"Buy Term, Invest the Rest": What exactly does this mean?

"Buy term, invest the rest" is a common saying in the financial industry. How can you benefit financially from using this strategy in your financial portfolio?

Here is a guide to the "buy term, invest the rest" strategy for your better understanding.

What does it mean to "Buy term, invest the rest"?

Let us get started by understanding the term first. To 'buy term' means simply to purchase a term life insurance policy rather than a whole life insurance policy. To 'invest the rest' is essential to make use of the savings gained from choosing the former to invest in various investment vehicles so that wealth can be generated.

Now you may be wondering: why do we choose to purchase a term life insurance instead of whole life insurance? How does it affect my savings and wealth management?

Term life insurance is a more affordable plan than whole life insurance due to the difference in the duration of coverage.

Comparing Etiqa Term Life and Etiqa Whole Life plans, the total premium for a 30-year term life policy would be $88.56 per year. In contrast, a whole life plan could set you back $3,370 per year. This data is for a policyholder that is male, non-smoker, 35 years, coverage amount of $50,000. Therefore, by choosing to purchase term life insurance rather than whole life insurance, you can use the difference saved to be set aside for your investments.

To add on, the purpose of term life insurance is to provide coverage for a specific period of time for your dependents, unlike whole life insurance which spans the lifetime of the insured.

If you have your children as your dependents then a 30-year period will be sufficient time for them to become financially independent.

The importance of insurance is to ensure that your liabilities are well taken care of in the event of your demise. As you grow older and your liabilities are reduced, you may not require such a large coverage amount as when you are younger.

Invest the rest

After setting aside money for emergency savings, insurance needs, the next step to building a comprehensive financial plan is to save for retirement. Saving for retirement early gives you a timeline from as long as 50 years. The longer the time horizon, the better it is for your portfolio to grow over time.

Starting your investment journey can be as simple as setting up a regular savings plan with a local bank/brokerage or a digital advisory platform and depositing a lump sum or setting up a fixed amount to deposit every month (also known as dollar-cost averaging).

Regardless of your investment strategy, starting your investment as soon as possible with any amount is better than starting later. The same applies for insurance coverage, the younger you are when you get insured, the cheaper your premiums will be.

If you are someone who is looking forward to starting a family or growing your wealth while ensuring your dependents are protected, then the "buy term, invest the rest" strategy is great for you.

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This article is for information purposes only and should not be considered as an offer, solicitation or advice for the purchase or sale of any investment products. It is recommended that you seek financial advice as to the suitability of any investment. Whilst Endow.us Pte. Ltd. (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.  

Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance.

Please note that the above information does not purport to be all-inclusive or to contain all the information that you may need in order to make an informed decision. The information contained herein is not intended, and should not be construed, as legal, tax, regulatory, accounting or financial advice.