Investment Linked Policies (ILP)
Asked on 18 Jan 2020
Should I invest in a pure investment product( eg AIA Pro Achiever) or just do own investment thru brokerage firms like Poems. I’m aware of the high fee (2.5%) from insurance companies compared to brokerage of 0.25%.
I don't recommend investing via an insurance policy. Investments and insurance should be clearly seperated.
When you invest via a policy, you become bound by the T&Cs of that policy.
Transactional costs aside, I personally feel that the need to liquidate as I wish is important in investing, as long as I can accept the market value at the time of liquidation.
There are better ways to invest. You can do so on your own terms, or get an advisor to manage for you (note: this is not the same as commiting to a policy), we are talking about advisory here.
You can easily set up an RSP with any brokerage firm to get yourself started, and have the complete freedom to start, stop and restart any time.
Naturally, there are many options at this point, but you should take your time to learn about the various asset classes, and then decide what is best for you.
Do your own investment through brokerages. To me, insurance is solely meant for protection, not for investment. By doing your own, you get to expand your financial knowledge as well which will groom you to spot and invest in strong growth businesses.
You can also consider to invest via Regular Savings Plan (RSP) offered by POSB, where you can buy STI ETF as a start, by setting aside a sum of money every month.
There are indeed a plethora of options to consider when it comes to a regular savings plan. Below are just some common options.
2) Insurance ILPs
3) Robo advisors
4) POSB STI
5) and many more
As a financial advisor myself, my portfolio mainly consists of ILPs, US Equities, REITS, S&P500 ETF. Its common for new investors to be bombarded with the various investment options available when starting out their investment journey.
A easier way of helping you make the decision would be to consider the following factors:
1) Investment knowledge - how equipped are you with understand the financial markets and grasping financial concepts
2) Capital - How much money are you intending to start off your investment journey with? It should be the amount of money that you are willing to lose as investment returns are never guaranteed
3) Time & Effort - how much of your personal time and effort are you willing to put in to do your research and understand the financial markets better?
With the 3 factors above, you could more or less decide if you are more of a passive or active investor.
If you fall into the active category, and is willing to put in time and effort into understanding what and when to invest, perhaps DIY-ing your investment through buying of stocks/unit trust would be more suitable for you.
If you fall along the more passive category, and has only basic investment knowledge, you may consider doing an RSP-ETF, ILP from an insurance compan, Robo Advisors. Amongst these options, ILP would typically have the highest fee but not necessary the lowest return net of fees. Furthermore, most ILPs in the market now offer capital guarantee upon death which is something that none of the other investment tools out there would offer.
At the end of the day, what matters most is still your risk appetite, if you are able to stomach temporal losses and willing to take on more risk to gain higher returns, equities and other high risk investments may be more suitable for you.
Also, if your final decision is to take up an ILP, it would be important to consider the skill and knowledge of the advisor in providing you sound advice on portfolio allocation and also a back-up plan should your investment goes south.
Feel free to drop me a message at https://brandanchen.manulife.sg should you need more clarity!
You can break down those investment products and buy them yourself. Save yourself the agent and commission fees. Their portfolios are available for public to study.
The difference between the 2.5% - 0.5% = 1.5% spread is the opportunity cost of DIY investing. If you feel you are incapable/unwilling to put in the effort to DIY, then go for AIA.
However, you need not just need to choice just between the 2 choices, there are roboadvisors out there that charge way less than the AIA pro acheiver but automate the investment process on your behalf at a higher return. so do your due diligence
If you are ok with 10 clicks (through your RSP providers) and does not wish to pay too much fees, you can go DIY.
If not, the partner which you choose for RSP is important. Do understand the why first.
Pros and Cons always. I have a seminar speaking about fees and you may want to attend it.
There are many platforms to choose from to start your regular investment plan. The common low-cost ones are Regular Shares Savings Plan, Robo-Advisors and Digital Advisors. You may refer to the following articles for more details:
Just do your own investment plan through the brokerage firms. The high fees by insurance companies will erode away your returns. 2.5% compounded over a lifetime can be up to 100% of your original capital
Before you start investing, it will be best to understand your objective. Here are some questions to help you:
What is your capital?
How will you want to invest your capital? E.g. lump sum or an amount on a regular basis
How long will you want to stay invested? E.g. 10 years
What is your risk appetite? E.g. How do you feel about short-term volatility?
What is your objective for investing?
Once you have a better understanding about yourself, decide whether you are willing and capable to manage your investment portfolio on your own. Some of the factors for consideration include time, knowledge, skills, and experience.
If you are able to DIY, then doing your own investment may help to bring down the direct cost (e.g. market fees). However, the real opportunity cost may be intangible and more difficult to calculate to this end.
AIA Pro Achiever is an investment-linked policy where 100% of your money is invested into your selected unit trust from the first year. Moreoever, you can tap on professional advice from global investment firm like Mercer to create a portfolio that fits your risk appetite.
In case you are wondering, here is 2019 results for the funds at AIA Singapore: https://www.blog.pzl.sg/aia-singapore-investment-linked-fund-performance/
All in all, I will suggest for you to speak to different professionals who is capable to listening to you and to understand your needs. All things considered, we can customise and create a well-diversified portfolio from various tools available in the market to help you reach your goals.
Here is everything about me and what I do best.
About AIA Achiever, I calculated the rate of return today. It came up to 6.7%. Considering I held it for 12.5 yrs, this is definitely super long for this kind of rate (for your comparison, MIT came up to 200% for 10 years holding). If it's XIRR (for monthly contribution), it's a sad 0.8%. sobs
Frankly speaking, I'm not expecting much from AIA (Pardon me, but I really have er... not-so-good impression about them...) So to me, it's quite good already, as long as they don't lose my money. LOL. I hold it so it balances out my risker investments.
Not sure how's AIA Pro Achiever (maybe an upgraded version), but I had the AIA Achiever, which I bought 12 years ago. It breakeven only recently, i.e. the total investment exceeds total premium contributed. I don't think it's a good investment vehicle. I reckon a lot of it went into the commission of the sales person in the first few years. Anyway, now I just treat it like a savings fund.
Rather, I think you should attend some courses out there how to build your portfolio of equities and read more. Our CPF is already machiam like a bond.
Hence, if you are in your 20s & 30s, my suggestion to invest entirely in stocks instead. I usually like to go for companies that pay reasonable dividends (beware of super high dividend yield, sometimes the co. may not be what it seems e.g. Hyflux), are growing and resilient.
So even if the market goes south, you still get some returns. Remember to keep your cost of buying the stock to less than 1%.
The main difference in comparison to the two you stated is whether you prefer your investment managed or you prefer to manage your own investment. The extra commission to the insurance companies is their time in working on their portfolio. Ultimately, it boils down to opportunity costs - whether you feel paying the extra commission paid to them is worth it or you'd be better of spending time researching about companies to see which has potential.
Time in the market is better than timing the market.
If you are sure of your investment objective and timeframe, and have also checked off all other major personal finance essentials (e.g. clearing bad debt, setting aside emergency fund), then there is no better time than now.
On investments, returns are never guaranteed, but your costs are. Always seek to minimise costs.
Hope this helps :)