BIG e by Aviva - Good buy?

Updated on 8 Feb 08:

The link to the Singapore Inflation Index, aka Consumer Price Index, has been updated in the original post to http://www.singstat.gov.sg

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Original Post on 14 Mar 07.

I'd received a sharing recently from a friend who highlighted a new CPF-Approved investment product by Aviva called, BIG e. More details about this product can be obtained @ http://www.avivadirect.sg/bige.

I took a look at the product and did some sharing of my views on it. And at the same time, i took the opportunity to share a few more cents worth of other perspectives. Below are my sharing.

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Bro,

Thanks for sharing. It doesn’t really matter on whether you have vested interest in it or not. It’s still great to share info. There is a lot of hidden power in sharing.

And it’s good to be risk adverse. I paid a few $K to learn this lesson.

I went thru the website and product spec. If it’s an investment, I will study it from the perspective of an investment. The insurance part is just a good to have feature and does not generate cash flow into our pockets.

This product is VERY, VERY, VERY RISKY. Yes, you are not seeing things. I wrote VERY, VERY, VERY RISKY. Allow me to elaborate further:

1. Given principal-secured clause does not mean “risk-free”. The only risk-free product I see on the market is Singapore Government Bonds. If the returns are less than CPF-OA interest rates, inflation will eat up the rest of the returns. THERE IS INFLATION RISK. If they declare their interest is less than 1%, which they can do so? It’s a win for them, lose for us situation. (For current Singapore inflation rate, see http://www.singstat.gov.sg)

2. There is no info or means to help us understand how they invest with our money i.e. we cannot understand the product fully. It is a product that is not easy to understand at all. This is EXTREMELY RISKY. Although insurance companies activities are regulated by MAS, there are investments that they can still do but layman investors like us may not understand. If we placed our money in an investment product that we cannot or do not understand, it is as good as gambling. How can this product be suitable for risk-adverse investors? Almost every adult Singaporeans will know how our Government earns their money. In fact, we know that Singapore Government, if taken as a business enterprise, will never fail to earn a profit i.e. their PROFIT IS GURANTEED. That’s why our government bonds are termed as risk-free and the interest (or coupons) they pay investors is considered truely risk-free. Unless our government collapses, but highly unlikely in my opinion.

3. Aviva calls the shot on how much of their returns to be declared as our returns i.e. there is no stated basis for them to make this decision. Even our puny returns are at the mercy of the company. We have no control and cannot even influence. This is VERY, VERY RISKY. If we invest our money in shares of listed companies, we can still question the management on the progress and earnings of “our” invested company. We, as shareholders, can even recommend to sack the Board members or the management team of the company. There is some form of minimum control in our hands.

4. Singapore Government T-Bills offers a coupon rate of at least 3% at this point in time. This 3% is guaranteed. Capital protection is also “guaranteed”. Compare that to the projected return of 3.5% from this Aviva product, the difference is only 0.5%! For a meager 0.5% more, is it worth while to RISK your hard earned money in a product that is so hard and difficult to understand, no control over our earnings and, really just for the sake of 0.5% more? Are we investing $1 million or more here?

From your writing, it seems like your financial education comes from the family of bankers, financial planners or insurance sector. That’s why I believe your risk is measured against the % return. Higher Risk means higher expected return, Lower Risk means lower expected return. Or the other way round, Low return means the investment is less risky.

I have a different defination of risk. See my sharing @ http://leroyang.blogspot.com/2007/02/what-is-risk.html. It takes Higher Financial Education to expect higher returns. Risk can be managed, with the correct tools. And we must educate ourselves to use this tools effectively to manage the risk accordingly.

I am risk-adverse. If I don’t understand a product, I don’t buy it. Even is the projected returns is good, I won't do it. I am risk-adverse.

For those who managed to read what I write till this point in time, congrats! You have the patience for great things in life. Lolz. Too free right?! ;-)

Since you’d already read until here, I have another perspective to share. It’s on the part about staying away from “today's sideways equity market”.

The most simple and easiest formula I can find so far for equity investing is “Buy Low, Sell High”. There you go, I bet there are a lot of “ya-da”, “ya-da”s in your mind now. :-)

Yes, you are right. Every so called or what they call themselves, “investors”, know this is the easiest formula to apply. But a lot do not understand how to apply it successfully and most of them seem to always buy low, and the next moment the share price drops even lower. Sigh. “If I have know earlier that the prices will drop, I will not buy it liao”. Sounds familiar again? Emotions at work.

No matter what or which formula we use, if we cannot control our emotions, we can never see good returns on our investment. This is made worst if we don’t have the financial education to employ the formula.

I have another perspective, or I call it opportunity for great returns, to share. In a market that moves side way or bear market, or market experiencing a correction, or to the extend a stock market crash, the opportunity to profit is in abundance! You see, Money is a Concept. Concept is an Idea. And Ideas are in abundance! So there is a lot of money to be earned everywhere, anytime, any situation, Bear or Bull market or market that goes side-way.

No investor in the world can pin point the exact DTG of a market crash or a bull run. No investor can tell you when a side-way market is going to go up or go down. But if we have a plan to invest in certain type of market conditions, We can tell ourselves that the return is more or less confirmed. How?

Do you have spare cash to spare for investing? ;-)

Formula: Buy Low, Sell High. In a bear or side-way market, confidence level of stocks as an investment class will be low (this is very easy to spot). A lot of investors will avoid this class of investment. That will depress the share price of some great companies for a while, sometimes to the extent that the price make it seems like a great bargain to buy NOW, IMMEDIATELY! Improve your plan with another concept call Dollar-Cost Averaging if the market continues to decline. Stop buying when the bull starts running. (This is also very easy to spot). Wait for the expected rate of return and exit if you wish. Or continue to hold if you fall in love with the companies that you bought shares in. ;-)

The advantages of this formula are:

1. In bad times, bear market, side-way market or market that just crashed, companies will be selling at a price much lesser than what they are worth in terms of value. (Note: Price does not equate to value here). There will be a Great Stock Market Sale going on.

2. Since we have already identifed a good company to buy, if the share prices continue to fall, it will make it even more attractive to buy more of its shares!

3. We are using cash that we can spare so there is holding power. If there is holding power, we can afford to wait long long and sit tight tight for the expected exit point (shares price).

4. We have a formula, we have a plan. We have cash that we are in no hurry to use or no urgent need. So emotions are much easier to control here. So the success rate of this formula is VERY, VERY, VERY HIGH.

5. The tricky part is you must have the financial education on stock selection. But if you don’t have, you can still consider STI Exchanged Traded Fund (ETF). It’s a fund that tracks the 50 main listed blue chips that influence the STI.

It’s so easy. Who say investing is difficult, if you understand how to go about doing it? :-)

Disclaimer (this is a standard practice what…): I must clarify that this formula has not been successful applied by me yet. B’coz when I started investing, I am at the 75% mark of a bull run. Therefore apply if you want, but with caution as I cannot afford to pay you back when you may lose by applying this formula. :-O

That’s my 2 cents worth of sharing. Those who can read my sharing, pls share your comments on it and help me grow too.


Cheers!
Leroy

“When I Stop Learning, I Stop Living”