- Retirees made up a large majority of the investors in Profitable Plots

Retirees made up a large majority of the investors in Profitable Plots

Written by Wilfred Ling

Wednesday, 25 May 2011

According to the Business Times report Profitable Plots urged to explain defaults to investors retirees made up a large majority of the investors in Profitable Plots. One retiree by the name of Michelle invested her entire life savings in the company. However, in 2009 due to an eye problem she requested that her investments be liquidated which was not possible. To date, she has lost sight of one eye.

What are the things we can learn from this fiasco? The following are my advice:

Be diversified in investments. Do not sink all your eggs into a one basket regardless of how good the potential returns will be.
It is OK to earn 0% in the fixed deposit. There is nothing to be ashame about. Invest according to one’s comfort level. Better to earn 0% in return than to lose the entire capital in high risk investments.
For hospitalization and surgical needs, do not rely on retirement money to fund it. Use insurance. We are now in the 21st century in which nobody pays hospitalization expense from out of own pocket. I spoke to a private practice surgeon the other day. He told me that his practice hardly collect payments from patients these days. Payment these days are almost cashless using insurance.
Be financially educated and understand the risk involved in the investments. Land banking falls under the realm of investing in raw lands. The investment characteristics of raw land are:
- Passive
- Illiquid
- Limited leverage
- Rate of return by appreciation only (i.e. no rental income)
- Taxable capital gain (depending on jurisdiction)
- Relies on planning and zoning permits which is driven mainly by politicians than market forces.

There are many forms of real estate investments but investing in raw land actually belongs to the highest risk form of real estate investment. Raw land investment is actually more suitable for speculator (ironically for short-term gains) and developer (for long-term operating needs).

All other forms of real estate investments have a lower risk. These are: residential rentals, office buildings, warehouses, neighborhood shopping centers and hotels/motels. Direct investments into these are often not possible for average joe but many of which have been securitized. REITS is an example of securitized real estate investment.

For further reading on the risk characteristics of real estate including raw land, I recommend reading “Real Estate”, Thirteen Edition by James D. Shilling. Copyright by Cengage South-Western.

This article also appeared in CPF Board's IM$avvy: http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid=544177686-244-305597186

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Anonymous

|220.255.1.113 |2011-05-25 15:18:24

"I spoke to a private practice surgeon the other day. He told me that his practice hardly collect payments from patients these days. Payment these days are almost cashless using insurance. "

That's why private Shield premiums are inflating at 6% to 10% per annum. If your dad is now paying $1,500/yr for his shield plan. When you are his age, you will be paying $22,000/yr for the same shield plan. Welcome to USA.

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Wilfred

|SAdministrator |2011-05-25 16:01:02

There is no way to reverse the trend. It is already happening even to the government hospital. Health care is already very expensive and will escalate faster than the average inflationary rate. If government wants to do something about it, it will have to subsidise it but that will mean greater taxes. So either one have to pay health care using expensive insurance or pay more expensive taxes. It is the same thing.

On 8 Jan 2011, ST paper reported that a C class ward has jumped in charges by 71% from 2006 to 2010. Those who refuse to buy insurance because they felt it is expensive when old is in a state of denial.

Welcome to the USA indeed.

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Joe P - Profitable Plots Commission Structure

|119.73.235.2 |2011-06-07 10:10:59

There is a legal case in Malaysia which has outlined the commission structure that Profitable Plots were using.
http://www.mp.gov.my/eicpp/MainServlet?act ion=downloadAward&awardCategory=4&awardIndex=15434

A basic salary of RM 1,000 per month together with commission on sales. With effect from 1.6.2006, the Claimant would be entitled to 8% commission from sales made to self-generated clients, 6%
commission from sales made to Company applied leads and 4% commission
from sales of STAR plots, reloads by Client Services Department and reloads
of client referrals by the Client Services Department.

That would be S$1200 per plot sale to friend and family at 2007 exchange rates and the first plot sold would triple your salary.

The more interesting one is the "star" products which was upposed to pay out 12.5% interest after 12 months.

4% sales commission + 12.5% + whatever the management were paying themselves would probably need an investment return of at least 20% per year to fund.

There is no possible way to get that kind of return consistently without this being some kind of Ponzi.

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