Saturday, October 20, 2012

Investment-linked fund for infant ?

I don't strongly recommend this but this is something extra that I want to do for my baby. We bought a Prudential investment-linked insurance for Micah. It is a Prulink Protection Plus, PruFirst Gift.

Initially, we plan to invest S$200 per month but we reduce to S$100 per month at someone advice. It is because we might be over commit for the first kid, what about the second one, third one ?

With S$100 per month, it has sum assured of S$100,000 for whole life and total & permanent disability coverage for 32 years. Honestly, I forgot why the PD coverage is only 32 years. I have to check with the insurance agent again.

I channel 50% of the funds into PruLink Singapore Growth Fund and the rest of the 50% of the funds into PruLink Emerging Market Fund. It is a good idea to buy with monthly basis because you average out the volatility of the markets. It is definitely not a wise move to buy in yearly mode. Nevertheless, the cost to buy yearly and monthly are the same afterall. It is not the same as whole life insurance whereby you have advantage of cost saving if you pay in annual mode. Therefore, don't bother to switch to annual mode payment for investment-linked fund. Your yearly payment date might always catch the wrong cycle in the market, you never know, it is possible.

What is the return? With projected non-guaranteed cash value, with 5% at age 65 (for Micah), it is S$173,900 , with 9% at age 65, it is S$1,122,900 . With the special excel spreadsheet that was given by my agent, I am able to calculate the true yield per annum by keying the annual premium, premium term and final benefits at the certain policy year (it is indeed a powerful spreadsheet). So, effectively, the return is only 2.22% P.A. for S$173,900 at age 65, and 6.44% for S$1,122,900 (S$1 million? Nice !!!! It is possible.) Remember, your kids have another 60 years to play with but not you.

I do agree that the return in per annum basis is nothing fantastic but it shows us the powerful end results of disciplined investment. The disadvantage of all investment-linked fund is you have to keep paying. For our case, that is S$1,200 every year, literally, by age of 65 for Micah, the total payment made by then would be S$78,000.

The reason I pick investment linked is because I want to buy a pool of shares that I believe it will go up greatly in the long run. Singapore and emerging countries are the sectors that I believe it will do very well. If the market situation changes, I can always switch my funds to others region. But I don't think US and Europe will do better. Of course, I also think of instead of buying investment-linked fund, why not just buy the shares directly, for example, buying Citigroup, HSBC every single year until age 65? The problem is I have the tendency to sell the shares after it runs up for 20%. The discipline is hard to control especially when the share goes up in a short time frame. I am also not willing to load up more if the share price keeps going up. Therefore, investment link not only give you the fun of the equities investing, it also provides additional insurance protection for whole life. The table below only shows you the non-guaranteed portion. You will have additional S$100,000 guaranteed benefits on top of all these non-guaranteed cash value.

PruLink Singapore Growth Fund:

It is relatively a new fund launced in July 2010. I am surprised that the underlying fund is actually Aberdeen Asset Management Asia Limited. I love all top 10 holdings of this fund, they are all the big local Singapore firms that we can trust (and they give fat dividends) and it occupies 64% of this Singapore growth fund. Great, I love it!

PruLink Emerging markets fund:

This is the risky one, but that is my choice. The underlying fund is JP Morgan Asset Management Limited.  The top 5 holdings are Samsung Electronics, Taiwan Semiconductior Manufacturing, China Mobile, etc. If you look at the country allocation of underlying fund, they have pretty equal spreads at China, Brazil, South Korea, South Africa, India, Taiwan, Indonesia and others. These are the countries that I believe they will do well in the next 20 years, if not 40 years ? As for now, the best performing countries in the world now are Indonesia, Thailand and Malaysia (KLSE just hit all time high as for now) !

Prudential products are not cheap, they are well-known for charging higher cost than the rest. But their customer care is super. As for the investment linked products, almost everyone has something to offer, like AIA, HSBC, Mutual Life, Citibank, DBS, UOB, OCBC, Great Eastern, don't be surprised if you see some of the underlying fund are the same! For example, UOB might be selling Prudential products instead.

I am happy that I have settled all the insurance policies for my new born baby. He is only 7 weeks! Now I can focus on other areas.

I have investment-linked fund for myself too. It is AIA Arcons of Asia. I started investing in March 2004 right after I started working in Singapore.They are doing pretty well now. All you need to be aware is, to surrender the policy at the very right timing. I give you one example, if the above Prudential investment linked is surrenderred at year 2007, the return will meet the 9% non-guaranteed portion for sure. But if you surrender the policy in year 2009, the return will be only meeting the 5% or even much lower. Hence, the fund that you choose is important and also the timing when you surrender. I will surrender my investment linked policy in the following bull cycle when I am in the age of 50-60, I don't think I can't catch the bull market in a 10 years time frame mentioned above. I should be able to catch it pretty nicely and accurately, by then, STI is 5,000 points ? You bet.

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