This post is part of a series of posts that discuss about the buying term insurance and invest the rest in detail. To access the other posts in this series, click here.
To implement a BTITR plan, you will need to set aside a fixed amount of money each month for investing. This by itself, requires discipline. Are you willing to set aside a fixed amount of money each month regardless of any circumstances that may happen to you for the next few decades ? The use of a GIRO plan for Dollar Cost Averaging or DCA or a Regular Savings Plan or in short RSP, if you are buying into a unit trust may prove to be helpful to maintaining this discipline. If you are ok with this, we can move on to the next issue.
The recommended investment will be to invest in exchange traded funds or ETFs in short, such as the STI ETF or the DBS STI ETF 100. Other alternatives will be to invest in index funds such as the Infinity series which tracks the S&P 500, which is a US stock index and the MSCI World Index although their expenses seems to be a little bit high.
As with all investments in equities, there may be fluctuations in the prices of the investments that you are buying and holding onto. If there is a huge drop in the price of these investments, can you still maintain the discipline to ignore these fluctuations and continue to invest regularly ? If you are still committed to carry out the investment, we will move on to the last issue.
Will you be tempted to cash out on some of your investments to fulfill your indulgences such as buying the latest gadgets or getting a new ride ? For the BTITR plan to work, the investments must be not be cashed out so that returns can be compounded to give better returns.
Do think about these issues carefully. If you do not have the discipline to stay to a BTITR plan, the consequences can be severe as you can find yourself being without sufficient coverage when your term insurance ceases. If that is the case, it may be better to buy a life insurance if you need one despite of the poor returns. In my next post, I will cover on how can one implement a BTITR plan practically.
The opinions expressed by the author in this article is provided for your personal information only and should not be constituted as financial advice. It is recommended by the author that one should seek the advice of a qualified financial adviser with any issues or questions regarding financial matters.
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Agree with your points, I'm looking for an ETF and index fund to do RSP or lumpsum investment,can advice which way is better?
ReplyDeleteHi Zzz,
ReplyDeleteIt depends on the amount of capital that you have. If you have a large amount of capital, you can choose to buy the ETF since the brokerage fees is not likely to eat into a significant percentage of your capital. Alternatively, you can also buy in at regular intervals or do dollar cost averaging. Either way, this will do if you have a large amount of capital. You can do a lump sum investment if you think that the market is still undervalued.
Otherwise, if your amount of capital is small, it may be better to do RSP through an index fund since if your amount of capital is small, the brokerage charges will eat into your capital rather significantly if you buy an ETF. Besides, RSP is actually a form of dollar cost averaging and it will ensure some form of discipline in your investment journey.
Kay