A Coffee Session with Michele Ferrario - CEO of StashAway

Let me start by saying that this is not a sponsored post but from our experience.

It was just another typical day at work (2 weeks back) when I suddenly received an email from Michele Ferrario inviting us out for a lunch/coffee. Turns out he has read both of my articles on StashAway and wanted to discuss further. He was very sincere and even offered to travel near our workplace to make things easier for us. CZM and I were laughing at the email when he addressed CZM as "Zui Mao". lol. The thoughts of meeting him were quite daunting (we are just some random bloggers in the lowest level of the corporate ladder who have not even met our own CEO in person) but we still agreed to it.

These are the 2 articles:
- Introduction to StashAway - Robo-Advisor/Automated Investing
- Who has the lowest fees? StashAway vs Smartly vs AutoWealth

After some emails to and fro, we settled on a day where CZM and I happened to have taken leave to celebrate our 9th year anniversary at JAAN to visit the StashAway's office! (不好意思 - shy shy to let CEO travel to meet us. lol) Save me the trouble of planning what to do on our anniversary date too. Hahahaha.

During our 1 hour long meeting, we discussed various stuff but I shall not go into the details. It was quite entertaining when Michele got rather agitated while sharing his own experience - how he (CEO of Zalora then) was sitting on cash and ended up buying unit trusts sold by the bank. He then addressed some of the feedback I wrote in my articles and explained the rationale to us which I thought I should share it with the readers as well.

In my first article, I showed the 28 different risk levels and mentioned how it was an overkilled.

Risk Level 1 - Conservative

Risk Level 28 - Very Aggressive

Turns out there is a very good reason for these 28 levels which was not evident/explained during the selection of the risk profile or in their FAQ. The exact words from Michele are that each portfolio targets a different risk level, measured with R-VaR (Regime Value at Risk). You
can read about VaR in Investopedia as I will only confuse you if I were to explain it or you can search for Regime Value at Risk which will return you a bunch of scholarly articles. In short, a level 1 risk means that one would have a 1% chance of losing up to 6.5% of your capital in a given year while a level 28 risk would have a 1% chance of losing up to 20% of your capital (R-VaR increase by 0.5% for every risk level). I was told that a basket of investment grade bonds has a VaR of approximately 14% so one could argue that StashAway’s portfolios are not very aggressive.

If you were to look at the goal projection, a smaller risk profile would have a smaller variance resulting in a smaller lower and upper bound while a higher risk profile would have a wider/larger lower and upper bound. The example below is based on a $500 monthly deposit.

Risk Level 1 - Smaller Lower and Upper Bound

Risk Level 28 - Wider Lower and Upper Bound

Apart from the "General Investing" goal, there are 3 other goals that can be selected:
1. Plan for retirement
2. Buy a home
3. Pay for your child's education
(Michele tells me more goals are about to come!)

I was told that based on the selected goal and the input provided, it will automatically assign one of the 28 risk levels to you with the flexibility of adjusting it by +/- 4 risk levels. The assigned risk level has a 70% chance of hitting your target by the specified time frame as compared to the classic way of targeting a 50% chance. Unfortunately, I was not able to find the above information explicitly written/documented anywhere on the site so you will have to take my word Michele's word for it.

One of the most common questions I get when discussing this with my friends is what happens in the event StashAway closes/goes bankrupt?

Although this was already stated in their FAQ, I decided to ask Michele the same question. His response was much longer than the above but you can be sure that your money will remain intact. The Capital Market Services License for Retail Fund Management awarded by MAS to StashAway has a minimum Base Capital Requirement of S$1,000,000. In the event, StashAway is not making any profit and has to close, that $1,000,000 will keep the company operational till it returns all of the customers' capital/investment. Depending on the circumstances, the customers will be offered to either liquidate all the shares and get their monies back or choose to keep the shares. In the latter case, StashAway would assist to open the relevant account with their partners and transfer those shares over.

How often would you find an insurance agent buying the insurance/ILP he/she is selling? It is different for Michele who believes in the platform/product he is building. He himself is a customer of StashAway with a significant sum of money in it. Seeing is believing, he showed us his account during parts of our discussion. lol.

At the end of the meeting, we just had to ask for a wefie with Michele!

Anyway, if you are interested in finding out more, you can check out some of the sessions StashAway is holding from Eventbrite, meet the co-founders in person including Michele and listen to what they have to say. KPO and CZM will be attending one of it too!

StashAway Referral Link for Our Readers
Here you go: KPO and CZM Referral Link

Do like any of the following for the latest update/post!
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Bleeding Stocks - Ezion [Part 3]

This is the third and final series of "Bleeding Stocks" where KPO will be looking at 老鼠屎 (rat shit) dragging down the overall performance of his portfolio. Do check out the rest if you have not :)

Bleeding Stocks - QAF [Part 1]
Bleeding Stocks - Raffles Medical [Part 2]

I was wondering if I should rename this to dead stock instead of bleeding when Ezion made an announcement to suspend trading. lol.

Based on the last closed/suspended price, that is a -68% loss! I am guessing it will be even more when Ezion resumes trading. How did KPO even end up in this state? He was once a clueless investor that did not have any investing/financial knowledge and made many mistakes along the way.

This is a record of my past transactions. There was a bonus issue of 1 for 5 stocks, hence the free 200 shares on 18th Sep 2014. The above shows that I was trying to average down but ended up catching a falling knife >.< This was one of the stocks which I had bought simply based on banks' analysts' reports when I first started out.

i3investor.com used to be one of my favourite sites to hang out. It provides a list of analysts' reports, their target price, possible upside/downside and other information. If you were to head over to Ezion page, it will look like below:

The average target price is $0.44 and there is a possibility of it increasing by 123.35%! KPO, do not give up hope! Let me continue to deceive myself, I have yet to look at its last quarter earnings/report. lol.

Let me bring you back to the past, to the year of 2014 where I first bought this stock to show you what I was looking at. When people say what is on the internet stays on the internet, it is pretty true. Introducing the WayBackMachine which lets you travel back in time on the internet given an URL. You can try using it on facebook/google to see how they looked when they first started.

Welcome to 2014 where the whole world is making "BUY" call on Ezion. lol. Do note that this is before the oil price tumbles. Let's travel to 2015 now.

The price has already fallen to $0.69 and the oil price was at a 10/11 years low but the analysts are still making "BUY" call with target price > $1!

Enough time traveling, let's come back to reality where Ezion just reported its second quarter on 14th August 2017, 7am and 30 minutes later, request for trading suspension before the market opens. Well played.

The latest update on 23rd August 2017 states that it is "arranging a series of informal meetings with its lenders and holders of securities issued by the Company pursuant to its S$1,500,000,000 Multicurrency Debt Issuance Programme"

Looking at its balance sheet, Ezion has US$2,910,775,000 of total assets and US$1,609,835,000 of total liabilities. Given that there are 2,073,843,405 shares in the market, its NAV is US$0.6273 and S$0.85  (assuming an exchange rate of 1 USD = 1.36 SGD). Ignoring the fact that its EPS has been negative since 2016, it is currently trading at a PB of 0.232, isn't that a huge discount?! Anyone interested in joining me to become a shareholder? lol. I hope not. Simply looking at the PB ratio does not give a sufficient context.

A good example would be Rickmers Maritime which has wind up the business and liquidated its assets to repay the debts. It has a NAV of US$0.21 based on its 2016 annual report (the total asset of US$531,862,000 and total liabilities of US$348,389,000). However, the assets are usually not liquidated/sold at book value (usually at a significant discount). As a result, the bondholders got back a small amount (12% of capital) while the shareholders lost everything.

What is more worrying apart from its huge amount of debts is that its operating cash flow has gone negative this quarter. This means that the business is no longer making sufficient money just to be operational, not to mention paying off debts. Hence, the need to suspend the stock for further discussion.

On the bright side, Ezion has not defaulted on any of its loans unlike Erza, Swiber, etc and its CEO/founder Chew Thiam Keng has never sold any shares since 2014 but continued to buy more/average down over the years. His last purchase was 500,000 shares at $0.22 on 31st August 2016; 500,000 shares at $0.235 on 30th August 2016 and 500,000 shares at $0.255 on 22nd August 2016, $0.29, $0.602 and more. He is currently holding on to 217,583,440 shares (10.49%) and he certainly has a lot more to lose (based on last closed price, that is S$43 million) as compared to my 9,900 shares. lol.

KPO will not be showing any chart. $0.197 is already at an all time low and that is a very weak support that will definitely be broken >.<

CZM has been asking me to sell but I continued to hold on to it hoping that one day something magical will happen. After all, cutting loss is easier said than done. What would you do?

Effects of Fees on Returns - StashAway vs Smartly vs AutoWealth

This month has been a pretty busy month and KPO will be on reservist for the next 2 weeks! CZM has finally come back to blog about our 9th year anniversary lunch at JAAN. Do check it out and show your support :)

There was an interesting discussion going on in the comments section of my last article - Who has the lowest fees? StashAway vs Smartly vs AutoWealth. It all started when foolish chameleon asked if one should be switching the money from one robo advisor to another once one has reached the next level to be entitled to lower fees. The followings were the conclusion:
- StashAway: < $10,000 or > $400,000
- AutoWealth: between $10,000 and $100,000
- Smartly: between $100,000 and $400,000.

As usual, KPO spent some time and played with the numbers to find out how would the difference in fees affect the growth of one's portfolio. For simplicity, one assumption is made - the 3 robo-advisors provide the same annual returns.

Interestingly, the results turned out to be quite different from my previous article. The previous article was a one dimensional analysis on the fees based on the absolute amount of the portfolio. This time round, the compounding effect was added to provide a two dimensional analysis.

Scenario 1: Invest $50 on a monthly basis and the expected returns were 7% per year.

Scenario 2: Invest $50 on a monthly basis and the expected returns were 8% per year.

Scenario 3: Invest $500 on a monthly basis and the expected returns were 7% per year.

Scenario 4: Invest $1,000 on a monthly basis and the expected returns were 7% per year.

If we are choosing a robo advisor purely from a fee/cost perspective, AutoWealth seems to be the most cost-effective after taking into account the compounding effect. On the other hand, I hardly see Smartly performing better. I would recommend that you download a copy of this google spreadsheet and play with the numbers yourself. Simply change the number in the highlighted cells, everything else is formula linked.

However, I would like to point out that the above assumption is too simple. lol. The 3 robo-advisors will definitely provide different returns. CNBC has published an article on it - Returns vary widely for robo-advisors with similar risk. Another article by Senzu also shows the difference in returns - Compare Performance & Portfolios of Robo Advisors. This is because the asset allocation, the underlying ETFs as well as the way the logic/algorithm use to rebalance the portfolio will all be different.

Will we continue to use StashAway? Yes! Among the 3 robo-advisors, only StashAway provided a clear explanation of their logic/asset allocation framework - ERAA (Economic Regime-based Asset Allocation). On the other hand, AutoWealth "takes a rule-based approach towards investing" but I could not find any further information (the same can be said for Smartly).

Update: As pointed out by Kevin, Smartly uses Harry Markowitz Modern Portfolio Theory which you can find out more through Investopedia - Harry Markowitz. Miru also shared his own experience dealing with the 3 robo-advisors in the comment section. Once again, the cost/fee should not be the only consideration.

Hope you enjoy the article!

StashAway Referral Link for Our Readers
Here you go: KPO and CZM Referral Link

Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)

9th Anniversary at JAAN

KPO has decided to bring me to JAAN to celebrate our 9th year anniversary (gosh yes we are together for almost a decade). Some background of JAAN - located at level 70 of Swissotel, this is a French restaurant which was awarded 1 star in the Michelin Guide 2017 and voted as one of Asia's best restaurants 2017. Given this and strong recommendation by our close friend, we decided to give it a try. We were given a nice window seat and this is the view.

There are a few different types of seasonal lunch menu to choose from but being a Kiam Pok, we decided to go for the cheapest option - 4-course menu at $88++ per pax. We also opted to pair it with 3 glasses of wine at $58++ (the a la carte menu for wine costs approx $40 per glass, so it doesn't make sense to order there in my opinion).

1st dish (before the actual 4-course meal)
Foie Gras and Truffle Macaron - KPO's favourite dish

2nd dish
Potato Soup - savoury taste!

3rd dish
Specialty bread with seaweed and normal butter!

4th dish (1st course)
Golden Beetroot

5th dish (2nd course)
Some fish dish - halibut to be more specific.

6th dish (3rd course)
Some pork dish - KPO and I find this the most ordinary among the rest.

7th dish (4th course)
Ivory Caramel - super nice chocolate dessert which includes warm chocolate cake, ice cream and different types of chocolate. CZM super love this dish!

8th dish - complimentary chocolate dish (not counted as part of the 4 course meal)
Couldn't remember the name of this, but there were 3 different bite-size choc provided by the restaurant. By the time this dish came, we were so full that we were already having food coma. @.@

As this was our anniversary celebration, JAAN has also thoughtfully provided us with a petite chocolate cake to celebrate this occasion with us.

Overall, each dish is designed like an art piece and the service there is top-notch. Highly recommend people to go there for special occasions!

Rating: 4.5/5

Who has the lowest fees? StashAway vs Smartly vs AutoWealth

I previously wrote about Introduction to StashAway - Robo-Advisor/Automated Investing and my friend (lulu - not her real name. lol) asked, why do I think that StashAway has the lowest fee. She then highlighted to me that StashAway has tiered fees. OMG! Can you imagine how shocked KPO would be (especially when he started investing in StashAway)? I was under the impression that the annual fees percentages simply decrease as the portfolio value increases. So KPO went home, took a closer look at the fees involved and started crushing some numbers!

1. StashAway has tiered fees - Pricing Structure.

2. Smartly charges at 3 different rates depending on the value of your portfolio - Pricing.

3. AutoWealth has the most straightforward fees structure (0.5% + USD $18 platform fee) - Our Fees.

At one glance, which one do you think has the lowest fees?

The correct answer is "It depends". lol. However, it is pretty obvious that if your investment is large (more than $500,000) and in the long run, StashAway is easily the winner.

Note that AutoWealth requires one to start with at least $3,000. The sweet spots are somewhere around $10,000 and $400,000. Invest using StashAway if the amount is below $10,000 or above $400,000. Use AutoWealth if the amount is between $10,000 and $100,000 and Smartly for an amount between $100,000 and $400,000. You can refer to this google spreadsheet for the data and graph.

Will I continue to use StashAway? Yes! CZM has agreed to invest $500 of our KPO Investment Fund per month through StashAway. After 30 years, the projected return based on our risk profile is around $800,000 (50% chance of achieving it. lol).

We will probably increase it to $1,000 per month once we are more comfortable with it but that shall be another post for another day :)

StashAway Referral Link for Our Readers
Here you go: KPO and CZM Referral Link

Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)

Bleeding Stocks - Raffles Medical [Part 2]

This is the second series of "Bleeding Stocks" where KPO will be looking at 老鼠屎 (rat shit) dragging down the overall performance of his portfolio. Do check out part 1 if you have not :)

Bleeding Stocks - QAF [Part 1]

QAF share price dropped because Q2 results were pretty bad. On the other hand, Raffles Medical Q2 results were much better as compared to QAF - Raffles Medical Group's Q2 profits marginally higher. Let's take a closer look at the financials.

There is almost no change but the same cannot be said for its share price. Based on its last closed price on 2017-08-11 of $1.13. It has fallen by 25.4% as compared to the price one year ago ($1.515 on 2016-08-11). What has changed to warrant such a huge drop? No idea. Your guess is as good as mine - a few analysts sell reports + not meeting its growth expectation?

Similarly, I compiled the last 5 years of financial results and you can refer to it here. Raffles Medical has been growing at a steady rate with increasing NAV and operating cash flow over the years. There was a share split (3 for 1) in May 2016 hence the numbers had to be adjusted slightly. Based on the data, it seems that Raffles Medical has been trading at a average PE of 31.7 and PB of 4.109. Assuming that EPS and NAV remains constant (2016 EPS $0.040 and NAV of $0.395), the average PE of 31.7 will translate to $1.268 and PB of 4.109 will be $1.624.

Some of you may think that PE of 31 is way too high but if you compare it against the industry - Healthcare Providers and Services, you will see that it is a premium one has to pay for defensive healthcare related stocks.

Based on both shareinvestor.com and SGX StockFacts, Raffles Medical currently trades at a PE of 28.485 is which is much lower than the industry average. Interestingly, Raffles Medical is the second largest company with a market capitalization of $2,001 billions. The largest one being IHH Healthcare Berhad with $15,438 billions trading at a PE of 75.806!

This is a summary of what to expect in the future and how Raffles Medical will continue to grow according to the latest Q2 report:
- RafflesMedical expanded its network of clinics in 2017 by opening a new clinic at Hillion Mall in Q2 2017
- Northpoint will also be re-opened in September 2017. Existing clinics at Asia Square, Clementi and Nex have been relocated or refreshed in Q2 2017
- RafflesHospital Extension’s completion and opening in Q4 2017
- Changi Airport Terminal 4, Transit 4, and two new in-house clinics in Dover and Tampines respectively, are scheduled to open in Q3 2017
- RafflesHospital’s Emergency Care Collaboration with the Ministry of Health (MOH) was extended in June 2017 for another 5 years, allowing SCDF ambulances to continue to bring patients to RafflesHospital for subsidised care
- Construction of RafflesHospital Chongqing (operational by second half 2018) and RafflesHospital Shanghai (operational by second half 2019) is progressing according to plan

At the end of the day, KPO finding Raffles Medical undervalued does not mean anything. However, when you have the founder/CEO Dr. Choon Yong Loo increasing his shares at $1.44 last year (2016-06-29) and at $1.26 this year (2017-06-30) together with a major fund buying it at $1.21 on 2017-08-07. It probably means something. lol.

Since this is the 2nd series, let me end off with 2 charts. Raffles Medical has been on a down trend since last year. The current support is at $1.10 and $1.09 while resistance is at $1.17 and $1.21. Extremely bearish as price is still trading below all the moving averages.

However, do you see a tiny hammer supported by significant volume? The RSI (Relative Strength Index) seems to indicate that the stock has been oversold or is currently in a undervalued condition too.

With the above fundamental analysis, KPO queued for 6,000 units at $1.10 yesterday (2017-08-11) and my orders were filled :) This brings my average price to $1.308 and loss to -12.92%. Patched my wound in 1 day or would it be a falling knife? Only time will tell. lol.

Thanks for reading! Hope you all enjoyed it. Stay tuned for Part 3! (May not be anytime soon since I sort of mentally write off that investment. lol.)

Bleeding Stocks - QAF [Part 1]

Our portfolio has been doing pretty well but there will always be 老鼠屎 (rat shit) dragging down the overall performance. I am not too worried because I have seen worst. lol.

1. QAF

The first thing that came to mind would be the latest quarter result - QAF reports 72% fall in 2Q17 earnings to $8.1 million. I looked at the numbers and it is indeed quite depressing. However, the numbers can be quite misleading.

The numbers highlighted in yellow is where the 72% drop comes from. One has to note that part of the huge drop can be attributed to the one time "Exceptional items" gain due to the sale of 20% stake in Gardenia Bakeries (K.L.) which is missing this quarter. On the bright side, revenue actually increased by 1% which was offset by higher costs/expenses, taxes and a series of unfortunate events:
- Pork prices in the industry have fallen by approximately 20% in the first half of 2017 due to increased competition from the general oversupply situation
- Higher advertising and promotion expense due to launch of new products and heightened competition in the Philippines
- Higher truck rental expense from the increased distribution routes
- Foreign Exchange loss due to the depreciation of the Group’s AUD denominated assets against the Singapore dollar
- and much more. lol.

KPO then spent some time to compile the financial results achieved by QAF in the last 5 years.

Note that QAF has a very low PE in 2016 due to the "Exceptional items" mentioned above which resulted in a much higher EPS. Once excluded, you will see that QAF has been trading at an average PE of 12.931 and average PB of 1.312 from 2012 to 2016.

In the worst case scenario, I will simply assume that the next 2 quarters will be as poor as this quarter (EPS of $0.014) and based on the last closed price of $1.205, the PE will be 17.985 which is pretty high hence the heavy sell down? Will it get worst than this? I dun know but I would hope that higher advertising cost will be translated to higher sales in the next quarter. Furthermore, there is a proposed listing of Rivalea on the Australian Securities Exchange which will result in QAF receiving A$52 million.

Fundamentally, QAF remains to be an excellent business consistently generating free cash flow and rewarding shareholders with suistainable dividends (DPS remains lesser than EPS even in the above worst case scenario).

At what price should one buy QAF then? I dun know. At a price you are comfortable with! Any investment at the right price is a good investment! lol. Buying it at $1.20 would mean you will be looking at a 4.2% dividend yield. Based on the very simplified average PE and PB ratio computed by me, any price between $0.866 and $1.225?

Although I believe more in the numbers, I will end off with a chart. You can see the long term trend is up and QAF is currently at its first support $1.205 and the next support is at $1.15. With 50 MA crossing below 200 MA, it has formed a death cross! Furthermore, the price is now below all the moving averages. Extremely bearish!

This is the google spreadsheet if you want to take a closer look at the numbers. Ending off with numbers still better. lol.

Portfolio Update - July 2017

Our portfolio grew by 3.32% to $258,487 - $6,741.41 of capital injection and around $1,564.59 of capital growth!

BOUGHT

- Netlink Trust (6,000 units) @ $0.81

- KPO OKP Holdings (5,000 units) @ $0.375

July seems like a busy month with many companies providing their quarterly earnings update which means a fat dividend month :) We applied for 20,000 units for Netlink Trust IPO and was allocated 6,000 units. We were pretty excited since this is the first time we IPO successfully but it turns out to be a pretty boring one when it opened flat. You can read my analysis to see how much of its assets can be attributed to thin air - Just Another Netlink Trust IPO Analysis.

OKP is the company that has been appearing in your FB news feeds because of the PIE work site collapsed. Its share price has fallen by close to 20% from $0.43 (before the accident) to $0.375 (my entry price) and to $0.345 (today). KPO has decided to support OKP in times of trouble. Just kidding, you can read this to find out why I bought OKP - StockResearchAsia Strikes Again - OKP Holdings Ltd. Anyway, OKP has a huge cash position $87,911,000 ($0.285 cash per cash) while its total liabilities is only $50,670,000. So I have decided to buy on fear but seeing the price fall furthers, now I also scare. lol. Just joking, I will probably buy more if it falls further.

This is also the month where the robo-advisors (StashAway and Smartly) went live. I was looking at both and decided to go with StashAway because they have lower fees and I prefer their interface more. While playing with the account, I wrote another article - Introduction to StashAway - Robo-Advisor/Automated Investing.

KPO manage to finish an eBook and wrote a Book Review - Building Wealth through REITS. This book is great because the explanations and REITs discussed were all from Singapore context. KPO also spent $188 on a Cat 1 ticket to watch Chelsea vs Inter Milan - 2017 International Champions Cup Singapore with a group of secondary friends. What a busy month for KPO as well! CZM is busy looking for a new job, more shall be revealed when the time is right. lol.

The total dividends collected this month is $1,541.36. The breakdown is as follows:

Company	Symbol	ExDate	Shares	Total
SPDR STI ETF Units	ES3	28-Jul-17	9,000	$432.00
CapitaLand Mall Trust	C38U	27-Jul-17	3,000	$82.50
Ascott Residence Trust	A68U	26-Jul-17	7,600	$255.06
Singapore Post Ltd	S08	25-Jul-17	7,000	$35.00
First Real Estate Investment Trust	AW9U	21-Jul-17	7,000	$149.80
Soilbuild Business Space REIT	SV3U	19-Jul-17	30,000	$439.80
Frasers Logistics & Industrial Trust	BUOU	03-Jul-17	8,000	$147.20

Total dividends collected for 2017: $6,767.57
Average dividends per month for 2017: $563.96

Never Ever Buy Investment-Linked Policy (ILP)

What is an Investment-linked Insurance Policy (ILP)?

Investment-linked insurance policies (ILPs) have both life insurance and investment components. Your premiums are used to pay for units in investment–linked sub-fund(s) of your choice. Some of the units you buy are then sold to pay for insurance and other charges, while the rest remain invested.

The above definition is taken from MoneySense, you can find out more here. Interestingly, if you try to google "ILP", this will be the search result and I highly recommend that you read it - The Ugly Truths Behind Investment-Linked Policies by Dollars and Sense.

Unfortunately, CZM was a victim too. She purchased it when she was young and naive at the age of 19 introduced by the family "trusted" agent. Fast forward 7.5 years later, she finally saw her "investment" break even... I will not explain or go into the details why ILP is a scam bad (KPO cannot be so extreme) instead I will just show you the numbers (read the article by Dollars and Sense for the details/reasonings).

CZM started the policy in February 2010 with a monthly GIRO of $150. Till date, the total premium paid is $13,500 and the surrender value is $13,676.81.

Total number of payments: 13,500 / 150 = 90 months (7.5 years)

Investment gain/profit: 13,676.81 - 13,500 = $176.81

Simple interest on the gain/profit = 176.81 / 13,500 = 1.31%

However, using an investment calculator, one will be able to calculate the annual rate of return which is 0.351% in this case. If you are thinking "not too bad what, better interest than banks", people dun invest to beat bank interest and that is way lower than inflation (which means you become poorer over time)!

As you can see from the above graph on Singapore core inflation rate taken from TradingEconomics, the average rate of inflation has been between 1% - 2%. What could CZM have done to beat the above return?

1. CPF Ordinary Account (2.5%) or Singapore Savings Bonds (7 years - 2.42%)

Simple interest on the gain/profit = 1,315.69 / 13,500 = 9.75%
Difference = (1,315.69 - 176.81) / 176.81 = 644.13%

The interest she can get would be $1,315.69, easily 6 times! Topping up just the OA is not possible, that is why I have also included the Singapore Savings Bonds (SSB). However, SSB has its limitation as well - the minimum investment is $500 and the return varies every month. Investing in SSB monthly is pretty interesting as one will be building up a Bond Ladder to generate a consistent cash flow/passive income very conservatively.

2. CPF Special Account (4.0%)

Simple interest on the gain/profit = 2,169.80 / 13,500 = 16.07%
Difference = (2,169.80 - 176.81) / 176.81 = 1127.19%

The interest she can get would be $2,169.80, easily 11 times and did I mention tax relief too! Of course one may argue that the money is locked up and cannot be withdrawn. That is true to a certain extent but the money is still yours at the end of the day for retirement. Besides, I am just trying to show how bad the ILP returns are.

3. Invest in STI ETF (Dollar Cost Averaging)

Backtesting was quite tedious. I first downloaded all the historical data from Yahoo Finance and research for the most cost-effective regular savings plan. I was choosing between POSB and Maybank (lowest sales charge @ 1% which is the cheapest for investment amount less than $500) but settle for POSB because their FAQs was clearer when I was looking for answers to the fees and breakdown of the investment (no fractional units). You can refer to this article - Which Monthly Investment Plan Is Suitable For You? by Dollars and Sense for more information.

You can refer to my Google Spreadsheet for the results of the backtesting - STI ETF Monthly Regular Savings Backtesting. CZM would be holding 4,315 units of SPDR STI ETF with a total value of $14,325.80 assuming the price of STI ETF is $3.32 and collected a total dividend of $1,939.10.

Simple interest on the gain/profit = 2,764.91 / 13,500 = 20.48%
Difference = (2,764.91 - 176.81) / 176.81 = 1463.77%

The annual rate of return is about 4.995% as compared to the miserable 0.351% >.< In my backtesting, I did not reinvest the dividends. Otherwise, the return would have been easily higher than 5%!

Update on 2017-08-04: A reader has pointed out that one can only invest in NIKKO STI ETF using POSB RSP which I have missed! I have updated the spreadsheet to show the backtesting results for both STI ETF.

Simple interest on the gain/profit = 2,497.78 / 13,500 = 18.50%
Difference = (2,497.78 - 176.81) / 176.81 = 1312.69%

One would have 4,285 units of NIKKO STI ETF and collected a total dividend of $1,343.08. The annual rate of return is about 4.553%.

4. Active Investing in Stocks

Not a good idea if you have no/little knowledge. KPO not going to backtest this as I have no idea how to do it. Imagine if you pick one of the STI components back in 2010 - Noble Group Limited! GG!

Why is the ILP return so low? There are a couple of reasons, first look at what is the underlying "investment" being made:

Notice how large/wide the spread of the bid and offer price is? You buy at $1.627 but sell at $1.572. The moment you buy, you already lost 3.38% ((1.627 - 1.572) / 1.627) of your capital.

Next, we look at what are the "investments" made by the fund - AIM 2035 Fund.

OMG! Do you see what I am seeing?! Not the sales charge and management charge! Look at the top 10 holdings! They are all funds!!! This is a fund of funds and you simply keep getting charge here and there! How to make money?

Last but not least, do you see the car your agent drive? You paid for it partially. lol. Just kidding (partially). I do have friends that are in this industry and not all agents are evil. My definition of evil is recommending you ILP immediately without finding more about your needs. I encountered and scolded one before - he was supposed to be a family "trusted" agent. I called to ask about a life insurance my grandmother purchased for us and he was trying to sell ILP to me -.-" KPO is very defensive when it comes to $$$.

Another of our friend recommended us ILP when CZM was trying to purchase only a hospitalization plan. I asked him to be honest about the commission and he said he would be getting the commission for the next 7 years.

Taken from $1Million Personal Financial Diary

I did a quick search online and found this article by $1Million Personal Financial Diary - Commission Structure of Insurance Agents REVEALED. His article was written in 2010 (could be outdated) but this should be a good enough gauge/estimate. Do you see the low hanging fruit there for all the agents? 45% commission based on the first year premium!

Morals of the story:
1. Insurance and investment should always be separated! You can never get the best of both worlds, separate your wife and girlfriend(s). lol. I am really kidding this time round.
2. Buy term insurance and invest the rest! Dollar cost averaging STI ETF is always a good starting point especially if one has no time to read up and research on stocks.
3. Never ever buy ILP!