Fair value for investors

Dear Mr. Tan,
What return is considered as fair value for investors? Is it 3%, 4% or 5%?

REPLY
It depends on the following:
a) What are the underlying assets? How risky?
b) What are the charges taken away by the fund manager and distributor?
c) Do you get the residual gain?

The best type of investment is a low cost unit trust or exchange traded fund (ETF). You enjoy low charges (usually less than 0.5% p.a.) and the benefit of diversification. This is likely to give you a return, over 20 years or longer, of 5% per annum or more, but is not guaranteed.

A poor investment is a participating life insurance policy, due to the following:
a) High charges taken away for distribution, mortality and expenses, usually 3% per annum
b) You may not get the full residual gain as some part of it may be kept from you due to "smoothing of bonus".

Another poor investment is a structured product, where most of the charges are not transparent and the yield to the investor depends on chance (i.e. gambling) and is likely to be low, especially for a guaranteed product.

Tan Kin Lian