Here are some facts to consider:
- The guaranteed yield for a single premium endowment is around 2% for 10 years or longer. The non-guaranteed yield may be higher, but is still less than 4% per annum.
- The yield on a low cost investment fund, such as the STI ETF, is likely to be around 5% over the long term. By accepting a higher risk, you can get a higher return.
- If the market is weak and your actual yield is lower than 5%, you have the choice (as a long term investor) to wait for a few years for the market to recover. Time is on your side. Wait for an appropriate time to achieve your long term yield.
When you buy a single premium endowment, the insurance company also invest your money in shares and other investments that are subject to the same risks that you have in a low cost investment fund. After deducting the expenses and profit margin, you get a lower yield on the single premium endowment. If the reduction in yield on the single premium endowment is less than 1% per annum, it is all right to invest in it. If the reduction is more than 1%, you should avoid it.
Tan Kin Lian
Tan Kin Lian
2 comments:
If your main purpose is for long-term savings and to grow your money, NEVER use an insurance company. Their charges are too damn high. Banking & insurance industry's salaries, bonuses, incentives, overseas holiday trips, 5-star hotel buffet splurges are the most oversized and outlandish among all the industries. Structured products like wholelife, endowments, structured deposits are the biggest con jobs to squeeze money from you to finance their rewards & lifestyles.
Let me use an example of a Singapore Unit Trust that has been around for over 41 years, since mid-1969. This UT is actually not the best, but it has the longest history investing in Singapore equities that I can find.
Over the last 5 years, this UT has yielded 7.9%pa. Over the last 10 years, it has yielded 7.3%pa. And this is including the ridiculous 5% sales charge and the expensive 1.87% annual expense ratio. This >7% yield also occurred through 911, SARS and the 2008 GFC.
Since mid-1969, the average yield for this UT has been 8.4%pa. Over 30 years, a $50K investment will grow to over $562K.
No endowment taken up in 2000/2001 from ANY insurance company or bank, and maturing today, will be even able to give you 4%pa. No need to even talk about 7.3%pa.
Remember, this UT example is not even the best-of-breed for S'pore UT. It is actually quite high cost. A low cost ETF with expense ratio of 0.3% will produce even better results.
If you are able to save $1K per month regularly, just invest in STI ETF every quarter. DO NOT spend more than $100/mth to insure yourself for up to $500K using term plan. Use Medisave to buy a low-cost private Shield if you want. And then just focus on other things like family, friends and career.
When you take insurance as investment, you're just adding another layer, a much thicker layer of commission cost to your investment principal.
When you separate investment as investment and insurance as insurance, the commission cost saved can be tremendous, especially over decades.
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