A recent survey done by Schroders indicate that investors are too overconfident.
93% of investors expect an average return of 10% on their investments on the next 12 months. But they planned to put just 21% of their assets in equities, 42% in cash and 37% in bonds.
The survey also saw a biased towards short-term investing with 45% preferring investments that yield outcomes within one to two years.
Ms Susan Soh, managing director at Schroder Investment Management (Singapore), said the survey highlighted a "clear disconnect" between investors' expected returns and their attitudes to risk. Expecting double-digit returns within a year while placing under a quarter of their portfolios in higher-risk assets was not "a realistic approach to investing", she said, suggesting that investors seek professional advice to "balance the risk profile with the returns they are seeking". – “7 in 10 count on cash savings for retirement”, Straits Times 24 May 2015.
To get 10% returns with just 21% in equities imply that the high risk assets have to grow by 10/0.21 = 48% in just 12 months. This assumes cash and bond returns are 0%. The time horizon of just one to two years is unrealistic because generally the higher risk an investment, the longer the time horizon required.
Obviously such unrealistic expectations are due to the lack of financial knowledge. Financial knowledge can only be overcome through financial education.
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In Singapore, financial knowledge is obtained thru hard knocks, getting burned with losing -50% to -120% of your capital and your pants too. Just like becoming a hardcore skilful fighter — you need to get your face & your arse re-arranged by many opponents before you wise-up and build up your own set of knowledge & skills (provided if you survive the first few years)..
Hence it’s better to get 20 major punches to your face & 10 super back-thrusts into your abdomen while you’re still young, and able to recover from the bloody mess & any financial surgeries. If you try to be financial hero in your 40s or 50s, you will still easily die on the operating table even with the best Warren Buffet-type financial surgeons trying to rescue you.
GEL just reported their par fund bonuses and performance. Out of $2.2B payouts in 2014, only $96M were for claims (death, CI, TPD). i.e. only 4.36% are for *real* insurance purposes. And because par policies are expensive, the payouts are usually not enough to provide for dependents, medical fees, loss of income.
The rest of the $2.1B payout were mainly for policy surrenders, policy maturity, and cashback payouts. So people are mainly buying expensive par policies as “investments” or savings — not realising that the expensive hidden costs of such policies are making them suckers.
The investment returns of GEL’s par fund over last 20 years has averaged 6%pa. But it’s bonus rate (i.e. annual return) to you is only 2.5%@2.2% (2.5% of sum assured + 2.2% of accumulated past bonuses). And GEL’s bonus rate is already considered one of the better ones in the industry.
NTUC only gives 0.7%@0.7%. Might as well put in bank or under your mattress.