Chiu understand the meaning of non guaranteed?
And then chiu recommend products with non-guaranteed elements as savings products?
Chiu trying to pull a fast one?
Here we go
Firstly I cannot answer your question because each individual's definition of savings is different.
However, to determine which is a more suitable product for person x, we have to set certain parameters for person x.
Let us determine that person x is an extremely conservative person who is not capable of taking on absolutely any risk. Suitable investment vehicles for him would include bank savings accounts, fixed deposits and certain CDs, SSB, and certain endowments among other solutions.
What is the next logical step to determine the best solution?
Let us take out the 'noise' for this comparison and only compare SSB and one of Pru's endowments for example. Also, for the purpose of this comparison, we will be looking at expected returns and take out all the fluff like premium waiver and death benefit.
Various factors are at play here, including the need for liquidity, time horizon, amount to be saved, method of saving (regular, irregular, lump sum) for example. There are many other factors.
Lets say person x wishes to save a lump sum of $50000, has a need for liquidity and has 10 years before he wants to use it for his original purpose. SSB is fantastic here, it meets all the criteria of person x plus his time horizon allows him to fully maximize his interest earned from SSB!
What if person x wishes to save a regular amount of $200 per month from his salary, has no need for liquidity, and has 20 years before he wants to use the money. An endowment serves this purpose well.
Reasons why SSB would not be favourable in this scenario is as listed, and could include more.
1. You cannot start an SSB with $200, because the minimum is $500.
2. When you do accumulate enough to start, you've lost some time for compounding.
3. SSB is horrible for regular savings as it has a poor long term compounding effect. Even if you could start the SSB on $200 in the first month, that issue will end after 10 years. You will then have to take that amount and reinvest it again for another 10 years. If you cannot see this point, I'll make it easier to understand. It's akin to comparing FD 1 year to SSB for the long term. I'm sure we know which is more convenient and has a bigger compounding effect here.
4. Convenience. You have to take up a new SSB every 2-3 months at the start, and even more towards the end as you receive the coupons and have the $500 min to get another SSB issue.
5. Expected returns. SSB wins in a certain aspect that all its returns are guaranteed. However, realistically speaking, an endowment in that scenario should almost always come out on top for returns, due to the fact that in 20 years the SSB will average 1+% interest (based on this Month's issue, and using similar interest over the 20 year period). How unlikely is an endowment to underperform 1+% over 20 years is up for debate.
Conclusion - One is better than the other depending on the individual's circumstance. There is no clear winner.
There are more points to cover but I'm getting lazy at this point, I think this should be sufficient as I doubt you read my posts in full, and I'm probably wasting my time on you. To be honest you've never come across to me as an intellectual. I hope you can prove me wrong and we can have intellectual discussions on this and future matters.
