Bad investment choices: let others learn from your fails/ mistakes!


#1

Dear all,
please present your financial fails and mistakes here, so the others may learn from it!

I want to present my bad experience with a life insurance, which i now see as one of the worst thins you can do.

Back in 2013, when i was already looking for my money stuff but had no ideas about mustachians, passive investment, and the big picture in general, I went to some independent financial advisor, because some student’s organisation would pay for one (=three separate) sessions.

among a lot of stuff that i regard as good and successfull by today, I was recommended a life insurance “protect plan” from Axa Winterthur in the Pillar 3a Framework. For a yearly premium, i would build up some lump sum capital, including some “Prämienbefreiungs- und Todesfallversicherung”, e.g. in case of work-inability of mine the yearly premium is insured, and on death i would recieve the lump sum.

Key parameters are:
start year: 2013
duration: 39 years
Lump sum: CHF 113’047
yearly premium: CHF 3020, thereof
CHF 2337 capital building
CHF 133 Prämienbefreiung
CHF 550 Todesfallversicherung: on death i recieve slightly less than my summed premiums.
a minimum guaranteed interest rate of 1.2% on the capital stash.
Depending on not-so-clear conditions, the stash can be linked to SPI up to 40% to yield a bonus interest, but not guaranteed. When it does, the lump sum increases above the guaranteed amount.

Now, 4 yearly premiums later I became a mustachian, I go through the numbers and find the following:
1.2% is freakin low for money that is lawfully locked away for the next 35 years.
22% of my yearly expenses go into insurance, not capital. holy!!
currently, the “buy back” option of the whole insurance (therefore cancellation) results in the loss of about CHF 6000, which is half of my so far contribution.
I dont need death insurence, I dont have people that depend on me.
the “Prämienbefreiung”. basically is an insurance over CHF 3000/y for CHF the price of 133/y that applies if i reach a certain percentage of work-inability. then this insurance pays the yearly premium.

so currently i think i will bite the bullet, lose CHF 6000 in cancellation and start doing reasonable stuff with this money soon.
with my excel calculator, i see that yearly CHF 2337 of mustachian investment will result in well above CHF 170’000 in case i use the remaining CHF 680 for insurances.

whats your experience?


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#2

This past summer I set up a Pillar 2 occupational insurance solution for my new company through Baloise Insurance. I have all the spousal and children’s pensions and of course my own occupational insurance. My annual premium is 24,770 CHF of which 2063 CHF is the ‘insurance’ cost and the rest is in ‘savings’. Compulsory/non-compulsory conversion rates are 6.8% and 5.62% respectively and interest rates are 1.2% and 0.75. So of course I would love to do something more lucrative with the savings portion but really do not know what my options are for Pillar 2s. Everything I heard so far is that there are only very conservative banking or insurance options and so this may be the lessor of two evils. Any insight or advice on this insurance savings would also be welcome!


#3

@SwissChalet
i am no expert on Pillar2 beyond that i found for myself: as youngster i’d rather put my money in ETFs, since this will result in much bigger growth over the 3 decades i have ahead of me. The Pension funds give stability and security, but only small return. i dont need the first two, but this is already quite individual for me. i found numbers like 1-2% vs 4-6% annualy.


#4

@SwissChalet, I think (but am not absolutely certain) that the interest rates are regulated, so the individual insurance providers do not have much wiggling space.
My company (I am an employee) has a contract with SwissLife. The rate for the compulsory part is 1.25% and for the non-compulsory it is 0.75%.
Unfortunately, I only figured out that the rate for the non-compulsory is lower after having paid up extra savings this year (I wanted to make up for the gap in my employment history)… Lesson learnt, double-check everything.


#5

Yes i also think it probably is not worth doing the top up to save the taxes with such a low return. I topped up 5% additional but i won’t next year!


#6

update to my life insurance:
I just found on moneyland.ch that the three offers they have are between 350 and 450 per year, as opposed to th 550 per year in my current insurance. plus: it is about one sum that does not build up over time to the conract value.
what i joke that bought back then…

now i need to find out about a work-unability insurance that pays me chf 3000per year regardles off sickness or accident. if you know any details, please share!


#7

hi nugget.

I am very cautious with insurances. I always insure one (group of)-risk with one contract. so i will be able to change my mind or my life without the hole insurance crap explodes in my face. and also its more transparent what you get when and how much you pay for it. Absolutely never mix saving with insurance…

Another important thing is check double insurance or no use insurance. if you work for a company in switzerland you should be insured quite well form the beginning. Death should be insured by your companies pension institute (you have to look how much and who can benefit. you won’t :slight_smile: Work inability should be so expensive its not a good idea to insure it privately (if you can at all) thats why it is already insured by a social insurance called Invalidenversicherung (IV). normaly it comes on your salary form as percentage together with AHV/IV/EO. the sickness well also for that you might be already insured well enough by your company for the first couple of days, weeks or even months. also your treatment is covered by the compulsory health insurance (Krankenversicherungsgesetz KVG). also accident is covered if you work for a company via the Unfallversicherung (UVG) which should also be on the salary receipt.

If you look all that up you should find out where you really have a risk that is not yet covered and worth to cover. All in all i think you should only cover risks that are unlikely to happen to you and that would ruin you without insurance.

Ahh yes my biggest mistake financially so far was to buy a new car (coupe) and sell it 1.5 years later for half the price. Also it wasn’t my money but i borrowed it form my parents. took my a while to pay it back even i hadnt’t had that car anymore. now i drive a second hand car with frugal diesel engine :-{ more mustache


#8

To conclude my initial post, I sold (=cancelled) my life insurance. besides the non-capital-building costs, I lost roughly CHF 2500, that is a return of -25% over 4 years :frowning:

The decision was based on

  • the extremely low return prospect of a 30 years illiquid investment
  • bundled insurances that were bundled with it at premiums that are not competitive on the market (= too high)

and a few more, minor aspects.

so, conclusing, dont invest in life insurance products!


#9

Well done @nugget !

Did the same last year (after 6 years…) ! In my case, the impulse came from the yearly reports… after I noticed that the expected return was lower and lower, I began to care about it and ran some math…:money_with_wings::money_with_wings::sob:
Better late than never ! :wink:


#10

I also made a terrible decision signing up to a similar scam. The details are too shameful to share, but I am in the process of cancelling the contract right now. How I wish I had known then what I know now!


#11

Hi everyone, it’s my first post but I’ve been reading (and benefiting!) from all of your advice for a month or 2 now. Thank you all v much!

I made the same mistake as @nugget and signed up for a 3a + life insurance policy (like @Alex, the details are too shameful to share, but I was basically lied to by the advisor). Pleased I’m not alone in the ‘got scammed’ corner!

I stand to lose 10’000 of my 20’000 investment :disappointed: due to the surrender value.

How did you all go about getting out of the insurance?
@nugget how did you reduce the loss from the estimated 6K to only 2.5K if you don’t mind my asking?


#12

I made the same mistake. ( Dilemna with my 3a Pillar )
Fortunately I did not waited too long before realizing that this insurance was far from optimal (10 months in the contract).

In this situation, it is important to not get trapped in the sunk cost fallacy. You have to compare what you’ll lose if you stop this insurance now, vs what you’ll lose if you keep the contract until maturity.

In my case it was lose 5k now vs lose 40k at maturity, so it was a no brainer! But it is still a very sour bullet to bite, especially when you receive the letter saying that the contract is now worthless.


#13

Luckily I dodged that bullet, i got visited by a team of live insurance brokers for “after apprenticeship financial counsel” that was apparently sponsored by my employer (it was not but it sounded legit).

At that point I had already read the whole of MMM and had some investments going. It was kind of funny how the pitched how bad it would be if I had to live on halve of my salary in some wired edge case.


#14

Couldn’t agree more with you on the sunk cost fallacy (thanks for the link); I did a quick calculation using Axa’s online customer portal and saw that if I continue paying the full 6768 CHF p/a for even just another 5 years, I would lose 22K instead of 10K.

10K hurts but it doesn’t sting like 22K would!!


#15

hey @mia,

How did you all go about getting out of the insurance?
@nugget how did you reduce the loss from the estimated 6K to only 2.5K if you don’t mind my asking?

by some tricky finance math… i can’t find the documents anymore, so this is how the numbers are roughly made up:
originally (fall 2016) I asked for the buy-back value, and they stated some CHF 6xxx. of my 4 yearly premiums of CHF 3000 each (summing 12k) that i paid so far, I considered the difference to be my loss, hence the 6k. later I realised that the CHF 3000 yearly premium are made up of about 2.5 kCHF actual wealth contribution (=>10k after 4 years), and the remaining CHF 500 being insurances. So when they transferred CHF 7.5k some months later (which surprised me), i considered the CHF 2500 difference as my actual loss.

good point with the sunk cost! I made this calculation too, assuming average 5% with broad index ETFs i would have >200k instead of 110k at 65. as Julianek stated: no-brainer!


#16

ah haaa, thanks @nugget. I’m going to ask my contact how much of the full 6.7K premium I paid each year (…what was I thinking!) was actually insurance fees. Thank you all for your help :slight_smile:


#17

yes, better do that. as pointed out in the beginning of the thread, my contract was
CHF 2337 capital building
CHF 133 Prämienbefreiung
CHF 550 Todesfallversicherung: o

these infos were not in the contract, but only available after I requested them in written form

and on top of that, putting the full 6.7k into one police instead of in 5 smaller ones is going to cost you easily avoidable multiple 10k’s in taxes, see the credit suisse calculator here
=> one big chunk vs 5 small chunks split over 5 years does the trick since the taxes rise progressively with the amount


#18

Thinking about the sunk cost fallacy is also what made me wake up to reality. In my case, the scammers were going to get all their money regardless of whether I cancelled the contract now or later. The only difference for me was how long the rest of my money was going to be immobilized, what I would lose if I invested it better and how long I was going to feel bad about this situation. Once I accepted this, the decision to take the loss, learn from it and move on was easy. Hurtful, but simple.


#19

The same here, my bad. I was curious, excited about the 3rd pillar option, and I ended up in AXA’s trap, in a bounded life insurance policy till 2047 YAY :sweat:

My story:

Started my payments with 2016.
2016 -> 6786 CHF
2017 -> 6786 CHF
2018 -> 5376 CHF

I just recently reduced my monthly pay to 100 CHF (still 1200 CHF in a year :sob: )

I just made a calculation, and today I have a cash-in value (or surrender value) of 8018 CHF (plus 86 CHF bonus surrender value)

So it would be effectively for me a loss about 10844 CHF (minus the tax benefit about 2600 CHF for 2016 & 2017, and probably around 900 CHF for 2018). I only got the 1300 CHF tax benefit from 2016 till now, 2017 was requested.

I tried to figure out what to do, and if there is a “optimal solution” to minimize my losses… I got the same hint from two independent insurance guys, to pay ongoing with my minimum (100 CHF), and let it keep as it is.

I don’t know… There are still too many questions in my mind. I guess the tax office will call back the already paid tax benefits -> much bigger loss!)

I started immediately with VIAC, and put the 5586 CHF difference (1200 CHF to the AXA life.ins.) to 97% ETF based Global 100 strategy.

I’m happy to hear your hints, tipps, ideas what to do in this trap to be “free” again :smirk:


#20

That’s unlikely. at least they never called me when I cancelled my life insurance contract.

At the end of the day, the decision is simple : there are 29 years until 2047, during which you will put in 100 CHF each month, for a total of 34’800 CHF. In total you will have contributed 34’800 + 6’786 + 6’786 + 5’376 =
53’748.
Then calculate how much your contract will be worth in 2047 and look at the difference. If it is more than 10’844, cancel everything.

Don’t forget the opportunity cost of putting these 34’800 CHF into something that is losing money.
If instead you invest each year 1’200 CHF at 7% yield (like a low-fees ETF for instance), you’ll get 113’392 CHF at the end of the 29 years. if this money stays in the life insurance, you will have… less than the 34’800 contributed. That should convince you to stop everything :wink: