Why Buy Insurance?

If you have followed my blog closely, I wrote about some ways of hedging against inflation last week. If you have not read my previous blog posts, you should go ahead and read them all. The reason is simple, it is 100% free and you will definitely be better off than you are right now if you act on my advice.

This week, I am going to touch upon the topic of insurance. As a professional in this field, I get to talk to people from all walks of life. People who own a car, they have to buy car insurance. People who own a house, they have to buy home insurance. People who stay in Singapore, they have to buy a basic hospitalization insurance. These are the defaults, people cannot opt out even if they want to.

Besides the defaults above, a common phenomenon occurs repeatedly. Many people show immense resistance towards personal protection insurance in particular. Majority of the people do not have one. To find out the numbers, you can ask around yourself plus yourself to find out what is the rough percentage of people who do not have a personal protection insurance against critical illnesses, total and permanent disability and death. At least, I was shocked when I found out the percentage.

In my opinion, those who do not have a personal protection plan are living their lives irresponsibly and they are selfish. Why do I think so? The reason is unfortunate events, such as accidental death or critical illnesses, can happen any time, if these unfortunate events strike, not only have they left nothing for the parents, but also they are potentially a burden to their parents. I knew a person who was diagnosed with cancer, and the costs of medical bills wiped out a large portion of his family savings, this person is still under treatment as of now. I knew a person who passed away while traveling overseas, their parents were left with nothing but sorrow and grief.

Nobody wants any of the above to happen to them, as a matter of fact, we cannot prevent unfortunate events from happening, but the questions we should ask ourselves should be “are we ready if unfortunate events strike?” or “what legacy have we left for our loved ones if we are no longer around?”

Now you might be wondering which insurance you should buy then. Usually, higher premiums come with better benefits. My advice is:

  • buy one that is suitable to your needs, NOT the one with the lowest premium
  • take note of what is covered and what is not
  • buy according to your budgets

In conclusion, everyone responsible individual should buy a personal protection insurance. I always think that I will take care of the small bills and I will let my insurance company take care of my big bills. Many a time, it is the big bills which we cannot cope with and end up helpless and hopeless financially. Be responsible and get yourself covered right now. It is not so much about you, it is everything about your loved ones. As usual, feel free to contact me if you wish to know more about the topics I have covered so far.

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Hedge Against Inflation

When it comes to growing your wealth, it is great to do it the fastest way, but this is not realistic. In reality, there is very few get-rich-fast ways out there. If there is any, they are laden with enormous risks. As an average individual, you should be really wary of those get-rich-fast programs. These programs are not out there for you to gain, instead they are there for you to feel the pain.

I personally have come across several such programs. They turned out to be the best learning experiences so far, they allowed me to realize what is suitable for me and what is not. It is great to realize this early, the earlier, the better. What I have realized so far:

  • Forex trading is not for me
  • Trading with leverage is not for me
  • Short term trading is also not for me

While experiencing the above, I lost more often than I won in spite of such program’s usual promise of sure-win. As a result, if you happen to get invited to similar programs, be very cautious before you take the plunge, it is always so much deeper than you can imagine.

In the context of Singapore, interest rates have remained very low for the past years. With inflation at about 3%/year, putting your money in the bank is definitely a sure loss.  As a result, what is suitable for an average individual who wants to grow his/her wealth without too much risk?

First, parking them in the Central Provision Fund(CPF) is quite good. Money parked in the CPF will return you somewhere from 2.5% to 4.5% per year. This is very much in line with the inflation rate in Singapore. You don’t gain much but you also don’t lose(guaranteed principle sum). The risk is close to zero.

Second, getting a savings plan will also be a good choice. For example, based on projection, one particular savings plan from AIA returns from 3.25%/year onwards and this plan comes with a bit of insurance element. Under this plan, the principle sum is also guaranteed. The risk is close to zero as well. You can also contact me to know more about this plan.

Above are the two ways you can counter inflation in the context of Singapore. They are meant to hedge against inflation in Singapore with close to zero risk. They are good for the cautious and conservative.

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Something Is Secretly Devaluing Your Money

Different people have different goals in life. Some want to enjoy their life daily. Some want to make a difference in other people’s lives. Some want to earn lots of money. Whatever it is, many people are so busy with their work or job, and they have forgotten their goals in life. Not only that, they are so busy with their work that they have become ignorant to one important fact of life. This one important fact of life is INFLATION.

Some still cannot grasp what INFLATION really means. Google gives me this meaning, in economic term, INFLATION means a general increase in prices and fall in the purchasing value of money. I am going to illustrate with a simple example, a decade ago, one bowl of fish ball noodles cost me only $2, but now the same bowl of fish ball noodles costs me $3.5. Within a decade, the price of a bowl of fish ball noodles has gone up 75% (increase in prices). Therefore, the $2 we had last time, assuming we have kept this $2 note safely under our bed till now, we are no longer able to buy one bowl of fish ball noodles with that $2 note (fall in purchasing value of money).

Does it make sense now? As a matter of fact, inflation is not going to go away and you must be wondering right now how much you have lost over the years? Let us do some calculation to find out the answer. These assumptions are made:

  • Starting with $100,000
  • Annual Inflation of 3%
  • Over a period of 10 years

InflationEffect

The conclusion of the above calculation is that the initial sum of $100,000, over a decade, our $100,000 has lost a substantial amount of its purchasing value and now the same $100,000 is only worth of about $74,000. This means you have lost $26,000 by keeping your money under your bed. This amount of lost money – $26,000, let me put it into perspective, it can help pay off a university student’s 3 years tuition fees.

INFLATION may sound counter intuitive at the start, but that does not mean it is not possible. As a matter of fact, INFLATION is secretly devaluing your money. In my next post, I will be sharing with you all some ways to counter INFLATION. Stay tuned.

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A Million Dollar Apart

It has been a long time since I last blogged on WordPress. Long story short, let us get to the real business. This time, I will be sharing with you all the idea of compound interest and how much a difference it can make at your retirement age.

The whole idea of compound interest is mostly summed up in the following image, and I have made the following assumptions while doing the calculation:

  • start at 30 years old
  • a consistent deposit of $36000/year
  • stop at 65 years old(retirement age)

1 Million Dollar Apart

As you can see from the image above, the difference of 1.5% each year over a period of 35 years of compound interest is a difference of 1 million dollars 35 years later.

I am sure you are amazed at the 1-million-dollar difference. When it comes to growing your wealth, start early and time is your best leverage.

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