Why a robust estimate of future returns is important for investment planning

WHEN I started my career in the financial services sector in the late 90s, comprehensive financial planning was not widely practised. Most of the time, it was really just product sales.

I first learnt how to write a basic comprehensive financial plan from some books I found in Hon Sui Sen library at the National University of Singapore in 1999. In planning for clients, I needed to work out how much clients need for a certain financial goal and how much they need to invest in order to reach that goal.

To do that, I would need to assume certain rates of return on investment (ROI) for planning. There wasn’t a lot of guidance back then on how to do so; different advisers used different methods. Some would take the projected returns of an investment-linked policy (ILP). In the 1990s, the higher end of the projection was 9 per cent a year.