Today while I was walking around in my neighborhood, I realised my bank was having some sort of event going on and I decided to find out a little about what’s going on. Apparently they were having some CNY event and offering some savings plan (as usual). But this time, I decided that I would keep an open mind about what he is offering and listened intently. Also, I thought it would be a good opportunity to learn more about the industry and what the career prospects are for his line of job. I think I managed to get quite a lot of insight, and as usual, I haven’t gotten myself the savings plan.
Should I save:
I understand the purpose of the savings plan and I agree that it’s important to have a savings plan. 3.05% is a decent rate for savings plan but not in the market for me. I can’t get over the idea that for 25 years I’ll have to keep contributing and locking in my capital for 3% interest rate. In terms of flexibility and opportunity that may come my way where I need the cash, I wouldn’t be able to use the cash, much like CPF isn’t it? To a non-saver, it is a good and disciplined approach towards a financially sound future. But to an investor like myself, I often get stuck at thinking about how I would have my capital locked up drawing a meager 3% with no potential capital appreciation.
But if I choose to invest:
I agree that a sum of money that should be set aside, ‘risk-free’, for other events such as retirement planning or family planning. However at my age and the kind of capital I have, is it worth to keep injecting money into risk-free asset? Assuming I put $200 each month into this savings plan, it’s $2400 a year and in 25 years it’s $60,000. My total interest would be $23,400 at the end of the tenure. A good sum indeed! But I go back and ask myself, should I take on the risk of being in the market and drawing dividend income as well as enjoy potential capital appreciation? 25 years is a long time and it could make or break or stock. 25 years ago, Coca Cola was worth $4. Today it’s worth $40. Of course not every stock turns out to be a winner but would I take the chance? Yes. Between choosing to live reasonably comfortable, and having a chance to live luxuriously, which would you choose? I’m guessing Singapore Pools would have closed down if everyone were happy with living just reasonably comfortably.
Readers, what are your thoughts on saving plans? Leave a comment! Would love to see what investors think about savings plans.
Feel free to read 17 Investment Options by my friend, Giraffe Value.
My Route To Financial Freedom 
I’m struggling with the same decision as well- but I tend to think, with a sufficient time horizon, that a dollar cost averaging approach to an index linked ETF with dividends reinvested, could perform as well as the savings plans even within conservative projections of capital appreciation. The potential for higher gains and liquidity is pushing me away from the savings plans.
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Hi shlai,
I tend to agree with you that even with a conservative approach, one can still make at least that 3% or potentially more!
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Hi aloypro,
Do you already have a emergency fund? If not, I will advise you to save up a comfortable amount to tide you over in an emergency e.g. unemployment etc. The last thing you want is to sell your stocks to raise cash. How much should you set aside depends on every individual. The rule of thumb is anywhere between 3 – 12 months of expenses. Naturally, the more liabilities one has, the more emergency fund he would want to have.
If you already have an emergency fund, the next question is should you save or invest. As what Shlai said, given a sufficient time horizon, there is a very high chance that a index fund will out perform a savings plan.
Lastly, if you choose to invest do you want to invest now or wait? A lot of financial bloggers have talk about this, the merits of a War Chest or staying fully vested. Do a search in my site. I’m sure you will find a lot of helpful insights.
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Agree wholeheartedly with Derek comments here.
Actually, emergency funds can act as savings as well, just allow it to be liquid when you need it to be.
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Hi B,
Do you mean to invest my emergency funds into highly liquid assets such as short term T-notes and such instead of holding them as cash?
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Hi TheFinance,
Yes, I have an emergency fund already set aside. I agree, the last thing i want to do is to liquidate my position to raise cash.
I have been reading voraciously the differeng blogs listed on your site and have gain many opinions on whether to go all in or build a warchest. It’s a really interesting time we are in right now. I’m quite heisitant about liquidating all my position now considering that most are dividend stocks.
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Hi aloypro,
Just call me Derek. 🙂
I too am holding several dividend stocks and have no intention to sell unless the fundamentals change. I am on the side in favor of having a war chest and is building on it. However, I am also doing a DCA (small amount) on my company stock every month.
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Hi Derek 🙂
That’s a good strategy you’ve got there! Really appreciate your sharing. It is by far the strategy that suits my current situation the most!
On the side note, I just want to let you know how much help your site has rendered me, providing a one-stop site to read all the financial blogs! I have learnt so much from all these other bloggers and would never have known them if not for your site.
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Hi Aloypro
Yes, I was referring to either short term fixed deposit or bonds that mature less than a year.
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