What are your views on Insurance Savings Plan and Investments (incl. Robo Investments, e.g. StashAway) in terms of liquidity? - Seedly
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Asked by Anonymous

Asked on 28 Oct 2019

What are your views on Insurance Savings Plan and Investments (incl. Robo Investments, e.g. StashAway) in terms of liquidity?

A friend told me that in the event of economic crisis, you would want liquidity hence investment is much better. Whereas insurance savings plans will require me to continue premium payment in that type of scenarios, eventually being a financial burden.

I don't think that is the case, do advise.

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Hi anon, my two cents:

It's not exactly advisable to view an investment as something you liquidate as and when (although you can). In a pinch, yes, you can liquidate stocks/UTs/ETFs, but you'll have to accept the market price at that point. So if it's a good stock/UT/ETF, why would you want to liquidate at a loss? You should be adding to your position instead. So in a crisis, your true liquidity comes from having cash that is easily accessible, kept in a high-interest savings account. That's true liquidity, and uncorrelated to market movement.

We often view investments as liquid, and as I mentioned, while they are, it doesn't mean you just liquidate them when you urgently need money. The concept of an emergency fund comes into play here, where you keep 12 months or more of expenses in cash, but easily accessible to you. Also, the concept of a warchest, which is also in cash, or cash equivalent, that you deploy in a crisis when assets become undervalued.

Insurance saving plans, although requiring commitment until the end of the payment term, offer you a guarantee, which is impossible with investments. So you are protected against downside risk, with some leeway for upside potential. This is, in fact, a hedge against market risk. If you have many stocks/UT/ETF, they are all exposed to market movement, and you should hedge this risk with a guaranteed instrument, or else you will have an unbalanced portfolio. So the real issue about insurance policies being a 'burden' is whether the premium was sized correctly in relation to a) affordability (how much % of your income/cashflow) b) contingency (do you have cash reserves in an emergency to sustain the premium for a while)

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Question Poster

28 Oct 2019

This is so helpful šŸ‘
Asheesh Chanda
Asheesh Chanda
Level 6. Master
Updated on 30 Oct 2019

I am a big believer to keep insurance and investments in separate buckets and not mix them. Whether you use Kristal.AI's free uto 50K USD ETF baskets or choose your own from any Robo, I would advise keeping insurance premium different from investment goals and baskets. The more you bundle things the more opaque the pricing and liquidity get. I have hundreds of clients who have told me horror stories of how mixing the 2 buckets not only led to sub-optimal returns but also they overpaid on insurance premiums. I agree with your friend, having liquid investments in low/medium risk baskets is safer; do get your risk profile done online for free when you get a chance at Kristal.AI

Happy to help if you need more inputs.

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Wei Chin
Wei Chin
Level 4. Prodigy
Answered on 30 Oct 2019

Insurance Savings Plan is likely to have lower liquidity as it typically ties up your funds for 10-20 years. Otherwise, there will be a huge penalty on your capital.

If you are not prepared to put aside the funds for a long period of time, you should not be going into Insurance Savings Plan.

In addition, with Regular Savings Plan (ETF) offered by local banks and brokers and Robo Advisors, Insurance Savings Plan has become less appealing due to its high front load fees and lack of liquidity in nature.

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