Saturday, December 18, 2010

Invest in an indexed fund

In the past, the lay person does not know how to invest in shares or which shares to choose. A good choice is to invest in a life insurance policy and let the insurance company manage the investments.

The option of investing in a life insurance policy is no longer attractive for consumers, due to the high deduction may by the insurance company to cover its expenses and profit. Many life insurance companies take away 50% of the accumulated savings from the consumer, leaving a poor yield. For example, the insurance company can earn a yield of 5% but they give only 2% to the consumer. The difference of 3% is a lot of money.

Consumers now have the choice of investing in an indexed fund that takes away 0.3% per annum. If the indexed fund earns 5%, the net yield to the consumer is 4.7%. The consumer can buy the insurance protection through a 25 year term insurance policy and pay a small premium, which is less than 10% of the premium for a whole life or investment linked policy.

After factoring all the cost for the term insurance, the fee of the indexed fund and other expenses, the consumer is able to keep 85% of the accumulated savings, instead of 50% provided by a life insurance policy.

If the accumulated saving is $500,000, the consumer can keep $425,000 (after deducting 15%) instead of $250,000 (after deducting 50%). the difference is more than $150,000.

This concept is explained in several FAQs stored in my website, www.tankinlian.com/ask.aspx. Read this FAQs and learn how to invest in the indexed fund. You can also attend the educational talks organised by FISCA (see www.fisca.sg/events) or buy my book, Practical Guide on Financial Planning.

My message is very important for young people, especially the graduates who are starting work for the first time. Many insurance agents will be seeing you to tell you about investing in a life insurance policy. If you take their advice, you will likely be losing $150,000 or more, during your lifetime. Act now, before it is too late.

Tan Kin Lian

3 comments:

Anonymous said...

Hi,

Index Funds investing is quite sensible.
But beware of Nikkei Index Funds.
From a high of 40,000+ dive till 10,000+ today.
In fact Nikkei Index "never" go above 18,000 for a very, very long time already.
Please be careful not all index funds are the same.
There is no shortcut to investing.

Unknown said...

Everyone has different perspective of investment and growing their money. I think one will be happy only if one think enough $ is enough.
I have read a lot of comments on buying Term and Invest the rest on low-cost funds etc so that in the end you might get more return instead of 50% less if you have buy Life insurance. My thinking is any investment there is risk, so investing in low-cost fund "might" get you more or it "might" get you less or none depending on market situation when at that time you need the money. So understand your needs and risk. Is 25% sure gain at the end of the term better than uncertainty of 0% or 50% or more gain for the same term? It is your choice after all.

Nikhil said...

Thanks for sharing the blog, seems to be interesting and informative too. Can you suggest some of the websites to visit for bike insurance renewal

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