Suitable products

COMMENT POSTED IN MY BLOG:

Today, endowment and whole life products are poor performers because of low interest rate and high distribution costs and they are bad vehicles to use for investment and for accumulation for any long term goals. Over long term both these kinds of products can only return 3% to 4% which barely beat inflation. Wealth is never created this way.

For low and middle income, higher rate of return is necessary to make your hard earned money work harder otherwise 20 years down the road whatever you accumulated has the same purchasing power as it was 20 years ago.There is no improvement in real term.Your risk averseness must change. There is a necessity to take risk to get out of the poverty trap when you have the capacity.

That is the reason why you are often urged to look for good adviser to help you and not insurance salesman. An adviser who is skillful in investment can help to design a portfolio that eliminates risk over time and yet gives a decent return for you, at least 6% to 8%.

What Mr. Tan is advising is in good faith. After all he spent more than 30 years in this business and he knows what he is talking about.

Time has changed. What was good is not good today anymore. I hope Mr. Tan's well meaning advice will be heeded.

REPLY:

In my view, both of the following products are suitable, for different groups of people:

1. Low cost, diversified investment fund with the potential to earn 6% to 8% over the long term.

2. Endowment plan, e.g. from NTUC Income, that gives a return of 4% p.a. (non-guaranteed) over 20 to 30 years.

I prefer option 1, but recognise that option 2 may also be suitable for certain groups of people.