Wednesday, April 01, 2009

High charges give poor return

A participant at the CASE forum gave this statement. He said that he had invested in unit trusts for the past many years. Two years ago, on his retirement, he calculated the return on these unit trusts and found that it gave an average of about 3% annually. This is a poor return, considering the long period of investment. He has decided that to avoid all types of investments.

If he had invested for such a long period, his return should have been more than 6% annually. It is likely that his fund was badly managed, e.g. in speculative investments, or had high charges that are taken away from his return.

There is a segment of the fund management industry that behaved unethically. The fund manager takes away big fees, but were not able to achieve a good return to the investors.  The fees take away a large part of the return and gave a poor net return to the investor.

Many life insurance products also offer a poor return, of 3% annually or less. Considering that inflation must have been around this level, the poor return is just able to match inflation. For investors who took our their money earlier, the high front end fees led to a big loss of their savings.

Be careful of bad financial products. Many financial products fall in this category!


zhummmeng said...

Whole life and endowment products should be avoided because they are NOT a saving plan and neither is good protection plan.
1.Cost is eating up into these areas.
Cost is going up and up and it will NOT come down.The CEOs' and the management staff's salaries are going up and they form part of the operating cost of these products other then high commission paid to agents and marketing cost. High cost means low return.
To achieve 3% you have to struggle to keep it for 30 years and yet to lose to inflation at the end of it and you might not get the 3%. 30 years is a long time.
2.On the other side of the equation is the return and interest rate and they are low. Bonds are usually used to guarantee the guaranteed part and because it is low the guarantee is low too.
In order for the insurance companies to TRY to give you higher return they cut your annual
and move the money to the special bonus fund to gamble. If they win they MIGHT give you higher return as PROJECTED. If they lose they might not cut your annual bonus because it is already cut and is low enough that they can try to cover up to make them look good.
3.Worse, for the companies to try to give higher return as projected it is taking HIGHER RISK. It is OK if it is told to you. But did your company or the insurance agents tell you?
No, lah..they told you that it was a reshaping of bonus only but didn't tell you that you now have to take higher risk instead giving you impression that the risk is the same before restructuring. Is this misrepresenting ? Is this a cover up? nondisclosure?
Engage a honest adviser. If you have an insurance agent you are finished. They dump whole life or endowment on you lying and misrepresenting to you.

Falcon said...

It is not the agent or adviser that can change things. It is the management.

Ma Ree said...

I regret buying a whole life plan. My agent friend recommended me it is good, because I don't have to pay premium after I reach ?? years old. The coverage continues until my death. The money is good to pass on to my children. After reading so much from this blog, I feel I have been scammed .... the coverage is miserable, the projected return is so tiny. Why do I need coverage after ?? years old, I so old already by then. If I take out the money at ?? year old, the return is damn bad .... WTF .... I recommend all youngsters to be educated on financial/insurance issue in secondary schools syllabus onwards.

Unknown said...

Now the annual bonus of old policies of ntuc income will be restructured to free up more money for gambling.
The last bonus cut was lost but they pretend it wasn't by telling policyholders that the yield and payout are not changed. The insurance agents are brain washed to go out to lie to the policyholders. But where do they get the money? 2 ways....borrow from the life fund and replace it with more sales from revosave and vivolife and SAIL. Meantime cut the old policies to cover up. This is called cut and paste strategy but the danger is tragedy.

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