Benchmarking and Why Insurance Backed Investment Projections are Bad for Your Financial Health

jamal-investme2It is standard that all investment managers who either have separate investment mandates or mutual funds will benchmark their performance against an index.

This helps the client and advisors in setting expectations and giving themselves the ability to compare an active investment manager vs a passive investment.

However, Insurance backed savings and investment schemes do not do this.

They take a gross performance of an underlying asset class and then make projections on the return of your savings or investment plan.

These projections have nothing to do with reality and as such set the wrong expectations for the investor.

It is a well-known fact that 50% of investors do half of what the market does. Also, the projected returns by the insurance companies do not include the fee structures which at the time of writing can be as high as 4-5% p.a.

It is not surprising that clients are feeling disappointed. In this instance, the wrong expectations are being set and, it is most unlikely the client will achieve his or her goals.

Why are these projections from insurance companies not based upon the average return of their clients?

Take time to absorb that statement.

The insurance companies have empirical data to be able to benchmark their clients returns against the index’s so it is not a lack of technology.

I will make an intelligent assumption, if they showed the average performance of client’s vs the projection, no one would invest this way.

Protection and Investments do not belong together. They contradict themselves. Investments are a cost conscious structure, insurance is not.