Back in 2015, I signed up for PruWealth, a savings plan that also allows you to nominate someone else to take over (hence hand over the wealth accumulated to the next generation). This was several months before I stepped foot into the stock market.
I currently contribute $204 for this plan on a monthly basis and having opted for the 20-year plan, this will go on until I turn 47. Currently I have not included the idea
More than that, I have added crisis waiver component as well.
The idea of crisis waiver - not needing to contribute to the savings if I do (touchwood) become critically or terminally ill, prudential will continue to contribute to it - appealed to me.
But after achieving the returns from holding and divesting CMT, Cache and FLT, I feel I can outperform this savings plan investing into the stock market. In fact, I think STI ETF can outdo this plan and still give dividends to boot.
I have it in my mind to pump all these towards a solid idea of a stock and am confident it will at least double by the end of this year, followed by multibagging in subsequent years to come.
The downside if I do this?
Referring to the above indicative values, I have currently just hit my 3rd year in the policy - contributing a total principal sum of $7344.
If I were to surrender the policy, this will give me a guaranteed return of $3181 and a non-guaranteed return of $71. This totals $3252. I will end up losing 55.8% of the money I have put into.
And if my investment idea fails? That then becomes a catastrophic (but survivable) loss.
That said, I had definitely benefitted from this - it becomes a warchest, part of my retirement plan or my contingency should my investment (touchwood again) fails.
Am I getting complacent and overconfident? Or am I being too conservative and limiting my gains?
Update 3/1/2020:
Hi guys! Just so you know, shortly after this post, I decided to elaborate a bit more on the savings plan matter here.
Over a year later, in the end, I have decided to continue holding the plan - do read my latest post on this matter here!
Hi Marksman, nice posting and write-up on your blog. Always enjoyed reading through your posts.
ReplyDeleteThe PruWealth cash value looks not too bad if add on the non-guaranteed portion to the guaranteed. Also, premium at S$204 per mth seems affordable. Maybe you want keep it first and then decide again a few years down the road or if the market condition changes and has better opportunities? Diversification of capital good lah. At least Pruwealth got a guaranteed component.
Hi Blade Knight,
DeleteThanks for coming by! I appreciate the well thoughts and encouragement - I look forward to writing more good reads for everyone. :)
Although currently I'm still leaning towards cancelling the policy, those are good points made and should be considered as well. The guaranteed component is slightly less than the principal sum - assuming we disregard the non-guaranteed portion, it would present opportunity cost in the form of inflation costs (Anonymous in the comments section makes solid point about this as well). Having said that, I think it is highly unlikely I will not have non-guaranteed portion though.
I'm writing up a follow-up post to this, should be up by tonight - stay tuned! :)
PruWealth guaranteed cash value is very low. It is not even covering the total premium paid, and does not increase over time. There are much better plan out there from other insurance companies, that pays a significantly higher guaranteed cash value. You should have shopped around next time before committing $200 a month for 20 years, that's a lot of commitment without comparing.
ReplyDeleteHi monster,
DeleteThanks for coming by and sharing. :)
You make solid points made about the guaranteed cash value, doing the homework and the commitment (it is also why I opted for $200 a month instead of a higher amount at that point). It's a lesson learnt. Haha.
Do you have other savings plan to share about?
You should look carefully at the fine print and see how much you are actually paying the insurance agent/company in terms of commission and what kind of instruments they invest in.
ReplyDeleteHi owq,
DeleteThanks for coming by! Appreciate the pointer you shared - it's good to create increased awareness of this. :)
I thought I was seeing the numbers above wrongly on the absolutely low return. totally does not make sense. if you use an excel, to a simple calculation on compounding return , and your regular $200 per month contribution you will see the true picture. I used a simple low 3% return, the end value in 33 years, ne $144K. if I take STI ETF of 7%, it would have been a whopping 321K. stay clear of insurance investment linked products.
ReplyDeleteas for your astute single stock selection, I would suggest it's over confidence.
PruWealth is a long term savings plan which as per the Prudential website mentioned it is put into the Participating Funds of the insurer. Ultimately, it depends on one to decide what was one's initial objective. If it is for diversification of assets held, looks ok based on the lower risk of fund invested mostly in bonds.
ReplyDeleteIf for investment, then obviously, this is a wrong instrument which as you mentioned easily can get higher returns. But note that higher returns comes at higher risk. 7% return STI does not come with a Capital Guaranteed portion. Who can guarantee the Global Financial Crisis of 2008 will never return?
Hi Unknown,
DeleteThanks for coming by!
The goal of this when I signed up for it initially is to put aside a saving which also acts to hedge against inflation so that by the time I cash out on the policy it could supplement retirement or events such as child/children enrolling into university for example. I do not see it as an investment both now and then.
Being involved in the stock market for the last 2.5 years has since then changed my risk tolerance and appetite from being conservative to higher-risk and I feel I can handle risk well enough to warrant considering the decision to prematurely surrender the policy.
Having said that, there is a saying by some along the line of this - "You have to go through a full cycle of bull-bear-bull / bear-bull-bear market to call yourself an investor" or something like that. Haha. Hence the bit suggesting I could be overconfident in investing.
how possible is this for diversification. if you work this out mathematically, compounding at a mere 1.5% return (high yield bank savings account rate, which we are operating at very low interest rate environment now, meaning likely trend of rising be more likely than not), you would get a sum of 115K which is still higher than the above which is actually nonguaranteed return (except for the principal). bank account high yield % rate is risk free, Singapore savings bond is also risk free at effective rate of 2.43% (works out to be 138K guaranteed). these 2 instruments are definitely considered risk free.
ReplyDeleteSuch insurance savings plan would work perfectly for people who absolutely can't save (the high spenders who spend more than they earn). Other than this group of people, the rest of us for financial planning wise should stay away from these products. put it in another way, if you calculate backwards , the full surrender value 113K( that includes non gteed returns, lets even assume they can even make the investment return for you), the person is getting less than <1.5% effective interest, locked in for 33 years. it's actually negative return as inflation would easily outpace this 1.5%, and not forgetting losing all upside that interest rates will rise even if you put it all at the bank doing nothing.
Hi Anonymous,
DeleteThanks for coming by! I really appreciate your thoughts and discussion regarding this.
This gives me more materials to explore within the topic discussed and I'm aiming to get a follow-up blog post by end of today. I'll also add some points to share via a reply here shortly.
Be back soon!
Okay, am back to continue with some points:
Delete1) From calculations off the illustrative benefits, the returns (non-guaranteed portion included) from this savings plan appears to be about 3.22% per annum before compounding at year 20.
2) Subsequently at year 33, the returns before compounding appears to be about 3.73%. I'll cover the breakdown of the other results in the follow-up post.
3) While 1.5% interest rate is "risk-free" (we assume possibility of downside is remote), there is no guarantee such bank accounts will exist for our lifetime so that's that too. Haha.
4) Interest rate may not be on the rise forever.
5) The one point I do solidly agree is if you are able to generate better returns and manage the risk enough, it's probably better to pursue than using a savings plan.
Hi Mate....Eeer...not sure why you think the rate of compounding is at 1.5% can beat it. The return if really want to use 33 yrs based on the savings plan projection table is actually around 2% with PMT of $204 per mth.
ReplyDeleteIf one terminates it upon 20 yrs (which is the original intention of Marksman who signed up for 20yrs plan instead of opting for 3yrs or 5yrs), the projected return on the endowment is actually 3.2% which is higher than SSB (future value is ard S$68K). Mathematically + sanity check, it makes sense because participating funds have investments in other types of bonds as well as low % allocation to equities while protecting most of the capital with safer assets by the insurer.
Of course, you are right to point out that if the sum of money has snowballed and one choose to extend beyond 20yrs, then the returns from this savings plan would have become a lot less attractive.
Hi Ed,
DeleteThanks for coming by and sharing your insight as well! Just to clarify, my original goal is and was never to cash out by year 20 haha.
I'll elaborate more on a follow-up blog post which I aim to publish tonight. :)
Hi Marksman,
ReplyDeleteI think most frustrating for us, for these endowment plan, is the Non-guaranteed portion, as this portion play significant impact on what you really expect to be received when the policy surrender/mature and if it meet your goal on end of years 20, 25 etc.
Pruwealth is participating in Regular Premium Life Sub-fund. Below are extract from Prudential annual bonus update pertaining to the performance of the Regular Premium Life Sub-Fund (Par Fund) and the bonus allocation for participating policy:
The investment return over the past six years are as follows:
2014 = 5.9%
2015 = 0.2%
2016 = 8.3%
2017 = 10.63%
2018 = (2.12%)
2019 = 12.26%
sources :
https://www.prudential.com.sg/services/useful-links/annual-bonus-update
so from the above, I'm not sure shall we can concluded that based on the past 6 years of the fund performance, the IRR of this policy are on average of 5.8617% which is outpace the projected at 4.75%.
If do so, I think 5.8617% are consider an above-average investment return.
Thanks for sharing the blog, seems to be interesting and informative too. Can you suggest some of the interesting places to visit for 3 year endowment plan singapore
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ReplyDelete