Sunday, March 30, 2008

Is it such a big loss???

I went finexis(one of the FA firm) at Parkview Square to visit an ex-colleague few days ago. I saw a group of young advisers rushing to submit their CPF investment cases. I get to know that some of them had not even went home the previous night because they need to prepare all the forms.

Many advisers have been pushing very hard to convince people invest their initial $20k from Ordinary and Special Account last week. The Advisers had convinced them to such as if they can never invest again.

Is it true that these people are missing big time if they fail to beat the deadline? To me, its not really a big deal even you choose not to invest now. Why?

Lets analyse an example
Mr Tan earning $3k/mth with 1 mth AWS and 1.5mth bonus per year.
Mr Tan will be able to accumulate $20k in his OA in 2 yrs.

Mr Tan choose to invest the $20k from his Ordinary Account now
* Assuming his investment gained 5%p.a over 2yrs, his $20k will grow to $22,050 (Not Guaranteed)
* Assuming his investment loss is 5%p.a over 2yrs, his $20k will shrink to $18,050

Mr Tan choose not to invest the $20k from his Ordinary Account now
* OA interest is 3.5%p.a, his $20k, in 2 yrs will grow to $21,425 (Guaranteed)

Let us calculate his opportunity cost for not investing?
* Opportunity cost basis investment returns of 5%p.a ==> $22,050 - $21,425 = $625
* Bear in mind. the 5% is not guaranteed. What if the fund dropped 5%p.a over next 2 yrs?
His loss will be $18,050 - $$21,425 = -$3,375

To cut the story short...
Our $20k will be locked. Its a matter of time. The opportunity cost is 18 mths($4.5k salary) to 40 mths($2k salary), not considering AWS and bonus. To me, its good to invest if we are looking long term, but, logically its not really such a big loss even you choose not to invest now. The $20k can still be invested very soon anyway.


Khiat Han Hwee Adrian said...


i am not surprised . The agents or FAs are are misled by their companies, that if the agents don't do it or beat the deadline they are letting their customers down. By losing for the customers?

Agents and companies alike they are concerned for their bottom line or their own pockets, and all this at the expense of the customers. They are trying to negate what CPF is doing for the members.

At every roadshow, cold calls and existing customers, they have been bombarded with calls to invest theit CPF balance before 1st April. I believe there will be calls till the dying hours before customers are spared.


Khiat Han Hwee Adrian said...

I had seen advisers talking to their clients as if that they can never invest again if they missed this dateline.

Some of these clients might be pressured into it not understand what they are getting into.

But I reinerate that it is ok to invest if they understand the risk and are going for long term commitment. Even if they miss the dateline, its not really such a big deal because the next $20k will still be locked. Its only a matter of time.

Anonymous said...

I hope , Adrain, you don't con your customers into investing in NTUC growth policy with either OA or SA.
Investing in funds, at least the customers can expect return beyond the CPF rates but not in Growth, especially using SA in Growth. That agent must be some kind of conscienceless sob. I heard some ntuc agents did that. It is unbelievable that these agent have the heart to earn such money.
From your postings, i know you are
careful and kind and i want to wish you well. Hope the future will see practitioners like you. Al the best.

PanzerGrenadier said...

I too was surprised at the hype about investing the $20k in OA since I know from experience that 3.5% guaranteed is hard to beat given dismal fixed deposit rates at 1% and treasury bills around the same.

Check out for those not convinced that 3.5% is a GOOD DEAL under current low interest rate environment.

leothu said...

Hi, maybe for OA, there's not much diff. Let's calculate for SA. $3000 per month, CPF contribution $3000 x 34.5% = $1035. SA -> 0.1449 x $1035 = $149.97. $20000 / 149.97 = 133.36 months = 11+ years... 11 years is considered long. Of course they are giving 5% for 1st 2 years.

Note that extra 1% for OA will be credited to SA. So effectively, if you are mainly using the funds for future housing instalment from OA, it might be good to invest OA if OA will be used for housing.

Well every choice got pro and cons. But I agree that investing in Income Growth policy using SA is waste of time. But I guess some agent sell it as ph requested for relatively low-risk plus somehow 'capital protected' investment. Maybe it's the role of agent to educate them to either invest in funds or keep it in SA.

Anonymous said...

Leothu, investing SA in NTUC Growth is not only waste of time, it is an abuse and unethical.It is putting members' money to high risk and yet not compensated.There is a good chance of a loss. CPF is risk free, guaranteed and no long lock in.
NTUC agents should not unscrupulously
exploit the ignorance of policyholders.


Khiat Han Hwee Adrian said...

It is very rare that an adviser will recommend Growth Plan for Special Account.

They will need a lot of justification for the recommendation before approval from their supervisors. The plan will never be approved especially if we are talking about the 1st $20k from the Special Account.

I don't think advisers or supervisors from NTUC Income or other insurance companies are doing things just that to jeopardise their own career by recommending or approval such a proposal.

leothu said...

Hi Terminator, Im sure there's good agents from Income. For Growth policy, why Income is not phasing them out?

Anonymous said...

Adrain, you will be surprised. Maybe not you. The agent , the supervisor and the company care for sale only. The supervisor and the company don't care how the agent got thier sale.
I have an auntie who is in NTUC and like all good ntuc agents with twisted tongue she told me that she would convince customers with the double insurance and the end figure of growth to show how much it has grown. Don't tell the customer about the rate of return. Many agents used this feature and strategy to sell or con their clients. I was shocked for words.
That is why, I am not convinced by what you said, Adrain. I got this from the horse's mouth. I am convinced that ntuc agents are capable of doing this. They are all product pushers, except you. You still have conscience for the clients.For the rest, I am not sure.


Khiat Han Hwee Adrian said...

Hi Terminator,

I had replied to you in many of my comments.

"There are good and bad agents around!" in every companies, every corner of Singapore.
It is not fair to group all NTUC agents as con-man or product pushers.

I'm not protecting NTUC agents but you seems to really have bad experience with them. Everything from you seems to point towards this company only.

leothu said...

"If you prefer moderate to low risk, go for GROWTH plan and Flexi-Cash.

Growth plan is 100% CAPITAL PROTECTED. you will NEVER lose your initial investment and get to earn POTENTIALLY higher return than a fixed deposit."

-written in proposal form, sounds good hor.

Anonymous said...

Leotu, why compare to fixed deposit, why not the OA or SA or 10 year average or the inflation. Poor FD already low, yet always used by insurance agents for bashing.However , that is what unethical insurance agents always do to bullshit their clients and poor clients they are alll also blut blur. You can see the unethicalness of insurance salesmen.
You get one like tghis you get this kind of talk, hor!!

leothu said...

Hi Anonymous,

This is what was written in the proposal form itself i think last year, I din input my own opinion in it... so are u saying income bull___ting?