Getting an ILP PLAN from AIA

[anfielder]

My argument is not whether index funds are better or ILPs are better. It is about stock picking that matters in any investment. Maybe you want to explain how that does not hold water?

Not sure why you're so fixated on stock picking. It's not like you can pick specific stocks using ilp, only sectors. And sectors can easily be covered by etfs.

In any case, even professional stock pickers cannot consistently beat the benchmarks. So why should we even try?

 

[parchiao]

Not sure why you're so fixated on stock picking. It's not like you can pick specific stocks using ilp, only sectors. And sectors can easily be covered by etfs.

In any case, even professional stock pickers cannot consistently beat the benchmarks. So why should we even try?

Do you even read the thread about what I mean?

 

[kletian]

Can you tell me what I mentioned about ILP that is misleading? Please fee free to quote me.

You seem to be harping on index funds as a be-all and end-all which I say is bull.

Here's the thing about ILPs. I don't own one but I have heard enough about it:

Usually when you buy an ILP, you get to choose your allocation into a list of funds. In most ILPs, YOU decide your own switching, maybe aided by your insurance agent who (many of them) knows zilch about investments. Two main problems here: for whatever fund you decide to allocate into, there's something out there that is equivalent and much lower costs (you can even buy the same fund but skip the insurance company investment mgmt costs). Second problem, the ilp fund list is limited and you won't have sectors that you may prefer to invest in.

The insurance agents are probably given regular market updates based on inhouse views but I think there are better companies and banks out there anyway.

Next, assuming you are right that the fund manager of the insurance company allocates for you. Here are the problems:
1) It's proven harder to pick the right fund manager than the right stock
2) You are paying more compared to a discretionary portfolio in a bank or fund that you can get elsewhere, that probably gives better returns too. (E.g. you want prudential or you want goldman sachs to invest for you at a same or lower cost?)

From what I see, fees for getting ilps or even pure investment plans from insurance companies are outrageous. 3-5% frontend load for every premium? The rich can get a similar investment plan for a fraction of 1% from a private bank, and the well informed can get one from a local bank.

 

[parchiao]

In any case, even professional stock pickers cannot consistently beat the benchmarks. So why should we even try?

Just on this point, you absolutely need to if you are a seasoned investor. Markets are cyclical in nature, what goes up must come down and what comes down should go up. When it all comes down, individual stock picking with some unperfect hedge can reap substantial returns, more than any index and most funds can muster. This is a separate discussion from ILPs.

Also, portfolio managers have their hands tied as the fund mandate and regulatory rules determines how a portfolio should be managed. e.g. UCITS. So even if a portfolio manager holds a winning hand e.g. some holdings perform exceeding well while others are doing well, they are bound by regulations and possibly contractual obligations to reduce the holdings of those outperforming counters. It is not that portfolio managers cannot beat the benchmark, there are shite rules that they actually hinders their performance!

 

[Perisher]

Can you tell me what I mentioned about ILP that is misleading? Please fee free to quote me.

You seem to be harping on index funds as a be-all and end-all which I say is bull.

In case you can't tell, Anfielder is already misled by your defence of ILP which you claim you ain't defending. And you mislead people into thinking choosing ILP or self-investing doesn't matter when it does.

I get that you are saying what you pick is more important than what you use, but let me tell you this, both are important in the long run. You wanna keep your cost as low as possible to compound as much as possible and both the above decision is gonna make a huge difference. 'Maybe' you are rich and don't consider a few 10 of thousands or even a few thousands as important but others do.

Also, I'm not only harping, I'm gonna drill this into every single person who mentions ILP as an investment vehicle. I don't suggest other things because this is one of the simplest best solution which gives a good long term result without much effort for people who considers ILP as an investment.

It's the best for people who considers ILP. It is not bull unlike your reluctance to accept ILP is bull.

 

[Perisher]

Stock picking or fund picking, no difference with my intentions of what this means as I have clearly stated before. It is what you choose that matters more, not what investment vehicle.

I thought you rest your case. Anyway, yes, I agree choosing which investment is more important but disagree with the fact that you disregard investment vehicle cost as nothing much when it is very much not true. It cost a lot over the long term.

 

[parchiao]

Here's the thing about ILPs. I don't own one but I have heard enough about it:

Usually when you buy an ILP, you get to choose your allocation into a list of funds. In most ILPs, YOU decide your own switching, maybe aided by your insurance agent who (many of them) knows zilch about investments. Two main problems here: for whatever fund you decide to allocate into, there's something out there that is equivalent and much lower costs (you can even buy the same fund but skip the insurance company investment mgmt costs). Second problem, the ilp fund list is limited and you won't have sectors that you may prefer to invest in.

The insurance agents are probably given regular market updates based on inhouse views but I think there are better companies and banks out there anyway.

Next, assuming you are right that the fund manager of the insurance company allocates for you. Here are the problems:
1) It's proven harder to pick the right fund manager than the right stock
2) You are paying more compared to a discretionary portfolio in a bank or fund that you can get elsewhere, that probably gives better returns too. (E.g. you want prudential or you want goldman sachs to invest for you at a same or lower cost?)

From what I see, fees for getting ilps or even pure investment plans from insurance companies are outrageous. 3-5% frontend load for every premium? The rich can get a similar investment plan for a fraction of 1% from a private bank, and the well informed can get one from a local bank.

And no one will see any returns if the investments are all wrong. This is what I am driving at.

 

[Perisher]

Just on this point, you absolutely need to if you are a seasoned investor. Markets are cyclical in nature, what goes up must come down and what comes down should go up. When it all comes down, individual stock picking with some unperfect hedge can reap substantial returns, more than any index and most funds can muster. This is a separate discussion from ILPs.

Also, portfolio managers have their hands tied as the fund mandate and regulatory rules determines how a portfolio should be managed. e.g. UCITS. So even if a portfolio manager holds a winning hand e.g. some holdings perform exceeding well while others are doing well, they are bound by regulations and possibly contractual obligations to reduce the holdings of those outperforming counters. It is not that portfolio managers cannot beat the benchmark, there are shite rules that they actually hinders their performance!

The thing is we are trying to tell people ILP is next to useless beside index investing if people just want a fuss-free easy way to invest and get reasonable returns. We are not telling people to maximise returns by picking the best stocks, we are telling people to use simple ways to get reasonable returns which is what the majority wants when they go for a ILP policy.

Let me emphasize, they want to do easy investing that gets reasonable returns. And I repeat, easy investing to get reasonable returns. Index investing suits them much much much much better than ILP.

 

[Perisher]

And no one will see any returns if the investments are all wrong. This is what I am driving at.

I agree but...

People here are driving at ILP, look at thread title. Index investing isn't wrong when you put it against ILP or otherwise. Your pick a investment to maximise returns is about timing and analyzing which isn't what this thread is about.

We are comparing similar things(index investing vs ILP) while you are expecting TS to do investment analysis.

I see we are diverging further and further from what TS wanted. We are trying to steer TS away from ILP, not from maximising returns which isn't even the topic. If he wanna maximise his returns, the question would be very different. If you wanna share a winning formula, go ahead.

 

[Perisher]

Wait, are you saying index investing into STI, S&P 500 and IWDA ETF is wrong? Because that's what we are really encouraging as a better solution vs ILP.

 

[kletian]

And no one will see any returns if the investments are all wrong. This is what I am driving at.

Actually, I'm inclined to think that DCA or lump sum investing in global equities index may beat ILPs in the long run even if the investor makes the right call to switch into a underlying profitable fund (that beats the global index) 65% of the time. (And 65% is crazily good). Most people cannot even beat cpf returns...

Just because charges for ilps are so damned high.

 

[disavowed]

Benjamin Graham mentions in his book, the Intelligent Investor, that you cannot control how your investments will perform in the short term. What you can control in the long term however, are things like brokerage and ownership costs. In this regard, ILPs are inferior investment vehicles. For the average investor who seeks average returns, dollar-cost averaging into a market-index would likely be the best alternative.

 

[parchiao]

Wait, are you saying index investing into STI, S&P 500 and IWDA ETF is wrong? Because that's what we are really encouraging as a better solution vs ILP.

TS did not specifically express his motivation for the purpose of buying an ILP. Was it for protection or investment.

If it was for protection, term plus own investment has it limits. This was why I suggested that he should look at traditional life polices instead.

If it was for investment, I am not inclined to think that index investing will outperform an ILP, for reasons such as choosing the right investments. This was why I said neither is better nor worse. No one else made this point. Nothing wrong on my part. And I have not even started with timing the market, which again no one has brought up as well.

In addition, TS seems to suggest from his questions and responses that he has very little about knowledge about investments and insurance. So I suggested that he focus on learning about investments first. Again, no wrong here.

What I find puzzling is with how others, not you, have put up illustrations that are not better than those of insurance agents with 7% or whatever returns compounded annually and ask TS to buy term insurance and index funds when no one has even ascertained TS objectives nor explained how he should approach his investment. This is wrong, and it is a very poor way to advice someone.

And thereafter, I was made out to be a proponent of ILPs when my purpose was to highlight how flawed and misleading some of the statements and arguments put forth were.



Something is not quite right here when I see index funds encouraged in such a manner, as I have mentioned before, like some be-all and end-all means to invest. I hope others will take heed and instead learn to figure out what investments suit them more and not blindly support others by buying into an index fund, or any other fund.

 

[parchiao]

Benjamin Graham mentions in his book, the Intelligent Investor, that you cannot control how your investments will perform in the short term. What you can control in the long term however, are things like brokerage and ownership costs. In this regard, ILPs are inferior investment vehicles. For the average investor who seeks average returns, dollar-cost averaging into a market-index would likely be the best alternative.

This is a good example of what I mean about misleading.

How is

For the average investor who seeks average returns, dollar-cost averaging into a market-index would likely be the best alternative.

supported by

Benjamin Graham mentions in his book, the Intelligent Investor, that you cannot control how your investments will perform in the short term. What you can control in the long term however, are things like brokerage and ownership costs. In this regard, ILPs are inferior investment vehicles.

And Benjamin Graham's book says a lot more, like stock picking smartly can yield better returns than an index, or something along those lines.

 

[FP_IFA]

I want to clarify here that unit trusts do not always lose to indexes. There are unit trusts that regularly outperform indexes. However this rarely happens in an ILPs structure.

The few problems with ILPs are these:
1. Funds selection are frequently biased and limited. Insurers like to promote their own funds which very frequently are not the best of its category. Also the number of funds you can compare and selected are lesser than what you can find in Fundsupermart or Navigator.
2. No follow up. Usually the agents will just sell you the policy and then leave it there as it is. There is no regular reviews on it as there is no incentive for the agents to do so.
3. High transaction and management cost. This erode whatever profit you have gain.
4. Extra hidden cost. Let said your premium is $500 per month and your ILPs has a insurance portion in it. What some insurers do is take the $500 to purchase your unit trusts, then sell your units to purchase your insurance portion. This is crappy because the insurer is doing a buy and then a sell again rather than upfront breaking the $500 into the investment and insurance portion. All these silly costs add up.

 

[ston12345]

Just a little of my 2 cents.

I think what Perisher is trying to drive at is that ILPs have no space in Singapore given how the system (tax) is structured in Singapore - i remember reading in Shiny's thread that ILPs originate so as to avoid the tax given the death of the investor by classifying it as an insurance policy.

Just so that I don't appear one-sided, I am holding an ILP myself, signed when I was ignorant about investment, and looking at the amount in transaction cost - $5 out of a monthly $100 premium, thats freaking 5% which can be our returns or more on a bad year.

Furthermore its true that the selection of funds are limited. My AXA ILP policy invests in mainly AXA funds. And most of those AXA funds aren't invested by the AXA fund managers, they are actually investing into larger fund houses, I've seen it when I was at said fund houses, thus subjecting them to a further level of management fees and whatnot.

Also, advocating a DCA index-based investment strategy applies to the average general investor who is looking towards retirement and a longer investment horizon. Buy once a month or when the market hits a deep red and repeat it, rebalancing once/twice a year.
Sure if you have excess, you could invest on value stocks but i would say most of us have a day job to focus on and if you're rooted in the financial sector, there's a load of compliance issues waiting before you can even hit buy.

 

[Perisher]

TS did not specifically express his motivation for the purpose of buying an ILP. Was it for protection or investment.

I believe it's both, he already got this ILP plan, what else does this ILP plan does?

If it was for protection, term plus own investment has it limits. This was why I suggested that he should look at traditional life polices instead.

Partly true.

If it was for investment, I am not inclined to think that index investing will outperform an ILP, for reasons such as choosing the right investments. This was why I said neither is better nor worse. No one else made this point. Nothing wrong on my part. And I have not even started with timing the market, which again no one has brought up as well.

Here's the major issue. No matter which fund you choose in ILP, directly investing in the equivalent fund will always outperform ILP.
And based on decades of results, rarely does any fund out-perform index investing on a long term basis. And that is purely fund, not ILP returns.

Thus we do not encourage the average joe who clearly knows little about investment to time the market. I think you are assuming that TS wanna study investments and find a investment style that suits him. Just from the fact he took an ILP already shows that isn't the case, no?
All he wants is something that offers protection like an insurance and some investment managed by others along with it without studying too deeply into investing. I'm surprise you can't see this point or like am I weird here in this thinking?

And that's a major reason we don't talk about timing the market or picking the correct fund etc... It's clearly not suited for him who just wanna have someone manage his investment and not worry about it. I may be seriously wrong(highly doubtful) but that's what I gathered.

In addition, TS seems to suggest from his questions and responses that he has very little about knowledge about investments and insurance. So I suggested that he focus on learning about investments first. Again, no wrong here.

Here's the thing, you already know from the responses he has very little knowledge about investment and insurance, so why would any of us bring up matters like picking funds, timing market or whatever else?
Suggesting he learn about investing is fine if he is inclined to, but so far, nothing shows he wants to learn about investing deeply. And for what it's worth(my personal opinion), forum ain't a good place to learn about things holistically and deeply, it's more for Q&A.

What I find puzzling is with how others, not you, have put up illustrations that are not better than those of insurance agents with 7% or whatever returns compounded annually and ask TS to buy term insurance and index funds when no one has even ascertained TS objectives nor explained how he should approach his investment. This is wrong, and it is a very poor way to advice someone.

His objective is quite clear from the fact he purchased an ILP, really, what do you think ILP is for?
Of course, he may not even know what ILP really is about, but surely he knows at the most basic level, it's for insurance and investment?

It isn't totally wrong, it's just what we gathered from what he said. I agree with you that we can question TS more and find out more about what it is exactly he wants, but we responded to what has been said already.

And thereafter, I was made out to be a proponent of ILPs when my purpose was to highlight how flawed and misleading some of the statements and arguments put forth were.

I think in this case, it cuts both way, we don't get you and you don't get us. Or at least I don't until now.

Something is not quite right here when I see index funds encouraged in such a manner, as I have mentioned before, like some be-all and end-all means to invest. I hope others will take heed and instead learn to figure out what investments suit them more and not blindly support others by buying into an index fund, or any other fund.

I can tell you for a fact, there are worst things than index fund like ILP to put your $$ in and it's returns are proven over decades in SG and over 50 years in US. Index investing isn't the be-all and end-all but it's a solid starting ground for most. Whether they wish to delve deeper or not, DCA index+bond will be a good start.

I understand your intention now, that you wish to help people explore everything possible(still don't get why you don't condemn ILP though) but please also understand we wanna get them started right, as for anything deeper, sure, if they are interested.

Imagine if it's a average guy who has no interest in investing but just want some returns, and you open up a hundred path before him, it will only overwhelm him.

We are generally only pointing him in the right direction and start on the generally easy right path, as for how he wish to reach his destination with faster route, greater returns, higher risk etc... it's up to him to explore and question further.

 

[Perisher]

Just to note.
As the above post of others said, most people here are against ILP for it's obvious flaws except maybe you.
But, I'm not using a US vs U or the majority is right here thing. I'm basing my points on my own understanding. Please do not feel like we are bullying you here, just having a healthy discussion.

Managed funds do out-perform market but those are rare and using ILP diminished it's returns. There are some pretty well-known fund managers, even Buffett was one and I would say still is.
Oh, and yes, I condemn ILP.

 

[disavowed]

This is a good example of what I mean about misleading.

How is

For the average investor who seeks average returns, dollar-cost averaging into a market-index would likely be the best alternative.

supported by

Benjamin Graham mentions in his book, the Intelligent Investor, that you cannot control how your investments will perform in the short term. What you can control in the long term however, are things like brokerage and ownership costs. In this regard, ILPs are inferior investment vehicles.

And Benjamin Graham's book says a lot more, like stock picking smartly can yield better returns than an index, or something along those lines.

Because a person who buys an ILP would be looking at the sort of returns similarly generated by DCA into a market index. But buying an ILP would incur much greater costs. Of course you can confidently say that stock picking/buy low sell high will reap much greater returns. But I'm talking about the AVERAGE investor, who is unlikely to be successful at such an endeavor.

 

[limster]

This is a good example of what I mean about misleading.

Wow! It's misleading to say that the way to maximise return is to minimise costs?

I suppose that sums up the problem with ILPs. People who sell ILPs don't like to talk about the costs, and how the costs are so high that even after 10 years, the ILP cannot break even.

Instead, they say that you should not look at "short run" like retirement (to most people retirement is the long run) but the returns you get when you die.

Anyway, check out http://blogs.wsj.com/totalreturn/2015/04/03/would-benjamin-graham-have-hated-index-funds/