Sunday, April 6, 2014

Risky Investment?

I went to a local bank to place a 12-month fixed deposit to take advantage of their promotional rate of 1% p. a.  The gentleman serving me kindly recommended some other alternative options to gain a slightly higher return.

One option is to place the money in a structured deposit, which will give out returns as follows:

1st Year 1.4%
2nd Year 1.5%
3rd Year 1.6%
4th Year 1.7%

If you average out all the years, the effective return is ~2% p. a.  I thanked him for recommending this option to me, but I stated that I was not interested.  The return is too unattractive.  I told him that a 10-year Singapore Government Bond has a return of 2.45%.   Then his argument kind of surprised me.  He said bonds are risky investment, compared to the structured deposit that he is offering, which is totally risk-free.

I had nothing to say if someone claims that Singapore Government bonds are more risky than a Singapore bank's structured deposit!

I feel lucky that I had spent the time and effort to learn all the basics of finance, and the nature of different investment instruments.  As a result, I am not at the mercy of ill-informed RMs, or even worse, dishonest RMs.

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