This Week On Seedly: BANANA COIN, what to do with $20,000 in the bank, Pruflexicash and making money on ILP

BANANA COIN!

Here’s a little something to get rid of that Monday Blues. A Seedly’s Community Member shared a really interesting photo for the week.

As expected, Seedly’s Personal Finance Community went on to imagine Ethereal Bananas, Hawkercoin, CoffeeCoin, Mou Shang King Coin to even “BoogersCoin”.

Wait! BOOGERSCOIN?!

Ewww!

In case you miss out the action, here’s a quick recap of what went down in Seedly Personal Finance Community!

What went down on Seedly’s Personal Finance Community (15th – 22nd January 2018)

• I have $20,000 sitting in my bank savings. Should I put all lump sum into the Straits Times Index Exchange Traded Fund (STI ETF)?
• Sort of regret buying a Pruflexicash plan from UOB years ago. Should I continue or surrender the plan?
• One need not always lose money on an Investment-Linked Policy (ILP)

I have $20,000 sitting in my bank savings. Should I put all lump sum into the Straits Times Index Exchange Traded Fund (STI ETF)

The context of the question:

• The Seedly Community member invests $300 every month into the STI ETF through POSB Invest-Saver.
• On top of that, the member has a saving of $20,000 sitting in the bank and was wondering if he should put all of which into the STI ETF (given that the track record is quite good).
• The Singapore Savings Bond is also one of the option considered.
• Member has yet to open a Central Depository (CDP) Account and is new to investing.

Seedly Community’s help on what can this member do

• Hariz Arthur Maloy
  A full concentration of the entire investment in Singapore is not the most ideal.
  One should look at a globally diversified portfolio that matches your risk profile.
  And also, make sure to have the liquidity of an emergency fund. Ideally 3-6 months of your monthly salary.
• Valery Lee 
  Do not forget to keep an emergency saving for yourself.
  While the member’s risk profile is uncertain, the fact that he does ETF investments i.e. equities related, maybe he can explore unit trusts (equities and/or dividend funds) too? To do so, he can either set up yourself on Fundsupermart (FSM) or engage a trusted advisor.

By the way, here’s a quick guide on how much of your monthly income into your emergency saving

• Choon Yuan Chan
  Both the Singapore Savings Bond and stocks require a CDP account. Hence, the first step has to be to open a CDP account.
• Kenneth Lee
  Do you want to keep some of that 20K as an emergency fund? SSB is a good idea if you’re lower risk appetite and want a more liquid option.
• Rave Ong Ci De 
  Do u have any investment knowledge or experience? If no, I would suggest to beef up in this area.
  Investing using your own abilities would usually be more satisfying compared to just getting funds.
• Geraint Liu 
  Since the member is already looking into funds, it is good to study how each asset class relates and impacts each other, and how much to allocate for each asset class.
  If he wants to outsource the time and effort to pick and monitor funds, it may be better to find a firm which has asset allocation services for their clients. Another alternative would be index funds/ETFs.

Read more about the discussion here. 

Sort of regret buying a Pruflexicash plan from UOB years ago. Should I continue or surrender the plan?

The context of the question:

• The Seedly Community member bought a Pruflexicash Plan from UOB many years back and is currently in her 5th year on the policy.
• Assuming it is a mistake, and the policy is a 25 years plan.
• Should I continue or surrender the plan (due to non-guaranteed amount)

Seedly Community’s help on what can this member do

• Joel Sim
  I’m on the assumption that this is for savings since it’s an endowment.
  Have you checked the current surrender value?
  If the current surrender value is not too far off from the total premiums paid, surrender it. The guaranteed portion upon maturity does not cover your capital. This means the plan is not capital guaranteed at all.
  If the surrender value is too far off from the total premiums paid, do check how consistent they are in declaring the non guaranteed portion – which I do not think it’s much since it’s too much of a shortfall from the total premiums paid.
  You’ll then have a decision: continue and hope for the best, or cut it and accept the loss. My standpoint is to cut.
• Charmaine Ng
  Personally got the same policy, and surrendered it to cut my losses. In her opinion, it is a lousy product target to sell to youngsters who just started working and wish to do something with their income.
  It will not help you save money; money auto deposited into a bank account somewhere is better than this really.
• Hui Wei
  It is a good habit to revise your policies once in a while. There is a reason why the target market is NSF, young grads and working adults.
• Reichmann Tan
  Having bought the same plan as the member (the same year in fact!), Reichmann has long accepted the fact that it was a bad financial decision. Since the policy has already passed 5 years and has paid all the distribution cost to agent and company why not just continue with it.
  Personally, view it as additional cash saving. Continuing it with good faith
• Ben Sim
  If the premium is still affordable for you (on top of your necessary insurance policies), another option you can consider doing is envision how this endowment plan can be useful for you when it matures. As one of us here said, you can continue in good faith!
  This can come in handy for your child’s education, or maybe something else in the future down the road.
• Ong Yi Ren
  I think you can do some calculation to determine whether you shall surrender or not.The calculation is as follow:
  1.Check current surrender value.
  2.Now let assume for the rest of 20 years you use the surrender money and the rest of premium to do investment.
  3.Assume the return on investment to be equal (3.75 percent or 5.25 percent) in 2 cases (continue with this plan or withdraw out and do your own investment)
  4.Compare the surrender value from this plan (A) and the total money you will get if you do your own investment after 25 years(B).
  5.If B>A, then you can consider surrendering?
  6.Do factor in the cost of term plan if you need the protection.

Read more about the discussion here. 

One need not always lose money on an Investment-Linked Policy (ILP)

A quick context to the question raised on Seedly Personal Finance Community:

• The Seedly Community member bought an Investment-Linked Policy, 25 years ago.
• The annual premium for the policy is at $1,200. The policy came with a $50,000 death coverage.
• The cash value (i.e. excluding the death benefit) has grown to $65k today.
  (Every time the stock market was down, I had let it run to accumulate additional units at a lower unit cost)
• Member’s advice to the community:
  If you can generate better investment returns on your own, do not buy an ILP.
  If you do buy an ILP:
  ⁃ Perhaps look to an underlying equities fund from an insurance house with good fund performance history
  ⁃ The ILP also cannot be your only insurance cover

Seedly Community’s Point Of View:

• Ronald Ku
   I think the line between different type of financial institution is getting thinner, be it banks, insurers, investment brokers, etc.
  Many of them carry products/solutions for saving, investment, and even insurance. They venture into others’ domains mainly driven by one motive – to drive up revenue and profits!
  Hence, as consumers, we must sniff out and decide on the most preferred channels to acquire such products. We all have our preference and there is no absolute right or wrong if someone chooses to work with a particular party! Fundsupermart also carries insurance products, and some insurers also carry investment solution with little to no protection and give more flexibility in the ways people manage their finance.
• Kenichi En
  It really depends on:
  1. the “young” age u start
  2. The fund purchased went up and not down at the point of discussion
  3. The low mortality rate fee before an older age
  4. Whether a better product existed which give lower risk and equivalent return
  5. The individual has knowledge of damage recovery with knowledge of fund purchased (most ppl including the agent does not)
  6. Whether the ILP is a liability for tt individual or a clear-cut small protection that might give returns at the time he or she needed most.
  7. The agent who you trusted never leave the company and that you are not entrusted to another agent by company automation. (If the agent does look after your asset allocation at all)
• Spruyt Darren 
  For PA Assurance, cost of insurance = sum assured + cash value.
  This means that as cash value increases, what happens?
  Cost of insurance charges goes up.
  Basically, the insurer is charging for every dollar coverage you have (including your “investments”)
  When you reach your 50s, your Cost of investment will exceed your premiums, and this means
  1. they will use the cash value to pay for the remainder of the costs or
  2. they will send you a letter stating that you have to increase your premiums.
  Hence, such specific types of insurance coverage (which are mis-sold as investments) are known as time-bombs for a reason. When you most need it, it is also most likely to lapse.
  AND IF one says it is for investments, then why is the premium allocation (amount of money put into investments) in the first couple of years about 20%?
  Which investment vehicle will charge you upfront 80% fee for investments!?
• Kyith Ng 
  You don’t have to compare against an index. There are many that are driving this discussion, trying to make it seem ILP is the worse stuff around. What she is trying to present is a case of, hey that is not too bad.
  Her advice is not off as well. A lot of the performance is also the allocation chosen. There are things such as survivorship of the unit trust that work against ILP.
  But in her narrative, it is as it is, here is a positive outcome, and one that spans a long enough time of 25 years. We need more real-life examples of these to judge.
  I did a rough calculation of the XIRR from the figures given. If true, a 5.9% XIRR is very good.
  
• Nicholas Stone
  Your compounded return was 5.5% before the effects of inflation.
  The S&p 500 average over the last 30 years is just under 10%, before inflation.
  I chose this index because it is the normal benchmark for global stocks comparison.
  If you had invested in that instead you would have got around $120,000.
  Also, why offer the advice about checking past performance? It is irrelevant, hence all the disclaimers specifically saying so.

Read more about the discussion here.