To make 20% per annum, we could lose our capital.

The low interest rate environment has been going on forever in Singapore and many savers are frustrated. 

Some of them could end up putting their money in ventures they know little or nothing about to get higher yields.

Remember, unlike a commercial bank which assumes responsibility for our savings deposited with them, the middle man in the example above has no such responsibility.





If a bank makes a bad loan decision, they have to bear the responsibility. 

The middle man in a crowd funding situation has no such responsibility. 

The risk is borne by the crowd (i.e. the lenders).





It would, therefore, be interesting to know if the middle man is putting a meaningful amount of money where his mouth is or is he just interested in the commission the deal could generate for him. 

So, if it should be a bad loan decision, he would feel the pain too just like a bank that made a bad loan decision would.






If the business is so lucrative and so promising, why can't the borrower get a loan from the local banks? 

To pay 20% per annum to lenders, surely, is a lot higher than what the local banks might charge in interest.

Of course, in a crowd funding situation, the crowd are lenders. 

They are not investors. 





They will not have a bigger share of earnings if the business venture should turn out to be very successful but, if the business should fail, they would definitely feel the loss.

When presented with a business proposal, always look at the risks involved. 

Don't think of only the possible monetary gains.




Related post:
Questions to ask when tempted by high yields.

"Unemployed but still need insurance because of my child."

Reader says...

I am 48 this year. I have a child, a girl age 9. 

I have lost my job for almost a year. 

I also have a life whole life insurance policy that is over 20 years. 





As I have no job at the moment, I am thinking of terminating it to help my cash flow.

You may say that my girl and my spouse need the death coverage but I am currently also paying for a term insurance of $1 million on my life with only death benefit. 

I feel that this should be sufficient for my family should I leave this world before them.

If you were in my shoes, what would you advise yourself? Thank you.

AK says...

I believe you have thought this over carefully.

I would also suggest that you find out how much a term life insurance for a smaller amount of say $500,000 might cost for your age for the next 12 years. 

This is an idea with your girl in mind. 





She will be age 21 in 12 years' time and will probably be able to take care of herself by then.

Ask about a reducing term which is less costly.

 A reducing term basically sees coverage reducing over the years. 

In this case, 12 years. 

Of course, the cost of such an insurance policy should also reduce over the years. 

You might even decide at some point that you don't need that $1m term life insurance.







"I am still of the opinion that we need insurance but we do not want to overpay for insurance. If I had known this in my younger days, I would not have bought whole life insurance or endowment products when I was in NS and as a fresh graduate."

Source: Comments Section of "Free ILP or Term Life?"





Related posts:
1. Free ILPs or Term Life?
2. Consider terminating whole life policies.
3. Why buy term? How much to buy?