My Retirement Plan At 35

[camelking]

With 1 mil, there are more alternatives open out there.
Corp bonds are one and in fact allows one to be getting 3+ to 5+% yield to maturity and at low risk.

Low risks doesn't mean no risks, but if one chooses corp bonds that are backed by Temasek with low debt to asset ratio, I guess it should be pretty alright.

Imagine.. REITs giving 5-7% dividend yield yet when recession comes, the price would start to wobble. Corp bonds however don't wobble much at all and yet continually give 3-5% yield.

Furthermore, corp bonds give one the power to leverage and banks look at the bonds as your assets. Thus allowing up to 60% leverage power.
If you have one mil, you can get 4 corp bonds, and leverage for another 2 more, and the two bonds can leverage for one more. (at most extreme leveraging)
All at the interest of 1.2% per annum. (subjected to i/r fluctuation in future)

Sadly the denomination are in 250k, thus this is why the rich get richer in this country. Crappy but true.

The rich always get richer in most countries in most of the times.

[arthur]

Some years back, I was very envious of a friend of mine who was getting 10% to 12% for some investments that were only available via Private Bankers. I was seriously contemplating whether to put together $250k and beg this friend to ask the Private Banker to allow me to invest in this good 'lobang'. Fortunately, I didn't do that as that 'lobang' was for CDOs....

CDO? that's strange as I believe nowadays nobody wants to touch these collateral debt obligations with a 12 foot pole.

The bonds I was referring to are corporations bonds not mini-bonds. 10% yield? Maybe Swiber bonds?

[KopiKat]

Some years back, I was very envious of a friend of mine who was getting 10% to 12% for some investments that were only available via Private Bankers. I was seriously contemplating whether to put together $250k and beg this friend to ask the Private Banker to allow me to invest in this good 'lobang'. Fortunately, I didn't do that as that 'lobang' was for CDOs....

CDO? that's strange as I believe nowadays nobody wants to touch these collateral debt obligations with a 12 foot pole. The bonds I was referring to are corporations bonds not mini-bonds. 10% yield? Maybe Swiber bonds?

You are right, I was referring to a period of time before the sub-prime problem blew up...

What I was trying to say is, the rich doesn't necessarily get richer just because they have access to a lot more other choices of investment products. Same as the rest, they still have to do their due diligence as many of these are a lot more complex! The other interesting thing is, their decision to invest / not invest may be based on just one page of useless (to me) facts and figures. I was asked by another friend to take a look at an investment product recommended by a Private Banker - a request for more detailed info appears hard to get and the attitude was something like, 'if you need to ask, then it's not suitable for you. There're many others who're eagerly waiting to buy more of it..' My advice was to give it a miss... Phew! Was afraid I may have to go thro' a few hundred pages of financial gibberish which I doubt I can even understand...

But, again, you are right when it comes to Corporate Bonds. For these somewhat 'safer' investments, they have a lot more choices than other retail investors.

But, having a $1Mil may not necessarily qualify you, IIRC (I asked before) you need to commit at least the whole $1Mil for investment with the bank, spread over a few other investments.

[yeokiwi]

KopiKat Wrote: Some years back, I was very envious of a friend of mine who was getting 10% to 12% for some investments that were only available via Private Bankers. I was seriously contemplating whether to put together $250k and beg this friend to ask the Private Banker to allow me to invest in this good 'lobang'. Fortunately, I didn't do that as that 'lobang' was for CDOs....Rolleyes

Come to think of it, I still had not figured out the reason why I did not participate in that CDO madness.
Some of the possible reasons:
1) I was too lazy to visit the banks and so the pretty RMs had no chance to charm me.
2) Does not trust the banks.
3) Did not understand where the yield was from. This was likely the main reason but I was not so sure.
4) Too engross in equity markets. ya.. all the money were tied up and so had less reason to visit the banks.
5) Lady luck was smiling at me.

With that kind of yield + supposedly capital protection in the low interest rate environment, it was simply too difficult not to be tempted.

[KopiKat]

KopiKat Wrote: Some years back, I was very envious of a friend of mine who was getting 10% to 12% for some investments that were only available via Private Bankers. I was seriously contemplating whether to put together $250k and beg this friend to ask the Private Banker to allow me to invest in this good 'lobang'. Fortunately, I didn't do that as that 'lobang' was for CDOs....Rolleyes

Come to think of it, I still had not figured out the reason why I did not participate in that CDO madness.
Some of the possible reasons:
1) I was too lazy to visit the banks and so the pretty RMs had no chance to charm me.
2) Does not trust the banks.
3) Did not understand where the yield was from. This was likely the main reason but I was not so sure.
4) Too engross in equity markets. ya.. all the money were tied up and so had less reason to visit the banks.
5) Lady luck was smiling at me.

With that kind of yield + supposedly capital protection in the low interest rate environment, it was simply too difficult not to be tempted.

IIRC, when they introduced to the 'mass market', the yield was 8% (for US$) and 6.75%? (for S$). I didn't like the idea of US$ exposure (for better yield) and the S$ yield was totally unattractive to me vs other Yield Stocks. On top of that, I got a headache just looking at the thick prospectus...

No, not that I was sophisticated enough to identify the sub-prime risks. I was fortunate to avoid that due to my laziness + low financial IQ (to read and understand prospectus) + Greed (for higher yields)...

[yeokiwi]

Banks used to have many funny products...
Not sure whether they are stilling selling these..

Product : Equity Linked Structure

If you have an interest in a particular stock but you are concerned about buying it at this time due to the price/situation/economics/etc,
We have come up with this product as an option for you:
(with the below CapitaLand example)
Spot Price : 4.220
Strike Price : 90% (3.798)
Interest : 10%p.a. = S$1,654.47 (Amount X Interest for period) (Guaranteed n Paid to you at maturity)
Lot holding : 53 (if strike)
Tenure : 1 month
Investment Amt : S$201,294.00 (No. of Shares X Agreed Strike Price)

In short, the current price is 4.220 but you need only to buy the stock at a lower strike price at maturity should the price fall below your strike level.

And you get paid an interest while waiting!
In other words:
Scenario 1 (based on details stated above)
Spot Price @ Maturity : 3.820
Interest Earned : 10%p.a. = S$1,654.47
Converted? : No Conversion, No Strike, No Purchase
Lot holding : 0
Remarks : You get back your principle + interest earned
Interest credited into your current account
Scenario 2 (based on details stated above)
Spot Price @ Maturity : 3.790
Interest Earned : 10%p.a. = S$1,654.47
Converted : Yes
Lot holding : 53
Remarks : You have purchased the stock at a lowered price and earned a 10%p.a. interest!
Interest credited into your current account.
QUESTION:
What happens after each case scenario?
ANSWER:
For scenario 01: you have not purchased any stuff thus you have the option to strike another stock of your interest. Should you still have interest in the same stock, you can choose to strike it again and earn the high interest.

For scenario 02: you have purchase 53 lots of CapitaLand stock at a lower price compared to the initial date. You have the option to hold on to the stock (as per your initial intentions) or you can do a reverse strike with the bank again.

Reverse Strike

Spot Price : 3.790
Strike Price : 110% (4.169)
Interest : 10% = S$1,650.99 (Mkt Value of stock X Interest for period) (Guaranteed n Paid to you at maturity)
Lot holding : 53

Tenure : 1 month
Additional Funds : NO
Scenario A
Spot Price @ Maturity : 4.200
Interest Earned : S$1,650.99
Converted : YES
Amount collected : S$220,957.00
Principle Growth : S$19,663.00
Total Yield from Initial : 11.41%
Scenario B

Spot Price @ Maturity : 4.150
Interested Earned : S$1,650.99
Converted : NO
Remarks : Did no reached target thus no change in holding but interest earned.
Strike again for another month!
Please see below:

Counter: CapitaLand (Bloomberg: CAPL SP)
Strike: 90%
Gross Yield: 10%
Min Size: SGD 200,000
Max Size: SGD 2,000,000

Dates as in daily T+14, 1 month pricesheet:
Trade Date: 19 Jul 06
Start Date: 2 Aug 06
Expiry Date: 31 Aug 06
Maturity Date: 1 Sep 06
Delivery Date: 5 Sep 06
No of days: 30

[d.o.g.]

Banks used to have many funny products...
Not sure whether they are stilling selling these..

Oh yes. Equity Linked Notes are EXTREMELY popular. Banks love to sell them since they are fee-based, no risk. And the customers love it because they think it's win-win, either they get an interest payment or they get the stock at a cheap price.

The reality, of course, is that all the customers are doing is writing a put option; they are SELLING INSURANCE. The "interest" is nothing more than the premium payment. In a bull market the option expires and the customers keep the money. When the stock tanks the put is executed and they are stuck with the stock. Heads they win a little, tails they lose a lot. In some ways it is similar to the Lehman mini-bonds, albeit the exposure is to a specific stock instead of a pool of loans. But ultimately, it's the same structure and thus a horrible product for buyers - but ignorance is bliss, is it not?

The ELN tenure is typically one month, if it goes for several months it is usually called an "accumulator" a.k.a "I kill you later". Accumulators were popular in the last great bull market, then the bear arrived and did a great deal of damage, so nobody is selling them for now.

And think about who is on the other side of the trade - they are BUYING insurance against the stock crashing. Who are they? Smart money like hedge funds, who buy the puts via their prime broker, which in turn coordinates with its private banking arm to sell off the exposure to the private banking customers as ELN-type "investments".

[Temperament]

For all those who had somehow escaped the ravage of CDO products, we thank GOD or our "Lucky Star". i managed to escape by keeping up reading news about these products. i found almost all the news not in favour of investing in this products. So i gave CDO a wide berth.

At first when i read the brochures of these CDO, i were of course attracted to the capital guarantee parts.
(In fact most banks were stressing on this clause; smoke & mirror clause that layman found it hard to understand)
i found i don't completely understand this guarantee clause; so i did not buy.
i am sure many layman got trapped by this clause: "Capital guarantee what, there is nothing to worry"
So the moral of my story is that from CDO fiasco, i learn the English word "Guarantee" actually can have many meanings.
Under certain usage like in CDO brochures, "Guarantee means actually guarantee you have no guarantee at all due to all the attached conditions to the word guarantee.
So you see, i am now very, very careful whenever i come across the English word "guarantee".
i really learned now how to understand the word "Guarantee".
Have you?
Once again, we all thank GOD or our "Lucky Star".

---

Banks used to have many funny products...
Not sure whether they are stilling selling these..

Oh yes. Equity Linked Notes are EXTREMELY popular. Banks love to sell them since they are fee-based, no risk. And the customers love it because they think it's win-win, either they get an interest payment or they get the stock at a cheap price.

The reality, of course, is that all the customers are doing is writing a put option; they are SELLING INSURANCE. The "interest" is nothing more than the premium payment. In a bull market the option expires and the customers keep the money. When the stock tanks the put is executed and they are stuck with the stock. Heads they win a little, tails they lose a lot. In some ways it is similar to the Lehman mini-bonds, albeit the exposure is to a specific stock instead of a pool of loans. But ultimately, it's the same structure and thus a horrible product for buyers - but ignorance is bliss, is it not?

The ELN tenure is typically one month, if it goes for several months it is usually called an "accumulator" a.k.a "I kill you later". Accumulators were popular in the last great bull market, then the bear arrived and did a great deal of damage, so nobody is selling them for now.

And think about who is on the other side of the trade - they are BUYING insurance against the stock crashing. Who are they? Smart money like hedge funds, who buy the puts via their prime broker, which in turn coordinates with its private banking arm to sell off the exposure to the private banking customers as ELN-type "investments".

i almost persuaded by some "bankers" to invest in ELN but i found that if the contract is executed, the price of the stock is not attractive to me. So i don't buy any. i like to ask is it possible for the banks structure this "ELN" that the "strike price" of the stock is attractive to me. So far they can't or i come across one. In other words, is there a possible condition for the Bank's ELN's strike price to be attractive to me. If possible, i can wait.

---

Banks used to have many funny products...
Not sure whether they are stilling selling these..

Product : Equity Linked Structure

If you have an interest in a particular stock but you are concerned about buying it at this time due to the price/situation/economics/etc,
We have come up with this product as an option for you:
(with the below CapitaLand example)
Spot Price : 4.220
Strike Price : 90% (3.798)
Interest : 10%p.a. = S$1,654.47 (Amount X Interest for period) (Guaranteed n Paid to you at maturity)
Lot holding : 53 (if strike)
Tenure : 1 month
Investment Amt : S$201,294.00 (No. of Shares X Agreed Strike Price)

In short, the current price is 4.220 but you need only to buy the stock at a lower strike price at maturity should the price fall below your strike level.

And you get paid an interest while waiting!
In other words:
Scenario 1 (based on details stated above)
Spot Price @ Maturity : 3.820
Interest Earned : 10%p.a. = S$1,654.47
Converted? : No Conversion, No Strike, No Purchase
Lot holding : 0
Remarks : You get back your principle + interest earned
Interest credited into your current account
Scenario 2 (based on details stated above)
Spot Price @ Maturity : 3.790
Interest Earned : 10%p.a. = S$1,654.47
Converted : Yes
Lot holding : 53
Remarks : You have purchased the stock at a lowered price and earned a 10%p.a. interest!
Interest credited into your current account.
QUESTION:
What happens after each case scenario?
ANSWER:
For scenario 01: you have not purchased any stuff thus you have the option to strike another stock of your interest. Should you still have interest in the same stock, you can choose to strike it again and earn the high interest.

For scenario 02: you have purchase 53 lots of CapitaLand stock at a lower price compared to the initial date. You have the option to hold on to the stock (as per your initial intentions) or you can do a reverse strike with the bank again.

Reverse Strike

Spot Price : 3.790
Strike Price : 110% (4.169)
Interest : 10% = S$1,650.99 (Mkt Value of stock X Interest for period) (Guaranteed n Paid to you at maturity)
Lot holding : 53

Tenure : 1 month
Additional Funds : NO
Scenario A
Spot Price @ Maturity : 4.200
Interest Earned : S$1,650.99
Converted : YES
Amount collected : S$220,957.00
Principle Growth : S$19,663.00
Total Yield from Initial : 11.41%
Scenario B

Spot Price @ Maturity : 4.150
Interested Earned : S$1,650.99
Converted : NO
Remarks : Did no reached target thus no change in holding but interest earned.
Strike again for another month!
Please see below:

Counter: CapitaLand (Bloomberg: CAPL SP)
Strike: 90%
Gross Yield: 10%
Min Size: SGD 200,000
Max Size: SGD 2,000,000

Dates as in daily T+14, 1 month pricesheet:
Trade Date: 19 Jul 06
Start Date: 2 Aug 06
Expiry Date: 31 Aug 06
Maturity Date: 1 Sep 06
Delivery Date: 5 Sep 06
No of days: 30

Of course they (Banks) do. Pow Chiat products for them what. (Reference to D.O.G.'s article above) In fact only not many months ago, some bankers still try to persuade me to buy ELN. Of course i told them the strike price of the stock was not attractive to me though the interest payment may be acceptable. Sometimes the interest payment is not attractive too for some ELN contract. Until now they have not asked me again. They may try some other "funny products" though. i have to be very discerning.

[camelking]

For better yield, u can go for combo of 3 or 4 US banking stocks.

Yield : 25%
Strike : 70%
Kick off : 93%
Stocks : MS, C & GS
Duration : 9mth

High risk = High return
For the super rich with huge risk appetite only.

[CityFarmer]

IMO, it is nothing wrong with the ELN. It become dangerous only if it fall into wrong hand.

It provides similar service as insurance, transfer risk with a premium. If the insurance risks and premiums are well taken care of, then it is just another useful service, both to ELN issuers and ELN holders