purpose I would rather buy a non-participating, plain vanilla term insurance policy, which comes with the following benefits:

i) A much lower premium than a participating policy;

ii) I can stop paying the premium any time I want with minimum penalty;

iii) I can get a much more comprehensive insurance coverage at a much lower price.

I’ve often heard stories about people who over-commit to expensive life insurance policies only to give up halfway resulting in financial loss which often adds up to a few thousand dollars or more. In fact I myself was one of the “victims” in my younger days.  =)   I hope that readers of my blog would be able to avoid the costly mistakes I myself and many others have made.

You may want to read more insurance related articles in Mr Tan Kin Lian’s blog.

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1. Money, Banking and the Federal Reserve

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- Babylonian Proverb, P.55, The Richest Man In Babylon.

The Richest Man In Babylon, authored by George Samuel Clason, is by far the most important personal finance book I’ve read.

It’s written in the form of parables set in ancient Babylon. It espouses thrift, hard work and prudent investing.

The book addresses issues such as:

1) Why most people don’t seem to have enough money to spend even though they are hardworking, while others are able to accumulate wealth even though they are neither more hardworking nor more intelligent than average;

2) Why most people lost money whenever they invest, while a relatively few people are able to make money in whatever they invest in;

3) Why are some people always lucky? Is there a way to attract good luck?

Other topics discussed in the book are:

a) How to eliminate debt;

b) How to accumulate, protect and grow your wealth;

c) How to invest profitably and safely;

d) How to avoid the common pitfalls of investing.

Chapter Summary:

•             1.1 Chapter One: The Man Who Desired Gold

•             1.2 Chapter Two: The Richest Man in Babylon

•             1.3 Chapter Three: Seven Cures for a Lean Purse

o             1.3.1 The First Cure: Start thy purse to fattening

o             1.3.2 The Second Cure: Control thy expenditures

o             1.3.3 The Third Cure: Make thy Gold Multiply

o             1.3.4 The Fourth Cure: Guard thy treasure from loss

o             1.3.5 The Fifth Cure: Make of thy dwelling a Profitable Investment

o             1.3.6 The Sixth Cure: Insure a Future Income

o             1.3.7 The Seventh Cure: Increase thy Ability to Earn

•             1.4 Chapter Four: Meet the Goddess of Good Luck

•             1.5 Chapter Five: The Five Laws of Gold

•             1.6 Chapter Six: The Gold Lender of Babylon

•             1.7 Chapter Seven: The Walls of Babylon

•             1.8 Chapter Eight: The Camel Trader of Babylon

•             1.9 Chapter Nine: The Clay Tablets from Babylon

•             1.10 Chapter Ten: The Luckiest Man in Babylon

•             1.11 Chapter Eleven: A Historical Sketch of Babylon

I read the book many years ago and it’s philosophies have benefited me tremendously.

In fact, the book had changed my spending habit and my attitude towards money. I’ve become much more confident in handling my finances and I’ve also become a better investor. In my opinion this is a “must read” book for anyone who is interested in personal finance.

Do you have any personal finance or investment book to recommend?

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