Why I “Buy term, invest the rest” NOW!

In episode #73, Reggie makes his stand on the endless battle between Buy Term Invest the Rest and buying Life Insurance! Insurance is a tool and it has become a given in today’s personal finance palette, but the variety drives many crazy. Everyone is telling you their side of the story and today we will too! Join us as we talk about the fundamentals of insurance. Can you still buy term insurance and invest without knowing how to invest? And should you tie your insurance and investment together?


podcast Transcript

So I know, like, insurance is a real pain and for many people, the concept of risk management is very foreign in the early days of personal finance. And it’s pretty understandable, but you know what is worse? The endless amount of advice that carries extremely heavy sales bias, trying to get our eyeballs and sometimes, ah, stroke the inner insecurity of ours. It’s a very challenging space to really understand and see things from varied perspectives. 

But I think insurance serves a great function in the grand scheme of capitalism. We have actually found people that have found a way to profit from taking on risks that we don’t want to have. So think about it: it is a great tool. But like all tools, if we don’t know what we are doing, then voila, it becomes a problem and maybe even hurts us. So today I’m going to share with you why I just bought my term insurance and why I believe in the “buy term, invest the rest” idea. Welcome home. 

So good morning, everyone. I welcome you to another day with the Financial Coconut. In our podcast, we’ll be debunking financial myths, discovering best financial practices, and discussing financial strategies that fits our unique life — you get it — ultimately empowering us to create a life we love while managing our finances well. And today I’m going to finally take my stand in this endless “buy term, invest the rest” vs. life insurance debate. I’m going to stand on buy term, invest the rest. 

So if you are not new to the personal finance space, I’m sure you’ve read tons of articles and you’ve seen on all these forums that talk about, you know, should I buy term, invest the rest or should I, you know, buy  life insurance. So then there’s on endless amount of debate. Everybody has some valid points if you ask me. And I think they all have a certain perspective so that there’s no absolute right or wrong. It is really about recognizing which tool fits you.

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But in contextualizing it to today’s world, right — and we have our own context today. Of course, 50 years ago, there’ll be a different game and maybe 10 years down, if this podcast still lives some way in this universe and some young chap picks up and listen, then they may have a different perspective, right? So, yeah. To begin, to set the tone, and to set this premise, to give it some context, and for the listeners that will tune in maybe a few years down the road, I’m going to give you a general idea as to what is going on in today’s world.

There is a surge of access in investment tools possibly due to the proliferation of technology. And local regulators are becoming increasingly open to these ideas, right? Things like digital banking, tokenization, financial marketplaces, and database API. Database API is a big thing. It doesn’t look like it’s a big thing, but honestly, if not for Sing pass and the whole proliferation of these databases, it will be very hard for a lot of these apps to create a seamless experience for a lot of us. So database API has changed the way even finance works. So all these new tech tools and financial tools,  we have taken the steps to embrace and regulate rather than clamping down on these tools, which honestly, I agree and applaud. I stand with innovation. 

That of course gives rise to a whole host of other challenges for us, because every time there’s a change, there is some differences la. Then we all have to grapple with the new reality. And retail investors and consumers like us have so many places to go, right, and to put it crudely, what to buy, what should I do? And on this podcast, we have spent a lot of time talking about stocks, ETFs, and in this year ahead, in 2021, we will be expanding the pool to look into things like properties, crypto, structured financial tools, bonds, et cetera, et cetera, to help everybody and help myself understand better because for lack of a better way to put it, I don’t know how to invest in these other things. And I didn’t start with investing in these other tools. So we’ll be bringing on all these guests to potentially help us all make better decisions as we move forward to craft our financial plan. 

And also in this current moment, my context… So that is the general idea of the market today, with all these proliferation of tools and all these technology, a much wider array of financial products out there today for the retail investor like myself. Then what about my context? In this current moment, I’m, 28, self-employed, I make about 3000 a month, spend less than 50% of my income. No near intention of settling down , do not own any mortgage or big ticket loans, decent understanding of investments, and a free spirited person.

You can say that my spirit animal is the otter [laughs]. So just doing my thing in the grand scheme of things in Bishan Park. Don’t mess around with the otters, ah, because they get really ferocious, right. But yeah, if you look at them from afar, they’re quite cute la, right? So that’s my spirit animal and that’s me la [laughs]. 

Given the context I’ve established, here is why I choose to buy term and invest the rest. And not surprisingly, my very first reason is I can invest. I’m pretty good at it, okay. And I’m not like amazing, like crazy, you know, but I understand things, right. I can have a very good discussion with the “professionals.” Maybe not the quant guys that are trying to, you know, do all the technical and fundamental and they build all these complex models together, you know. But most of your people that do retail products, most of your guys that are doing fundamental investing, I should be able to have a good discussion with them, right.

So I can hold my fort, I have a fair understanding. And you can too, right? It is not impossible because, let me put it to you this way, okay. When I say I’m good at it, or if I say someone is good at investing, I don’t come from the angle that they are always profiting, ah? Okay. okay. I get it. I get it, “If you lose money, you still consider good ah?”

The idea here is, you know, someone that is good at investing understands what is going on, right. They understand their tool. They have an objectively rigorous investment thesis and are able to kind of ride the ups and the downs, allocate their capital well. It’s not a one hit wonder or for the matter, a few hit wonder, right. You want to consistently perform and consistently do it every year, and you can consider yourself someone that is pretty good at investing. 

So let me give you a little bit more contextual understanding, right. The market is, it’s pretty exciting, a lot of euphoria in the stock market. Even using the word euphoria just kind of shows that I’m taking a stand. But that is what a lot of people think, right. The market, the prices are so high, so crazy, why you still buy, right. So “flying into the crazy territory.” And the reality is everybody has their own way of investing, right? They have their own strategies or trading or whatever, right.

They have different ways of profiting in the market. So your reaction, you know, shouldn’t really be about like, “Eh, this  is right, that is wrong. It’s not about really taking a stance on a moral high ground to say what is right or wrong, but to understand how you do it, right. So in the case of how I do it, yes, I think some of the places have very high valuation. It doesn’t fit my investment thesis. So I am taking a break from these areas. Right. And it is not about like, FOMO or FOJI, you  know, like, FOJI means Fear of Joining In, something I’ve created years ago. 

But you need a base understanding, right? So that you don’t become like a cheerleader, you know, when you have winners , which is why I study, why I win, and why I lose. And both ways I want to be able to get a better idea of what kind of mistakes am I making, or am I, you know, just taking a ride with some of these companies that I’ve chose to invest because of the thesis that I’ve built.

But then it’s not to say you have to invest on your own, right? You don’t need to do that. , Because on top of so much information out there and so much access and much easier basis to learn a lot of these things I think the world is in a place of a highly professionalized environment. They are a lot of professionals, right? The specialist, right. There are many people that spend day in, day out looking at investments. And I’m not saying like your sales specialists. I’m saying investment specialists, right? People spend their days thinking about how to shepherd capital and think about it, right? It is because of specialization that we have a world today.

Imagine if you had to farm your own produce, make your own soap, do your own baking arrangement, find a partner in China that will actually exchange money with you to taobao, you know, what a crazy world, right? So the reality is specialization is why we have our world today. And because there are so many specialists already, right, then we may not even need to learn to be a good investor.

We just need to learn sufficient to find good investors, especially with technology that strings the distance between these specialists and us. Many years ago, maybe in the eighties, it was very difficult to get direct access to a lot of these investment specialists because they hide behind brokers, because it’s just so much tougher technologically.

But today with the proliferation of technology, it’s so easy, right? Everybody, all these apps, you know, they’re backed by very professional investors. So, yeah, in today’s world, you can easily employ some very affordable specialist arrangement like robos or just outright  buy ETFs. 

So don’t get me wrong. There’s still a learning curve understanding some basics of investing, which I think, whether or not you actually, you know, practice your own investment, you should learn some basics la, right? So you get a general idea of who to use. Don’t gong gong, just sign up with someone because they’re very chill, or very handsome, someone you trust growing up . We’ve talked about this extensively, but we’ve also talked about things like, you know some concepts to level up your REITs game, right? In episode 54. Or three basic pointers in choosing your index ETF, episodes 30. So I think we’ll continue to cover these stuff to help you learn incrementally over time. And if there are some things that you really want us to talk about, and you want us to rush to talk about it, and some guests you want us to talk about, do let us know.

So what is important and what has changed today is this idea of access, right? Access to investment tools that people in the past do not have. And for reference’s sake, you know, a fixed deposit at one point in time was 12% in the early 1980s. So don’t think that uncle don’t know, the uncle downstairs in the coffee shop ah, always scold the Jinghu and keep saying Fixi is very good, but that was those times, they have not kept up with time, right. So keep learning and form your own investment thesis. 

But the central idea why I think you can buy term and invest the rest: because there is so much more accessibility today, a lot of choices, and you don’t even need to be a good investor. You just need to be good enough to look for a good investor.

Which brings me to point number two. And that is: I don’t want my investments and insurance to be tied together. So by now, I think you should have realized that life insurance is a pretty complex tool because it needs to cover so many things, right. From your savings to the cash value at the end, the insurance element, the investment element.

And no matter which blog you read, which blog post, or who you talk to, right. There’s always a lot of like this, maybe that scenario. And it is kind of trying to be that all in one thing that you buy and don’t need to care about anything else, which is one of the pro ideas behind life insurance, which is, you know, you can just kind of buy this thing and handle a lot of these aspects of your life in one.

But I am generally apprehensive of bundling things together, especially, you know, in finances, especially things that run counter interests together just because it is easier. Like some things can bundle, like 3-in-1 coffee, no problem, right. But when it comes to personal finance and some of these more complicated financial tools, I choose not to bundle them.

And without going into the specificity of how some of these policies work, like how in the beginning, you know, there’s a lot of money going into investments, and then after you hit 65, a lot of those money will get diverted to insurance. And then there’s this cash value kick back at a certain time, blah, blah, blah, all those things. So look for your favorite financial planner to help you with that. I think that’s a much better way because everybody carries a slightly different product. 

But the general idea. Okay, I’m just here to give you the general idea. There are two components, right? Insurance and investments are bundled into this thing. General idea, yeah? So when I insure myself, okay, what I want to do, right. I want to pay a consistent amount to mitigate any potential fluctuations that may hit my life la. So to put it in a layman’s term. I want to pay money to someone to take away any random scenarios that I’m not interested to entertain so that I can continue to live the life I want.

And that is kind of where it is. I want to pay and pay and let them take the fluctuation risks. I don’t want to entertain  this risk. Whether is it hospitalization or whether is it things like critical illness, you know, none of those things, I don’t really want to care. That’s why I’m willing to pay a fraction of what I have and mitigate this risk.

But when I look at investments, right, that’s a whole different ball game. I want to capitalize. I want to double down on fluctuations. I want to be able to be opportunistic and I want my money to take on calculated, educated risk for me in the grand scheme of capitalism. Because in essence, I want to ride the wave so that, you know, my net worth will continue to grow and grow and grow and give me more in the end, right. To put it very, very simple, I want risk. I want good risk. And I want to make moolah. If not, why invest? So, okay la, maybe I can beat inflation, whatever, but the idea is, on one end, on insurance, I don’t want fluctuations. I want the risk to be mitigated. On my investments, I want to take on calculated risk and I don’t mind fluctuations. I want to be able to, you know, ride the waves. 

So when you start to see that these two major aspects of your personal finance, insurance and investments, they are actually very different things. Why do you want to bundle them up together? It’s like you put coffee and Coke together. It’s a bit weird, right? So I don’t want my investments do affect my insurance. Neither do I want my insurance to affect my investments. They run a very different trajectory and I don’t want them to have any kind of influence against each other, as I grow old in my life, 

But of course that is not to say that life insurance does not have any use, right? Depending on your goals, depending on what you’re trying to achieve, most importantly is to understand what you want. You know, what is available out there, it’s vast. A whole world of all sorts of financial tools.

If you have a certain budget, someone is willing to come up and create a tool for you. And sometimes it’s a struggle to match them. So find someone that you can trust who is professional and who you can work that through together, right? And you can actually take on loans against your life insurance, you can have cash value at the end of a sudden time period, et cetera, et cetera.

There are many other perks, you know, that comes with life insurance, but all these features  are not what I’m interested. It’s like I’m going to the fruit stall to buy apple. And the guy is trying to sell me durian. And you want to look at the seller in the eyes and say, “Give me that apple, I don’t have any interest in durian; I don’t care if it’s in season.” So there’s a lot more to be said here. So if you have not heard our interview with Chris from Providend, episode 2 of Chills with TFC, which was last Thursday , head over because I think he’s the pro, right? I’m a commentator, an edutainment person, right. So he has a lot more to share and I’m sure you’re gonna pick up a lot of good stuff from him.

Which brings me to point number three. I am relatively certain about my medium term of life, like 5 to 10 years. So there is two parts to this, right? Why I only got insurance now and where I see myself in the medium term. I think the fundamentals of insurance, like I said, is risk management, essentially paying someone to remove all these random things that you don’t want to have, and they will offer you a price. And you think whether the price is fair. Ultimately they are trying to profit and you are trying to mitigate risk. So as long as the interests are aligned, yeah, we’re good to go. So when you first start making money, you probably get bombarded by a lot of these financial planning stuff la, insurance, retirement, investment, blah, blah, whatever, alright.

But why do I only look at insurance now? Because when I first started, I don’t know what I want. I was just exploring my life. You know, I was getting myself all over the place, right. I was just trying to figure out my life. So if I’m not settled down in my life, I’m not, you know, kind of cemented a career path, or a certain a way of life that I love and I want to preserve, then what about risk management? If I don’t even know the thing that I want to manage against, then what kind of risks are we talking about? 

So I know there are like all these medical risk and all those blah, blah, blah, right? They’re not wrong, not wrong. But in my view, the biggest risk in your life is you if you have not yet gotten some clarity as to where you want to go la, right?

Once you have some clarity, then, okay, risk management starts to make sense, because I want to preserve this way of life for the next 5 to 10 years. And I’m willing to pay an amount every year to preserve this “normality” in my life. And that is why I am even considering insurance now. And I’ve got very simple stuff, like critical insurance, like hospitalization and essentially all your term la.

And like I said, why do I buy term and not life? I think I’ve established some two reasons above, but more importantly, I think when I look at it, you know, one of my top reasons is that I don’t want to over-commit to something. Life insurance tends to have the very big penalty if I were to cancel it, or if I feel like I want things to take a different path, go down a different way then, yeah, you know. Some of these things makes it a bit more complicated. Every time someone wants to cancel life insurance the penalty is there, and I get it, from the company’s point of view, I get it. But from an individual point of view, if I have not sorted out the life that I want, then why do I want to commit into something that will give me such a big penalty?

And so to end off today , I think there are a lot of complexity in insurance products. But I will not go into the details because everybody is slightly different, but the general idea is this. I want you to be able to see that your life forms the basis of insurance, right? Because if you don’t have a life that you love, then what are you trying to protect against? What are you trying to manage risk against? So on a cheeky side note, right, it is probably easier to add insurance then remove. So once you’ve sorted at your life, then you can add a little  bit and you can add a little bit more right. Don’t think about add enough and then remove.

And try not to see insurance as a jackpot game la, like “Eh I insure a million dollars, so if any shit happens, I get a million dollars.” Dude, dude, dude, dude, dude, don’t think like that. Just go and be more financially savvy, work on your capital or work on your life and you can make the million dollars. Don’t need to wait until shit happen then you leave a million dollars behind, okay? 

And so to sum up today as to why I only just bought term insurance now and why I believe in a “buy term, invest the rest” strategy.

Number one is because I can invest, I’m pretty good at it. And you can too, because tools are very available today. If you want to learn, it’s not that difficult. There are a lot of resources out there like us, like many other people and if you don’t want to learn, you can even just learn a little bit and pick a specialist that is sufficiently  good, right? The access to a lot of these investment tools are so prevalent and so much more advanced than many, many years ago. 

And number two is I don’t want my investments and insurance to be tied together. They form very big parts of personal finance and they serve a very different function. So I don’t want my investments on any level to affect my insurance and I don’t want my insurance on any level to affect my investments.

And number three is, I am relatively certain about my medium term of life. So that is why I’m going to get term insurance now. And that’s also why I don’t want to commit into something that is like for life or forever, where the penalty, if I were to change, it’s going to be very, very high.

And honestly, I think the Singapore government has done a decently good job in trying to create a social safety net. Of course, there are a lot of social problems in terms of, you know, the gig economy and all those. Yeah, those things we’ll cover as we go along, but in the grand scheme of things, you know, if you choose to live in Singapore and you choose to subscribe to the whole CPF strategy, then actually it’s not too bad honestly, in my view. All right, so I hope you learned something useful today. See ya!

Hey, I hope you learned something useful today and truly appreciate that you took time off to better your life with The Financial Coconut. Knowledge is that much more powerful and interesting when shared, debated and  discussed. Join our community Telegram group, follow us on our socials, and sign up for our weekly newsletter. Everything is in the description below. If you love us and want to help us grow, definitely share the podcast to your friends and on your socials. Also, if you have some interesting thoughts you want to share or know someone that you want us to talk to or you want to  hear more from , reach out to us at hello@thefinancialcoconut.com. With that, have a great day ahead, stay tuned next week, and always remember: personal finance can be chill, clear, sustainable for all. 

Test test. Okay, so I hope you learned something useful. It’s very conceptual. Because I’m not like an insurance product pro, I don’t really want to go into like product details and yeah. Maybe next time we can bring some of these companies that, you know, craft all these tools to come on and actually talk about why they craft it in a certain way and whatnot.

So we hear from the pro, I think that’d be way more fun. But these are fundamental ideas. I hope it benefits you when you decide how you want to manage your insurance and your investments going forward. And this Thursday, this Thursday, I have a great friend of mine who is coming on the show. Actually this episode I have recorded has been in the backlog for a really, really, really long time. Yes, we record in bulk, if you have not realized But I have not found an opportunity to slot him in. And I think in the theme of, you know, starting well and in the theme of like World Economic Forum and sustainable living, I think it is a good time to slot him in.

So Chris, a very good friend of mine , the ex-General Manager of Edible Garden City, a very, very big believer of sustainable living. The way he handles his money, the way he looks at life and the way he looks at how to invest with alignment to his ideology. I think those are pretty interesting. And we had a very good discussion very long ago, and I’m just happy to be able to release his episode to all of you.

So I hope you have fun this Thursday, which is in two days’ time and next week… next week, we’re going to try something different. You don’t want to hear from me every week, or maybe you want to, right — if you want to let me know, but next week we’re going to try something different, right? Every last Tuesday of the month, we are going to go with a book review, like a TFC book review. Because I think we are trying very hard to propagate people to learn more and read more, you know, and we want to share with you guys some book reviews. And Troy, my cohost on Coconut Avenue, which is a property podcast that we’ll be releasing next month, will be hosting this book review segment, where he will come on on a monologue arrangement and talk about, different, different books.

And the book for this Thursday is Designing Your Life. And it’s a pretty interesting book created by one of the universities that’s very popular. So, yeah, if you’re a fan of the book, come on and have a good discussion. If you are new to this thing, then why not learn some things. We will pick up three points that we believe are great from the book. And we hope you learn a different perspective and hear from different people. 

So welcome as we continued to develop our content, we are going to be trying a lot of new formats. So help us, let us know what you like, let us know what you don’t. And we can continue to craft this channel together and craft this podcast network together.

Meanwhile, take care. See ya next week.

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