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Not a lot of people know this, but I went to Poly and my background was not in Finance. It was in Creative Writing for TV and New Media (Singapore Polytechnic) and…I basically forgot everything. They taught me website design, how to write well on a new media medium (still not quite there yet) … But most of all, they taught me how to do objective writing. If you’ve been on Money Maverick long enough, you know that I promptly took 3 years of learning this and tossed it out the window. I promote myself and what I sell every appropriate, and occasionally inappropriate, chance I get. In my course, you quickly learn that objectivity, or unbiasedness, is a total lie. I went into a course thinking I’d learn to be objective, and it took 3 years to learn that proclaiming ‘unbiased’ is for idealistic children. It’s why I love money and the study of money – Money teaches you where your heart really lies. And ‘Unbiased’, is a lie. …Or so I thought. Mortgage A person’s mortgage is one of the largest purchases, if not the largest, that they will make in their lifetime. Close to 80% of the population own the HDB that they live in, or over 96% of people who live in HDBs are paying a mortgage on it. The statistics are likely similar for private properties. Like insurance, what happens with a purchase that seems inevitable is that many people will try to figure out how to maximize their value for dollar. Typically for something like interior design, for purchasing property, for buying insurance – most people would consider a licensed professional for advice and recommendations. Others would consider DIY – in order to save costs. So we break it down into two primary options: I’m sure there will be some debate on this, but DIY advantages basically boil down to a potentially higher objectivity (since you tend to know what you want better) and a lower cost. But what if had a licensed professional which provided both the objectivity AND the lower cost? What if someone were truly unbiased because the most incentives were provided for them to be as much? A Truly Unbiased Professional A Mortgage Specialist is an intermediary between a lender and a borrower who needs a mortgage loan. To operate in Singapore, they are licensed under MAS (Monetary Authority of Singapore). Basically, they do for you what you were going to do anyway – source out the best private loan for you (unless you were going to do HDB loan already) to help you lower the cost of interest over that loan. For a huge purchase like a home, a favorable interest rate is extremely important. Take a typically scenario for the average Singaporean - A $500,000 loan over 25 years at a 2.6% interest rate (your CPF loan rate) will result in you paying a grand total of $180,505 in interest. By dropping your interest rate down by a mere 0.4% (2.2%), your total interest over 25 years is reduced to $150,487 – or over $30,000 in savings. If you invest that amount with me across the same period – about $1200 a year for 25 years – at a 7% annualized rate, you could have over $81,000 instead. We haven’t even looked at larger loans, or interest rates that are lower than that – which are certainly difficult, no doubt, but not impossible. For context, the benchmark interest rate was last recorded at 1.88%, and even lower at 1.66% across the last 30 years.* After all, that is why you’re reading this article – you’re at least a LITTLE interested in figuring out how to save that money. I don’t know about you, but I would love to have that $30,000. Here’s why you should use a Mortgage Broker instead of DIY. 1) Truly Objective Unlike yours truly or a banker, a Mortgage Specialist gets paid according to the size of the loan. This means that the broker has no incentive to offer you any particular bank from the 16 banks that offer mortgage loans. In fact, because they want your business again when you have your inevitable refinancing, they would be truly incentivized to offer you the best deals they have available. They are also unable to take incentives from banks or bank representatives. 2) No (Additional) Cost Your next concern might be the fact that you’re utilizing a licensed professional, it would cost you extra – not unlike if you were paying my fee or a real estate agent’s. This is subverted by the fact that a Mortgage Specialist’s cut is from the bank that you have selected. In other words, it literally costs you nothing more to utilize their service than what you were prepared to pay anyway if you decided to DIY. 3) Higher Quality Service and Advice This is my favorite part – because as a generalist in this area, I can see how a specialist operates. Let’s look at this particular case study. Mr Lim has a $450,000 outstanding loan, and he wants to refinance with a bank instead of continuing his CPF loan (2.6%). He does a DIY comparison online for what kind of ‘fixed’ refinancing rate he can get. Immediately, this pops up on the screen: 1) Bank C: 2.13% 2) Bank H: 2.18% 3) Bank S: 2.23% I have marked the lowest interest rate to the highest interest rate in order. A DIY person might take the interest rates at face value. Since Bank C is clearly competitive, I’d thank the software and snatch up the loan. However, a Mortgage Specialist is trained and licensed to dish out professional advice on these matters, such as other considerations you might have missed out. Let’s look at what happens when he does a holistic comparison: Bank C: Difference in Interest: 2.6% – 2.13% = 0.47% (difference in interest) Gross Savings Per Year: 0.47% x $450,000 = $2115 Total Gross Savings: $2115 x 2 = $4230 (Gross Savings for 2 years, based on 2 years as loan package has a lock in period of 2 years) Total Net Savings: $4,230 – $2,000 (Legal fee without subsidy) - $500 (Valuation Fee) = $1,730 (Nett Savings for 2 years, $865 per year) Bank H: Difference in Interest: 2.6% - 2.18% = 0.42% Gross Savings Per Year: 0.42% x $450,000 = $1890 Total Gross Savings: $1890 x 2 = $3780 (Gross Savings for 2 years, based on 2 years as loan package has a lock in period of 2 years) Total Net Savings: $3,780 - $1,000 (Legal fee with subsidy) - $500 (Valuation fee)= $2,280 Bank S: Difference in Interest: 2.6% - 2.23% = 0.37% Gross Savings Per Year: 0.37% x $450,000 = $1665 Total Gross Savings: $1665 x 2 = $3330 Total Net Savings: $3,330 - $200 (Legal fee with subsidy) - $500 (Valuation fee) = $2,630 The end result? The highest interest rates on paper have the highest net savings, while the lowest interest rates on paper had the lowest net savings. [This line is NOT advice or trend] 1) Bank S (2.23%): $2630 2) Bank H (2.1%): $2280 3) Bank C (2.13%): $1730 Factors like legal fees and valuation fees can be easily missed, along with other factors such as the refinancing packages available after. But let’s say you’re really, really good and you catch them all – there’s still my favorite reason for engaging their service. 4) Even Lower Costs Other sites have not been shy about this, but because Mortgage Specialists help to streamline and make the loan process more efficient, they are in a good position to negotiate loans. This means that through a Mortgage Specialist, you potentially have access to a loan that is even more favorable or discounted than the most favorable rate you can find trying to DIY. That cheapest loan that you found online? You could get an even lower rate through a specialist. And as you now know, every 0.1% amounts to literally thousands of dollars. Conclusion A mortgage specialist is an amazing value proposition because it costs you nothing to have tons of potential upside. I haven’t even gone into all the time that they will save you from their analyses and recommendations prior and after the loan, or the faster speed of completion from starting your loan process to putting it in place. The highest risk to you is if the specialist is incompetent, of which there are limits. That’s why for writing this article, I enlisted the help of a professional who I admire and respect very much – Cameron Wang Liang from VOY. …I’m not sure how I feel about the name of the company, but as a broker, Cameron stands head and shoulders above others that I’ve spoken to. This post is not sponsored, and I get absolutely no referral fees of any kind. As you know, every article that I write here is simply for the benefit of my current clients, my would-be clients and for people to utilize my services for their financial gain. The following is strictly opinion. If you would like details or formal advice on your mortgage, I will be happy to refer you to Cameron - someone who I trust and whose abilities I respect. He will in turn, help you save more so that it frees up your cash flow for me to help you with further wealth solutions, so that you can do things like attain Financial Freedom sooner. Money Maverick Take an hour out with me, I'll show you how I can transform my advice here into actual financial returns for you. Free coffee, no obligation. Here's where the starting line of a great financial relationship lies. Facebook: https://www.facebook.com/luke.ho.54 Whatsapp: 91769099 You can also set an appointment with me above. For Cameron: +65 9172 7859 cameron@voy.sg 6 Raffles Boulevard, Marina Square, #03-308 S039594 #timeinthemarket #timingthemarket #markettiming #lumpsum #dca #investments #markets #returns #moneymaverick #financialadvice #financialadvisor #investmentprofessional #investmentspecialist #investment #investing #growth #snp500 #etfs #funds #financialconsultant #financialadvice #fa #insuranceagent #mortgage #mortgageadvisor #mortgagespecialist #mortgagecomparison #diymortgage #licensedprofessional #neverdiy #homeloan #cpfloan #bankloan #floatingrate #fixedrate #boardrate #sibor #libor Sources 1) https://tradingeconomics.com/singapore/interest-rate* 2) Mortgage Guru - 2.6%, 2.2% interest rates
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I am writing this at 3.30am in the morning on a Wednesday. For those of you who didn’t know, Money Maverick releases an article, ideally without fail, on Wednesday between 7 and 8pm (depends if he has an evening appointment). So I have all of...15 hours+ to write a completely new article from start to finish, AND carry out my work day. I have no idea how I am going to pull this off. But because this article has already begun, it means that my success is basically inevitable. (I'm not sure if that is logical or if I'm just tired) How did this happen? I was a little busy over the weekend trying to help my clients with the end of a sale, plus this with my company. I can only blame myself, but one of the benefits of a company planning trip (and perks, like above) is that we talk a lot about our aspirations and what we hope to achieve for ourselves and our clients. We want to stay relevant to our clients so we can stay relevant. Win-win. I’ve always loved that. One of the prevalent win-win themes that I’ve been exploring a lot is how a Financial Advisor Representative sees something like the FIRE movement – in particular, Buy Term and Invest the Rest (BTIR). Some of my clients have asked me about this: how I feel about it, whether they should do it (based on their needs), how to go about doing it... And having done this for over 2 years for some of my clients, I'm fairly confident in my experience now compared to before. I think many familiar are familiar with the term (punny) but not everyone applies it or fully understands what it is. For such a prevalent theme in the FIRE movement, it doesn’t feel like it’s been explored in the detail that is required to do it justice recently. So I thought I’d try to explain it – and I wonder how it’ll sound like, coming from a Financial Consultant who has an equal appreciation for Whole Life products. Here we go. BTIR: Step by Step Guide Let's look at this scenario. 30 Years Old, Male, Class 2 $300,000 Life/TPD/Critical Illness till Age 70 So BTIR, or sometimes known as BTID (Buy Term and Invest the Difference) - is basically using the premiums you would have used for a Whole Life policy and buying a Term policy instead, followed by investing the difference. This is how it goes. Step 1: Get the quotes for your Whole Life and Term policy. Term: $1441.80 [40 years] Whole Life: $3147.20 [20-year premium payment] Do ensure that the parameters for your comparison are accurate (further details below). Remember, there is no BTIR without the existence of a compared Whole Life Plan. The scenario leaves me with the following numbers above. Step 2: Subtract the difference. $3147.20 (Whole Life) - $1441.80 (Term) = $1705.40 (Investment Budget) Done. This is the amount you need to religiously invest every year. For a slightly fairer comparison, you should invest it according to the number of years that you would have paid for the whole life plan, which means that you only need to invest this amount for 20 years, not 40. Step 3: Invest the difference… This is the tricky part. Where do you invest, what do you invest in? As an investment specialist I would obviously have a couple of suggestions with expensive funds that I offer – funds that can outperform market indices or offer dividends with more stability than REITs. I also show you how you can get higher returns. But ultimately, whether you pick somethign like your Unit Trust platforms, Robos, the STI ETF, Dimensional Funds, REITs, SSBs, CPF, Bonds like Astrea or even your Multiplier account, your yield matters. At the end of 20 years, your yields are as such from a capital of $34,108 [$1704.20 x 20]: At 2%: $42,265 At 4%: $52,815 At 6%: $66,498 Step 4: …and let it roll till the end of your Term. Since the duration of the Term selected here is 40 years and you’ve already invested for 20, you can now leave this large sum to roll on for another 20 years (40 – 20). So if you see that you’re on track to perform in the manner that you want, just leave it rolling. Step 3 and Step 4 are the hardest parts of this whole thing. Committing to something for 40 years is hard. Close to half the marriages in Singapore don’t last that long. This is where you get to see if you are truly meant for this strategy, or if you’re going to flub it up. (although sometimes its just death, not divorce. Eh) Step 5: Celebrate your awesomeness. What is the final sum? The final sum is your self-insurance after 70. If you regretted not buying a whole life policy for the children and grandchildren you’ve come to love, suddenly its not too late because you have a ton of money. What up. Seriously though – if you’ve pulled this off, you are an exception amongst rules. The average Term Insurance policy lasts 6 years* and the average fund that people hold their money in lasts 3.27 years**. In a world of spenders and compromises, you are disciplined beyond measure. This is your reward. BTIR at 2%: $62,804 Whole Life Policy with Poor Bonuses: $76,878 BTIR at 4%: $115,724 Whole Life Policy at Ideal Bonuses Paid Out: $132,082 BTIR at 6%: $213,269 You can see that it takes very little – no more than a 4.5% net yield – for you to ‘Beat’ one of, if not the best whole life policy outcomes in this scenario. You also saved $5272 more than the person who opted for the whole life policy. (total premiums paid). You are self-insured, which means that you can ‘claim’ for anything, not limited to the definitions on your policy document. You also likely have further future upside potential if you’ve made it this far. The differences will only widen over time. All those are the upsides to being exceptional. I'm sure you can think of others, too. And that’s a LOT of upside. And Then Some I thought I’d be the Devil’s Advocate for people who feel that advisors may push whole life a little too much – especially since I do BOTH whole life (ECI) and BTIR personally. As such, I intentionally didn’t use an example which would have favored whole life, which I could have. But for context, I would say I typically favor using a whole life plan with a multiplier for my Early Critical Illness Policy. That’s why I used 2%, 4%, and 6% - in my experience, they tend to be benchmarks for the likelihood of how your investment funds need to perform for Life/TPD, Life/TPD with CI and Life/TPD with ECI respectively. For the last one, even with a low multiplier of x2 (making the cost quite high), it’s not uncommon for a scenario to exist where your Term premiums are higher than your whole life premiums, and your ROI required for investing is likely to be really high as a result. As for other considerations… 1) Realize the limitations of your analysis Basic limitations: There are things like inflation, changing market conditions, changing conditions in your life, past performance doesn’t equate to future performance… Slightly advanced limitations: Non-guaranteed insurance (if you’re using a Group Term policy), non-guaranteed premiums (if there’s Critical Illness insurance), credit ratings. 2) Head to Head It must be head to head – as a FAR (Financial Advisory Representative), I get to offer lots of companies. The idea of using two different companies is flawed and I’ve had the fortune and misfortune of seeing it happen already, under your slightly advanced limitations as listed above. You can insist on such a comparison and I will be more than delighted to help you, but I would explain the risk to you and whether you would be willing to acknowledge it. 3) Match up the Capital to the best of your ability In the above analysis, the person who opted for BTIR and succeeded would have had an additional $5272 in capital. EDIT: Hariz was kind enough to point out that after the 20th year, you would continue to pay for your Term premiums. That eats into the overall return of your IR, which brings it up close to a 6% annualized yield for you to win. What do you do with the capital? Invest it? Spend it? Either way, you should use it for something. Be fair. At the end of your tenure, if you spent it, you could always say – ‘I’m so glad that I was disciplined enough to BTIR.' 'Not only did I make more money than what an insurance companies’ permanent policy would have given me, but I got to _______________’ (insert whatever here) I would personally suggest ‘Trip to Europe or ‘Trip to New York’ here. I have not done either before, and it would be kind of nice. 4) Realize the limitations of BTIR itself I’ve mentioned some of the limitations already – for example, the lack of committing to investing the rest or even the term policy itself. There are some general limitations mentioned here, although to be fair not all of them are applicable to the Singapore context. You have to be exceptional and disciplined – and if you have no history of doing that for your credit cards, making your bed or paying your bills on time, I’d really suggest you start small before trying to see how that works out for a movement (BTIR) that clearly requires half a lifetime of discipline. 5) Other last considerations How long should your Term policy be for? How long should your Multiplier for your Whole Life policy be until, and how many times should it be? How many years should you set the premium for your whole life policy, and is there a difference? What about Group Term Insurance? All these are considerations that I'll love to help you with, if you don't have the answers. If you'd like help so you can start this sooner, I'm always here - with experience and testimonials from people who are carrying out this process right now. So that’s it. Stay woke, salarymen. …Uh, I mean – if you’d like a consultation on carrying this out with a licensed professional, I’d love to be a part of your finance journey. (is that copyrighted yet?) Money Maverick Take an hour out with me, I'll show you how I can transform my advice here into actual financial returns for you. Free coffee, no obligation. Here's where the starting line of a great financial relationship lies. Facebook: https://www.facebook.com/luke.ho.54 Whatsapp: 91769099 You can also set an appointment with me above. Sources: 1) Dalbar – Quantitative Analysis of Investor Behavior, Dalbar Inc (March 2011)* -Funds are not held longer than an average of 3.27 years 2) Optimizing Retirement Income by Combining Actuarial Science and Investments (2015)** -Some other general weaknesses of the BTIR principle #timeinthemarket #timingthemarket #markettiming #lumpsum #dca #investments #markets #returns #moneymaverick #financialadvice #financialadvisor #investmentprofessional #investmentspecialist #highrisk #highreturn #volatility #sharperatio #beta #alpha #returnrisk #highreturns #investment #investing #growth #snp500 #etfs #funds #earlycriticalillness #angioplasty #coronaryartery #criticallillness #lifeinsuranceassociation #LIA #insurance #CI #ECI #earlystageillness #financialconsultant #financialadvice #fa #insuranceagent
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A lesson of absolute returns versus ROI, and lump sum investing versus dollar cost averaging. SO...a couple of months back, I saw a post. I don’t remember what it was about exactly, but it had something to do with the returns of a private annuity being under 3.4% even if the person is in his mid-30s. It wasn’t a fair example at all. Literally 5 – 10 minutes of research should have been able to find you a better plan that yields you more than 3.4% for an annuity. Being a little furious curious, I decided to go and dive into some of the annuity plans I have access to, since as a Financial Advisor Representative (FAR) who offers multiple companies - I would be able to shop around and see whether or not I could beat the poor ROI example provided in that person’s article. This was easily done. But my joy at quickly establishing how much better private yields could be than the example were thrown off by something odd... Single Premium Annuity vs Dollar Cost Averaged Annuity Here's an example: $500,000 – as a single premium. The example, as mentioned, was at 3.4%. [All results are net of fees/charges etc] Using my plan, the projected yield for the single premium was 4.15%, and the guaranteed rate was 2.15% - which was just excellent (and you can buy this plan from me at the button above). I’m always particularly happy about correcting misinformation, and I was all but ready to go about doing it. Naturally, my colleagues questioned my good mood (I tend to get kind of loud when I’m in a good mood) and I told them about my discovery. For context, Retirement plans are not my specialty. So one of my colleagues whose specialty IS in Retirement plans pointed out that it wasn’t even close to the highest annualized projected yield he’d seen. I blinked. The plan I had chosen was already an upgraded plan. Could it really go that much higher than 4.15% annualized? I asked him which plans he was referring to, but he couldn’t recall the specifics. “Try the 10 year one?” he suggested. “See what the annualized yield is like.” I punched in keys for the exact same plan – all the while thinking to myself – I really don’t know what to expect here. Vanguard studies already show a lump sum has a higher annualized yield, with corresponding longitudinal studies since market goes up 2/3 of the time or more, insert technical jargon here, blah blah… And surprisingly, this happened. The guaranteed yield was significantly higher (2.38%), and the annualized yield was actually a little higher (4.19%). Worse, I was told that this wasn’t even the best non-guaranteed yield in the industry right now. Imagine if the client had been even younger – I bet over 4.5% would have been perfectly doable. Wait, I realized. Did DCA (Dollar Cost Averaging) just beat Lump Sum Investing? [For what Dollar Cost Averaging is, read this. But it is basically putting in money at regular intervals instead of the entire lump sum at once] My whole life is a lie! …but of course not. Once you put together the actual math, the return on the lump sum of $500,000 is 439%, while the $50,000 for 10 years is only 372% on total capital. In other words: Lump Sum: $500,000 (4.15%) --- $2,193,580 10 Years DCA: $50,000 x 10 (4.19%) --- $1,844,383 What really fascinates me is how there’s such a sizable difference in absolute returns despite there being a small difference in the recorded ROI. Even crazier, the small difference of recorded ROI was in FAVOR of the larger ROI, yet the absolute return was much larger for the investment with a small ROI since it was a lump sum. In other words, a 4.15% return beat a 4.19% legitimately on paper. How about Investments? I wanted to make certain of this, so I did a little experiment. As I subtly mentioned just now, the Vanguard study (https://personal.vanguard.com/pdf/s315.pdf) already demonstrated that lump sums tend to outperform Dollar Cost Averaging. The Vanguard study is an often cited, very credible study due to its stringent methodology – compared to the limitations and criticism of something like SPIVA (insert link here), which is the go-to source to suggest that Active Mutual Funds fail to perform their indices (no duh). For a specific illustration, lets look at the 20 year returns between 1998 and 2017. I intentionally chose this 20 year period because despite 2017’s strong returns fresh in everyone’s minds, the high starting point of 1998 and having one of the longest bear runs in history (2000 – 2002, Dot Com Crash) puts Lump Sum Investing at a steep disadvantage since DCA helps you defensively. From the above, you can see there there’s typically about 7 good years every 10 years (which typically fits the normal equity performance of 6 – 8 good years every 10 year investment cycle). You can also see that the good performing years typically had far higher results than the bad performing years, which is also very carefully shown here in another article that I wrote recently. Using a capital of $400,000, the difference was massive. The results? Peng Jie, a colleague of mine - came up with the above illustrations. If you're looking for someone technical, he's your guy. As for the results? Lump Sum: $400,000 --- $1,101,940 [Result: 5.197% annualized] 20 Years DCA: $20,000 x 20 --- $826,607 [Result: 6.496% annualized] On paper, the lump sum performed about 1.3% lower than Dollar Cost Averaging. It also made almost Three Hundred, Thousand Dollars more. [$300,000] Takeaways So that's how a 5% annualized return beats a 6.5% one. Obviously, you know that it wasn't a 'fair' comparison despite the same amount of capital. But that should really illustrate how time in the market is better than timing the market, eh? Not happy - sorry. That's literally how ROIs are presented and calculated...it's not my fault. :( Whether you’re trying to invest or do a savings/retirement plan, these are really the key takeaways when you’re trying to make money in the long term: 1) Lump Sums still tend to win in the majority of situations... …even when a jackass Maverick stacks the odds against them. Unless you’re a master trader, timing the market just doesn’t make sense at all if you already have the lump sums available. To quote the Vanguard study: ‘…this temporarily cash-heavy asset allocation is much more conservative than the investor’s true target allocation (the one that will exist after the DCA period) and that, while this short-term deviation from the target provides some relative protection from market downturns, it does so by sacrificing some potential for greater portfolio gains.’ You can replicate this if you compare a yearly investment to a monthly investment as well. Yearly will typically do better over time. 2) Don’t disregard a low yielding investment so simply – look at the absolute return and the overall big picture This is important because we tend to write off low-yielding investments very easily just by looking at the number. The context is very important, as I’ve demonstrated above where a lump sum outperforms despite being a whole percentage point lower in Return on Investment. I am not intentionally trying to ‘cheat’ anyone’s feelings – in fact, most people already know that I enjoy selling long term investment plans paid across many years. So I don't exactly have much incentive to promote this. But the reality is that ROI is calculated based on a certain set of criteria and it can be misleading and ill-advised to simply look at the percentage points. If you've kept away from the market, waiting for a crash and did better in terms of ROI, you still might not have done better in absolute returns. …Anyway that’s also why you have someone like myself to advise you and give you context when you’re looking to make money, so… 3) DCA is really more of a short-term strategy, or for the especially cautious That might seem like a controversial conclusion, but don’t take my word for it. I didn’t suggest it. – Vanguard, the pioneer for index investing, did. For those of you who are afraid of high prices or market crashes, you could start NOW with DCA. It would be better than timing when this crash hits, because it’s been predicted to crash since 2015 and seeing as that hasn’t happened yet, god knows specifically when it will. Even Michael Burry, the fund manager who famously predicted the Financial Crisis and made $2.69 billion overnight – spent two painful years losing millions of dollars shorting the market before it finally happened. But the evidence has already established that even if you do enter at a poor time, your absolute return is far more favorable than your delayed entries. Don’t skip out on opportunities because of fear. If it's risky, I can manage it for you. Money Maverick Facebook: https://www.facebook.com/luke.ho.54 Whatsapp: 91769099 You can also set an appointment with me above. If you're looking at diversifying, increasing your returns or just starting on your investment journey, you can contact me above for a non-obligatory consult. Investments are also available using CPF (Ordinary Account), SRS (Supplementary Retirement Scheme) and Cash. Disclaimer: All returns and statistics posted on this article are not to be taken as investment advice. Any formal advice from my end can only be conveyed to you during a professional consultation. **The Table Returns recorded above for the SNP500/QQQ do not account for the following 1) Dividend Withholding Tax 2) Forex Risk 3) Management Fees/Account Fees/Transaction Fees #timeinthemarket #timingthemarket #markettiming #lumpsum #dca #investments #markets #returns #moneymaverick #financialadvice #financialadvisor #investmentprofessional #investmentspecialist #highrisk #highreturn #volatility #sharperatio #beta #alpha #returnrisk #highreturns #investment #investing #growth #snp500 #etfs #funds
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Is the Financial Industry doomed like traditional media, or will it evolve? The day before I released Money Maverick’s 50th article, I attended a conference that spoke to updates in the insurance and investment market. Being a specialist in ECI (Early Critical Illness) and Investing, it turned out to be a really good use of my time (even when I wasn’t even that sure what it was all about). The speaker was witty, and he gave a story which I remember quite clearly talking about the outlook of the Financial Industry. In translation, there’s two ways of looking at the future of people in my line of work: 1) ‘Make Hay while the Sun Shines’. This opinion is not uncommon. Tied Agencies have been losing market share per year, but generally market shares for financial institutions have been going down or becoming less concentrated. To achieve MDRT, a coveted award for sales in the Financial Planning sector, is far easier than it was before because the standard is lowered – presumably because the top 6% of international sales has been measured by a declining performance the previous year on average. Also, outspoken people have tarnished your reputation before you even begin. Competition has come from all sorts of creative sources. There are niche insurers which are taking away what were small but important parts of other companies’ businesses - where they were once dominant and the only available, convenient option – their unfocused attention versus a specialist results in a product that is often inferior in that category, and causes them losses. Technology continues to displace jobs in this particular sector. Plenty of DIY tools and research are available on the internet. Investing was always more prevalent, but you can even purchase insurance online now – in an industry where insurance was always sold and not bought, this is an unprecedented historical change. Even if they became a polarized monopoly, both Insurance Companies or Investment Companies can still cause their own downfalls. The medical insurance industry in Singapore is notorious for making losses year on year, to the point that today’s current copayment system is required. For investments, people can overplay their hand – and once their credibility is shot, it becomes a negative spiral that leads to inevitable failure. While a Financial Consultant cannot be legally let go of since they are technically self-employed, declining sales leads to a higher turnover rate. This is even further enforced by higher standards from the company to filter out stronger performers and incentivise them to perform or retain talent, meaning that Consultants who start out slow are also penalized if they cannot meet minimum production requirements to represent certain companies. It is especially hard for Tied Agents (strictly in my opinion – I admire them more for their choice) although someone in my profession has it bad enough already. Blood is not thicker than water when it comes to money. With the ability to shop around, compare, negotiate discounts with the company or branch before finalizing a proposal – it is not difficult for me to compare a product on a fair, head to head level and have a price difference in the thousands, or worse, tens of thousands across the premium term period for the same policy value. You could be the best agent you want to be, but as long as someone can charge a lot less for roughly the same thing – you may never do business. And everyone is killing your business – technology, competition, online resources and even your own company. So – Make Hay while the Sun Shines. Because when it sets, you’re done. 2) ‘There will always be Hay. Make the Sun Shine’ The second approach is more optimistic. Despite generally unsaturation of the market, the top performers are still rewarded at even higher levels than top performers of years before. As I wrote about recently, even the lowered standards for MDRT will not adjust for the rest of the difficulties presented. Even a one-time MDRT will find it impossible to maintain a lifetime award if not competent. Competition has created a higher standard in Financial Consultants – where they would be objectively better than Consultants decades ago with the same amount of experience. Such competition has also increased regulations. Both competition and regulations have increased creativity – where Consultants who genuinely strive to serve in this line will come up with creative measures to stay relevant and useful to their clients in the face of such difficulties. Technology has been an excellent assistor for Financial Consultants for their efficiency – consolidations of policies, expense trackers, projections for shortfalls and future goals, stunning visuals and comparisons across the board. It creates a positive impression and strength of service that is far beyond what used to be a leaflet, a set of forms and a quick drawing. Such tools also help to ensure that there is reasonable accounting within the organizations itself. Investment returns are transparent and paid out fairly with accountability. Instruments are designed better with a higher likelihood of managing both profits and client interests successfully, creating jobs, convenience and generally building the economy. Turnover rates are not necessarily poor indications of a failing business model – where others realize that their desire to be part of the Financial Industry may be better served in backend roles rather than poor performance. Incentives continue to be high. A Consultant is only as good as how efficiently they acquire a client compared to an alternative method. And Financial Consultants still have plenty of reason to be needed – as an authority in a Financial Area that is an uncomfortable topic, as someone who is accessible, trustworthy and where complex questions can be clarified. Where alternative methods such as aggressive advertising may fail, a comfortable face to face discussion where people can learn from, relate to each other and do business – even on a small level – will ensure that Financial Consultants will always have a place in the world. Not in the technical skill level, as important as it is - but by showing decent human connection and providing service on a personal level. So there will always be Hay, but it’s the responsibility of a Financial Consultant to make the Sun Shine. If you are not useful to a client, to the world – you will not have a job. This is a universal truth of having a job no matter which industry you are in. Thoughts and Thanks What do I think? I am not so optimistic, to be honest. I think that the Consultancy business will be like Newspapers. They will hit a point where they have a much smaller historical base than they did before. Perhaps that is where Christopher Tan has had tremendous foresight. When the dust clears (assuming near-complete DIY), only the clients willing to pay for the highest quality, non-conflicted advice will be left (if all sales-based consultants lose their jobs) and Providend will have been a pioneer in this particular venture, as they have been all this while. Even when it comes to using a product feature to outcompete for a person’s business, there’s a tinge of guilt. Yes, there’s more benefit to the client. But I also knock out someone else’s income. It’s not a good feeling, but not poor enough that I would not put myself first if my service is better. Ultimately, who knows what the future holds. I really know nothing except for this - much like what happens when Financial plans go awry, stubborn people get creative when you push them into a corner. …And I am a stubborn person. If only a few newspapers are still successful today, I want to be one of them. Money Maverick hit its 50th article last week. Prior to that, we had less than 150 organic views on average, we now have about 4 times that. I am not flawless. But clients have been generally happy. It’s not a lot, but people are reading this because they want to. That's a miracle in itself. That makes me really happy and fulfilled. The blog is really the result of years of hard work in the background. Much like Budget Babe, it takes a certain boldness to call yourself a name. And Money Maverick is who I can confidently say I am, without it sounding completely ridiculous. Working in this line has not solved my lack of social skills. I am socially inept. I still continue to unintentionally alienate both large general groups of people as well as potential clients. And quite frankly speaking, I’m not even doing that well yet (no MDRT). But I am thankful that I can find something that I am passionate about where I can wake up positive about going to work. As for how long I can keep doing this…well. I continue to get creative as I get backed further in. And I would not have room for my creativity without you guys. I would really like to thank the following, of which it would not be possible for this blog to exist, for me to do a job I love so much and to contribute more to the world than I thought was possible for a mere B-minus student, B-plus athlete like myself who is easily the least in his family. To Jesus Christ, My Lord and Saviour: For which I can do nothing without. Through some months where I had a hundred dollars to spare and felt like giving up, you kept me healthy and alive and hopeful. Depending on you is all I can do. To my Family: For being supportive even in an industry where the turnover rate in the first two years is over 80% and continues to fall till the 5th year. Thanks to you, I have become a statistical anomaly. I have never been in the top 20% for anything I considered really important in my life, and this is important. Your premiums are not huge, but the warmth I can come back to on my worst days is priceless. To my Clients: For which none of this would be possible – I am always impressed by your faith in me. Sometimes it is clearly far beyond my means and it motivates me to live up to the hype. Your questions are crazier and crazier and ¾ of all these articles exist because of you. I have a job I love because of your faith: and I can’t promise not to fail you, but I can always promise to do my best and be accountable in my failings. To my Colleagues: For dealing with my weird office behavior, idiosyncrasies, endless questions on topics. For the free rides back home, drinks, staying long hours, discussing and sharing freely and generously. For the laughter and the place I can also call home. Most importantly – for my ethics and a culture of ethics. Whenever I am tempted by greed or ego, I also feel secure knowing that you will set me on the right path. To the Money Maverick Team: Samantha’s organizational skills, disciplined work ethic, writing/moderating – you are missed. Vinod, for your loyalty and tech expertise, and especially for coming up with the ‘Money Maverick’ moniker. We are an actual brand now. Money bleeping Maverick. Wow. Brice, for selflessly contributing your designs because you have faith in me and my work. All of you - I am so proud and privileged to have the benefit of your service. It is more than I deserve. To my Readers and Critics: For which you continue to demand quality from me. I look forward to the day you drop me a message after months, even years of showing you what I can offer. Even for the people who tell me you trust me, you’ll buy from me, you believe in me - and suddenly leave without a word – I learn because of you. I learn to make sure there are less of you by being a better consultant tomorrow. Lastly, To my Girlfriend Manow, who inspires me and humanizes me. Without you, I would be an aimless robot with no ability to relate to people. Rebranding Brice has done some incredible designs and the upcoming months; the Blog and Facebook will continue to reflect my approval on these changes. Vinod has also been working very hard – and both of them are available for hire, if you are interested in people who can help you promote your media, do filming, website design. These are Brice's professional and methodical product designs, such as these - which we will be implementing some across the next few months: I really hope you like the designs, and do let me know what you think below. If you liked the designs especially much, do contact Brice, who is just excellent at his job. In the meanwhile, thank you for all your support. I look forward to the next 50 articles. Money Maverick If you have a life goal, it needs a high comprehensive, decisive financial solution. You can have it all, and I’m always ready to show you how. You can reach me at 91769099, or https://www.facebook.com/luke.ho.54 #money #moneymaverick #financialmanagement #tips #investing #insurance #financialadvisor #honestconversation #newyear #designs #50articles #milestone For Brice: +65 9272 3919 For Vinod: +65 9231 0490
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It has been fed-back to me that I might have taken the previous post a bit too far. So I made some amendments. You can read the original, now amended post here: https://www.moneymaverickofficial.com/posts/my-guide-to-the-cpf-investment-scheme-cpfis For those of you who are still generally interested in investing your CPFIS - here's some additional advice not limited to investment funds. This was the original ending for the previous article, but it made it too long and I had intended to use them as captions. I hope you find it useful. 1) Ignore Bonds, or majority bonds What I’ve noticed when I’m correcting CPF portfolios sometimes is that the advisor or the investor played it too safe. So yes, they want to invest their monies, but they still want capital preservation. Unfortunately, if you wanted to achieve that CPF was already the best risk-free investment. Even the best bond in the world wouldn’t produce that kind of risk-adjusted return, because CPF Bonds are literally ranked the best bonds in the world already. If you really want to make higher returns using a different source, or generally prepared to trade small risk free returns for potentially higher returns, you have to take on more risk. (That is also partly why I did the filtering of funds in the previous article.) In fact, as a general rule you should typically ignore most defensive or conservative instruments, if the goal is to surpass the 2.5% interest rate. If you have a different goal, like owning gold shares or something, that’s a whole other story. 2) Adjust your expectations Once you’re prepared to take higher risk, do adjust your expectations. Higher risk assets such as equities do not typically grow 6% year on year, for example – it’s more like (-8%, +27%, +12%, -12%, +16%). Try the numbers above in your calculator with a $100,000 capital and then look at the annualized/compounded return. Surprised at the huge change in numbers? That's a mere 6% annualized return. Imagine 8%, or higher. The absolute numbers can be really heart wrenching despite being a small percentage in reality. It can be jarring if you expect a smooth curve, so don’t – and you won’t panic when the losses happen because they’re bound to recover over time. 3) Figure out your Mortgage First, man A common strategy is to not wipe out your entire OA by putting some of it aside for investing. Other people will want to maximise their returns as early as possible, since the difference between 2.5% and 6% for example, is massive and they want to get started as quickly as possible. It gets very complex when you toss your mortgage payments into the picture, especially if you're committing regularly (e.g. monthly) and your mortgage can fluctuate (e.g. private mortgages, fixed/floating etc). It's really a lot easier to just figure out your mortgage, leave a margin of safety for interest fluctuations and then invest the rest. 4) Decide which CPF Life you want Some people have broken down CPF to an absolute science (I have not). And that science tells you that certain CPF strategies have numerical advantages over other CPF strategies. I'm not going to go over them in too much detail, but you should probably get formal advice on that. Some of you may want to secure your base numerically before starting investing. This is a slightly more conservative way where you have a considerable amount of CPF in your accounts before you even consider investing. Some of you will secure this base by calculating far ahead (using compounded interest of the CPF accounts versus the growth of the BRS or FRS). Slightly more calculative, still fairly conservative. Some of you will invest in order to meet this sum. Some of you will plan for a ton of excess at 55. Some of you will not invest at all after figuring all of that out. There’s so many terms and choices, too. Basic, standard, escalating, BRS, FRS, ERS, OA, SA, RA, the bonuses and interest rates or all of them… Choose the CPF Life plan you want and it’ll be way easier to plan how to allocate your CPFIS. Trust me. Doing otherwise is hell. 5) Mix and Match There is a 35% cap on stocks and REITs for your CPF OA. I’m not the biggest fan, but there’s nothing to stop you from doing it. The options are available. If anything, you should consider it if you’re someone like me. Because you can try it, take losses for a while and always crawl back to guaranteed interest if it turns out to not be your cup of tea. Or it could be awesome and you’ll want to explore it further. Who knows? Ultimately, investing is a contact sport. You won’t really know until you try. Money Maverick #investments #markets #returns #moneymaverick #financialadvisor #investmentprofessional #investmentspecialist #highrisk #highreturn #volatility #sharperatio #beta #alpha #returnrisk #highreturns #investment #investing #growth #snp500 #etfs #funds #financialplanning #financialconsultant #diversification #riskmanagement It's a little odd how much reaction the previous article caused. There was no particular issue with that when I wrote this article, but maybe it was because it was more arguable or a less popular opinion? I really, honestly, do not know. Human beings continue to surprise me. I really have no social skills, apparently. I thought people wanted quality information, but apparently not from someone with vested interest no matter how useful it is. I thought credibility was also determined by the strength and evidence of your content, not just by the titles you could make up or paper qualifications you could buy. I thought discussion and disagreement and debate were healthy things, but apparently you have to be nice while doing so. ...And you're also not allowed to call out misinformation for what it is. ...And you're also not allowed to extend the thread beyond a certain point, or a certain heated point regardless of the growth of the content or the strength of the arguments. I have no idea how people do that, when serious topics which affects peoples lives for years are at stake. Genuinely no clue. But I've also been told that I have a huge stick up my ass when it comes to these things, so I could be wrong. Lesson learnt, then. Sort of. In any case, thanks KK. You took it really well and you made the rest of your relevant points. I respect you.
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KK asked for investment strategies. Here they are. This popped up on my feed recently – and I was pretty excited at seeing the headline. My Guide to the CPF Investment Scheme (CPFIS) CPF is such a hotly discussed topic – love it, hate it, everybody talks about it and as a result even people who live under a rock have a pretty decent idea what its all about. This isn’t true for it’s counterpart, CPFIS. Up to 2016, CPFIS had a pretty awful reputation due to several news reports, especially when Tharman came out and said ‘more than 80 percent who invested through the scheme would have been better leaving it in the account’. Your local Financial Bloggers were not immune to this – either writing about it at the time of said reports or writing AFTER the reports were obsolete, which is worse. (Note - this was not written by Seedly. I'm very critical of influential figures in this space - this is not going to be one of those times). Of course, this was very, very swiftly adjusted, especially once people realized that there were severe flaws in this analysis. CPFIS turned out to have significant value for both outperformance and risk adjusted performance. So with a new wave of general positivity towards CPFIS, I figured that it would be a good article for reviewing. After all, I’m always interested in the competition. MoneyOwl has had some exciting things come up, and you can now invest your SRS money through Stashaway – I figured there was something I missed. While it was a very detailed article which was generally well written for beginners, I got pretty annoyed at this part: (amended) Further research into funds has been showing more and more evidence for favorable ratios, which is what investors claim to be looking (e.g. alpha) and as depicted in some detail in my previous post on aggressive investing. Of course, a consultation with me would have me giving formal advice, which is when you can see how I justify all the things that I can't name off without violating FAA (Financial Advisors Act) - such as plan names, structures, fund names, investment methodologies, etc. So since the original article has already covered most of the basic details - such as what it is, how you can start, what limits there are, etc - and I can go through those details during a formal consultation anyway - my guide and investment strategy is simple. Invest in performing funds instead of the STI ETF. You get diversification and outperformance along with a whole host of benefits for a much lower price than you'd think. It wouldn’t be a Money Maverick article without some serious justification – otherwise I’d just be a keyboard warrior who’s blindly trying to protect his rice bowl without considering you – the reader. The person who’s going to decide what to do with your money based on what someone says online. Whew. So - two things on the agenda. 1) To address the typical objections towards investing in high fee options in a factual, evidence-based manner 2) Some other considerations for using CPFIS that I felt were important to add on Come on. You must be a little curious at least. Unit Trusts/Investment Linked Unit Trusts (CPFIS) Aside from the links that KK used referring to his past articles – which are typical Finance Blogger generic advice such as avoiding fees, etc – the primary piece of evidence used was a compilation of the 3 year returns of Investment-Linked Policy Funds. Two issues here (AMENDED): a) No reasonable professional analysis uses a 3-year return in order to illustrate this point. b) There really isn't good value evidence for recommending the STI ETF in place, which is one of the few ETFs in which you can invest all the excess monies (excess of $20,000 OA, $40,000SA) without a 35% limit. Using the same link that was provided, you get the following results with just the slightest analysis: 1) Of all the funds listed, all of them were net of expense ratio. For example, the first fund on the list: AIA Acorns Fund – performed at 6.13% annualized AFTER the expense ratio was deducted, not before. This is important because investors are always looking at ‘net’ returns. 2) Out of 124 funds listed, 81 of them outperformed CPF OA after fees were deducted, or a solid 65% of them. 3) If we eliminate the following categories – ‘Low Risk’ ‘Medium to High Risk Broadly Diversified’, 65 out of 84 funds outperformed CPF OA, which goes all the way up to 77.4%. This is in order to compete in the same risk profile ‘Medium to High Risk OR High Risk – Narrowly Focused (Geography)’ as the Straits Times Index ETF, and the same risk category that you should be invested in anyway. 4) Using the 5-year, quarter end return as a benchmark (3.36%), half of the ILP funds (62/124) outperformed the STI ETF (net of fees) for lower risks taken. 5) It's pretty unfair to compare a 3 year return to a 5 year return - they are obviously not the same thing, but aside from being willing to bet that the CPFIS result will be considerably different - it wasn't fair to rely on 3 year returns in the first place. But since we're at it, let's look at the 3 year returns as well - and I'm going to toss out other expensive options using brokers such as iFast - which clearly add far more value. I used 3 different fund houses to help me with this one, where after I accounted for lower beta [0.88 as of June], lower standard deviation and higher performance than the STI, you get the following result – all of which are net of expense ratio. If you can tell by now, I'd love to share these options in person. I am not lacking for options: aside from ILP funds, I can help access almost 50 funds through your Ordinary Account in most sectors or geography. People who invested their Ordinary Account but were too afraid to explore a wider range of options, expensive or otherwise - are a classic case of being afraid to lose small instead of aiming to win big. Someone who’s genuinely looking for value would have looked at favorable ratios, and it takes guts to pay a premium for those ratios. And that’s sad. Imagine if you took the 5 year standard at face value, like how the 3 year standard was taken. [Note: Please do not do this in practice. No serious investor will do this] Look what happens if you’re a 35 year old, investing $500 a month into your CPFIS with one of these funds instead of the STI ETF with a lump sum of $100,000. OA Return (20 years, 2.5%) = STI ETF Return (20 years, 3.36%) = $193,664 Ex Japan Fund (20 years, 11.0%) = $806,231 I’ll leave you to figure out how much excess cash you’re going to have at 55. And remember, we’ve already accounted for volatility. The funds I’ve provided have less historical volatility than the STI ETF. By standard measure, they are less risky. Is the 5 year return a fair assessment? Of course not. But its certainly more fair than a 3 year assessment. Besides, my objective wasn’t to suggest that you can make abnormally high returns (you need risk management, ideally with a professional), nor was it to suggest that you must invest your OA into these funds only. I only had to illustrate that investing in these funds was a viable and beneficial option for you, using data and facts. In a nutshell By investing in CPFIS approved unit trusts for your Ordinary Account, you get access to the following benefits in return for your fees: 1) Easy access to high yielding funds that outperform most individual stocks/bonds/STI ETF 2) Long term outperformance of CPF OA (at the very least) 3) Increased Diversification across sectors 4) Increased Diversification across geography 5) Lower risks, with access to even safer blue chip stocks than Singapore ones overseas, such as Nestle, Samsung, Microsoft, Coca Cola 6) Returns which are already net of expense ratios anyway 7) Ability to invest all available funds after cap limits ($20,000 OA, $40,000 SA) and not be subject to the 35% investment limit. (stocks, etc). Compare that to if you invested in the height of 2007 in the STI ETF, you wouldn't have recovered 12 years later. It's so bad that you could even make a better case for investing in Japan, which has been in a similar situation since 1990. It always amazes me how some people have the audacity to suggest the STI ETF as safe and diversified. (Not Amended) It’s one thing for a layperson to look at it and think its safe, diversified or strong - since it has blue chip stocks in Singapore whose services you likely utilize every week - but anyone with an ounce of financial savviness wouldn't. Why on earth would you advocate something that yields so little, has such high volatility and barely any diversification (56% Financials)? But if you don't believe me, ask 1M65, the biggest CPF face in the country. He had the guts to say it's a terrible investment choice. He might not agree with me on the funds thing, but eh. Money Maverick If you're looking at diversifying, increasing your returns or just starting on your investment journey, you can contact me above for a non-obligatory consult. Investments above are available using CPF (Ordinary Account), SRS (Supplementary Retirement Scheme) and Cash. You can also set an appointment with me below or through the blog. Facebook: https://www.facebook.com/luke.ho.54 Whatsapp: 91769099 #investments #markets #returns #moneymaverick #financialadvisor #investmentprofessional #investmentspecialist #highrisk #highreturn #volatility #sharperatio #beta #alpha #returnrisk #highreturns #investment #investing #growth #snp500 #etfs #funds #financialplanning #financialconsultant #diversification #riskmanagement
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Hello. Do you currently own, or have you seen a policy that looks like this? Well especially if you’re an owner, you’ve probably asked, or at least wondered – how do I know that I can keep getting the higher of the spectrum? (4.75%) After all, that means more money for you. Participating Fund, or Par Fund for short – is definition-ally ‘a fund run by an insurance company that is obligated to pay out yearly dividends as well as the payouts for insurance claims.’ In a participating policy plan, such as your Whole Life Plans and Endowment Plans, the premiums you contribute are automatically placed here in order to fulfill the requisite above. As you can imagine, most participating funds rack up billions and billions of dollars. There have been a couple of articles across the last few years from various financial bloggers who have analyzed Par Fund returns with varying conclusions. Some have expressed their cynicism; others have reported it as statement of fact and some are optimistic. Because a Par Fund is so prevalent in so many of your plans, and Par Fund plans are clearly popular and widely sold – here’s a couple of things you should know about them so that you can consider it a factor and optimize your choice for a plan in the future. Disclaimer: The following is a fairly complex analysis and is not to be taken as formal financial advice. Please see myself over a formal appointment, or speak to your Financial Advisor. 1) There’s an Investment Factor It’s a fund, Obviously there’s an investment factor. Duh, Luke. Why’d you say that? Well just a bit of elaboration -the Par Fund has some distinct characteristics from standard funds, such as: a) Conservative Dividend structure The par fund needs to pay out bonuses on a regular basis, which requires income payouts such as bond coupons and dividends. This makes the structure fairly conservative with distinct caps (typically 65% bonds and 35% equities). Additionally, because bonuses that are declared every year are guaranteed – the Par Fund needs to ensure that this structure is sustainable in the face of downturns, meaning that the growth needs to be a lot less volatile. b) Asset Allocation needs to be highly liquid in nature Because the par fund needs to pay out insurance claims, dividends and various things at random points of time, the allocation of the fund needs to be very easily redeemable and claimable. This typically means some of your blue chip stocks, etfs and actively traded bonds: not because other funds would have yield issues, but the larger Assets Under Management (AUM) would make it easier to do the payouts efficiently. 2) Smoothening Smoothening is the act of withholding (and reinvesting) excess profits in good investment years so that the same bonus can be paid out during bad ones. In English, your 4.75% bonus could still be paid out to you even if your 5 year recorded return of the company is lower than that. The inverse is also true – you could miss a bonus even though a par fund appears to be doing well on paper in the short term. So do take note. Smoothening is determined by actuaries – not the insurance company itself. There have been several limited ways to address a potential conflict of interest, but ultimately most of the interest is shared – paying shareholders or the company higher than necessary in the short term can have drastic long term consequences, such as financial damage leading to a buyout. 3) There are non-investment factors In 2017, 3 or more major insurance companies yielded double digits for their participating fund, net of fees. Pretty impressive for a fund that’s limited to 35% equities. But the investment and asset allocation component is not the only contributor: a par fund can do extraordinarily well depending on the following common three factors: a) Mortality/Morbidity Claims – The lower the claims, the more the par fund performs. b) Surrender Claims – The higher the surrender claims, the more the par fund performs in the long term. Note that in the short term this affects the par fund results negatively. In fact, some companies may even opt to increase your projected payout, rather than decrease it. c) Expenses – The lower the expenses, the more the par fund performs. No amount of smoothening can solve your problems if the par fund regularly reports below expectations for the above three, and especially (c), which brings us to - 4) Expense Ratios The expense ratios of a par fund are declared and pretty easy to read. As a general rule, higher expense ratios are not very good. There are a couple of additional considerations one should really look at though, before assuming that you should duck a company with a high expense ratio: a) Movement of expense ratio and reason for it: What I'm always more interested in is whether a par fund performance expense ratio goes up or down, and for what reason. A low par fund expense ratio for that year may be due to an anomaly, and vice versa. You, and Financial professionals in particular, should be able to see why an expense ratio goes up or down and for what reason. If you have an expense ratio that is moving up every year, you should be a bit wary. ?? cx b) Investment Components Not all par funds have the same investment components. Typically, more bonds will have cheaper expense ratios than equities, but it can lead to underperformance as well. c) Acquisition Expenses Smaller Par Funds tend to have more issues with this, as well as if sales are particularly high for that year - this is because acquisition expenses are front loaded. In other words: if a company does particularly well that year in their sales, it can lead to a high expense ratio that year. You might interpret that as a short term conflict of interest, but the long term repercussions are positive (since you have a greater scale and larger pool). Takeaways Do take note of the following 1) Your declared par fund returns are net of fees. This means that the results are reported after deductions such as management fees. For those of you who aren't familiar with active funds, this is actually the case for your funds as well. 2) Look at expected yield of maturity, not just the bonuses aspect. Recent policies since 2018 come with the below worked out for you. Older policyholders are not so fortunate - you can ask a Financial Consultant like myself to help you calculate net return. 3) Look at the long-term return rates, not the short-term ones: This is because smoothening is a monkey wrench: something that appears to do badly in the short term could have been paying out bonuses efficiently the entire time. In a study compiling the par fund results from 2006 to 2016, Tokio Marine was not in a high number of quartiles - yet both AIA and Prudential don't have as good a track record of paying out bonuses as the former. One good way to figure that out is to backtrack even further. Conclusion Par Funds are not particularly complex instruments – but it is a factor when it comes to choosing your company plan. The following types of plans and structures are appropriate for this: 1) Whole Life Plans (for yourself, children or otherwise) 2) Savings/Endowment Plans (for yourself, children’s education or otherwise) (insert link here) 3) Conservative Retirement Plans/Annuities (for yourself, children or otherwise) A 3 year old can determine the value of a plan by cost alone, and that same 3 year old can tell you the value of a plan if you look at the projections only. Ultimately, you have to consider a company's par fund as a factor for your consideration. That's where a professional like myself comes in. A Financial Consultant (such as the writer of this article) should be able to consider the par funds of the companies they work with as a factor for your decision in choosing a plan for yourself. After all, an insurance policy is a lifelong commitment (or at least a good decade or two). If you’re looking for solid Financial Advice which accounts for this multivariate factor and more, you can always consult me. If you are more interested in an aggressive approach, you can always message me for investment advice as well or get an idea of my style if you're not convinced yet. Money Maverick Take an hour out with me, I'll show you how I can transform my advice here into actual financial returns for you. Free coffee, no obligation. Here's where the starting line of a great financial relationship lies. If you'd like an even more non-committal link to me, you can also drop me a simple PM here! #parfund #endowments #lifeinsurance #wholelife #retirementplans #participatingfund #savingsplan #investments #financialplanning #financialadvice #moneymaverick #financialconsultant #nowyouknow #familyplanning #educationplanning #education Sources: Par Fund Reports (2018, depicting 2017 results) -Prudential -Manulife -AIA -Great Eastern -Aviva (2019 report of 2018, thanks Hariz) Appointed Actuaries: https://www.apra.gov.au/sites/default/files/160621-role-of-the-appointed-actuary-discussion-paper1.pdf https://etfdb.com/equity-etfs/closer-look-at-sp-500-options/?fbclid=IwAR0O2mvI366iLhkpKMK1WTecmz0fp5FXfKM_c0aOg93XmXyYAYwF9eCb4-M
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Is anyone particularly surprised with the content of this article? No. It’s written by Tree of Prosperity after all. His financial genius is only paralleled by his ability to troll with zero fear for the consequences. As happy as I am to be (somewhat) praised and singled out, the response to this article had really created quite an unnecessary buzz, that really doesn’t help my profession. As a result, it requires address. So here I am. Initially I assumed that only pissing off feminists would make him viral, but apparently not. He has plenty of room for other people, such as my colleagues in this profession. You know…‘Money Maverick was created to address Financial Misconceptions.’ Sometimes, these misconceptions will arise from your favorite bloggers. And so I do what I do. Initially it was Dr Wealth (well technically not, but). A little of Budget Babe. Some occasional shade thrown at Financial Horse. Very often, Seedly. More recently, both MoneyOwl and Providend (also not really. Hmm). https://www.moneymaverickofficial.com/posts And now – the inevitable. ToP. It’s time for me to take Chris down. …no I’m just kidding it’s like a good 10 years too early for me to even try something like that. But if there is anyone in the Financial Blog world that I would love to take down more than Kyith from Investment Moats, it’s really Christopher Ng from Tree of Prosperity. A direct confrontation of Financial Expertise would have Money Maverick completely obliterated by this veteran, regardless of my 80-hour work week attempt to catch up. So…let’s not do that, and do this instead with some roundabout stuff that might not even address the points directly. 1) Do you Trust Financial Advisors? As a consumer of Financial products, I often think back to my first one where I was easily baited by an attractive banker from UOB. Yes, Money Maverick – like many of the guys – also owns a PruFlexi Cash since he was 18. That was almost 10 years ago, and the RM is long gone. Still, the question is loaded as hell. The relationship between an advisor and his/her client tends to become an extremely personal one. By phrasing it in such a manner, as has been pointed out by some of the commenters (maybe FAs) – it reduces the FA to a general, non-human being. Like do you trust hospitals. Or banks. Or lawyers? We come back to the cute little survey – even if you have SOMEONE who trusts his or her Financial Advisor dearly – they wouldn’t generally trust other Financial Advisors. Ergo, the probability of answering no increases exponentially. DollarsandSense posted some troubling statistics, but when I saw them, I thought that they were quite ok. Could be a little better, but it would be abnormal if they were a lot better. If this is great comfort to the FAs, that’s a bit sad. But you get the idea. What really happens is that my clients trust me disproportionately while the general public distrusts me disproportionately. And why shouldn’t the latter behave in such a manner? Do you often hold great general trust for the people you do not know? If you do not trust Financial Advisors, embrace it. You only need to trust yours. And you do that by making the decision carefully. How do you do that? If you’re a fan of The Office like myself, you’ve noticed that despite being a paper company – which is a complete commodity that requires no skill whatsoever by the way – they use the value of their service rather than compete on price. An advisor will always be more expensive than not having one. The easiest way to tell is if the person adds value to you. Not just the product. The person. 2) Regret versus Competence I wrote about this actually, though it was unsurprisingly not very popular. Chris states in one particular paragraph: “I realized that many Singaporeans may have made some insurance moves they grow to regret.” He then confidently goes into the article teaching you how to rebut a salesperson like myself. As a consultant, I try to be as empathetic as I can be, despite my social awkwardness. But here are some examples where your regret means nothing to me. a) You didn’t buy your insurance despite having the opportunity and budget to do so, following which a poor scenario happened b) You insisted on only Group Term Insurance from your company and that blew up in your face spectacularly c) You bought a whole life plan, read online that you should have bought a term and invested the rest despite having no knowledge or experience, and came to regret it d) You bought a Term plan and flubbed your investment spectacularly Of course, the number 1 ‘culprit’ is this one below. e) You bought a whole life plan or endowment plan, gained investment experience a few years later and have come to regret the long-term purchase I could go on, but honestly – I’ve met all the following. I’ve helped all the following. Which is why my examples are so specific. I’m just one advisor. They’re not uncommon. And I’ll take it back – I do care. It does mean something to me. But a consultant is supposed to be a problem solver and it becomes very difficult or impossible to solve these problems. Listen closely to me and listen good – especially for scenario (e). …Your regret is no more different than someone who studied Psychology, leapt into Finance headfirst and wished that they had studied Finance instead so that their career path could have been a lot smoother. So he doesn’t have to work 80 hours a day to be an exceptional consultant when he could be using those flexible hours to visit his girlfriend or sort his personal life out or have a social life. You can’t predict the future. It’s dumb. And at least lucky for you, you have ‘someone’ to blame for something that might not even have been considered a mistake had you chosen a different path from the one you’re on now. Congratulations on becoming competent. What now? You could hire someone like myself to invest and mitigate the ‘damage’ done. You could sell your plan to Saxo Capital in a couple of years. Or instead of regretting, you can be thankful. Thankful that in the contact sport of investing and finance, you’ve made non-expensive first steps ahead of your peers. Chris is now a millionaire. We will never know whether he suffered needlessly. But he is who he is because of what happened to him. Myself – I can’t speak for how badly the policy was missold or how much it hurt Chris and his family. That would be undermining what happened to him. But I can only say this much – every year, I get better at what I do. Much better. I look at my recent client’s portfolios, designed with so much precision and heart compared to when I was a clumsy first year. Yet my first-year clients have a far greater impact on accelerating my career than my recent clients. It’s sad. It’s bitter. It’s regretful. It’s unfair. Instead of thinking of your Financial Advisor as the nameless, faceless institution – just ask them, by name. Do you think you could have done this better? And do you think the person who planned this did their best? I look after my first year clients exceptionally well because I owe them a debt of gratitude. In this line, you have to beg for people to see you when you are a nobody. And I returned that kindness with a crummy, clumsy portfolio. I cannot regret it. I did my best at the time and it was everything I could give. Now I can give more. And I do. That’s all you can do. If you regret a Financial Decision, become more competent or seek someone more competent. And then most importantly – instead of painting yourself as a victim, take action and solve the problem. Learning to rebut the professional problem solvers for this solves nothing. And the stupidest thing you can do is blame someone for something that may not even have been a mistake at the time. 3) Have your FA compare themselves to other professions, continually I’m personally not a fan of the Financial Consultant = Doctor analogy. Like Chris said – you’d probably have to concede that the entry point for being a consultant is far lower than that of a doctor. This is not arguable. I don’t really care that much about the entry point, to be honest. There are plenty of less educated people than me who are more competent in their field of expertise – trading, digital marketing, entrepreneurship, etc. What I do respect and wish not to compare myself to against Doctors – is really the time and money for those certifications and expertise. There’s really no comparison at all, even if Financial Consultants do have a ton of mandatory hours on top of our own assigned hours. But where’s the fun in not having your FA compare themselves to professions that you can identify with and respect? There is a range of FA’s and it’s very interesting to categorize them. I’ll put them in 4 categories, just for examples – but I think you guys could come up with more. 1) Newbies: Those with a lot to prove (
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High Risk, High Return - No Risk, No Return. Here’s a fun dilemma for you that I face every other week - 1) Do I adhere to what kind of investment the client wants, with some additional adviser value? Or 2) Do I convince them not to go for what they want because it is not optimal, at severe risk of losing the client entirely for not being able to follow a simple instruction? Yes, I use CKA. But truthfully, there isn’t a straightforward answer – there’s a lot of factors. Such is being a Consultant. Insisting on your prescription is really reserved for people who can afford to do such things. But there are times where I push, especially in the circumstance where I believe very strongly due to the fact-based fundamentals of investing – that is ultimately: 1) Buy Low, Sell High 2) Time in the Market is better than Timing the market 3) High Risk, High Return The rules above are not easy to follow. If they were, I wouldn’t spend a considerable amount of my time fixing portfolios for new clients over the last two years. I have to continue promoting investing aggressively, especially when you’re young, because there’s so much opportunity cost if you’re under 40 and you’re not investing aggressively. I think that its important that people are prepared. As a result, I thought I’d address (3) a little bit – since let’s face it, out of the three that’s probably the easiest. Why should you take on high risk? How do you take on high risk? How do you know you will get a high return? Can something help you understand all of that, and get why that as a young person, you should invest aggressively? (and likely as aggressively as possible) ...It’s the V Bounce. V Bounce The V Bounce is an investment occurrence marked by high growth following a depression or a recession. In an aggressive portfolio that comprises of mostly equities, you WILL typically experience this a few times in your investment lifetime. There are several advanced variants as well as different forms of growth post-recession, but we’re only covering basics today. What this means in English for investors is simple – after a recession is over, the market tends to swing upwards in a drastic manner. And I mean really drastic. Here’s an illustration of what a V-Bounce looks like. As you can see, a humongous drop is quickly followed by unprecedented (or precedented, which I'll cover some other time) growth that exceeds the previous high point by a humongous margin. One implication is of course, that despite severe losses in the short term you'll ultimately make money. ...A lot of money. There are several definitions out there, but I'll define it simply by these two characteristics 1) The beginning of the V hits a extremely low point, typically the worst of a recession 2) Followed by the second end of the V, which should be much higher than the beginning of the first end V Bounces are recorded throughout most of stock history, so its not an uncommon event. In every chart and fund that I run through with my client, there's at least one - if not several, V-Bounces. That's meant to be reassuring, not discouraging. What you can learn from the V Bounce 1) Markets do not fundamentally change. This has been going on for centuries (well more than 1, at any rate). Using the US as an easy illustration, the same market which cynics say that past performance does not equate to future performance has gone through the following. Wall Street Crash: -86% Great Depression: -60% Oil Price Rise (1973): -48% Black Monday (1987): -34% Dot Com Bubble (2000): -49% Financial Crisis (2007): -57% And over half a dozen more of such events from 1929 till now. Despite ALL of that, the annualized returns for the SNP500 are 9.07% (25 year annualized return from 2018, gross of all fees). A $100,000 investment from the start of 1993 would be worth over $876,250 in 2018. And I can get you an even higher return. As it turns out, fluctuations included - time in the market is really much more valuable than timing the market. Past performance is future performance the overwhelming majority of the time. Investing twice in 25 years while holding onto cash gives you a far lower result. 2) There is nothing average about serious equity market returns. They are not normal. Getting an 'average', or annualized return of 10% means nothing to the chart itself: the volatility is so extreme that the bear market of 1980 to 1982 was -27% (-16.7% annualized), followed by a bull market following that was 229%, or 26.6% annualized for 5 whole years. Its hard to imagine that a 10% annualized return came out of all that, but it did. The average means nothing. The second part of the V is always higher. Much higher. This is reflected in almost basically every geography – India, China, Japan, etc. Unless you’re the STI ETF, which hasn't even recovered from its 2007 high yet. (its more like an L) 3) Really NOTHING average. Experienced investors know that when their portfolio falls 25%, rising 25% doesn’t get them up to breakeven – it has to rise 33%. To recoup a 40% drop, their portfolio must rise 67%. Harsh. If we calculate this based on annual or annualized return, it looks like a serious uphill task. Someone who looks at it from face value - for the 40% drop – if you have a 10% annualized return, it’s still going to take more than 6 years just to break even. But the math is incorrect on this because that’s not how stocks work. If you keep staying invested or invest further, it pays off in a big way. In fact, it pays off far more during initial recovery – as you can see in the table below. With that kind of 12-month return – let alone the average bull market run of 4.5 years – you can expect to easily recoup losses in the vast majority of situations, and pull ahead. 4) Raise your expectations, not lower them In a nutshell, with this knowledge - a client who has a long time horizon should take more risk, not less. And you should expect higher returns. It is never easy to stomach volatility. But if you see it coming, much like a horror movie where you know the ending after having watched it a couple of times - you won't have such a drastic reaction. Not only that, but positive volatility occurs far more than negative volatility. Your portfolio should jump up far more violently, and often than negative drops. In reference to the table above, abnormally large returns occurred 37.6% of the time, while abnormally large losses were only about 7%. So for every huge drop you see, you can expect at least 5 different occasions where it should rise by the same proportion. 5) High Risk, High Return Ultimately, the data shows what I've been trying to say from the beginning - high risk, high return. Despite the risks and drawdowns, with a long enough time horizon - the V Bounces allow you to get returns that are far beyond a balanced portfolio or a safe, guaranteed portfolio. This includes your CPF, which you can use to invest in such funds. Most Equity Funds have a similar kind of volatility. Conclusion Ultimately, the data shows that high risks have far higher returns over long time horizons, despite serious crashes, crisis's, etc. If you have a long time horizon, especially if you're young, it makes financial sense. As an investment professional, I have access to a wide range of funds. We know that tracking a market is cheap and effective, but it’s not foolproof. In fact, if its highly tradable, you can consider it worse. That comes under the most common investor mistakes from people who DIY, such as switching out my liquid funds when its bothering them. When the average fund is held for a mere 3.27 years, its daring to assume you'll be able to go decades without compromising your returns. On my end, I intentionally don’t choose markets for my clients where fund manager performance has a low probability of strong performance compared to mimicking a market index (such as the US, where 80 - 95% of funds benchmarked against the SNP500 lose), and I don’t keep my assets liquid so I don't get tempted. Historically speaking, I should outperform the SNP500 by 2.5 – 3 percentage points for my semi-retirement portfolio and 5 - 10 percentage points for my full-retirement portfolio, net of fees*. My breakeven returns across 20 years are lower than a self bought fund on any given brokerage.*** The 5 year return for the STI ETF is 3.49% with all dividends reinvested, while 2 funds I'm personally invested in currently have 5 year returns of 15.4% and 17.3% respectively, net of all fees with an equivalent recorded Standard Deviation. In other words, I am historically on track to make at least triple of what the STI ETF makes. My clients typically experience higher returns, lower volatility, a higher return-risk ratio and a higher Sharpe ratio.* The catch? If this kind of investing were for everyone, they would do it successfully. For starters, I prep my clients mentally for the long journey ahead, such as with this article. Now you understand the risks that come with such aggressive investing, all you need is someone to show you where, and when - and all the strategies that don't come with investing on your own, especially when its so volatile, such as: 1) Appropriate Asset Allocation for your age, budget, etc 2) Execution Strategies for buying, selling and the like 3) Coaching, reviews, monitoring What are you waiting for? Money Maverick Facebook: https://www.facebook.com/luke.ho.54 Whatsapp: 91769099 You can also set an appointment with me above. If you're looking at diversifying, increasing your returns or just starting on your investment journey, you can contact me above for a non-obligatory consult. Investments above are available using CPF (Ordinary Account), SRS (Supplementary Retirement Scheme) and Cash. Special Notes: All data presented is at time of writing. *This combination of funds has historically outperformed the Nasdaq QQQ Index net of fees by over 2 percentage points across 3- and 5-year periods. It also has a higher Sharpe Ratio and lower Beta. QQQ has performed 19.07% (3 year period) and 17.05% (5 year period), gross of fees. Refer to point below for potential fees or factors. I also used Timeline to verify this (the market and asset allocation choice) to some degree (since they don't have mutual funds). **The Table Returns recorded above for the SNP500/QQQ do not account for the following 1) Dividend Withholding Tax 2) Forex Risk 3) Management Fees/Account Fees/Transaction Fees ***Please consult me on how this is achievable. It is very tricky and very conditional. (prospects only) Credits: 1) Dalbar – Quantitative Analysis of Investor Behavior, Dalbar Inc (March 2011) -Funds are not held longer than an average of 3.27 years 2) Global Financial Data Inc, SNP500 price level returns -Tables, etc 3) Markets Never Forget - Don Fisher -Information 4) Chart of the Day -SNP500 5) SPDR STI ETF Disclaimer: All returns and statistics posted on this article are not to be taken as investment advice. Any formal advice from my end can only be conveyed to you during a professional consultation. #investments #markets #returns #moneymaverick #financialadvice #financialadvisor #investmentprofessional #investmentspecialist #highrisk #highreturn #volatility #sharperatio #beta #alpha #returnrisk #highreturns #investment #investing #growth #snp500 #etfs #funds
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Surprise. It's Angioplasty. (and other invasive treatment for coronary artery). A question that I’ve addressed for the last few years is in relation to whenever one of my clients thoroughly goes over the Critical Illness list. Rather than just accepting that this is the standard across the board, occasionally I get an especially concerned mother or a snarky fellow who asks me WHY this is the case. I typically refrain from saying ‘Do I look like an insurance company to you?’ and try to give a limited answer based on my research. After all, as an Early Critical Illness Insurance specialist, I have at least a limited familiarity with each of the 36 LIA-approved Critical Illnesses. [The 37th is Terminal Illness (TI), for the especially critical people reading this. There are no early or intermediate stages for TI – as a result, I often just leave it] But I’ve always been curious about this. What about it makes it so special? Why is it 10% across the board, or if you’re fortunate enough, listed as a special condition where it doesn’t pay out of the original sum assured? (of which I sell proudly). The Pain: Clogged Arteries We’ve all heard of clogged arteries, especially when our parents (well mine anyway) are telling us to eat more vegetables and less fast food with saturated fats. Even the non-fast food favorites in Singapore tend to have oil or deep-fried variations. As a result, heart disease and cancer typically fight it out for the number 1 killer in Singapore. Closer to heart disease are clogged arteries – where the arteries in your heart are basically blocked up by plaque. Plaque is basically a fatty, waxy substance that hardens over time – and in a large enough quantity, it can block blood flow to particular areas of your body. If oxygen can't get around your body, well. You die. The most commonly known effect for this is simple - A large enough block 1) creates a blood clot 2) which creates a rupture 3) which causes a stroke. The Treatment: Angioplasty (and Other Invasive Treatment for Coronary Artery) Even prior to a serious Critical Illness like Heart Disease, or a Stroke or Heart Attack, there are usually some prevailing symptoms of clogged arteries like regular chest pain, bouts of dizziness, etc. At some point, ideally during a medical examination that you would take instead of stubbornly insisting on leaving it be - a simple Electrocardiogram (ECG) will reveal the extent of the damage. I've spoken a little about this in the link below, as well as some of the other critical illnesses you may not have known about. READ: https://www.moneymaverickofficial.com/posts/6-critical-illnesses-zero-coverage-top-singapore-killer-part-ii This is where Angioplasty comes in. Angioplasty is a procedure used to restore blood flow to your artery. It’s a simple three step procedure: 1) The doctor threads a thin tube through a blood vessel in the arm or groin up to the involved site in the artery. 2) The tube has a tiny balloon on the end. When the tube is in place, the doctor inflates the balloon to push the plaque outward against the wall of the artery. 3) This widens the artery and restores blood flow.* So if you ever wondered why you can only claim 10% of your entire sum assured (or worse, with a $20,000 cap), here are a couple of reasons. 1) Common The most prevalent reason for its cap on payments is because this procedure is already common and increasingly common – certainly far more than the standard cancers and heart diseases. Even individuals who have led intentionally healthy lives have a significant build-up of plaque over the age of 65, which is when many of these claims are made. Improving blood flow via procedure is also used for both purposes: a) Pre occurrence – to prevent a stroke (or other related illnesses) in future b) Post occurrence – having experienced a stroke (or other related illnesses) already, to prevent future incidences The decision is made carefully by licensed medical professionals, of which I am not – but depending on the person’s health, the doctor can diagnose for it to be used regardless of the prior circumstances behind it. 2) Less Invasive While still technically considered ‘invasive’ by the definition of the word, Angioplasty does not involve surgery. Since heart disease happens more in old people (Age 65 or above) and there are no major incisions made into the body, it’s also a preferred treatment for risk. Naturally, such a treatment has a higher preference, and hence a higher potential claim rate. There are even less invasive procedures, but they may not be as widespread or more expensive – which is also another reason why some people purchase large quantities of Critical Illness Insurance so that they can expedite (hasten) or specialize their treatment (e.g. less invasive). 3) Quick Procedure, Quick Recovery As noted above, Angioplasty is a fairly quick procedure (takes no more than a few hours) from start to finish. After a day of monitoring overnight, many people go home the day after the procedure and if there are no further reported complications, can even return to work within a week. Severe Critical Illnesses such as Cancer typically impede your ability to work effectively between 3 to 6 years. Comparatively, this works out pretty well compared to the former. Ultimately, high preference and usage keeps the rate of claims high, and I wouldn’t think that an insurance company can afford to keep up with such costs. What’s the Catch? a) Relapse Even with a proper stent, statistically there is a 10% chance or so that you may need to take a repeat procedure. Without a proper stent, that number goes up to 30%. If it gets bad enough, you may have to do a repeat procedure, or… b) Further surgery Unsuccessful angioplasty also means you might have to undergo a surgical procedure called Coronary Artery Bypass Surgery. This is a common surgery opted for in late stage coronary artery issues. In your insurance policies, a common definition amongst all the companies is as below: "The actual undergoing of open-chest surgery or Minimally Invasive Direct Coronary Artery Bypass surgery to correct the narrowing or blockage of one (1) or more coronary arteries with bypass grafts. This diagnosis must be supported by angiographic evidence of significant coronary artery obstruction and the procedure must be considered medically necessary by a consultant cardiologist. Angioplasty and all other intra arterial, catheter based techniques, ‘keyhole’ or laser procedures are excluded." In a bypass, an artery or a vein is removed from a different part of your body and sewn to the surface of your heart to take over for the blocked coronary artery. This surgery requires an incision in the chest, and recovery from bypass surgery is usually longer and more uncomfortable. What’s next? Angioplasty is not foolproof, but it's common enough that more than 1/3 of you will likely have some kind of arterial treatment in your lifetime, and it's ideally not invasive. The build up of plaque is really a precursor to the many, many different types of potential Critical Illnesses there are. In relation to arteries and heart disease, it takes up more than 20% of the Critical Illness list alone, and makes up a significant portion of the claims. As a result, you really want to seek comprehensive coverage as well as policies that complement and enhance your existing coverage, since your claim on Angioplasty is capped. There are a couple of ways you can get comprehensive coverage for heart related illnesses that come about from the build up of plaque. One such way is with a solid, Early Critical Illness Policy. Unlike a late stage policy, not only will you be able to claim for a much wider range of procedures such as Transmyocardial Laser Therapy instead of a invasive By-Pass surgery like the above, but you’ll also be able to claim 100% of the entire benefit rather than 10%. For Angioplasty, a good Early Critical Illness policy will even cover it under it’s ‘Special Conditions’, where it will not be paid out from the main sum assured. So let’s say I am insured for $250,000 of Early Critical Illness coverage and it is discovered I am at risk for a heart attack. The doctor advocates Angioplasty, where I get 20% of my benefit. [$50,000]. Subsequently, it turns out to not be enough and I require a proper surgery. I can get a less invasive Laser Therapy (as listed above), and still claim the full sum of $250,000 for a total of $50,000. My hospital coverage should pay the majority of my medical bills, and with non-invasive surgeries detected early or upon diagnosis, I am able to return to work within a few weeks with a cool $300,000 in hand. If someone my age paying monthly got a ECI after the 3rd month, I would have shelled out less than $1000 for that total sum assured of $300,000. The money can be used for the following: 1) Treatment Variation: Less invasive treatments, better treatments, specialized treatments or faster treatments 2) Income Replacement: To make up for a) how long a Critical Illness prevents you from working effectively, as well as b) the opportunity cost that comes with it. (B) is often overlooked, but in a fast paced 1st world environment like Singapore, a CI makes your skill set obsolete faster and you also aren't likely to increase your income value as quickly. 3) Specialized Equipment/Demand: E.g. Regular Private Transport, which I'm a big advocate for since most CIs will weaken your immune system to nothing. These are not things that your medical insurance will cover. Do drop me a message if you'd like to see how you can enhance your current coverage, with a specialist who offers multiple companies. You can also reach me at https://www.facebook.com/luke.ho.54 or 91769099. Money Maverick #moneymaverick #earlycriticalillness #angioplasty #coronaryartery #criticallillness #lifeinsuranceassociation #LIA #insurance #CI #ECI #earlystageillness #financialconsultant #financialadvice #fa #insuranceagent Sources https://www.sharecare.com/health/circulatory-system-health/what-are-advantages-angioplasty* https://www.nhs.uk/conditions/coronary-angioplasty/alternatives/ National Heart, Lung and Blood Institute https://www.epainassist.com/test-and-procedures/performance-of-angioplasty
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