Insurance or stock market: Where should you invest
KEYWORD PHRASES – invest in insurance or stock market
Financial freedom is everyone’s dream. Who wouldn’t like being a millionaire and have the money that can help in any unfortunate event or serve the needs of generations to come. People seek financial security for themselves as well as their family. Although savings help, can they alone drive you toward achieving the financial security that can alleviate adverse consequences?
Savings do help, but they may not be enough to face a financial crisis or get you the needed freedom. However, if these savings are invested, it can help you achieve the financial security you seek. Investment is the only way to enhance and earn great returns on your savings. When we talk about investments, the stock market comes to our mind. Stock markets or shares and securities have long served as the ultimate investment option. Since long, insurance has also been a lucrative investment option for many people. Certain insurance policies not only provide you with life cover but also offer investment options.
With choice comes confusion. People often fail to decide whether to invest in insurance or stock market. Both options come with their own sets of benefits and risks. Let’s explore each option to help you figure out a solution.
Life insurance is an important component of your personal financial management. When considering life insurance, chances are your agent must have spoken to you about Investment-Linked Policies or ILPs. As the name suggests, these policies are a combination of investment and insurance. Many people prefer going for investment-linked insurance policies because they offer a great amount of exposure to insurance as compared to other life insurance cum investment products. ILPs are of two types –
Single Premium ILPs
In this type of ILP, you pay a lump sum premium to buy units in the sub-fund of your choice. Typically, single premium based ILPs offer less insurance coverage as compared to regular premium ILPs.
Regular Premium ILPs
If you hold a regular premium ILP, you are required to pay premiums in regular or monthly installments. This type of investment-linked policy offers you the advantage of adjusting your insurance protection as per your need.
Since investment-linked policies play a dual role, they may sound apt. And, they may be. But, these policies come with various risks along with the benefits they offer.
The Benefits and Risks Associated with ILPs
ILP’s have several risks and benefits associated with them. These advantages and disadvantages relate to various aspects like the choice of sub-funds, returns, associated fees, and the use of premiums. Also, many people think that these policies are same as whole life plans. But, in reality, they are different.
Unlike a whole life policy, ILPs offer you a wide range of sub-funds to choose from. Most insurers also provide fund switching options with a limited number of free switches and a fee on additional ones. While this freedom of choice allows you to put your money where you want, you are also incurring fees or are restricted to switch to better funds. Plus, ILPs do not offer guaranteed cash value. This is because the policy value built up depends on the performance of the sub-funds.
The major disadvantage of the policy comes in the way your premium is used. By paying for these policies, you not only pay for the returns and coverage but also for the agent’s commission, fund management and administrative costs, any additional fee and charges, and the maintenance fees. Considering this, for the initial few years, you may not have any cash value attached to your policy.
Stock Market Investment
Singapore has always been a high yielding market. But, the trends from 2013 to 2016 were not so great. 2016 had been a disappointing year at the stock market. Investors were showered with one shock after the other. The trends last year signified investors to adopt a cautious approach with stock markets in 2017. This was mainly because of the economic and political scenarios around the globe that was expected to bring in more volatility to the market. Current trends show the market slowly recovering. While nothing definite can be said, investors may be able to hope for a better future.
Stock Markets – Risks, Benefits, and Solutions
While the Singaporean stock markets may not give you positive signs as of November 2017, they may show high profitability in the future. That’s how stock markets are – volatile and unpredictable. Investing in stock markets has been a preferred choice for many investors. Yes, they come with risks. But, these risks have allowed investors to enjoy great returns. The biggest disadvantage that comes with this investment type is losing every penny you invested. But, if you are well versed and plan well, these investments can give you great returns.
Financial planning and good portfolio management is the key to reap the high returns offered by stock markets. Keeping track with inflation, having the right mix of investments, keeping your financial goals in mind when investing, etc., are ways you can gain good returns. Whether you want to achieve financial freedom or gain good returns on investment to finance your child’s education or marriage, having a diverse portfolio can be beneficial. Using a dollar cost averaging strategy can be helpful in mitigating the risks arising from these investments. Dollar cost averaging is nothing but starting by investing small amounts of money at intervals to reduce the effects of violent price shifts. Good financial planning can take you a long way with stock investments.
Whether you invest in insurance or stock markets, you will have to face the risks that come with them. While investing in insurance offers you life coverage and savings, there is no guarantee about the cash value you gain. Plus, the benefits are highly dependent on the performance of the funds. Stocks don’t get you insurance, but if done right, they have the potential for bringing you financial freedom. Everything boils down to your preferences and goals. Maybe balancing both investment options in consideration with your goals can be fruitful.
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