Wednesday, June 15, 2016

How to lead a life without a Financial Advisor.

It has been a relatively tough week for me this week because I have just started my internship. I have to acclimatise myself again to a 6-hour sleep cycle. One perk of being a student was that I get plenty of sleep although the readings takes up almost all of your waking hours.

I'm going to go light on myself this week. I just want to build up on Budget Babe's post that a lifestyle blogger has complained about the substandard advice she has gotten from an insurance agent.

I never had a financial advisor. Generally, I'm not a very big fan of commissioned based advice because I can read and pick things up on my own. There are too many bullshit bingo advisors on financial and health matters. If you do not want to receive bullshit dieting advice from an overweight trainer, you should never get help from a financial advisor who needs to make a sale to earn a living.

Not listening to an advisor is, by itself, a cheap form of insurance - I insure myself from crappy financial advice. As a result - I gained the ability to live on my investments decades earlier than many of my peers.

Here are some pointers on how to get that financial advisor out of your life forever :

a) You will need to spend more time thinking about insurance when you do not have a financial advisor.

At a bare minimum, you need to think about three components of risk transfer if you refuse to have an advisor : Mortality risk, Longevity Risk and Hospitalisation risk.

For mortality risk, I have an upsized SAF Group Life insurance from AVIVA which insures me for $1,000,000. I bought this during my NS days and it costs be $120 a month. This month I am expecting $500 of rebates from them, so on most years, I pay slightly less than $1,000 of premiums. Try finding a whole life plan that can do that.

For longevity risk, I have a maxed out CPF-SA account which, as of now, is still higher than the CPF minimum sum. At age 68, CPF board will give me a decent income for life via CPF Life which can potentially supplement my income at old age. This covers the scenario of me living too long.  In the US, this is an product sold by an insurance firm called an annuity.

For hospitalisation risk, I have Medishield. Everyone needs to know that all Singaporeans have a decent Medishield plan which works provided that you stick with a Class B2 ward. The insurance industry spreads a lot of fear constructing scary scenarios on what expenses you would incur if you get an illness like cancer. Examine them closer and you will find that most of such examples assumes a stay in the Class A wards which denies you access to government subsidies. I have yet to meet an agent who can explain to me what benefits their H&S plan has over Medishield if I stay in a Class B2 ward and show me a comparison for insurance premiums escalation after 40 years of age.

b) You must save much more if you wish to fire your financial advisor.

The lynch-pin to living life without a financial advisor is that you need to save and invest aggressively. I don't want to repeat myself here again but a cash-flow from a income portfolio will insure against everything else.

Here are some risks which no insurance agent can transfer away :

Maybe you want to go to a spa after weeks of exam preparation. Your portfolio insures you from post-exam stress.

Maybe your wife wants an expensive watch. Your portfolio insures you from spousal wrath.

Maybe you want to go to KL to buy Uniqlo T-Shirts at SGD $6.70, your portfolio insures you from paying for that Aeroline trip.

More importantly, my portfolio pays me every quarter. Compare that to someone who has a battery of insurance policies. Every year-end these guys have to use their hard earned bonuses to pay off their premiums. What kind of life is that?

c) You need to live conservatively.

Insurance is about risk transfer. If you keep everything to bare minimum and really don't to deal with a dishonest salesman, you are in essence absorbing the risk yourself. You might be vulnerable until your portfolio becomes $300k to $500k in size.

This is the most important lesson. You just cannot afford to be YOLO if you want to deny an insurance company your premiums :
  • Don't go into dangerous places with dark alleys and end up getting robbed.
  • Don't travel without a companion.
  • Have a reasonable diet and active lifestyle.
  • Cut away smoking and alcohol.
If you have the discipline to consider my alternative plan, the odds will be greatly in your favour. 

You are in essence taking the commissions you would have given to the advisor as well as the fund managers and invested it in your own future financial security. 










10 comments:

Goh said...

I think an IHP is relevant if you care about the level and promptness of treatment you get. Like you I don't care about the room but:

As a subsidized patient, you don't get to choose a doctor, so each appointment can be a different and usually junior doctor. Fine if your problem is minor, but frustrating if you have major or worrying conditions.

Private patient in a restructured hospital is a step up, since you can choose a senior doctor, but waiting time may be weeks, depending on where you go. Once again, fine if your problem is minor, but I doubt you want to wait for weeks if you get something major that worsen over time.

Christopher Ng Wai Chung said...

Goh,

The implications of your statement is dire. Are you saying that paying for Class A will lead to more prompt treatment which can be up to a matter of weeks regardless of the severity of the underlying illness ?

These are serious allegations on our health system. Are you representing an insurance firm ?

Goh said...

Nope, just someone who has experienced both private and subsidized treatment.

Christopher Ng Wai Chung said...

Goh,

That was not my experience having put both my parents through subsidized treatment last year.

Regards

Goh said...

Happy for your parents. I know what I experienced and what I to do. Just sharing, not trying to change any minds here.

Unknown said...

maxed out cpf sa means sa balance above minimum sum?
I also thinking whether I should max out my sa...
on one hand pumping cash into sa is irreversible and locked until elderly age.
on the other hand, I can understand the rationale that u have taken.

say I am gainfully employed presently...and in my late 30s...my sa is about 72k presently..do u think if I continue to be gainfully employed and every month the salary contribute to this sa...by the time to measure whether I pass the min sum balance thingy..do u think sa balance by then will be sufficient?

Christopher Ng Wai Chung said...

That depends on whether you can remain being gainfully employed. Maxing it out will almost guarantee it because 4% yields over the remaining years.

You may want to read other bloggers who are not entirely for the transfer to get a second opinion.

Cory said...

Nice education on this industry of FA. There is still too many ignorant folks out there we need to help. They works like dogs and spend away their saving on FA and ill advise investment.

simplyme said...

I love the analogy of (shitty) dieting advice coming from an obviously unfit trainer. Seeing this too often in gyms. And yes, I dont trust housing/insurance/financial agents in general. These are positions that aren't as well regulated as I wld like them to be and have too much conflicts of interest for me to stomach. With growing scope of IoT and AI, I hope that no one will need to depend on here today (to sweet talk hard sell you) gone tomorrow (because I have your money liao) "services"

Christopher Ng Wai Chung said...

Haha ! I doubt IoT will have much impact on financial services but deep learning, AI and block-chains will have impact which can be felt as early as 2017.

I think we'll start with robo-advisors for high net worth individuals, thereafter folks will like it so much, the technology will be released for everyone.