Early encashment - what to do?

[Hayabubu]

Hi everyone and I apologise now for my complete lack of knowledge around finances. I’ve just started learning properly about retirement planning and investments and the more I learn, the more I’m kicking myself for not getting on top of this sooner.

I came to Japan 21 years ago and about 18 years ago I decided I needed to start saving for retirement so turned to a financial advisor specialising in expats for advice. I was recommended and purchased a policy through what was then Skandia (then Old Mutual, now Quilter..) which I only now realise has been making everyone but me quite wealthy through the various fees and commissions. I’m embarrassed to say that it’s taken me this long to work out what a terrible return I’ve been making on my investment and how the last 18 years have been a total waste of time.

I’ve heard some advice that as soon as you realise that your money’s in a product like this you should cash it in early, even if that means they hit you with an early encashment penalty. The thing is, it’s only 2 years away from maturity. The about 36,000 pounds I invested has grown to about 60,000 pounds. If I take the money out now I’ll be penalised about 2,500 pounds.

I’m in the process of setting up an IdeCo and NISA through Monex and want to take charge of my own investments going forward.

The question is, should I cut my losses at this very late stage and pay the penalty, or put up with the bloodsuckers for two more years so I can get the full value?

[Viralriver]

I would take it out. Even with a 2,500 quid hit, if you put that money back in the market you'd only need a 2% gain on investment YoY to hit 60k again in 2 years. I usually use ~7% gains per year in my calculations, but that's taking into account I don't need to cash out early. If you do want to cash out early, then it's definitely a bit riskier as we could have a terrible couple of years. Up to you. If it were me and I wasn't reliant on the cash, I'd take it out and put it back in the market.

[beanhead]

Do the sums in excel.
Work out your average return over the last 18 years.
Compare it with a typical return of a low-cost S&P500 or All-country fund.

Even paying the penalty, it usually works out better to cancel, but it is a good idea to do the calculations yourself.

[Hayabubu]

I would take it out. Even with a 2,500 quid hit, if you put that money back in the market you'd only need a 2% gain on investment YoY to hit 60k again in 2 years. I usually use ~7% gains per year in my calculations, but that's taking into account I don't need to cash out early. If you do want to cash out early, then it's definitely a bit riskier as we could have a terrible couple of years. Up to you. If it were me and I wasn't reliant on the cash, I'd take it out and put it back in the market.

I’m 48 so I still have a few years until I’ll need the cash

[LKK]

Just so you know - you aren't alone in this. I was investing with a Tokyo investment firm for 10 years before I got wise too. I am still a little pissed with myself, but I am really glad I found 'the way'.

[Beaglehound]

For the sake of two years, I would be tempted to leave it in, if only to deny them the surrender fee

Also, the investment may have been less than optimal but I don’t think you need to beat yourself up about it; your money has grown more than it would have in a bank, and at 48 it is not too late to start benefiting from low cost self-investing.

[Hayabubu]

Just so you know - you aren't alone in this. I was investing with a Tokyo investment firm for 10 years before I got wise too. I am still a little pissed with myself, but I am really glad I found 'the way'.

It makes me feel better to know I’m not the only one who got hoodwinked. But I do feel angry that these advisors must rub their hands together in glee when someone like me contacted them for retirement advice. I remember that the company was advertising at JET events back in the early 2000s (they’ve since gone out of business I think). I wonder how many other young people thought they could trust that the advice they received was in their best interests..

Oh well, older and wiser now..

[Hayabubu]

For the sake of two years, I would be tempted to leave it in, if only to deny them the surrender fee

Also, the investment may have been less than optimal but I don’t think you need to beat yourself up about it; your money has grown more than it would have in a bank, and at 48 it is not too late to start benefiting from low cost self-investing.

I’m trying to work out which would give them the biggest Vs up - taking the money now and denying them 2 years of fees or leaving the money in so they don’t get the satisfaction of the surrender fee!

[beanhead]

For the sake of two years, I would be tempted to leave it in, if only to deny them the surrender fee

I think you pay the same amount either way, don't you? It is their pound of flesh paid monthly over 24 months, or all at once as a surrender fee. Maybe it depends on the plan?

[Beaglehound]

For the sake of two years, I would be tempted to leave it in, if only to deny them the surrender fee

I think you pay the same amount either way, don't you? It is their pound of flesh paid monthly over 24 months, or all at once as a surrender fee. Maybe it depends on the plan?

Maybe so, my cynical mind imagines that the surrender fee would be larger than the ongoing ones in order to discourage mutiny, but I don’t know how these things work.