PRUDENTIAL SAVINGS SAGA

[Mecisteus]

Yes but there's a substantial margin between the CAGR of the endowment and SSB as per my calcuations for a long term scenario (20 years) of 3.2% vs 1.5%

The SSB has to have it's interest increased drastically for it to outperform an endowment projecting at 4.75%.

When the situation calls for it, the insurers will not want to become obsolete and will structure endowments accordingly.

We have to take likelihood into account. What is the likelihood of SSB's interest maintaining a high (higher than an expected endowment's return) interest rate for the next 20 years?

No No. For endowments, you are dealing with a fictitious and non-guaranteed number. And for SSB you don't know what are their future rates. But you damn know that SSB holders will be guaranteed a positive return for each issue. And you can withdraw AT ANY TIME. Can't you really see the benefit?

I am not sure why nobody is mentioning A35 ABF SGD Bond fund? This is a low cost bond fund. Your endowment also has a bond allocation. If bonds are to do well in the future, both the Bond fund and bonds in your endowment fund will do well. But the latter will generate less returns because of higher fees.

 

[Lewis.T]

Which plan is that? Got link to the returns you mentioned?
From what I see Lewis' stand is that endowment returns are better than SSB.

Please don't take it out of context. It is better than SSB in the scenario where person x has no need for liquidity, has a 20 year time horizon, has a small but regular amount that he wants to save monthly.

Remember, nobody is arguing that SSB is bad for it's guaranteed returns. Only akwl88. It's one of the best out there for this purpose.

My argument is that in real world applications, the circumstance of different individuals will dictate which product better suits them, and that there is a place for endowments among all the other solutions.

 

[Mecisteus]

There are so many choices for savings now. If you cannot find a good long term savings plan, then just save in some short term instruments. Continue rolling it. Keep your cash with high liquidity while waiting for better rates/opportunities.

 

[Lewis.T]

No No. For endowments, you are dealing with a fictitious and non-guaranteed number. And for SSB you don't know what are their future rates. But you damn know that SSB holders will be guaranteed a positive return for each issue. And you can withdraw AT ANY TIME. Can't you really see the benefit?

I am not sure why nobody is mentioning A35 ABF SGD Bond fund? This is a low cost bond fund. Your endowment also has a bond allocation. If bonds are to do well in the future, both the Bond fund and bonds in your endowment fund will do well. But the latter will generate less returns because of higher fees.

For endowments, you have to take into consideration that non-guaranteed is not fictitious. If you think it is then you are making the same argument as akwl88.

And the logic would be as follows SSB > Endowments > ETF because the entire ETF is non-guaranteed and fictitious.

However that's not the case because in the real world we can expect markets to move. How high this expectation should be is up for debate.

We have to determine thresholds here, for example if the insurer's par fund underperforms, your returns would be xx%, and an SSB with yy% would beat it.

However, in the same vein, if the insurer's par fund performs over 4.75% and additional bonuses are guaranteed, the SSB needs an interest of xyz% to beat it.

By finding out this threshold, we can then determine how likely or unlikely is the SSB going to beat the threshold.

 

[Mecisteus]

Please don't take it out of context. It is better than SSB in the scenario where person x has no need for liquidity, has a 20 year time horizon, has a small but regular amount that he wants to save monthly.

Seriously, I can't believe there is such a dumb person who exists in this world.

In other words, this person wants to save, he don't mind putting monthly for the next 10 to 20 years and don't mind if he can get a positive return at the end of it.

 

[Lewis.T]

Seriously, I can't believe there is such a dumb person who exists in this world.

In other words, this person wants to save, he don't mind putting monthly for the next 10 to 20 years and don't mind if he can get a positive return at the end of it.

This person wants to save, but doesn't mind forgoing 1.5% for a possible 1.6% to 3.2% in the long run. Realistically, 1.6% to 3.2% from an endowment is not far fetched at all.

If he's ultra conservative then sure. The SSB is a more suitable product. I don't think anybody was arguing against that.

Like I said, if you only want to look at guaranteed then circular reasoning would point to SSB as the clear winner over everything else for the longer term, not just endowments.

 

[akwl88]

assuming the par fund perform 3.25%, the % diff is so negligible for locking up your money and forsaking liquidity.

 

[akwl88]

This person wants to save, but doesn't mind forgoing 1.5% for a possible 1.6% to 3.2% in the long run.

If he's ultra conservative then sure. The SSB is a more suitable product. I don't think anybody was arguing against that.

quote "possible"

 

[Mecisteus]

For endowments, you have to take into consideration that non-guaranteed is not fictitious. If you think it is then you are making the same argument as akwl88.

And the logic would be as follows SSB > Endowments > ETF because the entire ETF is non-guaranteed and fictitious.

You need to compare in terms of various aspects.

In terms of expected returns:
SSB and endowments are very low compared to stocks ETF

In terms of liquidity:
SSB and ETFs beat hands down compared to endowments

In terms of risks:
SSB and endowments are lower compared to stocks ETF

In terms of costs:
SSB is near zero and ETFs have much lower costs than endowments

So can you see which one is the clear winner?

 

[Mecisteus]

This person wants to save, but doesn't mind forgoing 1.5% for a possible 1.6% to 3.2% in the long run. Realistically, 1.6% to 3.2% from an endowment is not far fetched at all.

If he's ultra conservative then sure. The SSB is a more suitable product. I don't think anybody was arguing against that.

Not far fetched says you?

If achievable, insurance companies would have made that guarantee.

 

[koja6049]

This picture should be stickied on any thread about endowments plans

Friendly reminder. Even with non-guaranteed returns, still worse than SSB (current rates are > 2%)

 

[Perisher]

This person wants to save, but doesn't mind forgoing 1.5% for a possible 1.6% to 3.2% in the long run. Realistically, 1.6% to 3.2% from an endowment is not far fetched at all.

If he's ultra conservative then sure. The SSB is a more suitable product. I don't think anybody was arguing against that.

Like I said, if you only want to look at guaranteed then circular reasoning would point to SSB as the clear winner over everything else for the longer term, not just endowments.

Do you have stats of endowment policies performing 2-3.2% over the past 20 years?
As in, is it more than 70% of endowment policies perform the 2-3.2% over the past 20 years?
If only 60% perform that and the rest fails, then it's not worth taking a gamble on something like that for 20 years.
If it's 80% and above perform as 2-3.2%, then maybe it's worth the risk as it's highly possible to get better returns but again 20 years for a gamble.

We can ignore the 1.6%-2% assuming SSB returns 1.6% as per your calculation since 1.6-2% ain't worth taking the gamble of flat returns/liquidity.

 

[Lewis.T]

You need to compare in terms of various aspects.

In terms of expected returns:
SSB and endowments are very low compared to stocks ETF

In terms of liquidity:
SSB and ETFs beat hands down compared to endowments

In terms of risks:
SSB and endowments are lower compared to stocks ETF

In terms of costs:
SSB is near zero and ETFs have much lower costs than endowments

So can you see which one is the clear winner?

I will say this again, my point is there is no singular solution that best fits everybody. Circumstances are different for everyone and there are a few legitimate solutions out there in the market that best addresses that individual's needs. These include but are not limited to SSB, endowments and ETFs.

This is an argumentative fallacy, I'll give you some examples why.

Endowments are better than SSB and ETF because there is a bigger return upon death.

Endowments are better than SSB and ETF because there is no combination in which an SSB and ETF combined can continue to give you a capital guarantee and reasonable market returns.

Endowments are better than SSB and ETF because it is fully automated upon inception.

Endowments are better than SSB and ETF because there is no other product that guarantees to you that your upside is unlimited (par fund does 1000%, excess will be distributed as bonuses).




I see that you understand there is a need to compare the various aspects, but you leave out the non-guaranteed in an endowment?

I've already took out most of the fluff (death benefit etc) from the argument I posted a few pages back, and given the SSB a better fighting chance by

1. Allocating an initial lump sum of $2500 per year from the first day, which is both above the minimum required and a multiple of $500.

2. Making the time horizon a multiple of 10, ensuring the highest possible interest from SSB for a longer than 10 year time horizon.

3. Using the a 20 year time horizon when the endowment used for comparison allows you to hold till age 100, and has an increasing CAGR the longer you hold it.

 

[akwl88]

oh btw, typical of agents to use the 4.75% projection

 

[Lewis.T]

Do you have stats of endowment policies performing 2-3.2% over the past 20 years?
As in, is it more than 70% of endowment policies perform the 2-3.2% over the past 20 years?
If only 60% perform that and the rest fails, then it's not worth taking a gamble on something like that for 20 years.
If it's 80% and above perform as 2-3.2%, then maybe it's worth the risk as it's highly possible to get better returns but again 20 years for a gamble.

We can ignore the 1.6%-2% assuming SSB returns 1.6% as per your calculation since 1.6-2% ain't worth taking the gamble of flat returns/liquidity.

That's a great question. Thumbs up for being able to ask the correct questions. Thresholds and likelihood of occurrence.

I have 7 clients who bought policies of the same name from the same company, between a similar time period of 1992 and 1997, and with similar premium payment and policy terms of 21 to 30 years (refer to the attached Benefit Details and Bonus/Maturity Notice). And their effective yield based on their actual maturity value, and based on their projected maturity value in their last received Bonus Notice in 2016, were in the range of 3.1% to 3.4%. https://www.facebook.com/photo.php?fbid=10154952809880255&set=pcb.10154952812210255&type=3&theater

Keep looking back here I will update with more examples.

 

[Perisher]

That's a great question. Thumbs up for being able to ask the correct questions. Thresholds and likelihood of occurrence.

Keep looking back here I will update with more examples.

That isn't a stat by any means. It's just random people posting their returns?
Does your company provide any stats?

 

[akwl88]

Endowments are better than SSB and ETF because there is a bigger return upon death.
comparing payout now? ssb and etf become insurance liao??

Endowments are better than SSB and ETF because there is no combination in which an SSB and ETF combined can continue to give you a capital guarantee and reasonable market returns.
endowments not capital guaranteed from 1st yr till 20th yr as shown in your plan

Endowments are better than SSB and ETF because it is fully automated upon inception.
yup, doing ssb and etf required a gargantuan amt of effort like running a 42km marathon

Endowments are better than SSB and ETF because there is no other product that guarantees to you that your upside is unlimited (par fund does 1000%, excess will be distributed as bonuses).
if guaranteed, why are there still non-guranteed figures in your BI?

 

[akwl88]

That's a great question. Thumbs up for being able to ask the correct questions. Thresholds and likelihood of occurrence.

Keep looking back here I will update with more examples.

and if you want to use past examples, why dont straight away guaranteed 3% and above in your current plans since you are confident they will generate the same amt of returns in your past examples?

 

[Perisher]

Endowments are better than SSB and ETF because there is a bigger return upon death.
comparing payout now? ssb and etf become insurance liao??

Endowments are better than SSB and ETF because there is no combination in which an SSB and ETF combined can continue to give you a capital guarantee and reasonable market returns.
endowments not capital guaranteed from 1st yr till 20th yr as shown in your plan

Endowments are better than SSB and ETF because it is fully automated upon inception.
yup, doing ssb and etf required a gargantuan amt of effort like running a 42km marathon

Endowments are better than SSB and ETF because there is no other product that guarantees to you that your upside is unlimited (par fund does 1000%, excess will be distributed as bonuses).
if guaranteed, why are there still non-guranteed figures in your BI?

Only your 2nd point make sense. 1 and 4 are just not legit points.
3rd point is reasonable.

 

[Perisher]

and if you want to use past examples, why dont straight away guaranteed 3% and above in your current plans since you are confident they will generate the same amt of returns in your past examples?

Because it's a varying return policy. Can't expect a policy that has big upside to also guaranteed a minimum 3% in a low interest rate environment.