Read? When Your Bank RM Called??? (7)
6 months of lower loan interest rate and then for how long will it stay below or around the projected 23 yrs loan duration of average rate @ 2.5%?
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1 hour ago
Yup, everything we do is a speculation ;)
ReplyDelete20 years ago, people buy Wholelife and Endowment policies based on the juicy "projected" returns minus the volatility. Eh, its a lot safer than stocks and properties leh! Plus passive is way easier!
What? Interest rate zero bound? You don't stupid lah! Where got interest rate go negative one? You got study economics or not?
No risk one lah! (Or so the snake oils promised)
Now? The pendulum has swung to the other side....
Interest rates won't normalise one lah! What inflation?
No, rising property, stock, crypto prices are not inflation!!! You can't count like that! Must follow the official CPI statistics one!
Never trust your own feet when testing out new shoes! No, if others say they'll fit, they'll fit!
Hi Uncle8888,
ReplyDeleteSince your main aim of leveraged endowment is to free up $144K while still enjoying preferential DBS Treasures rate 😉, then only 2 things to monitor: own trading/investing performance & don't overpay for your $144K.
As long as net monthly cashbacks + projected maturity > XIRR 2% good liao? 😛
Bank is paying you money for you to trade your own money! 🤣
Just for fun:
44-year history of S'pore savings deposit rates
I only enjoyed nice rates for 5 yrs of my working life. :( Can see why savers are desperate for yield LOL. Think we'll see banks come up with more leveraged savings plans if Fed goes into yield-curve control next year ... structured deposits v2.0 liao.
The chart for Sibor is similar but more volatile & of course the interest is higher. But can't find any Sibor chart earlier than 1995.
Remembered my mortgage for my first HDB was 4% in the late-1990s ... no wonder I so fomo to pay off asap kekeke.
I also wonder those days when CPF rate was above 2.5%; did Govt allow voluntary cash top up to CPF?
DeleteWhen I started work in 1979, both OA & SA were 6.5%. The rates stayed at 6.5% till mid 1980s. 6~7% for keeping money in saving account. Those were the days when Singapore was experiencing double digit GDP growth almost every year, till 1986 when we first learnt the real life meaning of "recession". After we recovered from the recession, CPF rates were dropped, and rates fluctuated between 2+% and 4+% (OA) till the AFC. After the AFC, CPF rates stayed largely constant at ~2,5% (OA).
ReplyDeleteDid not utilize CPFIS at all. Whatever my employers deposited in the OA was used for paying off housing loans till age 55. At 55, almost zero sum in OA.
Just check recently. Interest accumulated (as of May 21) from sums withdrawn from properties purchases amounted to $550,000! Never heard of the 1M65 movement those days, but it appears this goal can be achieved just by keeping money in CPF without doing anything more. The high CPF rates in the 1980s/1990s did all the lifting.
It appeared "developing country in a high growth phase" was not the only reason for the high interest rates in the 1980s. US & many countries were also experiencing high inflation/high interest then. This happened after years of relatively low inflation. With years of low interest/inflation after GFC (partially thank to the rise of China as a low cost manufacturing powerhouse) + printing of monies after COVID, 1980s could come back again to haunt us!
Thanks to the seniors (temperament and retiree5559) for sharing the interesting thoughts of the times past.
ReplyDeleteI entered the workforce in Apr 1986 counting my lucky stars to grab a job. A classmate of mine, holding a PSC scholarship, was discharged of his scholarship obligation after he failed to find a job placement. That was how bad the job market was at that time, including in the Civil Service!?
I started my job while still not officially conferred my degree which came a few months later. Although my starting pay was slashed by two increments from the batch before me, I was not complaining. At $1,800 a month it meant that I could start helping my parents out in taking care of the household expenses plus giving them allowances. Last month, I "celebrated" my 35th year work anniversary with the company!
In my initial years, the CPF contribution was 25% for employee and 25% for employer. But my pay was too low for it to matter. Besides, I got married in 1989 and emptied my CPF for property purchase. And our CPF balances never really had the chance to grow as we upgraded our property as the family grew. In my 40s, my OA was only around $7,000, with the bulk of the money in properties. It was only when we were nearing 55 years of age that we started to refund the money back to our CPF. So much so that we have hit 3M60, that is, $3M total in our combined CPF accounts at 60.
It is funny how people decry the "low" 2.5% pa interest that the OA provides but when they have to "pay" themselves the accrued interests for using the money for property purchase, it becomes "unbearably" high.
There was no 1M65 movement till 2016. When we heard of it, we were already passed 55 yo. Question is would knowing the 1M65 hacks help us or hinder us in building our wealth? I hazard to say that it might hinder us in growing our wealth. Thats because investing in property in our 30s to 40s was highly rewarding. Knowing the 1M65 hacks might have prevented us from deploying our CPF monies into properties.
But now that we are 60 yo, we are happy to earn the "low" but steady interests from CPF. The 1M65 movement new target is 4M65 for a couple. The sweet thing about achieving 4M65 is that if you do it early, more than $1M comes from the interests dished out by CPF. And with 4M65, you can extract from it $120,000 annually without depleting the principal. Imagine how much capital you would have to expose to the market to earn this $120,000 annually and consistently.
mysecretinvestment,
Delete"I hazard to say that it might hinder us in growing our wealth. Thats because investing in property in our 30s to 40s was highly rewarding. Knowing the 1M65 hacks might have prevented us from deploying our CPF monies into properties."
That's the irony isn't it?
The 1M65 or 4M65 (talk about inflation!) is not meant for those with small means or those who can't EARN MORE...
But it has one benefit - gives hope to savers.
A bit like if Zen is too difficult to figure out, well, there's always the Pure Land's chanting ;)
Hi CW8888,
ReplyDeleteWorry SIBOR may go above 2.5% (assume "breakeven" rate for your Plan)? First time using leverage? Just to share experience on the use of leverage for insurance products (have also used equity load/premium financing for bond investment).
(a) Whole Life insurance (for Legacy), bought more than 10 years ago, with US$ 1 mil death benefit/upfront premium of US$445,074, 100% leverage at time of purchase (didn't pay a single cent). No need to actually "pay" recurring interest to bank. Risk was US Federal Fund rates stayed above the 2.2% annual of the Policy Surrender Value for several years within a 10-year period after buying the policy (no penalty for surrendering after this). Thankfully, the "danger period" is behind me now, Legacy to Family (US$ 1 mil minus interest accumulated) will be higher than the unleveraged sum (US$ 1 mil minus $445,074 = US$ 554,926).
(b) Leveraged annuity (bought 2 unleveraged Endowment policies in the past, they are very different products, more for growth, not regular incomes). My annuity policy is Manulife Signature Income 1 (offered before 2020), with a 4-year "holding period" (45 months after negotiation). Presumably yours is Manulife Signature 2 with 3-year "holding period" (since you are with DBS, don't think they offer such products from other insurers). My policy value is $2 mil+, borrowing is $1.7+ mil. Bought the product purely as an income multiplier, not for capital growth or any other purposes. Signature 2 has advantages in shorter "holding period" and higher monthly payout. Signature 1 has faster surrender value built up.
Am I worry SIBOR rises above 2.8% (the "breakeven rate" for my policy, yours could be different). Yes, I am, but find comfort in that : (a) to adversely impact me financially, the rise has to happen within a ~13 year period (for my case, check your policy for yours, penalty for "early" surrender varies from policy to policy), with "gap" above 2.8% X number of years > "gap" below 2.8% x number of years (this is the "AVERAGE" SIBOR I referred to earlier). I am not worry SIBOR "temporarily" rises above the AVERAGE within the "danger period", or rises for long period well after the "danger" period. For the latter scenario, may just surrender the policy, with reduced return than original expected. 100% won't "lose" money for unleveraged annuity. Do you "pay" Government money for CPF Life if Temasek/GIC/MAS have negative returns for say 3 years in a row? Negative return is actually a real extraordinary scenario for a portfolio designed to provide long term regular incomes. For such a scenario to happen, not only government short term lending rate is negative (happen in Europe & Japan), but rates of long dated treasuries also negative. Returns OF all other "dividend paying" defensive investments also negative (in terms of payouts, not capitals loss). Why invest in such instruments then? Can't imagine what the world's financial market & economy will like.
In summary, leveraged annuity will multiply the payout if SIBOR is favourable MOST OF THE TIME, but reduce the payout (or even negative", out of pocket "payout" in exceptional circumstances) if SIBOR is unfavourable MOST OF THE TIME. You are most vulnerable within the period a penalty is imposed for surrendering the policy & you have to surrender the policy for some reasons. You are by and large safe once out of the "danger" period
(b) The Manulife portfolio manager is real dumb, investing in capital-protected instruments with 3% return when "safe" capital protected instruments such as fixed deposit gives 4% return (will be so when SIBOR is 3.5%)
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ReplyDeleteThank you to all the older gingers for sharing their experience.
ReplyDeleteAmong the bear markets I read about, I think the best one to put money in would be 30-year U.S Treasury bonds in the early 1980s. At one time, it yielded > 15%. Wow! 15% guaranteed returns in the world's safest supposedly risk-free asset for the next 30 years. Yet, it's not a fraud. Amazing.