FAQ: Is it safe to invest, when the stock market is high?

1. Is it safe to invest when the stock market is high?

At present (November 2007), the stockmarket is at an all time high. If you look forward, the projected price earning ratio (PER) is 15 times. This is an acceptable level. It is not low, but it is not high.

You have the following option to invest your savings:

- life annuity
- growth policy
- flexi-link policy

2. What is most suitable for people above 60 years?

It is a good time to buy a life annuity. You can get an attractive payback (5% or more) with a bonus that can
add another 2% to 3% to the return (not guaranteed). The bonus will be compounded. If you have invested in a fund previously and made a good gain, it is a good time to make the switch.

3. What is most suitable for people for investing a lump sum?

If you do not wish to take market risk now, you can invest in our growth plan. It is for a lump sum investment (using your CPF, SRS or FD). It has a guaranteed return of at least 2% per annum. With bonus, it is likely to earn about 4% to 5% p.a. It is quite safe.

If you wish to take some risk and invest for 10 years or longer, you can take up a flexi-link policy and invest your lump sum in the combined fund or global equity fund. It is likely to earn an attractive return (say, 6% or more, but ths is not guaranteed). If you invest for many years, you will average out the return from the good years and the bad years.

If you feel that the stock market is too high, you can invest your savings temporarily in a money market fund or keep it in the CPF for the time being. You can take a flexi-link policy with a small investment. You can top-up the investments in the flexi-link policy in installments over the next 6 to 12 months.

The money market fund earns a market interest rate, which is currently about 2.5% to 3% per annum. There is no lock-in period. You can transfer the money from this fund into the flexi-link policy at any time, without any penalty.

4. What is most suitable for investing monthly savings?

If you are investing your monthly savings for many years, you should take up the ideal plan and invest the savings in the combined fund or global equity fund.

As you are making small investments over many years, you do not need to worry about the level of the market now. You will be averaging out the cost of your investments over the years.

You will also get a good return, by averaging out the return form the good years and the bad years.

5. Can I get a better return from NTUC Income, compared to similar funds elsewhere?

You should choose a large, well diversified fund. Choose a global equity fund or a combined fund with a mix of equities and bonds.

All well managed and diversified funds should produce about similar returns over many years. Some funds may perform better in some years, and worse in other years. It is difficult to identify the funds that will perform consistently better than other funds over the long term, unless they are actively managed in a speculative manner.

It is better to choose a fund that have low fees. This allows most of the return to be given to the investor. For an actively managed fund, you should choose a fund with an annual fee of 1% or lower.

NTUC Income has several large, well diversified funds with an annual fee of 1% or lower. Most of the other funds in the same asset category have an annual fee of 1.5% to 2.5% or even higher.

A difference of 1% in the annual fee will amount to a lot of money after 10 to 20 years. If your investment grows to $200,000 with another fund with high charges, the same investment in a similar fund from NTUC Income can, for example, give you $30,000 more, due to our lower charges (based on a difference of 1% for 15 years).

End of FAQ