Guarantee of 4% per annum?

Dear Mr Tan,

Does the insurance company guarantee at least 4% long term? It may not be realised even after waiting for the long term, right? Or do you based the 4% on past performance and think future will be the same?

REPLY:

The fund or insurance company does not provide this guarantee of 4% return.

If you are investing over a period of 10 years or longer in equities, you are likely to get an average of more than 4% per year, based on past records.

For some periods, the average return can be higher, e.g. close to 8% per year. For other periods, it may be lower, i.e. closer to 4% per year.

Take the investment risk and get a better return. Invest for 10 years or more, so that you can average out the good and bad years.

Invest in a large, well diversified, low cost fund, so that most of the return are given to you (and not taken away as expenses and charges).

I am quite confident that the return in the future will be higher than other types of investments. I am making most of my personal investment in this type of fund.