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How many 20 years and $29,000 do we have?

Wednesday, June 8, 2016

Friend, sighing, "I should have listened to you."

AK, "Huh?"

Friend, "I finally surrendered my PruLink policy."

AK, "Oh, congratulations!"

Friend, "Congratulate what lah? I put in total of $29,000 since 1996. Every year put in money. 20 years and I took back less than that! I lost money!"

AK felt like saying "I told you so" but AK kept quiet. 

Friend, "Leave money in the bank or fixed deposit also better. Should have terminated long ago. My agent told me to continue paying for another few years and maybe it will make money. Stupid, right?"

AK, "Er... Ahem..."

Friend, "I still remember you said to terminate and put the money in my CPF-SA. How much would I have now if I did that?"

AK, "Well, I don't think you want to know..."

Friend, hesitating, "Ya, you are probably right. Haiz. Sad lah."







My dear readers, are you curious?

If my friend had placed the yearly contribution of $1,450 into his CPF-SA for 20 years instead of the Investment Linked Policy (ILP), how much would he have today?


About so much:

Calculator at:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

$48,000.

A hard truth and the truth hurts.




That's not all. 

My friend would also have had the benefit of income tax relief which is given for the first $7,000 of Minimum Sum (MS) Top Up. 

In my friend's case, the income tax savings would have probably been a few hundred dollars a year. Multiply that by 20 years? Ouch.




The long and short of it, buy insurance for the sake of insurance. 

Don't mix insurance and investment.


Related posts:
1. Should I terminate an expensive ILP?
2. Free ILP or Term Life policies?
3. How to upsize $100K to $225K in 20 years?
Hey, sexy S A! Oppa AK style!

13 comments:

INVS 2.0 said...

Hi Ak,

This makes us the REIT investors with average of 8% looked much richer!

AK71 said...

Hi INVS 2.0,

Remember, nobody cares more about our money than we do and don't ask barbers if we need a haircut. ;p

Nicole said...

Never a fan of insurance savings products :P

emelyn said...

Hi AK71, you are really the CPF guru. I am now very excited to start building up my cpf funds. I was reading the CPF website and came across this,
"After setting aside your Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge, you can choose to withdraw the remaining CPF balances (excluding top-up monies, government grants, and interest earned in your Retirement Account), or continue to keep your savings in CPF to earn attractive interest. "

It seems to say that once we hit 55, we can withdraw the monies that is the balance after setting aside the min sum but excluding top-up monies? Does it mean the yearly top up of 7k from OA to SA cannot be withdrawn?

AK71 said...

Hi Emelyn,

Don't like that say. I am not a guru lah. -.-"

Think of it as the top up money staying in the CPF-RA that will become CPF Life and withdrawing the voluntary and mandatory contributions above the FRS. I think it is very hard for someone's FRS to be fully or mostly made up of top up money. ;)

AK71 said...

Reader:
I always tell my clients that insurance and investment are both long term commitments. 9 years is too short a time to judge.

AK:
Hmmm. What about 20 years? Long term enough?

AK71 said...

Laurence said...
This is terrible. Yet just hours ago, Prudential reported a mind-boggling stratospheric jump in profits:

"Prudential records 109% YoY profit growth at $1.5b for the first half of the year."

http://sbr.com.sg/financial-services/news/prudentials-profits-109-15b-in-h1

----------------

Blogger AK said...
Hi Laurence,

Chinese saying from my primary school days:

我吃香蕉,你吃皮.

LOL. ;)

AK71 said...

On my FB wall:

Jimmy Ng:
Come bro. i feel for you.

Welcome to the Victims of ILP club.

heng heng for me, i got a grand TOTAL 0.023% gain out of 15+ years, when i exit 4 years ago.

Yup, that 老千 agents at counter still ask me to continue as it will mature soon. giving me a TOTAL PROJECTED non guaranteed gains of .............

0.03000000% !

AK71 said...

Reader says...
Eh, but SA 5% and SG bonds less than 3%😏
So we invest SA only if we can find sthg which can be steadily more than 5%?

AK says...
If you can find more than 5% risk free returns outside the SA, let me know becos i dunno. 😜

AK71 said...

Reader says...
I've been reading your blog recently and have been very inspired by the way you invest.

I used my CPF-OA account to invest in the Prudential unit trusts 9 years ago when my insurance agent said that they will earn me more interest than the 2.5% interest CPF gave me.

Fast forward 9 years now, my $80k original invest is only worth $71k now.

I really regret listening to the insurance agent.

My question is should I cut my losses now and put the $71k put into my CPF OA account or SA Account?

At least I can earn some interest rate on my $71k before I retire (I'm 39 years old now).

AK says...
Read this blog and see if you agree with me. ;)

AK71 said...

Jack James:
Take a look at the policy and understand what fund you had purchased .
If you have bought Singapore growth fund or US equities fund , maybe you are laughing all the way to the bank now .
You can’t generalise . Make sure you know what you are buying .
In short , I am keen to know what fund he had purchased 9 years ago . Let us know , babe !

Dolce Goh:
Jack James, for your info, I have Prulink Global (US) Equities Fund. It is one of the worst performing funds in my portfolio.

Jack James:
That’s Global Equities Fund .
I am talking about US equities fund . As Dow closing all time high continuously , no way your US equities fund is doing badly .
Your global equities funds , money are invested throughout the whole world , of course it has to depend on the stocks that they select , which stock , in which country .

Dolce Goh:
About 2-thirds of the Global Equities Funds r invested in US if I don’t remember wrongly. Anyway, now cannot see Prulink Fund Factsheet anymore.

Jack James:
Just look at the TOP 10 invested equities will do .
They don’t publish such info anymore ?

Dolce Goh:
They just removed the info recently. It is their way of forcing us to speak to their agents.

AK71 said...

Jack James:
You know Singapore is doing well , why go and buy European fund ?

AK:
For people who are not good at fund selection like you, better don't play play. :p

Jack James:
You stay in Singapore and you don’t know Singapore is doing well ? Must knock your head if you say you don’t know . 😁😁😁
Singapore one is boring but stable on uptrend .

AK:
Singapore is a very vulnerable economy. It depends very much on how global economy is doing. I hope Singapore will continue to do well but I am not overly optimistic about Singapore's future.

Jack James:
vulnerable but they are good at counter measure when day comes .

AK:
Again, I don't know that for sure.
The next generation will have to take care of things themselves. I can only do what I feel is right for me in my lifetime.

AK71 said...

Just remember that in bad years, fund managers still get paid.

In good years, they will get paid more.

The only people who might not get paid are the unit holders.

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