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Many of us put off retirement planning – possibly thinking that it is still early days for us. Some of us may not even know where to start.
When we commit to making calculated steps forward, no matter how small, we can make retirement planning more digestible and instil the discipline required to succeed over the long term.
Start Investing Early To Maximise Compounding Effects
The earlier we start investing, the more time our investments get to compound in the financial markets. Historical data supports this assumption, as the S&P 500 index, a benchmark for the overall U.S. stock market, has averaged an annual return of 13% over the past 10 years1 and approximately 10% over the past 20 years2. Although a common caveat we see is that historical figures are not indicative of future performance, the long track record highlights the potential benefits of investing consistently from a young age.
To depict what a difference our investment horizon can make, let’s take two 25-year-old first jobbers, Alice and Ben, as examples. Alice starts investing $250 a month when she graduates.
Ben, does not invest at all for the first 15 years. To catch up, he invests 4x what Alice does – $1,000 a month – thereafter.
At the end of 30 years, when they are 55, Alice would have contributed $90,000 to her portfolio, while Ben would have invested $180,000.
If we assume the markets return 8% p.a. on average, Alice’s portfolio will have grown to nearly $340,000 at the end of 30 years. Ben will have accumulated less than $326,000.
Even though Ben invested twice the amount Alice did ($90,000 vs $180,000), he still ends up with less than what Alice has accumulated in retirement savings after 30 years.
Protect Against Market Fluctuations with Dollar-Cost Averaging
The graph above may depict an unrealistic outcome where our investments are growing each and every year. In reality, the financial markets can fluctuate by a great deal. To minimise the adverse effects of these price fluctuations on our portfolio, we can dollar-cost average (DCA) into the markets.
Breaking up our investments into smaller regular sums, means we do not need to time the market, and yet take our emotions out of building our investing pot. When the market goes up, we will buy fewer investment units; when the market goes down, we buy more investment units. In the long run, we can reduce the impact of price volatility in achieving our returns.
This is a lesson we can learn from how markets have moved in the past, especially during market crashes. In the chart below, we can see at least five occasions when the S&P 500 Index dropped 20% since the mid-80s.
Source: Google Finance
If we had unluckily invested a big lump sum right before the market crashes, we would have seen our investment value drop 20% very quickly.
Instead, investing a smaller amount regularly, even through market crashes, would enable us to invest at lower valuations. As we can also see in the chart above, the market recovered new highs on each occasion, bringing your average returns up.
Build Your Nest Egg With A Disciplined Investment Approach
One way we can start investing regularly is via a regular premium investment-linked plan, as it can offer bonus units for an extra boost or cushion, and also provide a more accessible entry into a range of portfolios and/or individual funds while pursuing these investments independently may typically require higher starting sums.
One such investment-linked plan is Etiqa’s Invest smart flex.
By investing a small sum from just S$200 a month3, we can start to invest in 4 risk-based, broadly diversified portfolios (Conservative, Moderate, Growth and Aggressive) and over 35 funds. This gives us access to a wide range of investment choices covering not just asset types but geography as well such as global, regional and country focused funds.
Find out more about Etiqa’s funds and check their prices here.
Source: Etiqa
Source: Etiqa, as of 21 Aug 2024
This approach aims to help you meet your investment objectives by aligning with your risk profile and providing access to a range of carefully selected funds and constructed portfolios.
We can also look forward to a range of bonuses to beef up our portfolio over the years. When we invest in Etiqa’s Invest smart flex, we can get
A start-up bonus of up to 80% of our first-year premiums4.
A special bonus of 5% of our regular premiums4 paid from as early as the 6th year onwards5 until the end of premium term.
A loyalty bonus worth 0.2% of our account value4 starting from the policy anniversary after premium payment ends.
Be covered against total and permanent disability (up to age 65) or death
These bonuses can go a long way towards offsetting the policy charge – starting from 2% p.a. for the first 10 years, 1.6% p.a. for the following 10 years, and 0.6% p.a. thereafter.
Retain Flexibility In Our Investment Choices
To meet our financial goals, ever-changing needs and different risk profiles, Etiqa’s Invest smart flex also offers flexibility in various aspects:
Premium term:
3 premium terms: 10, 15 or 20 years
Monthly, quarterly, half-yearly, or annual regular premium payments
Activate a premium-free period (from the 6th policy year)4
Investment amount and funds:
Switch funds at any time without charges6
Make ad-hoc or recurring top-ups4
Reduce regular premium amounts (after 3 years of paid premiums)4
Withdrawal:
2 free partial withdrawals4 (from the 4th policy year)
From the 6th policy year, partial withdrawal charges4 drop to 5%
Don’t Neglect Wealth Protection
While growing our wealth may be more exciting, protecting our wealth can be equally, if not more important.
Unlike most other regular investments that we make, ILPs come with a form of wealth protection. With Invest smart flex, we will receive the higher of 105% of our net premiums7 paid or our account valuef something unforeseen were to happen to us. This means that our beneficiaries will not get less than 105% of what we’ve put into the investment – no matter how the financial markets perform.
Get Started Today and Reap More Rewards
For those interested in starting your regular investing journey with Invest smart flex, have a quick chat with an Etiqa Assurance Manager and get SGD 20 cash8 for your time.
Singtel and Etiqa are also currently offering an extra sweetener if you invest with them – up to SGD 2,500 cashback9 or the option to bundle the plan with Singtel Growth Assure to enjoy 6.88% p.a. guaranteed maturity returns10 and extra cash bonus10!
Read Also: Understanding Hospital Cash Insurance: What’s Covered & How Much We Can Claim
Footnotes:
S&P 500 Data (Stock Market Returns Between 2013 and 2023)
S&P 500 Data (Stock Market Returns Between 2003 and 2023)
Based on the minimum premium requirement for a premium payment term of 20 years.
Subject to applicable terms and conditions. Please refer to policy contract for details.
Applicable to policy with 10-year premium term only.
We reserve the right to revise the fund switch charges (if applicable) by giving 30 days’ written notice.
Net premium refers to total premium paid plus total top-up(s) less any partial withdrawal(s).
Meet Etiqa Assurance Manager promotion: Click here for the terms and conditions.
Up to S$2,500 cashback promotion: Click here for the terms and conditions
To qualify for the 6.88% p.a. guaranteed maturity return for one year and any applicable cashback from Singtel Growth Assure, you’re required to purchase a combined minimum annual premium of SGD 10,000 in one or more eligible regular premium insurance plan(s). The amount you can purchase for Singtel Growth Assure is equivalent to the total annual premium you pay for the eligible regular premium insurance plan(s), rounded down to the nearest thousand. In the event that the Eligible Insurance Plans are subjected to the free-look period, cancelled or if the premium or insurance coverage is reduced prior to the maturity of Singtel Growth Assure, the guaranteed maturity return will revert to the lower yield of 3.04% p.a. Please click here for the terms and conditions.
Disclaimer:
Terms and conditions apply. Age is age next birthday.
These policies are underwritten by Etiqa Insurance Pte. Ltd (Company Reg. No. 201331905K) (“Etiqa”). This content is for reference only and is not a contract of insurance. Full details of the policy terms and conditions can be found in the policy contract.
Investment-linked Plan (ILP) invests in ILP sub-fund(s). Investments in these plans are subject to investment risks including the possible loss of the principal amount invested. The performance of the ILP sub-fund(s) is not guaranteed and the value of the units in the ILP sub-fund(s) and the income accruing to the units, if any, may fall or rise. Past performance is not necessarily indicative of the future performance of the ILP sub-fund(s).
A product summary and product highlights sheet(s) relating to the ILP sub-fund(s) are available and may be obtained from Etiqa via https://www.etiqa.com.sg/portfolio-funds-and-ilp-sub-funds. A potential investor should read the product summary and product highlights sheet(s) before deciding whether to subscribe for units in the ILP sub-fund(s).
As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid.
You should seek advice from a financial adviser before deciding to purchase the policy. If you choose not to seek advice, you should consider if the policy is suitable for you.
The information contained on this product advertisement is intended to be valid in Singapore only and shall not be construed as an offer to sell or solicitation to buy or provision of any insurance product outside Singapore.
These policies are protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact Etiqa or visit the Life Insurance Association (LIA) or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
This advertisement has not been reviewed by the Monetary Authority of Singapore. Information is correct as at 21 August 2024.
The post Why Investing Regularly Is Key To Building Your Retirement Nest Egg appeared first on DollarsAndSense.sg.
