Nov 09 2022
Advising clients to combat inflation by investing in insurance policies
By Melinda Woo
Inflation is soaring in Singapore now, almost hitting a 14-year high at 5.3%. During a time of inflation, each dollar is worth less, lowering consumers’ purchasing power. This means that consumers can afford less with the same salary. Other effects of inflation include lower interest rates from banks and recession.
While inflation is inevitable after the pandemic, there are still ways to beat inflation and secure a comfortable retirement in the long run – by investing prudently. Let’s hear how seven-year MDRT and two-year Top of the Table member from Singapore, Kenny Lim, ChFC, CLU, educates his clients when it comes to investing to beat inflation.
Protecting your money from devaluation
Before diving into the topic of investing, Lim ensures that his clients have proper understanding about the effects of inflation. For ease of understanding, he would share simple examples of money losing its value over time. For example, sharing that a typical public housing flat from the Housing & Development Board (HDB) in Singapore would have cost $20,000 back in the 1970s, but the same amount of money would only suffice for a down payment (10% of the price) of a HDB flat now.
When clients understand that their savings in the bank can go down in value by the time they reach the age of retirement, Lim can then recommend them alternative methods of saving money such as traditional endowment, leveraged annuity or unit trust investments. He would also encourage them to always keep in mind that “compounding your money early, coupled with dollar cost averaging strategies can do wonders” – a benefit that bank interests cannot compete with.
Explaining through allegory
To further nail in the importance of investing to beat inflation, Lim introduces his clients to the idea of having a passive stream of income with a hypothetical “money printing machine.” This machine would guarantee passive income, and its cost, along with interest, would also be refunded if it does not break down at all through the years. Once he has intrigued the client with this hypothetical machine, he would then explain that we are our own “money printing machine.” The only difference is that we cannot be replaced if we fall sick, thus creating a sense of urgency in the client to start protecting their health and wealth.
With this hypothetical scenario, Lim would also unveil that the money printing machine can be a metaphor for investment and insurance plans as well. This is because “if unforeseen financial risks happen, your finances would be protected. If nothing happens, you will receive better returns that the bank can give.”
Presenting statistics and accurate calculations
When it comes to investing, it all boils down to numbers. To put his clients at ease, Lim ensures that he clearly presents his recommended investment strategies in detail alongside clear calculations and comparisons with returns offered by banks.
On top of that, Lim also calculates the additional time that his client would have to spend working in order to retire if they saved their money in a bank instead of investing. He shared that once his client “understood that the value of his money would be eroded greatly by inflation as time passes, he was willing to take action to beat inflation by investing”.
By creating hypothetical but realistic circumstances that would evoke a sense of awareness in his clients, he is able to present solutions to with his financial advice. Lim reminds his client it is important to ensure their efforts in their career are paid off during their golden years, by creating a stream of passive income for retirement and not be a financial liability to anyone. “I tell my clients, health is wealth. If you don’t let your money work for you, you will end up working for money all your life,” he says.