Financial Planning (7) - What are good products?

The good investment and insurance products fit into the following criteria:

a) are transparent
b) have fair charges

Most products traded on an exchange are transparent and fair. The price is determined by the supply and demand. Information is made transparent and available to all market participants. You have the choice to be a buyer or seller.

You can buy stocks and bonds on the exchange and get fair pricing. However, you should avoid the illiquid stocks that may be subject to manipulation by the majority shareholders or certain funds.

You can also invest in unit trust and funds that offer diversification and display daily prices based on the market prices of the underlying assets. Choose the large unit trusts that have a high volume of daily transactions. Avoid the small unit trust with less than $100 million of assets.

Avoid structured products, as they tend to be non-transparent and are designed to have a large profit margin for the product issuers. These structured products also have high marketing costs that are passed to the investors. After paying for the high charges, which are usually not disclosed, the investors are likely to get a poor return.

Life insurance products of the investment type generally give a poor return, for the same reasons as the structured investment products. They are not transparent and impose high charges (to cover marketing and profit margins) on the investor.

To recap: choose transparent products with fair charges. Avoid structured investment products, including life insurance. Invest in financial products that are traded on the exchange.

Tan Kin Lian