Dividend yield on shares

Dear Mr. Tan
Please see the message below from my agent. I need your expert advice whether it is okay to invest in the said endowment policy.

Our company just launched this 5 year endowment where you pay premiums for 2 years only. Returns will depend on your principal amount. You need to keep the policy the full 5 years to enjoy the interest rate mentioned in the brochure (about 2% p.a.). Surrender within the 1st 3 years and you get less than your principal back.

REPLY
It is safe, provided that the insurance company does not go bust, but the return is not attractive. My wife was offered a similar product from another company but, after I made my analysis, she decided to invest in Suntec REIT and Starhub, which offered a better yield of above 7% (if I remembered correctly). Although the shares are risky, the risk is reduced for a person who is willing to invest for the long term and does not need to realise the cash in a weak market.

Read my book, Practical Guide on Financial Planning and the FAQs in my website, www.tankinlian.com (click on Ask Mr. Tan).