facebookI am 18 and thought of investing around 50k in endowment plans which has capital guarantee and a short 10 year duration and invest 36k in stocks Is it a good idea? - Seedly
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Anonymous

03 Oct 2020

I am 18 and thought of investing around 50k in endowment plans which has capital guarantee and a short 10 year duration and invest 36k in stocks Is it a good idea?

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    What are your thoughts?

    Justin Mok

    Justin Mok

    12 Sep 2020

    Level 8Β·10th Member at Akatsuki

    Hi there! this is gonna be lengthy but try to stick with me

    Your question here is a little bit of an abstract because there are so many factors to consider when you are starting off with investing. Below is a rough scaffold that I personally tell my friends when they ask me such questions. Nevertheless, it is great that you have been accumulating capital over your lifetime, and especially turning 18 now, it is good that you are starting early making decisions and taking control over your finances.

    Disclaimer: I am no expert or a certified financial advisor. This should not be taken as investment advice.

    1. What is your primary motivation with the capital you have now?

    a. Growth (If you have a strong fundamental in stock picking, I suggest looking at opportunities within the Tech and FMCG sectors)

    b. Preservation (Invest a portion in safe growing assets that gives recurring dividends such as Robo-Advisors or Index ETFs, the rest you may consider flexible insurers or high yield saving accounts that provide good returns like SingLife)

    2. What is your risk appetite?

    Now, this is quite a vague question if you simply ask yourself 'how much risk am I willing to take'. I recommend you take this questionnaire by FSMOne, https://secure.fundsupermart.com/fsm/maps/info/questionnaire to understand your individual risk profile. This also ties back to your current motivation whether you want to grow or preserve your capital. Clearly, if you are motivated to preserve your capital, the consensus is that you are less likely to adopt a higher risk for relatively better returns, vice-versa.

    In this context, let's define risk as 'how much you are willing to lose in a given period of time', though theoretically, you can hold on to your unrealized losses as long as you don't liquidate it.

    3. Do you see yourself needing the money in 'X' amount of years?

    This also ties back whether you want to grow or preserve your capital. Say if you project that in 'X' amount of years, you want to purchase a big-ticket item, then the Endowment plan is certainly an approach to consider as (1) It is capital guaranteed, (2) It spans over a period of time leading to the year you are making the purchase. Do also give yourself some room in terms of flexibility, whether you foresee yourself needing that money urgently before maturity as Endowment plans do impose a penalty for premature withdrawals.

    Otherwise, I wouldn't recommend an Endowment plan as an Investment asset as I feel it is a suboptimal use of your capital. There are certainly better opportunities out there such as investing in ETFs like the Nikko AM STI ETF or ETFs that tracks the S&P 500 such as SPY/IVV/VOO. Consider expense ratio and withholding tax when choosing either of them. Robo-Advisors like Stashaway, Syfe, and EndowUs are highly recommended as well, though a little more intricate as there is an option to tweak your risk portfolio by changing the asset class composition.

    My own thoughts

    This may come off as a biased opinion. To address the first part of your question, I wouldn't consider Endowment plans as a method to invest, though some may see it that way. I value it more as a Savings plan. If you foresee yourself needing that capital in 'X' amount of years, and won't be needing it in the near term, then it could be a great use of an Endowment plan. I personally also have an endowment plan which I signed up for, a great way to save especially if you are not very disciplined in saving money like myself hahaha.

    Once you have eliminated or agreed to the option of getting an Endowment plan, the question is, how do you allocate the remaining of your capital amongst the myriad of investment asset classes?

    Now, this will tie back to your risk appetite, as well as your time horizon and knowledge in investing. My principle is, always to understand what you are investing in. I lost count on how many times I brought this up across my replies to the questions on Seedly.

    Knowing what you are investing in gives you a clear idea of what are the factors that affect your investment portfolio. Only then you are able to stomach the volatility and remain resilient during a general market downturn. Because you are so convinced that your investment thesis will work out, it gives you greater peace of mind when you start seeing the company that you are invested in, executing their plans. On the other hand, it gives greater clarity when you start seeing the prospects of the company deviating from your investment thesis, and then only can you make informed decisions of whether to continue dollar-cost averaging on it, hold it or sell it.

    Concluding

    I hope this isn't too lengthy! As I said, I am no expert and I cannot give you a doctrine on the virtues of investing and financial planning. The bottom line is, it is great that you are starting early, but try not to jump into conclusions too early especially if you do not have a clear sense of where you are heading towards. Investing and personal finance is a fluid continuum. There won't be a 'one size fits all' kind of solution. Take your time to amass some knowledge from people, books, articles, websites, and even Seedly!

    All the best to you, hope this helps haha!

    TLDR: Growing and preserving capital leads to different decisions and outcomes. Understanding your risk appetite also affects your decisions in allocating your capital. Projecting your future needs plays a role as well. Endowment Plans shouldn't be treated as an Investing method, but more of a Savings plan. Invest only in what you know.​​​

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      Hey there!

      The choice of allocation between an endowment plan and investment largely depends on your risk tolerance and time horizon. Endowment plans do have a capital guaranteed usually (check the BI table) and it's great for saving up while getting a bit of interest alongside. They also typically have a rather Long lock In hence in a way, you are trading liquidity for safety. Some even allow a transfer of ownership to your child eg. AIA Smart Wealth Builder. Stocks of course are risky since you will be exposed to the systemic risk of the market with potential upside returns.
      If you are risk averse, you will want to consider allocating more towards endowment plans. While the safety is great, there are opportunity costs incurred since the returns of investment, though non guaranteed, is potentially higher than the interest generated by an endowment. Otherwise, you can opt for a dollar Cost average strategy Instead.

      Financial planning is an integral part of life. You can reach me here to find out more​​​

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        Not sure how much cash you have, but at least 86k in starting capital is quite good.

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