Know Your Investment To Avoid Losing Your Wealth

It has been a week since I mentioned in part 1 of this article the first 2 of following 3 key mutually reinforcing lessons that shaped the way I approach growing my savings and wealth towards my financial goals.

1. Build up your knowledge by reading and learning more about growing savings or wealth, and investing. The more you know, the easier it will be for you to see through what others are ‘selling’ you;
2. Learn how and what to calculate for any investing or savings instrument/vehicle you are going to be putting your hard-earned money into. This is very important as you might hear or learn calculation methods that do not give you the full picture e.g. simple calculations of only profits but without the full costs unique to you. They do not say it, so you must know it!;
3. Develop patience and read all the fine print that you might encounter through your journey – there might be times simply by reading the fine print will save you from putting your money into something that is different from what the ‘salesperson’ had assured you of. It is just like signing off an employment contract – know the terms and conditions that benefits and also binds you.

Know what your investment can do and not do for you

It was such a coincidence that a news article was published in the middle of last week that relates to the 3rd point above, similar to my parents’ experience. The key lesson here is always know and be clear what you are putting your money into.

Just like how we will always read and confirm our employment contract to be clear about our salary, benefits or restrictions (e.g. do you know sometimes you are contractually disallowed to switch employers in the same industry?), it is equally important to read all other contracts and agreements you will sign on and especially more so when your hard-earned money is involved!

This is not to generalise all salespersons (I know many who perform their role very well), but there are some who will tell you anything you want to hear, be vague or omit information just so to persuade you to agree to what they are selling you. It could be an insurance policy, a mortgage loan, credit line or a property rental/sale agreement.

When what you hear is not quite what it is

The story I will like to share here is how my elderly parents were introduced and persuaded to purchase an endowment plan with “guaranteed 5% returns p.a.” at one of Singapore’s banks a few years ago. As my parents were elderly, I (thankfully) accompanied them down to the bank to have a final verbal run-through of the policy benefits and terms by the salesperson, before my parents sign on the agreement. At that point, everything seem legit to me and I took a photo of the illustrations drawn by the salesperson to keep as reference – a habit I had developed and on hindsight an astute decision.

The problem came when a week or 2 later, when the policy schedule and benefits were delivered via the mail. Now, I am the one in the family who will read through all terms and conditions (delegated by MrsAmass since she gets a headache reading through so many words hahaha), and hence decided to review the document on behalf of my parents. And lo and behold, the “guaranteed 5% returns” was not as promised by the salespersons, when I referenced the hand-drawn illustrations.

The benefit illustration shows that the guaranteed return % is actually much lower at around 2%, and has a non-guaranteed return % component instead. While this is quite a common feature of many investment-linked (higher risk) or endowment (lower risk) products, the problem here is the salesperson sold it as “guaranteed 5% returns p.a.” – as much as you might trust them, never take their word for it and use your eyes instead.

The great thing about insurance products is that it comes with a ‘free-look period’ (sometimes 14 days and sometimes 30 days) which we should always use it to our advantage to make sure we know what we paid for will work for us as we had intended and what it will not. I brought my parents down to the head office, returned the policy and got their money back.

Being safe rather than sorry

Before I end this post, I thought to emphasise that it is not that insurance policies are not good, but rather there are some representatives who might sell them irresponsibly even to elderly customers e.g. in the recent news article or my parents’ experience.

There are some great endowment plans available in the market. We just need to be clear why we buy them, whether the plans offer us what we need and with the minimal returns (my ABCs force me to look at my minimum return) we are comfortable with, and we are able to commit to the duration which we either pay a sum regularly or lock-in a single payment. And always read those fine print. 🙂

MrAmass