Avoid those endowment policies

AWANDERING albatross flew in last week trailing clouds of smoke and fire. He felt, he said, as sick as a parrot.

Never, ever, buy investment policies from assurance companies was his message. He wants this sign plastered in workplaces throughout the land. No young person, he went on, interested in saving for his or her future, should be subjected to the lures and garbage dished up by the life companies and their agents. The only products that should be bought from assurance companies (so called because their original purpose, to anticipate death, is assured) are a simple life policy and a retirement annuity with contributions up to the tax threshold.

Thirty-three years ago he bought an endowment policy. It had become such an established part of his debits that he missed a postal notification in 2010 that his policy was about to mature. The next notice he received was in July 2012 when he was told his money had been invested in some sort of “secured fund.” This meant the assurer could decide on his investment strategy.

Then he discovers that his investment has yielded — wait for it — 11.98% over three years. It’s better than zero or negative, but is this what he paid swingeing fees for? What about the lost opportunity cost?

David Southey, who is so furious he’s happy to be quoted, ran a comparison and used the SA Multi-Asset Medium Equity Tri-Plexicrown index (what a mouthful). Over those three years, it returned 40%, or about 12% a year. Over the same period, the JSE all share index returned 46%, or 13% a year. The financial and industrial index yielded 75%, or 22% a year.

At about the time Southey missed that postal notification, another endowment matured with another life office. This time he was telephoned. Thank you, he told the agent, for the underperformance, but I’ll take my chances with my own advice. He says “with judicious stock picking” he achieved sensational results. His message is unequivocal: never buy anything masquerading as an investment from a life office.