Wednesday, April 30, 2008

Poor yield from financial products

Do you fit into any of these categories? What about your family members?

1. Many people earn a low rate of interest on bank deposits. The bank interest rate, which has been less than 2% for several years and now less than 1%, is insufficient to cover the rate of inflation, which has now increased to more than 5%. If they invest in other financial products, they have to pay high charges and get a poor yield.

2. Many people invested several billions of dollars in structured financial products in the hope of getting a better yield than bank deposits. They were taken to the cleaners. Many housewives and retirees told me about their investment in the capital guaranteed products that were heavily advertised and sold by our trusted banks. After locking up their principal for five years, they get a total return of less than 1% per year, worse than bank deposit. They missed the chance of earning more than 10% per annum on the booming stockmarket.

3. For most people who invested in unit trusts and investment funds offered by life insurance companies, the outcome was not better. They have to suffer an upfront charge of 3% to 7% on their investment and an annual charge of 1% to 3%. After deducting these high charges, the net yield on their investment is mediocre and does not commensurate with the risk. The fund managers and other financial intermediaries have taken away most of the gains.

4. The worst cases are the hundred thousands of people who invested their regular savings in an investment linked product sold by the life insurance companies. In addition to the high charges mentioned above, they have to suffer “allocation rates” that takes away two years of their savings to pay commissions to the insurance agents. Many were not aware about the financial impact of these predatory “allocation rates”.

This is an extract of an artilce printed in:


Anonymous said...

Does this mean that besides saving our money with the bank as fixed deposit, there is no other better investment? Please advise.

Anonymous said...

Many years back, I was approached by a bank officer to take up a capital guaranteed fund. This happened because I had about 10k in my bank account. Of course, I was convinced because he emphasized the best scenerio of the investment. I am just a typical housewife, have no knowledge of whatsoever investments at all and always have a soft spot for these bankers. I lost some and I won some through buying various investments from various banks. Now, I don't have much in the bank so I am not being approached by the staff. I spread my savings in various banks to avoid being talked into investments and I stay away from talking to them. Don't have more than 5k in any bank is my advise!

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