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Old 22-07-2020, 09:25 AM   #2521
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Do you think under this circumstances, would choosing to surrender the plan and follow “buy term & invest the rest” eventually generate sufficient returns to both recoup my “losses” and return additional surplus as compared to if I continued to hold this life insurance till age 70?
Yes.

If so, what kind of %returns must I see in my portfolio by age 70 to be able to do so?
“Not much.” The carrier guaranteed part is barely above premiums paid by age 70. The non-guaranteed part is a projection based on 4.75% gross returns (you don’t get gross) on the carrier’s bond heavy par fund. I don’t think it’s at all likely that a bond heavy portfolio will generate a 4.75% gross return any time soon. The 4.75% is only what the MAS (a weak regulator, it’s fair to say) allows as a maximum marketing projection.

Let’s suppose you took the remaining 21 years of premiums and, instead, split them into $896 per year worth of annual investments for the next 41 years. Obviously $896 per year for 41 years has a much lower net present value than $1,749.68 per year for 21 years, and obviously $896 per year is easier to manage — more resistant to unemployment, etc. If you then net 6% compound annual returns you end up with $156,755. At 5% it’s $120,271. Achievable? I’d say so — these are realistic forecasts, and 41 years is a long time.

Or how about $1749 per year for 21 years then nothing for 20 except compound growth? Let’s use the carrier’s fantasy 4.75% number, plug that into a calculator, and see what we get 41 years later: $160,189. (And we’re awarding an extra year to the carrier, if you’ve noticed. All these outcome projection numbers I’m giving are actually age 69 numbers.)

Anyway, you can probably see that, as an investment, the carrier isn’t offering a great deal. However, in fairness, they’re offering two other things: a death/TPD benefit if you should die/TPD before your age 70 planned cash out, and essentially a principal return as minimum performance (if you live long enough). So if you highly value those features and are ultra conservative then maybe they’re appealing. The downside is that you’re not allowed to shortchange the carrier even by one dollar for the next 21 years. If you’re merely diligent and prudent in your own private investing you have an extremely high probability of beating the carrier, a lot. However, if you need to skip a year, or a month, due to hardship, you’re allowed. For some people the pain of a premium bill and stiff penalty is what keeps them saving, even inefficiently. For others the inefficiency is not worth it.

We are seeing reports in this thread now of COVID-19-related job losses and income disruptions resulting in an inability to pay insurance premiums. Another problem is that you’re usually not allowed to cash out partially (and reduce the sum assured), whereas with your own private investing you can withdraw one dollar next Tuesday if you wish. But that too is a double edged sword. I’ve been very fortunate that I have never withdrawn even one dollar from long-term investments. But I could, and for some people it’s too tempting for that upgraded leather upholstery in the BMW 3 series...OK, how about a 5 series? Or a M5, that would be even better.... No, how about skipping a car entirely in Singapore? See the problem? This private investing stuff requires a certain discipline, and it’s not easy. Wealth effects are real, and many people get giddy when they start to see their balances swell. (And panic when they shrink even a little.) They don’t get so giddy with insurance policy surrender values because they’re pretty terrible.

With respect to the term life insurance, a couple comments. First, term life insurance to age 65 is the “fleet standard” choice, and I think it makes sense. Your mortgage won’t end any later than that (with rare exceptions), and you cannot really plan on being a breadwinner supporting a dependent past 65. Obviously it’s better to be able to work well past 65 and have the choice, but it doesn’t seem realistic to plan on it in terms of insuring a dependent against loss of an income stream due to death. If you want to go term to 70 you can, but I don’t think it’s generally necessary.

Second, a dependent doesn’t have to be a married spouse. A dependent can be anyone you care about who would be seriously financially impaired, from a baseline lifestyle point of view, if you were to die tomorrow. So if your partner is already a dependent, then it makes sense to insure now.

Don’t forget about Disability Income Insurance. I know I keep harping on that point, but it needs harping.
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Old 23-07-2020, 02:41 AM   #2522
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Hi BBC Watcher,

RE IWDA or VWRA vs VUSA

I understand that the common consensus here is to be vested in a world etf, specifically IWDA. Grateful if you could share your thoughts on a S&P 500 distributing etf e.g VUSA over world accumulating etf e.g IWDA?

US etf over World etf: My rationale is that the US stocks have historically and consistently out-performed European stocks. I don't quite buy the argument that one would have to consider that European stocks may out-perform the Us stocks. I also note that majority of IWDA's assets are US stocks and this begs the question why not get a pure US etf e.g. VUSA?

Distributing over Accumulating: Personally, I'd like to see the cash dividends in my SCB account instead of having it automatically re-investing the dividends. I understand the importance of compounding it and growing the etf. However, I'd prefer the idea of re-investing the dividends myself - either by way of lump sum or DCA. The idea of not seeing cash dividends (assuming I'm vested in an accumulating etf) for the next 20-30 years is quite scary isn't it?

With the above in mind, would you consider VUSA over a world etf (accumulating)? or would it still be advisable to buy into a world etf?

And if a world etf is recommended, would it be VWRA or IWDA (I'm a sucker for vanguard products)?

Thanks.
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Old 23-07-2020, 04:42 AM   #2523
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US etf over World etf: My rationale is that the US stocks have historically and consistently out-performed European stocks. I don't quite buy the argument that one would have to consider that European stocks may out-perform the Us stocks. I also note that majority of IWDA's assets are US stocks and this begs the question why not get a pure US etf e.g. VUSA?
Past performance is not indicative of future results, and a global stock index fund is at least substantially global, not limited to stocks listed in the United States and Europe.

Distributing over Accumulating: Personally, I'd like to see the cash dividends in my SCB account instead of having it automatically re-investing the dividends. I understand the importance of compounding it and growing the etf. However, I'd prefer the idea of re-investing the dividends myself - either by way of lump sum or DCA. The idea of not seeing cash dividends (assuming I'm vested in an accumulating etf) for the next 20-30 years is quite scary isn't it?
If you understand the importance of reinvesting dividends— and it is important, and cost free when the fund does it for you — why is it “scary” to do what’s important?

And if a world etf is recommended, would it be VWRA or IWDA (I'm a sucker for vanguard products)?
Either is fine.
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Old 23-07-2020, 11:50 AM   #2524
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If you understand the importance of reinvesting dividends— and it is important, and cost free when the fund does it for you — why is it “scary” to do what’s important?
Are accumulating funds transparent about how much dividends were paid and reinvested? If not, I can see why that might make people a little uneasy. For DRIPs at least you see the dividend payments being put to work. For me, any dividend payments I receive get combined into a subsequent DCA anyway, so not much is lost.
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Old 23-07-2020, 11:58 AM   #2525
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Hi BBCwatcher,

I've been following your thread for awhile and I would like to seek your advice!

Some background:

- 25 years old

-currently, no income as a student

-orphan/single

-housing/insurance settled

-expenditure of 5years set aside



I've recently come upon a windfall from inheritance and so I have basically 810k set aside for investments. This is a huge sum of money so I've been deliberating on what I should do with this all the while the money just sits in a cash account getting minimal interest rates. I've gone through some posts here and there and the Bogleheads 3-Fund portfolio really resonates with me and thus I am choosing to go with this option. Most posts weigh in on investing every month from your income however my situation is slightly more unique as I do not have any income in the next 2years given that I am still a student.

This is a preliminary plan following Bogleheads 3-Fund Portfolio so would really appreciate it if the more experienced could weigh in and give some options.

My plan:

-31% bond - either A35 or NTUCSP 3.100% 20Jul2050 Corp (250k)

-22% in ES3

-47% in VWRA or (9:1 combi of SWRD & EMI)



Given that I have substantial capital, I figured I don't have to go full offensive on equity (correct me if I'm wrong) and instead chose a more stable portfolio?

From what I've found out thus far, it seems it is better to buy my bond and ES3 with DBS Vickers(held in my CDP + 0.12% buy-in) and then my VWRA with SC premier( since I hit above 200k thus I am getting 0.2% charges). I plan to do the investment in one lump sum instead of DCA because of some articles I've read which discusses why lump sum is better. I am relatively young and do not foresee needing this sum of money in the near future so I dare say my investment window is around 20-30years?

Are there any big holes in my preliminary plan? Are the two brokers I've selected cost-efficient for my method of investing?
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Old 23-07-2020, 12:24 PM   #2526
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My plan:

-31% bond - either A35 or NTUCSP 3.100% 20Jul2050 Corp (250k)
I know you asked BBCW but allow me to chip in: forget about the bonds. You are young and can afford to take more risk.

-22% in ES3
If I were you, I will lower the ES3 ratio to 10%. That's already overweight on SG equities above its market cap in the world index.

-47% in VWRA or (9:1 combi of SWRD & EMI)
VWRA is less work for you.

Given that I have substantial capital, I figured I don't have to go full offensive on equity (correct me if I'm wrong) and instead chose a more stable portfolio?
Portfolio size doesn't impact the equities ratio. Age does and the time you'll need to access the funds for retirement.

From what I've found out thus far, it seems it is better to buy my bond and ES3 with DBS Vickers(held in my CDP + 0.12% buy-in) and then my VWRA with SC premier( since I hit above 200k thus I am getting 0.2% charges). I plan to do the investment in one lump sum instead of DCA because of some articles I've read which discusses why lump sum is better. I am relatively young and do not foresee needing this sum of money in the near future so I dare say my investment window is around 20-30years?
There is a single brokerage: IBKR SG which you can hold ES3 and VWRA with the lowest commissions and forex spread.

BTW SCB 200k is for Priority banking and the commission rate is 0.12% with no min for SG and 0.2% for other markets. SCB's forex spread is 0.4% thereabout.

Lump sum is quite nerve wrecking if the market dips right after you invested. I suggest DCA over a timeframe - say from now until you graduate from school. Forgo some potential returns but stay invested and it will do wonders for your investor confidence.
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Last edited by zoneguard; 23-07-2020 at 12:29 PM.. Reason: DCA
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Old 23-07-2020, 12:43 PM   #2527
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Thanks a lot for the advice! Would you suggest that I instead look into topping up my CPF rather than investing in bonds as an alternative?
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Old 23-07-2020, 12:51 PM   #2528
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I know you asked BBCW but allow me to chip in: forget about the bonds. You are young and can afford to take more risk.
I will chime in here too. For bond allocation, find a diversified bond ETF. You do not want to put it all into one single bond, especially a callable (it's 30NC20) hybrid tier 2 bond from a single issuer that is super long dated. You are throwing away all the diversification/safety benefits of bond allocation on a number of levels.

This bond was only issued last week, how did you pick this one? Was it recommended by a PB?

If I were you, I will lower the ES3 ratio to 10%. That's already overweight on SG equities above its market cap in the world index.

Lump sum is quite nerve wrecking if the market dips right after you invested. I suggest DCA over a timeframe - say from now until you graduate from school. Forgo some potential returns but stay invested and it will do wonders for your investor confidence.
Agree both these points, this is good advice.
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Old 23-07-2020, 02:16 PM   #2529
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From what I've found out thus far, it seems it is better to buy my bond and ES3 with DBS Vickers(held in my CDP + 0.12% buy-in) and then my VWRA with SC premier( since I hit above 200k thus I am getting 0.2% charges). I plan to do the investment in one lump sum instead of DCA because of some articles I've read which discusses why lump sum is better. I am relatively young and do not foresee needing this sum of money in the near future so I dare say my investment window is around 20-30years?

Are there any big holes in my preliminary plan? Are the two brokers I've selected cost-efficient for my method of investing?
I thought it's quite obvious that you should go with IBKR SG, instead of Vickers and SC.

I think A35, ES3, and VWRA is a safe bet. You wont go too wrong, but you may be bored of the slow and steady returns, as a 25 year old student. haha
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Old 23-07-2020, 02:17 PM   #2530
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Smile

I will chime in here too. For bond allocation, find a diversified bond ETF. You do not want to put it all into one single bond, especially a callable (it's 30NC20) hybrid tier 2 bond from a single issuer that is super long dated. You are throwing away all the diversification/safety benefits of bond allocation on a number of levels.

This bond was only issued last week, how did you pick this one? Was it recommended by a PB?

It was suggested to me by my uncle who bought this bond. What you said makes sense, thanks for the advice
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Old 23-07-2020, 02:28 PM   #2531
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I’m priority scb and I think it’s 0.18% for sgx with no min.

I
BTW SCB 200k is for Priority banking and the commission rate is 0.12% with no min for SG and 0.2% for other markets. SCB's forex spread is 0.4% thereabout.
.
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Old 23-07-2020, 03:05 PM   #2532
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I’m priority scb and I think it’s 0.18% for sgx with no min.
You are right. My recommendation to OP was to go with IBKR SG.

BTW you mentioned in ST's thread about IVF's UCITS equivalent in LSE? What I read so far is value factor investing doesn't work or rather it is hard to prove if it is working(or not) now than it is known and priced in.

On the other hand, multi factor investing as implemented by Dimensional Funds Advisor is available here through Endowus and Moneyowl with a higher cost compared to DIY. DFA also is the midst of launching ETFs in the US and let's wait and see if they will offer that to other markets.
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Old 23-07-2020, 04:38 PM   #2533
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Are accumulating funds transparent about how much dividends were paid and reinvested?
The commonly discussed ones are (VWRA, IWDA, etc.), yes.

Portfolio size doesn't impact the equities ratio.
Well, it could. Someone with a $200 billion portfolio might rationally decide to be aggressively positioned with 98% in stocks and 2% in bonds, for example. That 2% is "only" $4 billion.

However, over broad ranges of wealth, the popular "rule of thumb" portfolio allocations work pretty well.

I think A35, ES3, and VWRA is a safe bet.
I think MBH is a better choice for the bond leg. G3B is a perfectly valid alternative to ES3 since they track the same index; either one is fine.
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Old 23-07-2020, 08:25 PM   #2534
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“Not much.” The carrier guaranteed part is barely above premiums paid by age 70. The non-guaranteed part is a projection based on 4.75% gross returns (you don’t get gross) on the carrier’s bond heavy par fund. I don’t think it’s at all likely that a bond heavy portfolio will generate a 4.75% gross return any time soon. The 4.75% is only what the MAS (a weak regulator, it’s fair to say) allows as a maximum marketing projection.
Thank you as always for explaining with detailed examples and giving a balanced view on pros & cons!

I ran a 2nd round of calculations on my own on how I am likely to invest the future premiums saved following your examples, & indeed it wouldn't take too much for me to breakeven & profit when compared to the carrier's 4.75% projections (about 0.75% advantage would be sufficient), even after substracting the losses from early surrender + paying for additional term plan in the following years when required.

Second, a dependent doesn’t have to be a married spouse. A dependent can be anyone you care about who would be seriously financially impaired, from a baseline lifestyle point of view, if you were to die tomorrow. So if your partner is already a dependent, then it makes sense to insure now.
And yes this was part of the reason why I decided to drop this life plan (my parents are financially stable fortunately), hence the only time I would need a term protection would be when I'm eventually getting hitched for good

Don’t forget about Disability Income Insurance. I know I keep harping on that point, but it needs harping.
First thing I did when I decided to get my financial **** together, so i guess your harping worked
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Old 24-07-2020, 01:01 AM   #2535
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DFA also is the midst of launching ETFs in the US and let's wait and see if they will offer that to other markets.
I read that the DFA ETFs are active ETFs. So the ETFs may not be low-cost.

I wonder whether a financial advisor is required to buy the DFA ETFs, and if so, how would DFA impose this requirement? If not, why is DFA deviating from the way its sells its mutual funds.
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