Tan Kin Lian's Blog: Lock up for 2 years at low return

Tuesday, December 08, 2009

Lock up for 2 years at low return

Someone asked for my views about a 2 year insurance product that offers a return of 1.5% per annum. I felt that this return was rather low for the investment to be locked up. My preference is to keep the money in cash (earn 0.5% per annum) and wait for better investment opportunities.

17 comments:

Anonymous said...: Like NTUC capital plus it is a sure loss product and yet many are putting in their money.
The risks are liquidity and lock in risk and worse is inflationary risk.
But the agents explain that is it better than the banks and people beleive that it is. There is no mention of opportunity cost and loss due to inflation. For the rich it may be ok to lose a bit here and there but for the poor rich it is suicide.Money will never grow.No wonder they never get to retire .; December 08, 2009 10:10 AM
Anonymous said...: They will do anything to be #1.
What good is this product to the consumers other than cutting losses and it is still losing? Is the company preying on the fear of their policyholders? Are the insurance agents good enough to help their policyholders instead of dumping useless products on them?
It looks like the titles they carry have nothing to do with what they can do for consumers except to con them. Apt titles like financial CONsultants are new clothing after rebranding to decieve. But people can see through the deception.
On top of it , it is despicable way to be #1.; December 08, 2009 11:45 AM
Anonymous said...: I would rather invest in stable and high yield stocks like SPH than a mere 1.2% return from insurance.; December 08, 2009 11:45 AM
Anonymous said...: I respectfully disagree. While I am not an ardent fan of 'locked-in' product, I think that a 2-yr single premium with 1.5% guaranteed return is quite decent. We can't just judge a product on it own merits. It has to be compared relative to the industry and the current investment climate. Most banks are offering less than 1% for their fixed deposits. And don't forget these single premiums usually come with a slight death benefit which FDs do not offer.

As for the inflationary risk, common; we're not talking about a 10-yr period here. Its only 2 yrs after which you can take out your entire capital with some interest and reinvest in other instruments.

Opportunity cost? Well, what about the opportunity cost of not investing in this single premium and leaving your money in your savings account and earning less than 0.5% while waiting for that perfect investment opportunity which may hardly come given the investment climate.

Inflationary and opportunity cost arguments are irrelevant in such a situation.; December 08, 2009 1:58 PM
Anonymous said...: That's why for short-term funds, i usually advise ppl to consider money mkt funds such as from Lion Capital (OCBC) or Philips (POEMS). No sales charge, no lock-in, very stable especially the Philips one, and can still get yield of about 1.2% to 1.3%pa.

Also, these money mkt funds respond more quickly to interest rate environment. So if inflation bites sooner than expected, the rates will also go up.

A few years ago, SGS bills were still viable for short-term funds. But the yields are now so low that it is not worth it.

Ex-Con.; December 08, 2009 4:03 PM
Anonymous said...: December 08, 2009 1:58 PM,
you must know the profile of these investors and the kind of agents they get. When you combine them you get this product sold.
One is better than the bank , the other is an incompetent salesman and they click.; December 08, 2009 7:54 PM
Tan Kin Lian said...: I agree with the Ex-Con. It is better to invest short term money in money market funds as you get almost the same yield and liquidity. You can withdraw the money at any time based on the market condition and does not have to suffer any penalty for early withdrawal.

There is also no front end charge to pay commission to the agent.; December 08, 2009 7:59 PM
Anonymous said...: For savvy people, they can go to funds and online portals.

For the uninitiated, this is quite good for them as they don't intend to "invest" anyway. They just want something that is safe and got better returns than the banks.; December 08, 2009 8:02 PM
Anonymous said...: The company selling this product is preying on the fear of those kiasi and kiasu aunties and uncles or the gullible ignorant FD diehards. Also it is using unethical although legal means to be #1 . THey found difficult to get more API business so use under hand tactic. Why so obssessed?; December 08, 2009 8:28 PM
Anonymous said...: December 08, 2009 8:02 PM

No wonder, the poor get poorer and the rich get richer. Very often the poor need good advice very badly but what they got are thieves in sheep clothing who advise the wrong thing.These thieves find a easy way out by pandering to the 'want something that is safe and got better returns than the banks". No advise
but these insurance agents help them to be poorer for they NEVER try harder to help these poor people's money work harder so that they can retire.No wonder many can't afford even to buy the CPFLife for the agents taught them to prefer something that is safe and better than the banks. The truth is the agents are unqualified and want to play safe themselves.
The 'uninitiated' and the unsavvy need help but unfortunately they never got help but charlatans who rob them of their financial future.
And after this 'safe' instrument there will another 'safe' instrument to reinvest. The poor people are condemned to lower and shrinking purchasing power which they can ill afford but charlatans disregard this and argue that it is better than the bank and therefore it is better. The falsehood perpetrators have their motive to rob the poor of their hard earned money. They are the scums of society and bane to the poor.; December 09, 2009 12:29 AM
Anonymous said...: i think people who claim this product is lousy should just stick to investments that you like and not attack instruments just because you don't like them.

Mr. Tan, at least, is objective.

There are people who really not suitable for investment, and would you insist the people invest? if you do, then this is not addressing a need.

Simplicity is the best. Put spare money in a product, keep 2 years, capital guaranteed, earn 1.5% p.a. No need to worry about market go up or come down after 2 years.; December 09, 2009 12:53 AM
Anonymous said...: What is investment? Is putting your money in FD or saving account an investment? or Is putting money in stocks and shares investment?
Is putting your money under your bed an investment? Think about them and get the meaning of investment right.
What is suitability?
Is the product suitable for these 'uninitiated' investors?
Precisely they are uninitiated that they are ignorant and gullible and become victims of predatory banks and insurance companies.They are NOT getting the right products to address their needs. Worse, they are also NOT getting the right adviser but predatory salesmen.
No need to worry? Their worry is unknown until they found out their money is NOT getting what they could buy before.It is too late.They have been lulled into a false sense of value.
I am talking of old folks who are experiencing this NOW.Their money is shrinking fast. They learned simple finance the hard way and perpetrated by people who never have their interest at heart but their money. They are robbed by thieves and robbed by inflation, a double whammy.; December 09, 2009 9:32 AM
Anonymous said...: It is not about whether you like or don't like but it is about meeting the needs. It is also not about whether you want or don't want. Don't confuse between wants and needs.
Don't get confused. Or is the confusion caused by insurance agents?
Putting SPARE money and let it rot in a product? You got it upside down.; December 09, 2009 9:39 AM
Anonymous said...: Other OCBC bank and Phillips' Poems,
where can we buy such so-called money market funds?
Could anyone help?; December 09, 2009 12:18 PM
Anonymous said...: Anon 12:53am,
if you are an agent or in financial advisory business, then you have just made the case for Anon 12:29am.

You wrote:
"There are people who really not suitable for investment, and would you insist the people invest? if you do, then this is not addressing a need."

This sounds more like the need of agent to quickly close an easy sale by going down the path of least resistance. This is a cop-out attitude of 99.99% of agents and FAs. What is the real need of a typical customer? Not to invest? Not to lose money? Does he have adequate liquid emergency savings commensurate with job stability and expenses? What if he loses his job in 6 months time? Will he need to liquidate this 2-yr lock-in and suffer penalties? Does the customer already have low-cost risk transference plans in place? Does he have a well thought-out wealth building plan in place that has reasonable probability to accumulate retirement funds? What happens during crisis times like Sep-Nov 2008 and Feb-Mar 2009?

A financial planner worth his salt will address all the above and more. Unfortunately 99.99% of all agents and so-called FAs won't bother. Why? Because the emphasis is to sell products, any kind of products as long as don't break the letter of the law. Once the product is in the hands of the customer, it is his business liao. As my ex-manager used to say, "In this industry, financial products are meant to be SOLD NOT BOUGHT. Use the law of large numbers." Meaning you whack enough people hard enuf and frequently enuf, you will kind somebody to buy some product. And then you repeat the process, ad infinitum.

You also wrote:
"Simplicity is the best. Put spare money in a product, keep 2 years, capital guaranteed, earn 1.5% p.a. No need to worry about market go up or come down after 2 years."

This simplicity statement is a cliche taught to all agents. Careful, being too simple can also lead to being retarded (financial or otherwise). Let me also offer another cliche: Retirement is not a number (of age), but a state of self-sustaining positive cashflow.

Only 2 groups of people do not need to "invest":
(1) those who have iron rice-bowl job and can save 40+% of their take-home pay.
OR
(2) those who have already achieved financial independence, be it thru investments, big lifetime pension plans, TOTO, or children who swear blood oaths to support them.

If you don't belong to the above 2 groups, and are not looking at ways to improve rates of returns of your savings, you can prepare to work until 80 yrs old and be a model of a happy, ultra-senior worker that our news likes to highlight.

Ex-Con; December 09, 2009 7:42 PM
symmetrix said...: To be fair, this product (like any other product) has its strong and weak pts.

Strong pts - better than bank's FD, insurance protection, no risk (unless insurer goes upside down).

Weak pts - money locked up and illiquid for 2 yrs.

It is positioned as a low risk product, with not very high returns, and targetted at a certain market segment of non-aggressive investors. One thing is quite certain - bank's interest rates are likely to remain very low for the next 1-2 years. So, don't hold your breath and wait for them to rise.

One may park some money here and invest the rest elsewhere.; December 09, 2009 9:51 PM
Anonymous said...: Hello REX comments as follows,

I am very interested in this superb product, as mentioned in kinlian's original posting. 1.5% p.a. for 2 years is great!! I assume this is a reliable estimate even if not guaranteed % p.a. yield.

I don't believe that liquidity is a problem. A couple of thousand dollars of spare cash locked up (capital guaranteed) in a disciplined manner, for 2 years, is a good move surely.

I also dislike the stock market even if it provides better liquidity and yields - long term. I think it is important to realise that there are just people existing amongst us who just simply dislike stocks, shares, or exchange traded funds because to understand and get involved requires some effort and inteliigence. You can say, REX is dumb and stupid, to miss an opporunity, no problem.

Can someone advise me where i can get hold of this super duper capital guaranteed product which can give 1.5% pa over 2 years?

REX; December 11, 2009 11:27 AM