Why I don't like saving plans

By saving plans, I refer to the plans sold mostly by insurance agents. These are plans that takes a fixed amount every month, and as seen from it's name, save it for you in a special savings account whose interest rate is higher than the bank's interest rate. In return, you are given some form of extremely basic insurance in the event of death, and you are allowed to withdraw a small amount monthly if you need it via vouchers sent to you. One example is NTUC Revosave.

However, there's a catch. The maturity date is 25~35 years later, with perhaps a 1~3% annual rate compounded over the 25~35 years.

To me, the main reason why people buy saving plans are because
(i) Super Duper Conservative
(ii) Financial Ignorance


In my opinion, if one were to lock up the money into a savings account for 25 year, it would be better to do dollar cost averaging into equities dealing with defensive sectors of the economy. Over the period of 25 years, the rate of return beating that of a savings account is almost 100%.

"But dollar cost averaging requires lots of money! I don't have the cash to do that when most of the blue chips are in thousands per lot! A savings account is safer and better for me!"

Well, one simple way in which we can automate a dollar cost averaging strategy like a savings account, is to make use of POEMs' sharebuilder plan.

http://www.poems.com.sg/FinancialServices/sbpFAQ.asp?value=sbp

Selecting equities like Starhub (8% yield), Singtel (4% yield), SingPost (6% yield), SPH (6% yield), or even STI ETF presents a low risk and high probability over a period of 25 years in beating a savings account. Suppose the prices of these equities remain the same for 25 years; the dividend yield would easily exceed that of a savings account.

If one were to take slightly higher "risks", equities like UOB, DBS, OCBC, SGX are just as good.

In short, why go for a savings plan? There's no guarantee that the insurance company selling you the savings plan will not fold up as well. Essentially, the risks of the company folding up is the same. Yet the yield is so much lower. Compounded over 25 years, the difference could be quite high for quite similar risks. At least to me, it is. That's why, I will not go for a savings plan.

I will try to add some calculations here later.