Why I Don’t Believe In Investment Products

More than a year ago, I liquidated all investment/savings products from my insurance companies and channeled all that funds to my US brokerage account.

Why?

I know I can compound my money faster myself, without having to thicken the wallets of insurance agents.

Note that I am only referring to investment/savings products from insurance companies - things like endowment plans, unit trusts, etc. I still believe that medical and personal accident policies are important for everyone.

In any case, this article represents my personal beliefs - so please do not get upset if it contradicts your beliefs 🙂

1. Conflict Of Interest

The only person that you can trust your money with - is yourself. In fact, nobody cares more about your money than you do.

This is why I choose to educate myself in the arena of finance and to educate others as well.

Now, I want you to put on the hat of an insurance agent and you are getting a commission from the premiums that your clients paid.

If the focus is to make as much commission from your clients as possible, it is only natural that unethical insurance agents will advise you to buy as much investment/savings products than you possibly can. Before you know it, you are spending more than 50% of your income on these financial products. Bad mistake. 

The result? They get rich while you are paying hefty premiums month after month.

I do not suggest that all insurance agents are unethical - so if you really do find an insurance agent that truly look out for your interest, keep him/her close as your insurance advisor.

This is why it is so important to educate yourself on how to manage your money. Please don't leave the fate of your money to financial advisors...

2. Financial Advisor?

If I wanted to quit smoking - will I get advice from someone who is still smoking or someone who have managed to quit smoking?

This is the exact same logic when we look for financial advisor.

Whenever a financial advisor pitched to me an investment/savings product - my first question would be "Did you buy these products yourself?"

If it was so damn good as they have described but yet they did not buy these products for themselves - your alarm bells should be dinging like crazy.

I made it a point in my life that whenever I want to learn something - I will ONLY learn from practitioners who are producing results that I desire from the vehicles that they are pitching.

I have heard so many people who are NATO - No action, talk only. I will be upfront - I will not ask any advice from these people. I will only take advice from practitioners with years of experience and actually producing the results that I desire from the vehicles that they are pitching.

For example, when I wanted to invest in properties - I will not look for someone who only have experience investing in one property. I will only look for someone who have experience investing in multiple properties!

So when you are looking for your financial advisor - ask yourself this. Did they get rich from selling you these financial products, or did they get rich from investing in these financial products. When you do the math, the answer is blindingly obvious.

3. Liquidity Penalty

The moment you buy an investment product, chances are that you have already paid a fee upfront. After all, the insurance company will have to pay their financial advisors a commission.

This means that even before the game started - you have already lost money and yes, that means your financial advisor has already made money from you.

Because of this sunk cost, most people are reluctant to withdraw from these products after a few months. After all, nobody will want to admit that they made a financial mistake. Sometimes, they end up paying for this mistake for many years - only to realised that had they invest the money in the S&P 500 instead, they could have been two to three times richer.

Of course, if you were to invest in "qualified stocks" - the difference in gains will have been much greater.

The Bottom Line

I have nothing against financial advisors - I still believe that there are ethical financial advisors around us who truly looks out for our best interest.

However, I have everything against the unethical financial advisors who only looks out for their own wallet's interest. With that said - it takes two hands to clap. If we do not want to be eaten by unethical financial advisors, the responsibility also lies upon to take charge of our own financial future.

Remember that, in our lifetime, there are only two most expensive things we will ever pay for.

The first is taxes. Everything that we buy, make money, sell - we all have to pay taxes. 

The second is ignorance. If you think the education is expensive, the price tag on ignorance is much higher. Think about it - what will it costs us if we fail to educate ourselves in our financial education and wind up locking up capital in financial products with poor returns, instead of educating ourselves to invest in the stock market. The difference could be in hundreds of thousands.