Monday, May 30, 2016

Saving and Investment Plan - My personal view

Hi Everyone!

My first post after coming back from my wordpress (due to some restriction that I face and the time taken to understand how it really works), so I decided to come back with my brand new post (with a brand new looks).

The reason for today's topic is because I have encounter quite a number of agents promoting such investment/saving plans be it on phone, roadshow and etc. I did went through some sessions with the agents to understand how the endowment plan works and also read online for more details regarding such plans. The reason why I am keen to know more about it is because I want to diversify my portfolio to prevent myself putting all eggs into one basket.

Not a great plan...

So, my initial thought is that since after hearing from agents that endowment is like normal saving plans, personally I think is quite good but of course there are some restrictions in terms of purchasing such plan. for instance, you have to pay a monthly of few hundred dollars in order to sustain this plan, initially I though maybe like $200 per month might be quite a good deal since after all I am saving for my retirement and with this plan, it can force me to save quite a sum of money when my plan mature.

This is the first restriction that after I think through again. Because you need to save $200 per month and depending on the plan, you are unable to withdraw the plan or any amount (unless you surrender your plan - with forfeit/penalty) in case of emergencies or other investment opportunities. 

Secondly, will you be able to sustain the monthly payment for such plan? This is an uncertainty to many because you may think that you are still young but the economics holds many uncertainty on whether will there be a recession in your own organization. If one day, you get retrench by your company, how will you be able to sustain your lifestyle especially if you have your own family, housing loan, bills, car loan and etc. 

Thirdly, as an individual, I think it is important to weight out the importance and really have to think hard rather than going to roadshow and persuade by the agents to purchase the plan after going through with you the benefits of the plan. A good agent will really try to understand your saving capabilities and will list down all the possibilities on what are the scenarios that would happen. good agent will also provide you with advice on how to go about it rather than showing you the "potential" yield that you will achieve.

The reason why I highlight the "potential" yield is because my observation from around 6 to 7 agents that I talked to in the past, they always highlight the non-guaranteed yield (which is much higher than the guaranteed yield) and some of the policies does not have guaranteed portion (in the past, not sure about now, also according to the feedback in forums). So you must read through carefully to understand what you are really getting before you purchase the plan  

I am not saying that those saving plans are not good but it really depends on your own capability to understand the risk of having one. There are some of the things that need to really consider because the plan period is from 5 years to 20 years (if I remember correctly), so basically anything can happen. 

However, there is one thing that I really hate when going through the consultation with agents is that they will persuade you by saying "you can't afford a $200 per month payment?" or "You dine at cheaper place in order to save more to pay". I was furious when not just one by I have encounter quite a number of agents saying such things right in front of my face. I told them that it is ridiculous for them to say such a thing, of course for now, it can be affordable but few years down the road many thing might happen, which crippled the ability of the individuals to pay for the premium. Also, because of the plan you want to cut down on the current lifestyle without knowing the customer's background? The customer's might already been saving by cooking their own meal and cutting down cost whatever they could, by saying such word without putting in any tiny effort in understanding the customer background, it is ridiculous.

These type of agents, only want to go for the sales and after the sales they will ignore you once they get their commission. As I mention, a good agent will list down the possibilities on what could happen, and also inform you the risk that you are taking rather than saying such sarcastic words. Of course there are other good agents around as well who can tell you what are the things that really benefits you and telling you the pros and cons of having such plans and etc. 

So you really have to do your homework instead of just listening to the financial consultant where some of them doesn't even know much but their own products. Listen to their products is good to understand the products they are offering but you will have to do your own risk assessment as well.

What are the alternatives that I can go for?

There are many low risk instruments that you can go for with minimal lock down period, so that in case of emergency, you can still withdraw your money. For instance, OCBC 360/ UOB One and Bank of China, they are able to give you attractive interest if you are able to fulfill the requirement (around 2.5% onwards).

If not, you can go for Singapore Saving Bonds, where you can achieve 1.94% on average over 10 years. You might think, 10 years! Isn't that the same as those saving plans? The answer is no, the benefit of such bond is that you can take out the money anytime and you will still be given the pro-rated interest if you redeem before the scheduled interest date. However, you will need to pay the $4 processing fee of participating and redemption action.

Thirdly, you can go for saving account like CIMB savers account or Maybank iSavvy account which gives quite a good interest without any action, but just put in a sum of money per month. Wait wait wait, isn't that the same as those saving plans? Nope, because you can terminate or withdraw the money anytime as well.

If your risk appetite is higher, you can go for blue chips or STI etf, you control your own investment, if you know what you are doing. The above method are the alternatives that you can go and control your own yield where you can liquidate anytime in terms of emergencies. 

As for insurance, get a normal insurance plan to cover your illness and medical stuff will be sufficient. Insurance is important to cover yourself from spending huge amount of money on hospital bill and etc. If you have yet to get one, it will be best to get it while you are still healthy!

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