Should I invest in a capital guaranteed product that pays 2% for 2 years?
REPLY
If you have spare cash, you can invest in shares to earn the following:
a) STI ETF can earn a dividend yield of around 5%. Even if the dividend drops, you can still earn 3% or more.
b) REITs (real estate trust) can earn you a dividend yield of 10%. Even if the rental drop, you can still earn 5% or more.
Do not worry about the share price (ETF or REIT). If it drops, you can still wait and collect the dividend of 3% or 5%. Wait for the stockmarket to recover in 2 or 3 years or longer, in a worse case. You can get a gain of 20% to 50%. Be prepared to take risk and get a better return.
Do not invest in capital guaranteed product that earns 2% and locks you for 2 years.
29 comments:
Then you said we should invest in products like Minibonds related or structed products that give 10% interest but principle gone.
High Risk High Return. Low risk still can take back the principle.
We must learn from the lesson. Wakeup
I agreed with Mr Tan.
The Capital Plus plan from NTUC Income is not worth to invest at all. 2% is not even sufficient to cover inflation.
I rather look at REITS. Some REITS are paying as high as 20% dividends. Just buy those GLC Linked REITS and you will never be wrong.
Then we should invest those products that give high interest for 1year but NO Return of pricinple, right
"Do not invest in capital guaranteed product that earns 2% and locks you for 2 years."
STI ETF total dividend for the year was 12 cents. How is the dividend yield of 5% computed? Thanks for enlightening.
Capital gauranteed with 2% and locked for 2 years is like a sitting duck awaiting to be shot, sure die investment in real term.
With the current inflation at 5.5%, last year was 6.5%, this product guarantees you a loss of 3.5% for the next 2 years if inflation remains as it is.
Who would sell this type of product?
The unethical salesmen and FI whose interest is to make money.
Who would buy?
The ignorant and the kiasu and those who have been misrepresented by the greedy salesmen.
I will not invest using money that I cannot afford to lose.
I don't find it attractive because the 2 years' duration to lock in a minimum of 30k is too l-o-n-g. Besides, when I read the terms and conditions I turned away from such deal.
Maybank is offering short-term durations: 4 months, 6 months, or 12 months and the highest interest rate is 1.75% for less than 30k fixed deposit.
No more guaranteed products for me. It just simply comfuse and make you unhappy!
Sounds good. I have been putting money in FDs all my life. Hence never lose at all except maybe to inflation. Seems this is one good way to diversify by putting some into ETFs and REITs.
Mr Tan, thanks for such advice.
Capital Guaranteed products were actively promoted by banks during the last few years. The returns are miniscule compared to other type of investments. The return cannot even cover the inflation rate. The interest on time and saving deposits are also miniscule compared to other countries. Why is this so? Because the rich people outside Singapore deposit a very chunk of their savings here, in partiular the Thais and Indonesians. Thus banks are sloshed with funds and this depressed the interest rate for time and savings account here.
While returns on capital guaranteed products are low, the banks make use on the money collected and and invested all over the world with high returns.
Also do not invested in capital guaranteed products with trigger points set. The trigger points are set by those financial experts who calculated and bet than 90 - 95% of the time, the trigger points were not be achievable. All excess gains below the trigger points become the gains of the banks and nothing for the investor.
A very good advice. 10/10.
Just wonder where to buy STI ETF?
I know stocks like M1 and SPH gives good dividend yield.
Reply to 12:46 pm
The current price of STI ETF is $1.84. If the dividend for last year is 12 cents, the dividend yield is 6.5% (which is higher than the 5% estimated by me).
Even if the dividend is reduced by 1/3 due to the economic recession, the yield will still be more than 4%. It is quite attractive.
This is suitable for long term investors, who do not need to cash out the investments at short notice.
Capital Plus guarantees a loss of at least 3% for next 2 years.
It is idiotic to invest in such instrument. The greedy agents just blindly sold this product to unwary old folks like Ah Sohs and uncles. They have no idea of inflation. They have no idea that they would lose, their money will shrink or lose the value by as much as 6%.
Why didn't ntuc agents disclose this fact that investing in capital plus was sure loss? Was there any suppression of truth? Were the customers misrepresented or mis-sold? Was there any fact finding?
If the customers were mis-sold or misrepresented it was tantamount to cheating the customers. The law was definitely breached. Is MAS aware of this?
Consumers who bought Capital Plus please re- examine your needs. You have 14 day free look to terminate your policy and demand a refund.
STI ETF and REITs, How long do we need to hold before it break even.
Is like FSL Trust bought at $1.50 now worth 0.49cents.
MM Reit bought at $0.98 now worth 0.52cents.
I rather leave the money with 1 or 2 percent interest than losing the Capital.
That is right. Did ntuc agents conduct a need anaylsis for you or counsel you about inflation? Putting money in this bum product is sure to lose. At the end of 2 years do you know how much of your capital will shrink?
Is there a gain in real term? Come on, how to grow your wealth. Ntuc agents and their new ceo don't care whether your money grows or shrinks. The ceo wants to improve the company's performance desperately using this dubious product and using the greedy and useless agents to accomplish his personal goal to look good..Do you know the company CANNOT make profit from this product? WHY sell? Answer is to dress up the bottom line to fool the board and to have a better marker share. Everybody loses except the greedy agents. Next year the ceo can boast that because of his foreign talent ntuc is now in second or third position , higher than before but still lost to his former company he helmed. How can?
I advise that you exercise the the free look and cancel it before your hard earned money is shrunk.
I used to shun equity, thinking that they are risky.
To play safe, I put money in Fixed income. End up what, loss all my principal!!!
I thought they were fixed oincome instrument, and at low interest rate of 5% cannot be risky.
Now what happen? People know / understand your weaknesses, and expliot the weaknesses of the risk adverse people. This is the most wicked people (adviser??? Financial expert???) I have seen!!!
Sad, but what to do. Next time must seek Mr. tan's advice and compare notes online before taking action!!
Don't fall into the trap again!!!
Hello
I totally disagree with the comment "Capital gauranteed with 2% and locked for 2 years is like a sitting duck awaiting to be shot, sure die investment in real term.
With the current inflation at 5.5%, last year was 6.5%,...Who would sell this type of product?
The unethical salesmen ...."
If this argument is correct, than fixed deposits which pay 1.5% or so, are also "unethical"!!!!!!!!!!!!!!! There is nothing unethical about any product which promises capital guaranteed. Some investors like simple products which doesnt require stock broker or internet tradingsystem. A single premium insurance which pays about 3% is an example. I have a couple of them and i love it.
The argument about keeping up with "inflation rate" is exactly the argument used by Minibond and Pinnacle sellers. They tell you it is silly to earn 3% interest because inflation is 5%, so please buy minibonds. In actual fact, inflation rate is a compounded figure of many items, some of which might be significant to one person, but not to others. I wouldnt worry too much about it.
Remember the only way to earn money is to work for it. We should not be greedy and think that IDLE money should reap huge profits for us. That is the greatest mistake one can make.
Therefore a product with 3% return with capital guarantee is perfectly good product, though the quantum may be considered low, It is completely unreasonable to say it is not ethical as explained above.
REX
felt the need to reply since many singaporeans regularly follow your website and hence, may take your advice at face value.
You fail to warn readers of the risks involved in both your recommendations.
a) current financial crisis is acknowledged by many in the industry to be one of the worst ever experienced on a global basis, apart from possibly the Great Depression in 1929. 2-3 years for market recovery is a guesstimate, and it is possible that it take much longer. If that happens, and if equity performance weakens, merely collecting dividends and not being able to sell off the positions at a profit is as good as "locking in" your funds. For 3-5% return with unpredictable lock-in period is not advisable for risk-averse investors.
b) REITS may have a high dividend yield, but these are based on estimates of future cashflow at current property prices and rental income. Many REITS have been overly-optimistic in their forecasts made during the boom period. The promise of a high 10% yield suggests that it is a high risk investment, and may eventually end up being an unfulfilled promise also.
Do you guys know how much commission is paid for this product? The commission is low. There is no best product, it has to depend on customer risk profile. If base on some of the comments, are you guys trying to say you will invest all your cashflow into ETF, Reits or Equities?
My advice is for people with spare cash and is able to invest for the long term.
If you are invested in a well diversified fund, you avoid the risk of total loss due to the failure of any specific company.
In a bad market, when the stock values are down, you will still continue to get the dividend that the company is able to pay out.
During bad times, the dividend may be reduced, but is likely to give a better yield than the current level of fixed deposits.
Investing is for people with spare cash and is willing to stay for the long term.
If you earn 2% over 2 years, you still have to face the re-investment decision in 2 years time. Will the market be lower for you to invest then? Will you have teh courage to do so?
If you are investing for the long term, the prices are low now. The valuations are attractive.
Hi 7:48 PM
I read about the FSL shipping trust in the Business Times. I asked my stockbroker for a detailed report.
They have long term contracts and their credit facilities is secured for a few years. The risk appears to be quite small to me (at least it is an acceptable risk).
I decided to invest at $0.45 cents, giving a yield of 35%. AT this dividend payout, the investor can get the principal back in 3 years. If the dividend is reduced, the payback period may be longer (say 4 to 5 years).
Based on the price ($1.50) that you invested in, you are still getting a dividend yield of 10%. It may take 10 years for you to get back your capital.
I expect that the price will get back closer to your purchase price when the global economy recovers. In the meantime, enjoy the good dividend.
Hi Jeremy
The risk of a lower dividend payout for the ETF and REITS have already been factored into my general advice. I consider that a reduced dividend yield of 3% to 5% is still attractive.
There will be an attractive increase in the yield in the market price, when the global economy recovers.
Some people think that the recovery can take many years, judging from the last great depression. I think that it should occur sooner. But, this is a decision that each person should take for himself.
It is all right to take this risk, if you are a long term investor and you are well diversified.
One offer potential returns to your money. The other gives you certainty in your return.
Which do you prefer? Your choice.
I think a product with 2% guaranteed is not too bad.
The worse one is to hv 5% return and can loss all yr capital.
I thought they were like the single premium insurance I hv been buying all the while, and now loss my principal.
That is the worse experiences in my life!!!
That is also the most studpid things I did to "trust" the "wicked" people.
If the agents know that 2% is below inflation the agent MUST WARN the customer of this. Failing which is non disclosure of a material fact.It is misrepresenting to the customers that the capital plus is 'safe'. Yes safe, if you talk of return OF the capital. What about the return ON the capital? The return on the capital is sitting helplessly to be mauled by inflation and which is the hard earned money of the customers.
If the agents disclose all these facts then the customers can make decision based on them.
In this case the customers can go in with their eyes open..
So the question is , did ntuc agents disclose all facts and advise the customers correctly or they just pushing as capital guaranteed product. The latter is more likely as ntuc agents are well known as product pushers.
If you are looking for a retirement planner or any planner there is NONE in ntuc, only salesmen or product peddlers.Don't beleive, ask the their new ceo.
Remember, there is NO FREE LUNCH.
Rex,
if working hard is the way to riches and financial security then Singapore will be slum today.How to work without job to work hard.Every investment carries risk.Starting the airline, SIA, was a risky idea. It might have lost all the capital that was invested in to provide the jobs for you and the rest. Risk is key to entrepruenalship and that is no such thing as risk free business. This is how wealth is created.
Yes, many like would prefer the FDs for its 'safety of capital". Many deposited with their eyes opened and they deposited knowing that they are losing to inflation. This is an informed decision and no one can stop if you want to lose.
But being solicited to invest is another matter. There is a need for full disclosure and warning and to advise if the investment is meeting the needs of the cleint.It is unethical if these are not disclosed like the case of minibond even though the risk is small.
Example scenarios;
If A multimillionaire wants to protect his money in real term , till his retirement is capital plus suitable?
Example; a poor man who needs to grow his money for his retirement , is capital plus suitable for him.
Example: if a man needs the money in 2 years time, is capital plus suitable?
Example; if a man is happy with 3% knowing that he loses a bit to inflation every year who can stop this man from investing in the 3% single premium?
Advise is important and that is the job of the advisers.NTUC agents don't advise they peddle, push and die is your business.
Another example: I have heard of ntuc agents telling their clients to invest their special account balance in the Growth Policy which at the best can give a projected 4% and also ONLY after holding for 10 years. What are the risks of Growth compared to risk free SA in CPF? Do you think there are idiots who actually invested their SA in this product? You will be shocked? Anyone in the company, ceo or manager stopped it? Does MAS know ?
Did the customers complain? No..Why? they don't even know they have been cheated. You see, not many consumers are savvy or can make informed decision, even for a 'simple' product.
No matter how simple a product there MUST some form of advice and cautions.Why need an in between adviser or agent? Why can't they be bought off a supermarket shelf?
In fact it is VERY DANGEROUS to have a HUMAN in between.Many things can go wrong and very few rights.
capital plus has another risk, the premature withdrawal risk. It has illiquidity risk and reinvestment risk, opportunity cost risk.
Mr Tan,
It's not responsible to say that the stockmarket will recover in 2 or 3 years. You simple don't have the crystal ball to tell.
Take the Nikkei 225 index for example. It peaked at over 38k in 1989. Today, it's under 9k. That's 19 years. Only God knows when it'll recover back to its 1989 glory.
Anon 7.21pm
19 years only what. Our LKY says 30 years time horizon for GIC to recover or even gain from the current investment losses in UBS, Citigroup, etc.
So be patient, still got 10 years to go for the NIkkei 225 to reach 1989 glory levels.
Dear Anonymous 4.03 pm 1.1.09
Here is REX responding to your comments:
Your post..."if working hard is the way to riches and financial security then Singapore will be slum today.How to work without job to work hard.Every investment carries risk.Starting the airline, SIA, was a risky idea..."
Rex answers...There are 2 types of investment, one as in creating SIA which is accompanied by real work and real productivity, and the 2nd type of investment as in Minibonds or REITs etc where there is pure risk taking and playing with numbers only and no productivity increase. The point of my argument is that no one should expect to get rich from the 2nd type of investment which does not increase productivity but is a mere play with money. Too many people are blinded by the argument that "inflation is high therefore please put your money in xxx product". To cope with inflation one has to maintain one's job and work harder for promotion, or get a better job and increase productivity!! If there are no jobs in the market, start your own business. If whatever you do fails, then hard luck. But never expect that it is your right that the bit of idle money invested can help you through inflation and the vagaries of life.
You said.. "there is a need for full disclosure and warning and to advise if the investment is meeting the needs of the cleint.It is unethical if these are not disclosed like the case of minibond "
REX answer.."Of course you are right. but regarding the single premiums and capital plus, i do not see anything unethical! As long as the buyer is informed captial guaranteed, and the % payout after X years, the RM had done the job. How can that be unethical? It is the Buyer's responsibility after the facts are given, nothing to do with ethics.
You said.. "...NTUC agents don't advise they peddle, push and die is your business... ntuc agents telling their clients to invest their special account balance in the Growth Policy .. best can give a projected 4% and also ONLY after ...10 years.
REX answers.. I dont understand why anyone should grumble with 4% pa. for each of the 10 years the money is invested. It is safe, and it is higher than FD by more than 100%. (important assumption is the funds are not needed for 10 years, and capital guarantee applies).
You said: What are the risks of Growth compared to risk free SA in CPF? Do you think there are idiots who actually invested their SA in this product? ..they don't even know they have been cheated.
REX answers: There is a big difference, even though CPF SA earns some 4% close to those Growth products, you CAN'T TAKE OUT THE CPF MONEY till you are pretty old! I also disagree totally your view that if someone puts money in a single premium policy, just because the payout is only 3%pa and lower than inflation rate, and you wait 5 years, you are cheated. Cheat means you lost your principal. Getting interest at a rate lower than inflation rate is NOT being cheated!!!!!!! Because profits from idle money funds is NOT the correct way to handle inflation woes. The correct way is to work hard and be more productive. Do not expect idle money to be your saviour for inflation, it is only a hopeful WISH but not a RIGHT. If it is our right than nobody will work hard anymore and everyone just accumulate $$$$ and survive on same for the rest of their life reinvesting it. It is a sad fact of life: to survive you must work hard and you need a lot of luck! And in singapore because there is no welfare system for the Jobless or the Retirees with little cpf, it is VERY tough. But one must resist the temptation of the argument "to invest in xxx which pays higher than inflation rate". This tactic is used by RMs to persuade people to invest without too much thinking, because they succumb to the FEAR of some nebulous concept called "inflation rate" and they think they can outsmart the system. Reminder, it is not our rights that idle money should be earning interest higher than inflation rate, although it is a nice thing to have. Anyway Happy New Year!
REX
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