Investment is a canny beast: it is the driver of economies, the value of money, and the fount of the daily grind that allows millions of people worldwide to go to work. Whether you invest in life assurance or any other kind of policy with regard to your house, possession, car or health, you are investing in the continual global ebb and flow of endeavour and growth.
When your money leaves your hand like a slippery fish, it is reeled in by fund managers and investment analysts who put it work on the somewhat precarious card tables of gamble, venture and opportunity. Money must work to maintain and create value.
When you faithfully pay that monthly life insurance premium, you expect ultimately to gain on the swings, and to receive a payout that has beaten the vagaries of the market and the drain of inflation. But many people don’t care to think too much about how this comes about; how the money grows and finally presents the hoped-for returns. So here’s an edifying look at the dungeons and dragons of the stock market, fund management dexterity, and those unexpected events that can change the colour of your money overnight.
Where does the money go?
Your money goes into investment funds, generally called mutual funds which are comprised of a pool of money from many investors that is then invested in money market funds, bonds or stocks. These funds are popular for various reasons:
- Mutual funds invest in a range of companies and industries and therefore lower the risks.
- Index funds are a type of mutual fund which tracks broad segments of the stock market over a long period of time, creating greater stability, and therefore are suited to the small, steady monthly investments of policies.
These funds in turn, are invested in various sectors, including stalwarts such as oil and gas, retail and manufacturing, as well as new elements creeping into the market such as solar energy and 3-D printing. These are just the basics of a vast spectrum of sectors. Those premiums you pay each month are invested across a range of possibilities you may not have imagined.
You can ask for a fact sheet with regard to your policy. This will tell you in which shares your money is invested, what percentage is invested in each share, and what the returns have been over a period of time. Unlike direct investment, your policy sets the choices and you are unlikely to be able to pick and choose – however, understanding how your money is working for you within the constraints of your policy is not a bad thing to know.
The share button
Drilling deeper brings you to the coalface of the stock market itself, and the fluctuations of companies fortunes. Interesting to note that your small contribution each month on your life assurance policy is contributing to the market.
The stock market works like an auction where investors buy and sell shares of companies, which is how a company raises money for its operations. A share is a small piece of ownership of a company, and once you know where your money is invested, it’s good to keep an eye on matters that may affect that company or that sector.
The idea is to buy at a fair price, and sell at a profit. A company’s value is dependent on what traders think its value will be. Sentiment can play a substantial role in how shares ride up or down. Your life assurance is buying shares in mutual funds, which in turn are buying shares in various sectors, and companies within those sectors. It’s how you play the market without doing more than organising a monthly premium debit order for your policy.
A series of unfortunate events
Your life insurance policy is predicted to pay good returns, usually over a period of 20 years. Over time, the market generally moves upward – despite the occasional duck and dive shown in pointy red lines on a graph. The wise policy-holder waits patiently and pays regularly. The view over the long term has always been positive. However, there are a plethora of events that can affect your policy value in the long run.
World events: war, civil unrest, natural disasters, terrorism, serious health issues, etc, can generate uncertainty which seriously undermines markets. The catastrophic events of 9/11 saw the Dow Jones and the Nasdaq fall dramatically. However, conversely, the announcement of intended conflict can raise stocks on military equipment and those resources required to underpin war.
Companies: companies are not static entities, and there are developments that can affect the price of stock, such as mergers, acquisitions, earnings, new product development, staff issues, and any allegations of fraud or negligence.
Governments: governments who overspend, mismanagement their funds, or fail to deal wisely with social-economic issues are also chief culprits in affecting an economy adversely. Inflation and the raising and lowering of interest rates can have detrimental effect across markets, and may influence the outcome of your life assurance on maturity.
Exchange rates: the cost of doing business in a country may be affected by the market forces of supply and demand. Difficult to predict because events in the short-term are not generally foreseeable.
Influencers: those individuals such as Warren Buffett who have succeed ably in the market, are seen as fountains of knowledge, and anything they say may affect the price of shares one way or another.
Check your policies, check your life
VeriFi is an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies by sourcing information from all the major life insurance companies – and presenting the information in a comprehensive report.
With VeriFi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.
To find out more, please visit: www.verifi.co.za