Tan Kin Lian's Blog: Keep your money in CPF

Saturday, March 22, 2008

Keep your money in CPF

Hi, Mr. Tan
I need your advice. I have just signed up for a $30,000 Growth policy using my OA. The insurance agent told me that I must sign up before 1 April to beat the deadline. It offers a projected return slightly more than 4%.

My friend told me that this policy locks me up for the period of 20 years. If I need the money to buy a property or to contribute towards the monthly payment (in case I lose my job), I will have to suffer a loss. Is this correct? Can I withdraw from my policy now?

REPLY
Most people uses the ordinary account to pay the down payment for a property and to service the monthly repayments.

If you invest in the Growth policy, it is locked up for the period of 20 years. If you decide to terminate the policy (e.g. to use the funds for a property), you will have to suffer a loss, as part of your investment is used to pay commission to the insurance agent.

If you keep the money in the ordinary account, you will earn 3.5% (i2. 2.5% plus 1% bonus on $20,000). If you invest in the Growth policy, you will get a return between 2% to 4% (plus) depending on the future rate of bonus. If interest rate remains at a low level (as it has been during the recent years), the return on the Growth policy is likely to be lower than projected.

In my view, it is better to keep your money liquid, rather than be locked up in a long term contract that offers only a marginal increase in yield. If you decide to cancel the policy, you can do it within the 14 day cooling off period, and get a full refund.

7 comments:

Anonymous said...: Sometimes i wonder why people can be so gullible to believe insurance agents. Many times in this blog it was said the insurance agents are not the people who you should use when it comes to investing. Insurance agents don't have any idea other than putting your money in products which THEY are comfortable and not YOU.Normally these products are useless and they come with a lot of restrictions and downsides.
For your case, you might have told the agents that you were risk averse. Risk averseness is not going to help you grow your money. Neither is riskiness is about losses. You must wake up to understand all these parameters.
If GIC is risk averse today it won't be a powerful Sovereign Wealth Fund to be reckoned with.
Remember this, before you invest,NEVER consult an insurance agent. They don't know about insurance planning which they are supposed to know. What do they know about investment?; March 22, 2008 9:22 PM
Anonymous said...: My advice is to cancel the policy and shift to a diversified portfolio.Get a qualified adviser, preferably a CFP, to help you construct the portfolio. Investing in a portfolio of funds has many advantages. First, you 'll get better return (6-8); risk can be controlled;liquid; no lock in; you can liquidate or draw down to meet housing mortgages without penalty etc.
Investing in the endowment Growth condemns you to a long lock in with low return and losses if you terminate prematurely.Partial withdrawal affects the rate of return too. At best it is equal to inflation. Any big deal? Consider these downsides don't you think that it is a very risky investment and not what your agent would like you to think? Don't use insurance agents to manage your personal finance.Salesmen sell and not advise.; March 22, 2008 9:48 PM
Anonymous said...: Terminate it and move out of this stupid plan. In today's situation make sure your investment beats inflation and gains some decent return,like 4% above , otherwise you are wasting your time.Time is precious. Without time you do nothing
with investment. 10,15 years is a long time and if you don't take advantage of it you lose it .With Growth product you will waste so much time and yet not rewarded.Don't regret. Exercise the 14 day free look and get out; March 23, 2008 3:50 PM
Anonymous said...: Why is it that Mr. Tan suggested keeping money in OA and SA to earn the guaranteed return is the right move but most of the financial advisors that were interviewed by Lorna Tan in this weekend's Sunday Times (23 Mar) suggest otherwise - in fact they suggested that most funds can beat the CPF rates?

Who is right and who is giving wrong advice? How come got such wide differing views?; March 23, 2008 5:46 PM
Anonymous said...: You got it wrong . Mr. Tan proposed that if you have to invest it has to be in well diversified portfolio and NOT into the NTUC Growth single premium endowment which gives marginally above the CPF even if Growth performs as projected.
We are of the same view that only ILPS OR UNITTRUSTS can outperform CPF rates and not traditional products which risk averse investors are considering investing. If that is the case they are better off leaving with CPF.
I hope you are not confused now.; March 23, 2008 11:41 PM
Anonymous said...: On one hand, we are advised to leave our CPF to earn higher and risk-free interest. On the otherhand, we are also advised to invest our CPF for long-term to gain yields higher than inflation.

Who is right?

starlight; March 24, 2008 8:52 AM
Anonymous said...: Mr. Starlight, this is NOT the question of who is right or wrong.
It is WHAT YOU WANT. You want risk free stay where you are. If you want higher return go for the stuffs that give higher return.
Don't go for the products that make insurance agents richer but not yourself, product like Growth from ntuc. This is what we are against.; March 24, 2008 10:20 AM