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Have a savings plan and invest fearlessly!

Tuesday, November 21, 2017

Reader says...
Recently, an agent came to me asking me I should get a saving plan.

As she said that people can invest fearlessly is becos they have a saving plan (safety net) if anything to happen, there's still a saving account.

The saving plan is like pay for 5 years then after 15 years can take the money out with interest.

She says the money can be used for my baby education funds or my personal funds after 15 years.

What r your thoughts on saving plans?

AK says...
What is the guaranteed return?

See for yourself if it is worthwhile.

As a guide, Singapore Savings Bond (SSB) pays 2.16% p.a. guaranteed if held for 10 years.

This is a AAA rated sovereign bond.

So, this savings plan which the insurance agent is trying to sell to you must return much more than this to make it worth considering.

1. 15 years is a long time to hold. You will be sacrificing liquidity for a very long period of time.

2. Insurance company is not a AAA rated country like Singapore.

If you want a similar safety net, locking up some money in SSB for 10 years could be the answer. 🙂

(Unlike a savings plan from an insurance company, you will not suffer any monetary loss for early withdrawal for SSB although the returns would be lower if not held for 10 years.)

15 years is a very long time and in that time, there could be a stock market crash (or two) and I would rather have more money to invest with.

So, with this consideration in mind, putting the money in SSB is a better option for me. 🙂

To be fair, such products (i.e. savings plans) are useful to some people.

These people probably have lots of spare cash and are probably not interested in investing in stocks or hard assets.

These people might not be financially savvy and just want somewhere relatively safe to plonk their money.

If you are financially savvy, buy term and invest the rest. 🙂

Related posts:
1. Insurance weakened family's balance sheet.
2. 2.02% interest attractive? It depends.
3. Singapore Savings Bond good or not?

See this month's Singapore Savings Bond: HERE.


Laurence said...

Reminds me of a new-age fairy-tale of a wolf convincing a lamb to jump into the barbecue pit.
Or that of another wolf convincing a sheep to jump off the cliff without worry as god will save him.

AK71 said...

Hi Laurence,

Haha. You are a humorous fellow.

However, to be fair, it isn't as bad as that.

There are just so many financial products out there and many more people with vested interest peddling these products.

We just have to know if they are right for us. :)

Laurence said...

My previous comment was actually targeted at the statement quoted below. It's like telling a parent to send a son to war and not to worry because she has a second son as backup.

As she said that people can invest fearlessly is becos they have a saving plan (safety net) if anything to happen, there's still a saving account.

Ronald Cheong said...

Hey AK,
I have an unrelated question. Say if i were to own Aims REIT both in my normal cash CDP account and in my SRS account, if there were to announce a rights issue, can i only apply for 1 tranche of rights (CDP or SRS whichever bigger i suppose ) or am i allowed to apply for both via ATM ? I know it's not happening right now but i'd still like to know for future references. Thanks in advance !

Wiggets of the Valley

Ronald Cheong said...

Hey AK,

I've got an unrelated question. Say if i were to have Aims REIT in both my normal cash CDP account and SRS account and if there were to declare a rights issue. Can i then apply for both accounts via the ATM or only 1 account ( whichever has more i suppose ) ? I know they're not issuing any rights at the momenet but i'd still like to know for future references. Thanks in advance !

Wiggets of the Valley

AK71 said...

Hi Laurence,

Ah, I see. I get your drift. :)

AK71 said...

Hi Ronald,

I don't use my SRS or CPF money to buy REITs precisely because they could issue rights. Would be troublesome if we do not have sufficient funds to take part.

You would have to put the question to your broker because I don't know the answer. -.-"

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