Portfolio hedge using insurance protection

Many people will think that hedging risk against portfolio means buying put option or any derivatives to protect downside when market goes south. I think to protect capital and portfolio gains, we should be buying insurance instead. Of course not any insurance, I am referring to purely insurance for protection.

Since I am managing the family monies which mean I need to hedge the capital risk of the portfolio against any illness of which my parents may encounter when they grow old.

Choy Choy Choy! But in reality this is happening to people around us, have you heard about XXX parents contracted cancer and did not have any hospitalization coverage?? Plenty of examples around us, we are just praying this isn’t happening to us anytime sooner!!

Instead of praying, I will hedge against any potential calamity which might happen to my parents whether it’s personal accident or major illnesses where they will draw capital from their retirement nest to pay off the hefty medical treatments.

Like many others, my parents in their generation doesn’t really believes in insurance and did not have enough insurance coverage especially hospitalization plans. They used to tell me, got cancer then die lah!! But I always reply what if you don’t die and illness drag for years … they say they will die!! Hahaha, that’s their mentality.

For me, I don’t need them to leave me what big insurance payout after they “move on” but just ensure they have enough to pay their hospitalization bill when their time comes. No need to buy what whole life plan, endowment plan etc

I reviewed their existing insurance when I started managing the family monies 3 years ago and added some protection “hedge” like upgrade their medishield to private shield plans up to govt A ward and also included an accident plan. Old people can get into accident very easily even at home like sprain back etc, this plan covers TCM (Traditional Chinese Medicine) as well.

As you see, there are already exclusion because they have existing illnesses already so private insurer had excluded them totally. These are the risk the portfolio have to take since they can no longer be insured but at least I cover any others that might happen. Insure early, my friends!

The game plan is easy, I used the passive income generated from the portfolio to pay for their insurance premium and in that case they don’t need to touch their savings or my savings.

In short, the portfolio is funding the “hedge” itself if it continues to generate passive income
For those who have aged parents like me, do consider reviewing their existing insurance coverage and take action today to avoid any regrets and “what-if” situation.

Eventually they cannot afford to pay? Who pay? Government pay? Fat hopes!! You will be the one paying for bills!!!

You can either speak to an insurance agent or DIY the insurance plan yourself like what I did. Remember keep it simple (separation between protection & investment).

Buy what you need and not what the agent wants to sell you!!

Be happy and healthy always!!

Mum's Insurance	Type	Insurer	Plan	Coverage	Exclusion
MediShield	CPF	CPF	C	As charged
Supremehealth	CPF+Cash	Great Eastern	A	As charged	1) Disorders of the heart 2) Cerbrovascula Accident / Stroke
TotalShield	Cash	Great Eastern	A	As charged	1) Disorders of the heart 2) Cerbrovascula Accident / Stroke
Accident (Deluxe)	Cash	AIA		$100,000.00	1) Disorders of the heart 2) Cerbrovascula Accident / Stroke
DPS (Till 60)	CPF	Great Eastern		$  50,000.00
ElderShield	CPF	NTUC		-
Dad's Insurance		Insurer	Plan	Coverage	Exclusion
MediShield	CPF	CPF	C	As charged
MyShield	CPF+Cash	Aviva	A	As charged	1) Disorders of the heart 2) Cerbrovascula Accident / Stroke
MyShield Plus	Cash	Aviva	A	As charged	1) Disorders of the heart 2) Cerbrovascula Accident / Stroke
Accident (Deluxe)	Cash	AIA		$100,000.00	1) Disorders of the heart 2) Cerbrovascula Accident / Stroke
DPS (Till 60)	CPF	Great Eastern		$  50,000.00
ElderShield	CPF	NTUC		$             -

*Dad passed away in 2017 and I did not pay a single cent for his hospital stay for 7 days.*

My first taste of investment at age 18

Suddenly I was thinking when I actually started my investment journey then I remembered I did made my first investment with OCBC at a tender age of 18 (too young right?) without any guidance; it was a “capital protected” structured deposit with a fixed investment period of 5 years.

Story begins 12 years ago back in 2001, I still clearly remembered that I walked into an OCBC branch in my neighborhood, wanted to put my savings into a fixed deposit account. When I told the bank officer, I had $10,000 (accumulated after years of savings through my weekly allowance from my doting father, working part time $5/hr sales man and “angpow” gathered each year) and wanted to put into a FD, he immediately referred me to a relationship manager (RM).

The RM treated me politely and with full respect like a matured adult (quite “high” at that moment) and tell me all the standard items “bla bla bla” and finally he took out a piece of paper and started drawing an investment plan of 5 years with beautiful returns of at least 1% every year plus “POTENTIAL” returns up to 4-5% if the fund performs well and the best thing, it was 100% safe and capital protected if I hold my investment till the end of 5 years.

I don’t even remember what was the fund strategy and what kind of instrument is the SD investing in but I am very interested in the total returns of total returns of 5% vs. FD of only 2-3% per annum.
When I told the RM I was only 18 (min age to sign the documentation is 21), he looked disappointed (maybe I look damn "chao lao") as if he wasted 1 hr to explain the details to me. But he was persistent; he says why not you ask either of your parents to come over to the branch to sign the document as your guardian.

It was 3.30pm and branch closes at 4pm, I told him why not I bring my mum over to sign tomorrow but he said that the branch can wait for us, no worries on that. Damn sincere!!
Okay lah, I immediately called my mum and she rushes down from her workplace (workplace nearby) within 30mins and after I “assisted” the RM to explain this product like a "sales man" myself and with a total returns of 5% per year was awesome (my persuading skill also quite good after years of working as part time sales man), confirmed earn one and capital protected somemore.
Mum was eventually convinced and signed on the dotted line and by then it was already nearly 5pm. Power right, branch delayed closing because of me.

On the hind side; how I hoped my mum scolded me and don’t allow me to make investment at such a tender age? I knew "shit" about investment; I was only concerned about the 5% returns, that’s it.
So happy, I thought I made a superb investment decision and every year can have $500 (5% of 10k) returns, better than the returns of the FD my parents renewing every year at 2-3%.
Excited when I saw the first letter from OCBC, telling me my returns for first year was 1% and $100 was credited to my savings account. God damn disappointed, I was thinking at least also have $300-$400 right, how come only $100? Worst thing was, the current value of my SD was below $10,000.

Shocking, I thought he says it was capital protected. I went back to search the document that we signed, it did clearly states that the SD will be “mark to market” at an ongoing basis. The RM never say this to me leh when drawing the superb returns on that piece of paper.

Cut the story short, 3 years later; at age 21, a matured young man serving National Service (NS). Well more matured than 18 years old right? I received another letter from OCBC at the end of 3^rd year and it was 1% again, the return for 2^nd year was also 1%. This means my total returns for past 3 years were 3% and current value was below my initial investment amount.
Angry and about time to make a decision, I decided to go to the same OCBC branch to terminate the SD and take back my investment. This time doesn’t need my mum to sign anymore, "heng ah" else sure get an earful of nagging by her.

Although I can't remember what the SD value was when I made the redemption, but I vividly remember that including the miserable 3% or $300 I received for the past 3 years, I did not lose out much.

This also meant that I didn’t earn a “shit” out of the investment because of my early redemption and still loses out on inflation. Of course you might be thinking if the RM was around when I returned to the same branch. Long gone already!!

Scared and worried of making any further investment, I only dare to put my money into FD account earning 3-4% (interest rate was definitely higher than current) till I turned 23 years old before started my REAL investment journey.

Nothing to fault OCBC or the RM, it was my own decision back then but this will always serves as a good reminder throughout my investment journey. On the hind side, luckily never lose my capital else it will be a really costly lesson.

Lesson learnt!! Read properly before you sign anything including fine prints. When making any investment decision, do your own research and trust only yourself and not hearsay by others.

What’s your first investment and at what age? Lets learn from one another by sharing lesson to avoid making the same mistake again.