At times, it is but a case of being unaware. We think that when we commit money for a period of time in an instrument, it will always earn – significantly. And because of this notion, we overlook an integral part of this exercise: the risks associated with investing.
A cardinal investment rule says that high-risk investments are likely to pay higher returns, while low-risk investments are likely to pay lower returns. However, what drives a person to choose one over the other is largely that person’s confidence, need-based preferences, and the degree of freedom he can exercise over the funds. In short, it is all very personal.
When one is confident of his ability to make good investment choices, the more willing he is to take in risks. In his mind, the standards of good investing have been met and, thus, he is likely to gain the upside on his investments.
However, an investor desperate for high returns is more inclined to pounce on risky engagements. This behavior is very evident on gambling enthusiasts who continue to stay on the betting table in order to recover lost capital.
Though a person’s attitude to risks is a result of specific preferences, it is the outcome of these risks that determines if he will repeat the cycle. If it’s favorable, then he will abide by that pattern. Otherwise, he will probably think twice before getting into high-risk investments again.
Dreading the losses
It is this losing side to investments that turn many Filipinos off, sending them under the cover of low-risk and low or guaranteed return instruments such as time deposits, savings and cooperative accounts.
As time would testify, there’s great wisdom in keeping some money safe in the bank and ready for redemption at the slightest manifestation of some monetary emergency. But it’s equally sensible to not keep all your eggs in one basket. Confining all your money in low-risk, low-return instruments can also mean letting inflation outpace its ability to earn.
The trick is to set aside some part of your money in the bank and some part in alternative instruments that may open you to a bit more risks but at the same time offer slightly better returns. Mutual funds invested in sovereign or corporate bonds or debts are an alternative.
Viable option
There are other financial options that offer varying degrees of risks and returns. Naturally, both the risk-taking investors and the investment fearful conservatives want an instrument that offers potentially higher returns without the risk of losing. The question is: is there such a magnificent instrument?
The great news is yes, such a product exists… but only for a very limited period of time. Insurance companies have began to migrate traditional life insurance products to a variant called variable universal life plans or VULs. So, what makes VULs different?
Typically, conventional life insurance plans are paid over the lifetime of the insured and its benefits can only be enjoyed when the policyholder passes on to the next life. In the case of VULs, the payouts can be enjoyed while we are still alive. This alone makes VUL more attractive to Filipinos.
And it doesn’t mean that you have to choose between life insurance and VULs. Some VULs are paid once when you buy it. The premiums are locked in for a period of 5 to 8 years, over which time the policyholder also enjoys life insurance coverage. At the end of the lock-in period, the life insurance coverage terminates and the policyholder gets his money back with a decent profit as well as possible additional earnings. After all, VULs have investment components that offer opportunity for one’s money to grow.
About the closing down of a company - no worries there because life insurance companies are guaranteed by the Insurance Comission (IC) - which means that whatever is stated in your policy's face value will be covered by the IC even if the insurance company folds.
A pre-need plan, on the other hand, is governed only by the SEC, which means that if the pre-need company folds, you have no guarantees that you get the benefits from the plan you paid for. Examples of pre-need plans are - educational plan, retirement plan, burial plan, etc etc
So, if there was such an investment interlude, a VUL that gives you life insurance coverage, offers you the safety net of your money back plus a decent interest and potentially even more in earnings, can you still possibly hate investment?
If you are interested to know more on how to grow your investment and get the advantages linked with VUL, do not hesitate to send an email to our blogger: stokedtraveler@gmail.com
Source: http://www.sunlife.com.ph/
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