Why buy a saving plan when you can invest?

Many investors who bought a saving plan confessed in me that they were very disappointed in the interest rates that insurance companies were giving. Some of them cut lost by terminating their saving plan, some of that continue to bite the bullet and carry on paying.

“Why buy a saving plan when you can invest?”

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Indeed, if you have already done a good financial planning and already are well verse in stock investment, a saving plan might not look very attractive to you. However, do consider that people comes in many different mindsets and objectives. A product that might seem unattractive to you might be the key to another person retirement. This is when financial planning comes in important. (Do check out 5 myths of financial planning).

There are many reasons why a saving plan might be important in your portfolio and do consider it if you fall into the following category.

1) You do not know where you money goes to at the end of the month

Very simply, you might not have a habit to save. Money comes in during payday and before the end of the month, you start to wonder why you have so little money in your bank account. Month passes and soon years passes. Soon, you will be at retirement age regretting why you didn’t start earlier.

A disciplined saving plan (or even a blue chip saving plan) can help you if you fall into this category.

Alternatively, use this financial excel cheat sheet to help you organize your expenses and find out where those money goes to.

2) You do not have time to invest

Working overtime. Taking care of a baby. Servicing your car. These are just some reasons I heard from people who are not investing in the stock market. The priority you have now might not be in investing. Then when will it be the time? Probably never. If you don’t have time to invest, let a financial planner do it for you via a saving plan.

3) You do not know how to invest

This is fairly simple. Just get educated. Start to read books, check out 5 ways to start investing with $3000, go for Stock Investment Courses and meet like minded people who wants to succeed together. If you refused to learn, let a financial planner do it for you via a saving plan.

4) You do not want to risk your money

You are afraid of making big losses in the stock market. Then, it might be that you are a cautious investor and investing in the stock market is unsuitable for you. Look for low risk options like a fixed deposit plan, Singapore Savings Bonds (SSB)maximizing your CPF, or a saving plan.

5) You do not know when the economic crisis will be

This is important for investors to take note as it can wreck a retirement portfolio in a decade. Assuming you want to retire at age 55 and draw down on your investment portfolio. You quit your job and start to enjoy life. If that year is the economic crisis, your portfolio value drops by 30%. You begin to draw down on your investment portfolio. Your portfolio will be set back by at least 10 years (even if the economy were to improve in future).

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This is explained in detailed in the Money: Master The Game book by Tony Robbins. If John have $500,000 and an economic crisis were to happen during his retirement age. His portfolio (he draws out $25,000 every year) can only last him 18 years. Compared to Susan (same $500,000), if we flip flop the average returns order, Susan’s portfolio at age 89 still have a value of $1,677,975

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Can you control when the economic crisis will be? If not, we can either delay our retirement or have Guaranteed source of income when we retire though annuity or a saving plan.

If you find yourself nodding at the the above reasons, you probably should consider not putting all your eggs in one basket and diversify with a saving plan.

In Journey with money, we want to empower individuals to retire early and avoid financial pitfalls such as this. Such a financial pitfall will delay retirement by at least a decade if not forever. If you already have a financial plan or a financial planner, that’s fantastic. You should be proud that you have taken the first step. However, there are many still unaware of this. We will like to offer our readers (even if you have a plan already or not) a free review by our in-house Financial Planner. He will cater a uniquely designed portfolio for your specific needs and your journey with money.

Feel free to leave comments below or contact him at chengkokoh@gmail.com

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