Alternative to Holding Cash

[NTL]

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Hi NTL,

I believe we are on the same plan (Saw the Annuity Thread recommended by Temperament)

I will say one thing though, the deduction for insurance plans like these assuming investment returns of 5.25% by the insurance company is extremely high. E.g. for my plan the total deduction from now to age 60 is about S$159K for me.

From what i have heard from some of my friends in the insurance industry, the plan was removed because the amount of reserves the company has to set aside into low risk investments is extremely high due to the fact that the company guaranteed 5% payout based on the sum insured giving them less of the premium to use for higher risk investments to earn higher returns.

Another friend who is an underwriter in the insurance industry told me it doesn't make sense for the insurance company to come up with this plan. Usually for annuities, the surrender / death benefit does not increase year on year, rather it usually decreases year on year.

Recently taken up an insurance plan whereby the premium payable is S$9K per annum for 10 years. At the age of 60, i will be guaranteed a payout of S$12K per annum until death, surrender value in the policy will keep growing (not guaranteed of course, the guaranteed surrender value is S$98K). I still have about 28 more years to go before i can see the S$12K payout.

Gee... We are on the same plan. Think it WAS one of the better plan in recent times.

Hi dtane,

As mentioned in the other thread, I bought this plan based on the guarantees. I somehow feel that it is too good to have such high guarantees. I had compared this plan with Income Annuity (based on age 40) before buying and I still think this is superior. I don't really look at the non-guarantees when I look at endowment, afterall, they are "non-guarantee". Furthermore, insurance companies are supposed to insure or assure us of our future, and not to wow us with "high returns".

[dtane]

Hi CY09,

I am actually trying to use CPF SA to help meet my CPF minimum sum in future when i hit age 55. I am looking at CPF SA as a form of "bond" investment although this 4% is not guaranteed and could possibly change in future. Not planning to invest this in shares or unit trust.

Guess our government is trying to help us not put all our eggs in one basket So they restrict us from using a portion of our forced savings from buying shares.

We could use our SA to buy other things if we feel that we can earn more than 4% though.

Saw this on CPF website that we can invest our CPFIS-SA (Amount in excess of S$40K) in :

1) Fixed Deposits
2) Singapore Government Bonds
3) Singapore Government Treasury Bills
4) Statutory Board Bonds (Secondary Market Only)
5) Bonds Guaranteed by Singapore Government
6) Annuities
7) Endowment Insurance Policies
8) Selected Investment-Linked Insurance Products*
9) Selected Unit Trusts*
10) Selected ETFs*
*There is a classifcation table on CPF website that tells you which Unit Trust / ETFs you can invest in.

If memory serves me right, excess money of SA above 40k cant be used for investment in shares which I feel is not a very wise move and something CPF should reconsider

And for OA, we can use 35% in excess of the 20k amount in it

[NTL]

Hi CY09,

I am actually trying to use CPF SA to help meet my CPF minimum sum in future when i hit age 55. I am looking at CPF SA as a form of "bond" investment although this 4% is not guaranteed and could possibly change in future. Not planning to invest this in shares or unit trust.

Based on current minimum sum, and adjusting for inflation at 2.5%pa, very likely it will be somewhere around $250k when you 55. If interest rates for SA dont't change, and at present your SA amount to $40k, then you will need to top it up with $4500/yr to meet that minimum sum, considering not pledging with property. Wondering how much will CPF Life be paying out with that sum.

[paullow]

and in addition, there is also SRS account to top up to. Not sure if anyone mentioned it.
the max that can be top up is 12645(or something like that).
this sum can be used to offset income tax. and some would use it to invest.
but take note withdrawal before certain age would tesult in one paying back the tax offset.
this can be done at any ocbc branch.
i have been topping up the max for so many yrs already. this already forms some sort of returement cash needs or even emergency needs if one really needs cash.

[weijian]

no offence. lets say curent ride suddenly broke down beyond repair n still got ouystanding, then this 50k might be used to get a new bread n butter one.

wow, if these expenses r out of ur emergency funds, thst means i underestimated the absolute amt. its even higher. how many pple earning 8kpm got 100k cash buffer? i doubt it a big number.

Reminded of a certain Punggol candidate for PAP, Dr Koh (anyone still remember his full name) when he was caught on camera saying 'Everyone has (a) car. My wife drive one, i drive one...'

For the average joe like me, emergency funds would really be about paying the daily operating expenses like housing/car/student loans and food/transportation/education needs etc. Some of the emergency capex i can think of, are just restricted to illness related spending.

But of course, if one's most loved (wife) threatens to stop looking after the kids or ask for a divorce if you do not grant her a around-the-world trip, that HAS to be considered an emergency spending too!

[paullow]

din expect my round the world trip as emergency fund use to trigger to much response...haha!

anyway, i dun think many really clearly delinate the use of suchfunds. people who need money need money. I doubt a significant portion of the low-middle (say earning less than 10kpm) class would carry a cash in hand of 6-12months supply. for the simple reason, most of the low-middle class earners' income are being consumed by day to day living expenses. (of course, there are exceptions eg people who are super savers, but they are also those who are super spenders, even tapping on credit lines etc)
On the other hand the super earners, ie those earning in excess of 1m pa. I also doubt they carry emergency funds of 6-12M. for the simple reason, these pple are usually invest savvy, they are unlikely to leave so much cash lying around and are more likely to use their cash to earn more cash.

[Temperament]

One word:- "RELATIVISM"
Each one of us must cut the cloth according to our body measurements. And the types of cloth you have may affect your style of cutting too.
"LAN PI LAN KI SI LAN"

[Wildreamz]

Thank you fellow buddies for the vivid discussion!

I think the post that resonate with me the most is Warren Buffet's view of cash.

The conclusion I got from this thread:

1) Cash should be viewed as a preservation of capital.

2) Businesses should only purchased when the price approaches what one consider as an adequate margin of safety (ymmv).

Maybe fellow buddies can also consider this as a good alternative to holding cash (almost 100% liquid, very low volatility, 0.5% pa returns):

http://www.dollardex.com/sg/index.cfm?cu...%20%23.%0A
http://www.eunittrust.com.sg/FundFinder.aspx

[Temperament]

CIMB Starsaver current/saving account is giving 0.8% p/a with free check book. i think one of the best so far for liquidity cash flow. Any one better?

[Wildreamz]

CIMB Starsaver current/saving account is giving 0.8% p/a with free check book. i think one of the best so far for liquidity cash flow. Any one better?

Are there any requirements? Like minimum holding period?