What kind of investment vehicles are more suitable for accumulating assets and wealth for retirement? In fact, apart from Mandatory Provident Fund (MPF), life insurance can be a very good choice. As life insurance is a kind of long term investments, it will bring along great returns through the compound interest effect in the long run.
“Time is your friend when it comes to investing.” While cash values under traditional life insurance grows as time passes by, the addition of cash values and dividends can be accumulated in the policy account for reinvestment to earn more returns through the effect of compound interest. As long as there is sufficient time for interest accumulation, limited amount of money can also bring us marvelous returns in the long term.
The following table can briefly illustrate the power of compound interest effect:
| Total Investment Amount : HK$1,080,000 | |
| 1st Approach | 2nd Approach |
|
Invest HK$3,000 per month for 30 years Assume return at 5% p.a. compounded monthly |
Invest HK$4,500 per month for 20years Assume return at 5% p.a. compounded monthly |
| Principal with Interest: HK$2,507,179 | Principal with Interest: HK$1,857,358 |
Say you are targeting to invest at the total amount of HK$1,080,000 and you are considering to invest through either a period of 30 years or 20 years. With the same amount of principal, the first case requires less money to be invested each month and you spread your principal for a longer investment period. Under the same investment return each year, you can eventually get more for the total returns due to compound interest effect. Under such circumstances, if you are planning for retirement needs in the long run, don’t you think a life insurance policy without worries about volatility of investment market but with enjoyment of compound interest is an ideal choice for you?
(This is a translation only. The original article is written in Chinese and you may refer to the original version here for exact meaning).
