Tan Kin Lian's Blog: Growth policy: yield of 4.6% p.a.

Sunday, July 29, 2007

Growth policy: yield of 4.6% p.a.

Mr Tan,

Just to share and seek your view on my following Growth Policy from NTUC Income:

I bought the Growth Policy (10 yr) in 1997 for $3000. It had a guaratneed maturity value of $3,750 and a projected value of $5063.

This policy will mature on 1st Aug 2007. I was told that the finalised amount was $4742.

Should I feel happy that it is more than the guaranteed amount or unhappy that it is less than $300 less than the projected amount?

REPLY

Wow, you got a return of 4.6% per annum for the past 10 years. That is a great return (although it is slightly lower than the original projection).

Many people invested large sums of money in structured products during this period. They obtained a miserable return of 0.2% per year for 5 years. They would be delighted to get a return of 3% (not even 4.6%).

Yes, you can be happy. And send your thanks to the adviser who sold this product to you.

9 comments:

Anonymous said...: Before you rush to thank your adviser let me give you some numbers.
If the Growth has delivered according to projection the compounded return would be 5.37%.
However,the actual return is 4.68% and not 5.4%.
Better still, if your adviser had worked a little bit harder and convinced you and not afraid himself or herself to advise that if you had over 10 years time frame it would have been much better to invest in a diversified fund. If you had invested in the Prime fund you would have gotten about 9.5%. Your $3000 would have become $7435 now and that is more than double your initial investment. This is how to make your money work harder for you. Of course the adviser plays an important part. If he or she is not confident or unqualified he or she would have you take the safer route and for himself too,and to your disadvantage. 10 years gone. You can't go back in time. This is investment and time plays a great part and is investors' best friend.
The next time, choose a correct adviser to help you accumulate and manage your wealth.; July 29, 2007 10:25 AM
Anonymous said...: It is very easy to criticize with the benefit of hindsight.

4.6% returns per annum is a good yield. Many products including structured products and investment-linked insurance policies fell very far short of what was projected.

Kudos to NTUC Income and Mr Tan Kin Lian.; July 29, 2007 10:50 AM
Anonymous said...: I'm sorry that I cannot follow your line of thought.

You were saying that the person would have been better off had he invested in a diversified fund.

But, the Growth fund (which invests global securities) is a more diversified fund than the Prime fund (which invests in regional securities).; July 29, 2007 12:00 PM
Anonymous said...: Yes, 4.6% is a good return if you are a rich and have already the funds to meet whatever needs you have in the future. You don't need much growth; your main objective is preservation and a little growth above inflation.
But if you are crimping and have little to set aside,have a big goal, growing at 4.6% is too slow. You need a fast vehicle, more risky, otherwise reaching your destination is going to take you a long time,eg delay your gratification or reduce your expectation.
Ya,there you are , you need to take risk, you may say, Growth only low risk.
As mentioned above, time, among others,is one of the key factors in investment; it takes care of risk and growth at the same time. If you have the time like 10 years, 5% and above is easy. You can close both eyes and you can get it. Other than time you need to have a good adviser who is able to manage your investment.
Diversification is general in its meaning. It simply means putting
lowly correlated assets together in a basket to reduce risk.It can be a few assets or many assets, therefore the terms broadly or narrowly are used to indicate the degree of diversification. Yes, Growth is more broadly, Prime is narrower. I hope i explained myself. I make it look simplistic.Space doesn't allow.; July 29, 2007 1:39 PM
Anonymous said...: I refer to the investment of the $3000 in the Growth Policy.
Was the $3000 from CPF or cash.? If it was cash or even CPFOA it is still good.
I have an aunty. She was apporaoched by a NTUC top agent(name card shows mdrt) to invest her $45K balance in CPFSA account in this product.My aunty was a simple and naive woman .She didn't know any thing about investing.
It was fortunate and unfortunate that I was consulted. When I went through the quotation and listened to her what she was told i was shocked.
My aunty was only told what Growth could give her after 10 years. Of course she was delighted to see her money increased after 10 years.What rate of return? She didn't understand even if you have told her.
She was also told the double cover for insurance if she died.
My points are these. The growth policy return is not quaranteed and that it can return lesser than 4% and even it returns above 4% it is only less than 0.1%. Is it worth it to subject your money to risk when you can get risk free 4% without a lock in? From year 1 to year 9 the return is less than 4%.
The insurance is not important but i seemed to the agent that this feature was a must buy, a double payout for death due to accident. I don't think you should risk your retirement fund to buying insurance. And she was already adequately covered.
Agent didn''t disclose about the risk 4 % by CPF.
Mr. Tan i like your frank and unbiased comment on this. Was the agent acting in the best interest of my aunty? Was the sales approach unethical? Any conflict of interest? Thank You.; July 29, 2007 7:23 PM
Khiat Han Hwee Adrian said...: 4.6% returns over 10 yrs is considered ok considering the low risk involved and the insurance conponent found in the Growth Policy.

Potential returns from Investment is higher but circumstance of individuals are different at the point of purchase.

3 areas that affect a person decision at that point.
1) Ones Ability to hold
2) Ones Objective and investment Horizon
3) Ones unique willingness towards risk; July 29, 2007 9:37 PM
Anonymous said...: I think the post is on the Growth Policy single premium endowment, not to be confused with the Growth Fund ILP.; July 29, 2007 10:24 PM
Anonymous said...: The post by Anonymous 7.23pm is about Growth Policy and not growth fund.
The issue here is whether it was right for the agent to make his aunty invest her CPFSA in the Growth Policy which returns about the same or maybe worse than CPF risk free 4%.As we can see that investing in Growth Policy is not gauranteed, meaning it has risk as proven by the guy who invested $3000 and didn't get as projected. That is not the only risk but lock in risk too and which is not seen in CPF.Why is CPF Special Account allowed to invest in a product which is not as good as leaving in the CPF. Special account is for retirement and not for other things and unless one can increase its value significantly otherwise it should be left in CPF to earn 4% without risk.
Agents should be scrupulous and not fool with others' retirement fund.
Certainly it is a conflict of interest.; July 30, 2007 9:57 AM
Thomas Phua's Blog said...: Diversify does not mean only buy funds that has diversification.

Do not put all eggs in one basket.

Some funds need to be in safer instruments like FD and plans like the single premium Endowment Growth Policy and some in well diversified fund.

I shifted max to my CPFSA from CPFOA.

Some cash in the bank for liquidity.

Cash that is rotting place in Growth Policy.

Funds that I can take a risk, buy funds, stocks & shares.

There is no one correct instrument.

Is this diversification? Or spreading the investments?

I remember this anonymous arrogant guy who always hit at the topics told one who seen 3 cycles of volatility off last 15 years, and he replied he is worth a little more than $3 million today and Mr Anonymous seems have no other better arguments.

Each have to make their own plans for retirement, except don't be too greedy to expose to too much risk.; August 01, 2007 11:24 AM