[Advice] Mutual Fund vs Endowment

[always89]

Hi guys. Im thinking of setting aside $3600 a year just to save up for retirement. Besides endowment, im also looking at investing in dividend paying (3% - 4% in market) mutual funds. My thought is that I know that im paying for the insurance coverage in endowment which I do not need as I have my term insurance. On the other hand, if I were to invest in mutual funds, I am exposed to investment risks and there are no guaranteed returns. However, if I invest in mutual funds, together with the dividends payout and compounding effect, I realised the returns after 20 years are so much more better than an endowment's. On top of that, I have liquidity with the only problem being the price at the point of time I withdraw from the fund.

Agents will only recommend endowment (better commissions i assume ).

any advise on this? sorry for the lengthy text.

 

[bigmice]

you can choose retire plan pay primium 360/mon till 65 year old. (total $129580
after that no need pay, then can withdrawing money 500/month till 85 years old
or surrender take back $260389. not too bad

but I think the best way is buy some dividend stock like singtel, m1.

 

[Darkzi0n]

dont mix insurance with investment... and dont ask insurance company manage ur investment.... and dont bother with mutual funds.

spend some time read up n learn how to invest ur money urself.... read books like 'y mutual funds are bad' and u will understand y i said my first sentence.

 

[Aerial86]

dont mix insurance with investment... and dont ask insurance company manage ur investment.... and dont bother with mutual funds.

spend some time read up n learn how to invest ur money urself.... read books like 'y mutual funds are bad' and u will understand y i said my first sentence.

When you say learn how to invest ur $ urself, what are the things you invest in?

 

[Darkzi0n]

When you say learn how to invest ur $ urself, what are the things you invest in?

can be things like stocks/etf/index funds... just find one that u r comfortable with.

 

[always89]

dont mix insurance with investment... and dont ask insurance company manage ur investment.... and dont bother with mutual funds.

spend some time read up n learn how to invest ur money urself.... read books like 'y mutual funds are bad' and u will understand y i said my first sentence.

there are also read ups on 'y mutual funds are good' lol.

I understand to invest the money ourselves will provide far more potential but other than affordability issues at the moment, I prefer not to make hard decisions as im a very emotional man

my point is that I would rather put this sum of money in products rather than putting it in a bank. hence i wanna seek opinions from the professional investors here, that other than a personal portfolio, which is a better alternative if I were to choose between endowments and mutual funds

 

[always89]

you can choose retire plan pay primium 360/mon till 65 year old. (total $129580
after that no need pay, then can withdrawing money 500/month till 85 years old
or surrender take back $260389. not too bad

but I think the best way is buy some dividend stock like singtel, m1.

whats with the number? an endowment plan? $260389 is guaranteed?

 

[Darkzi0n]

there are also read ups on 'y mutual funds are good' lol.

I understand to invest the money ourselves will provide far more potential but other than affordability issues at the moment, I prefer not to make hard decisions as im a very emotional man

my point is that I would rather put this sum of money in products rather than putting it in a bank. hence i wanna seek opinions from the professional investors here, that other than a personal portfolio, which is a better alternative if I were to choose between endowments and mutual funds

a 30-year (iirc) study has shown that performance of mutual fund is not statistically different from a passive fund, even when survivor-bias was not controlled for. the study also showed that past performance of a fund is a very bad indicator of how the fund will perform in the next 5 years. picking the 'right' mutual fund is (in my opinion) no diff from trying to pick a wining lottery ticket.

and the biggest disadvantage of mutual fund is the unjustifiable high management fees.... tgt with the fact that they do not statistically perform better than a passive fund.. u r essentially paying the fund managers to do nothing for you.
and if u r buying mutual fund through insurance coy, thats worse, cos u will adding another layer of commissions and fees.

if u take some time to browse through this forum, u will see from time to time, there will be thread of ppl regretted n seeking advice on wat to do to their ILP or watever investment through insurance.

n u dont have to make very hard decisions... if picking stocks is not ur cup of tea, den jus buy index funds or etf.

 

[MultiplyYourWealth]

I always smirk when i hear statements like "majority of mutual funds underperform the market". Don't get me wrong, I agree with the facts of the statement, but what bothers me is that "majority" in this case has been assumed as something close to 100%, which in fact is not. While the numbers is on the high side (approximately 80% i believe), it is not too difficult to identify most of these underperforming funds. This also implies that 20% of the actively managed funds do outperform the market.

When i refer to funds that outperform the market, i'm not talking about past 1 or 2 years. I'm talking about funds who have annualized returns net of expenses better than the market for 1, 3, 5 and 10 years time period and have the same fund manager for over 10 years. Using the MSN Money Fund Screener, there are a quite number of no load funds that have outperformed the Vanguard Total Stocks Market Index (a better rep of the market than S&P500) using this criteria, with more than one fund in each of the nine segments (growth, blend, value & small-cap, mid-cap and large-cap).

I know someone will say "past performance doesn't indicate future returns", but look, past performance does indicate future potential. As an analogy, if i manage a soccer team and during the transfer window to sign a new player, i have a choice to sign a average forward with career goals of 200 or a player with career goal of 349 (C. Ronaldo) with all other aspects equal, i'd be inclined to sign Ronaldo. While there is no guarantee that Ronaldo will continue to score more goals than the average forward, i think his chance are better since he has shown he can do it in the past. I think the same can be said of mutual fund managers. When you buy a mutual funds, you are buying the manager, not the fund name.

Owning an actively manage portfolio requires more work than an index portfolio, so check up on your portfolio periodically to ensure the asset allocation is correct in relation to the market. It might not be for everyone as a fair amount of diligence is involved.

For some reason, a lot of investors seems to think that "buy and hold" really means "buy, hold and forget". Every investor should be adjusting their asset allocation as risk tolerance changes over time.

 

[Darkzi0n]

this is a 5 year study, the 30 years study i toked about came from a library book which i borrowed quite some time ago... and i cant find them online.

but in that book, it broke down the past returns into 5 years blocks.
they sorted the first block the same way as shown on the graph from lowest return to highest return. Then, using the same ordering of funds, they plotted the returns for the next 5 years.... and u get a graph that is totally jumbled up... meaning, there is no strong association between past and future performance.

Intuitively, it also dosnt make sense for the 80% of the funds to continue to exist for decades if identifying the 'good' fund is so easy.

And it may be true that with active management on ur part through adjustment, switching etc, u may maximize ur return and even outperform... i dunno. but does the extra return generated compensate u to pay more commissions and do more work? and do ppl who generally buy into managed funds have the ability or time to do so?

 

[MultiplyYourWealth]

As much as you can pull out funds that underperform the indices, it's not hard to find the few that outperform the benchmarks.

If the market are as rational as what you has mentioned, speculative bubbles should not exist. Efficient market can exist only if every investors have been rational. Stock prices should have fallen only for overpriced stocks and not the entire market. When price were at bargain prices, an efficient market would have driven the price back to its fair price. Unfortunately, that didn't happen.


It's Fama vs Shiller. Both are awared the Nobel, isn't it?

 

[chopra]

if you ok with 3 to 4 percent, can consider 30year government Bond.

 

[always89]

a 30-year (iirc) study has shown that performance of mutual fund is not statistically different from a passive fund, even when survivor-bias was not controlled for. the study also showed that past performance of a fund is a very bad indicator of how the fund will perform in the next 5 years. picking the 'right' mutual fund is (in my opinion) no diff from trying to pick a wining lottery ticket.

and the biggest disadvantage of mutual fund is the unjustifiable high management fees.... tgt with the fact that they do not statistically perform better than a passive fund.. u r essentially paying the fund managers to do nothing for you.
and if u r buying mutual fund through insurance coy, thats worse, cos u will adding another layer of commissions and fees.

if u take some time to browse through this forum, u will see from time to time, there will be thread of ppl regretted n seeking advice on wat to do to their ILP or watever investment through insurance.

n u dont have to make very hard decisions... if picking stocks is not ur cup of tea, den jus buy index funds or etf.

I've looked around, I saw one insurance coy providing an ILP without insurance coverage. The charges only include a bid offer spread of 3% upon withdrawal and management fee of 1.35%. I'm not going to buy and hold, I read up about averaging out my dollars and decided to do this by putting that few hundreds of mine in the mutual fund every month. At the same time, collect the dividends. Is this a possible strategy?

 

[always89]

if you ok with 3 to 4 percent, can consider 30year government Bond.

Which is that? A mutual fund as well? Can we purchase bond directly thus avoid the management fee?

The fund that I'm looking at invest in US bonds giving 4.2% dividends.

 

[always89]

I always smirk when i hear statements like "majority of mutual funds underperform the market". Don't get me wrong, I agree with the facts of the statement, but what bothers me is that "majority" in this case has been assumed as something close to 100%, which in fact is not. While the numbers is on the high side (approximately 80% i believe), it is not too difficult to identify most of these underperforming funds. This also implies that 20% of the actively managed funds do outperform the market.

When i refer to funds that outperform the market, i'm not talking about past 1 or 2 years. I'm talking about funds who have annualized returns net of expenses better than the market for 1, 3, 5 and 10 years time period and have the same fund manager for over 10 years. Using the MSN Money Fund Screener, there are a quite number of no load funds that have outperformed the Vanguard Total Stocks Market Index (a better rep of the market than S&P500) using this criteria, with more than one fund in each of the nine segments (growth, blend, value & small-cap, mid-cap and large-cap).

I know someone will say "past performance doesn't indicate future returns", but look, past performance does indicate future potential. As an analogy, if i manage a soccer team and during the transfer window to sign a new player, i have a choice to sign a average forward with career goals of 200 or a player with career goal of 349 (C. Ronaldo) with all other aspects equal, i'd be inclined to sign Ronaldo. While there is no guarantee that Ronaldo will continue to score more goals than the average forward, i think his chance are better since he has shown he can do it in the past. I think the same can be said of mutual fund managers. When you buy a mutual funds, you are buying the manager, not the fund name.

Owning an actively manage portfolio requires more work than an index portfolio, so check up on your portfolio periodically to ensure the asset allocation is correct in relation to the market. It might not be for everyone as a fair amount of diligence is involved.

For some reason, a lot of investors seems to think that "buy and hold" really means "buy, hold and forget". Every investor should be adjusting their asset allocation as risk tolerance changes over time.

I'm also looking at another fund which is 60% equities and 40% bonds and I read its product sheet where it says the fund will adjust their allocation, depending on the manager I assumed, is this good in a sense? The fund also shows a pretty long record which I cannot remember but definitely more than 5 years and it mentioned about being a top 10 fund iirc in some listing.

 

[always89]

this is a 5 year study, the 30 years study i toked about came from a library book which i borrowed quite some time ago... and i cant find them online.

but in that book, it broke down the past returns into 5 years blocks.
they sorted the first block the same way as shown on the graph from lowest return to highest return. Then, using the same ordering of funds, they plotted the returns for the next 5 years.... and u get a graph that is totally jumbled up... meaning, there is no strong association between past and future performance.

Intuitively, it also dosnt make sense for the 80% of the funds to continue to exist for decades if identifying the 'good' fund is so easy.

And it may be true that with active management on ur part through adjustment, switching etc, u may maximize ur return and even outperform... i dunno. but does the extra return generated compensate u to pay more commissions and do more work? and do ppl who generally buy into managed funds have the ability or time to do so?

Actually i have a noob question. And not trying to doubt you. But these graphs and statistics, are they reliable? There are those saying how bad are mutual funds, and there are those showing their "good" performance.

 

[Shiny Things]

Actually i have a noob question. And not trying to doubt you. But these graphs and statistics, are they reliable? There are those saying how bad are mutual funds, and there are those showing their "good" performance.

Yep, there are, and both of them can be correct at the same time.

So you'll see graphs of a mutual fund vs its benchmark, and they'll say "look it's outperformed!". (The easiest way to make this happen, incidentally, is to change the benchmark retroactively to an index that's performed worse than the original benchmark. Instant outperformance!)

But at the same time, if you look at the aggregate universe of mutual funds, you'll see that they underperform their benchmarks on average, and that's the big complaint about them - that on average they underperform, and that you can't (contra MultiplyYourWealth) predict in advance which managers are going to outperform.

Where MYW's assumption falls down is that outperformance is not consistent. He says

While the numbers is on the high side (approximately 80% i believe), it is not too difficult to identify most of these underperforming funds. This also implies that 20% of the actively managed funds do outperform the market.

...and the implied assumption here is that the 20% that outperform will continue to outperform.

With a few exceptions (Peter Lynch, Bill Gross, Bill Miller, we already banged on about this in another thread), that simply isn't true. Darkzi0n was right when he said that managers' past 5-year performance doesn't predict future 5-year performance - why do you think you always hear the "past performance is not predictive of future results" disclaimer whenever you hear about a financial product?

MYW, if you don't like what I'm saying, you could pull mutual fund data for the last twenty years or so and run the tests yourself. Use a simple strategy like "if a manager has outperformed their benchmark for the last x years, buy their fund for the next x years", vary the sampling window size between one and ten years or thereabouts, and see how the outperforming managers perform against that same benchmark for the next x years.

 

[chopra]

Which is that? A mutual fund as well? Can we purchase bond directly thus avoid the management fee?

.

sgs Bond , buy from dbs ibanking.
singapore government Bond has lower risk than equity.
read more before you commit tho

 

[Darkzi0n]

Actually i have a noob question. And not trying to doubt you. But these graphs and statistics, are they reliable? There are those saying how bad are mutual funds, and there are those showing their "good" performance.

my exam is finally over so i had some time n took a look at the study and summarized it. u can take a look at it here:

Invest Wizar Journal: Mutual Funds: An empirical study

 

[NiteX2]

To be on topic, mutual funds and endowments are 2 different instruments.

One is investment based and there is no guarantee that you will get back your principal amount at the end of the investment period, whereas endowments will at least guarantee part or the principal amount that one would have put in over the years.

Things to factor in:
- Do you have the time to read up on investment news on your own?
- How long is your investment horizon?

Alternatively, you could use the endowment for the 'bond' part of your investment and invest in mutual funds for your equities part.

Feel free to PM me should you want to find out more