In my post on my early retirement plan, I mentioned that I need to get a 4% return for a million dollars in savings. This will yield about SGD40,000 per year, which a nice contribution to cover our living expenses.
Now, the challenge is to find that 4% returns. If you have been living in Singapore, you know that such returns are impossible to find especially if you talked about traditional savings account. I took a look at the current interest rate based on this link from DBS:
Guess what, the highest interest for a million dollar savings is only 0.25%! What the hell is this! Is this the highest interest rate for fixed deposits in Singapore? How may I going to retire on such pitiful interest returns.
Traded endowment policies in Singapore
So, the 4% returns evidently needs to be sourced from elsewhere and this is where I need to do more homework. My first step to find a higher returns is to google for it. Rather than the organic listing, I started looking at the ads and saw one interesting advertisement about traded endowment policies:
I click on the ad and read more about this new investment vehicle. Apparently, I can buy an endowment policy from someone who has been financing it for the past 20 years and wants to have a quicker and better cashout. Under this vehicle, I will take over the financing for the next 10 years and be edlible to cash out on the agreed value when the due date is realised. The returns I make depends on the price I pay to take over someone’s endowment policy and the total monthly payments I have to contribute. All in all, the returns came to around 5-6%. Definitely worth a look!
The good news is that I can buy these traded endowment policies in Singapore. This was a recent development as traded endowment policies were formerly only available in UK. I definitely will call the agent up and ask for more info before I make a decision.
Make higher returns with peer to peer lending?
Another option I am reading up upon is peer to peer lending. The concept is like an ebay for loan where normal folks like you and me can make small loans to people who need it. The interest rates you can receive as a sender will depend on the bidding system that is similar to how ebay bidding works.
I am not too keen on this option currently because the default risk is definitely higher. Also, I need to micromanage the loans to make sure I have enough diversification on who I am lending out to. For such work, I rather spend the time in building up my online business for a much better rate of return.