- Question on insurance / rsp

Question on insurance / rsp

Written by Wilfred Ling

Monday, 02 August 2010

Question: “I engaged a financial adviser to get me an insurance coverage. I bought a whole life policy which cost $2249 per year covering $100,000 sum assured. I am 25 years old and just started working for more than a year. I always do not feel comfortable in investment but upon my adviser’s recommendation, I decided to sign up to invest $100 monthly in unit trust. The concern for me now is whether am I getting what is necessary? My take home pay is $2,200, monthly expenses excluding insurance is $900 and cash saving balance is about $1,000.”

Answer: “Your emergency cash saving is at dangerously low level. The recommendation is to have cash savings of at least six to twelve months worth of expenditure depending on your job stability. In view of the very short business cycle these days, it might be better to have more than 12 months worth of cash. For your case it will be more than $10,000. Other than your shield plan you already have, other kind of insurance like whole life can be considered in the future once your cash position is more stable. There is a risk of non-insurability if you buy your policies in the future but your risk of becoming insolvent is even greater if you do not build up your cash reserve. Your priority now is to build up your cash reserve quickly. Investment is the least priority for now.”

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Wilfred

|SAdministrator |2010-08-02 19:02:45

I found many young graduates are taken for a ride by their so called "independent financial advisers." The above was a real question posed to me. I can do a Simple Financial Planning for young graduates if they want objective advice at a modest fee. Otherwise, they can continue with their so-called "independent financial advisers."

Simple Financial Planning vs Comprehensive
Fees & charges

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Anonymous

|220.255.7.147 |2010-08-03 02:24:16

My frank opinion is that investment is an over-rated subject. Most of us should just focus on savings and liquidity. RSPs should be exactly that --- savings into saving deposits, money market funds and FDs. You can afford to spend years just building up your war-chest and being very skeptical, very critical about investing. Becoz the right investment can mean ability to retire comfortable at 50yo, while the wrong or mediocre investing will surely mean having to work till you are 70s or 80s year old. Sure, you can always retire at 65yo but most probably your lifestyle will be much lower standard than now.

For almost 20 years of working life, I was super conservative and have never really invested in the financial markets or properties. The Asian financial crisis and the Dot-com bust only reinforced my prejudice. Dunno why maybe becoming older or maybe the seriousness of the sub-prime made me study and self-educate on finance and economics throughout 2008. I was rather lucky in committing $500K of cash savings into STI ETF in Apr/May 2009 when it was yielding almost 6% dividend yield. I know that usually STI yields less than 3%, and anything above 5% indicates distressed value and maybe good value.

Am now sitting on 60% capital gains and receiving good dividends. Lucky? Like hell. But problems is that it is also making me more lazy and take-it-easy attitude.

Will there be another 60% or 80% crash in the financial markets within the next 10-20 years? For sure there will be. The only questions are will you be able to get out beforehand? And will you have the cash to take advantage after the dust settles?

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Anonymous

|202.156.10.233 |2010-08-03 20:16:31

We all want more money. It seems the only way to get rich faster and beat the inflation is through investing (take us take toto/4D/gambling out of the picture) but I beg to differ.

Suppose a person starts working after graduation at say age 25 and he works till age 65. This means he has about 40 years of active income. If he has saved diligently during this period of 40 years, I think he should have enough savings for a simple retirement.

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