Flexible Savings Plan

Dear Mr. Tan,

You recommend Term and invest the difference. Some people will not invest the difference and will spend the money away. Surely this is a bad idea? It is better to get them to save in an endowment or whole life policy.

REPLY

I wish to educate people on the following:

1. Buy Term to get the insurance protection at low cost
2. Invest 10% to 15% of the earnings in a low cost investment fund
3. Invest more, if you can.
4. Be frugal in your expenditure.
5. You can withdraw from your savings to meet important life events

Look for a unit trust that allow you to invest 100% of your savings and have low expense ratio. If the unit trust requires a minimum sum for top-up, you can save in a saving account and invest a bigger sum once or twice a year.

For example, if you wish to invest in the STI exchange traded fund, you have to buy a minimum of 100 shares (about $3,500). If you accumulate this sum over a few months, you can buy 100 units at that time. This ETF has low expense ratio of 0.3% only.

Lesson: Have a flexible savings plan, and the discipline to manage your savings.