A few days ago, a friend told me that she had redeemed all her 1 million yuan annuity insurance and was planning to invest in the stock market.
Her reasoning was simple: "Investing in Tesla in the stock market has multiplied several times over the years; investing in Nvidia has also multiplied several times over the years. The 3% return from insurance is simply not worth mentioning to me."
Such a comparison would seem reasonable to anyone. If funds are only placed in insurance or banks, with only about a 3% annual return, it seems like one is just passively waiting for inflation.
However, those who have experienced risks and have some understanding of asset allocation often know that this step actually hides a significant risk.
We always think we can control our funds.
A few years ago, another friend said that someone gave her advice to buy an annuity insurance policy.
Her reaction at that time was:
"I put my own money in, and then withdraw it little by little in the future. Isn't that just like money flowing from the left hand to the right hand?
Why should I let the insurance company manage it for me? I'll invest it myself and maybe I can earn even more."
It seemed reasonable at first.
Because in the minds of many people, as long as the money is in their hands, it means greater freedom and potential for returns.
But many things are only understood after experiencing them.
Life is not a straight upward curve.
When we were young, we always thought that life would be a continuous upward slope.
Work hard, invest wisely, and life would get better and better.But gradually, we realized that life is more like a curve that rises and falls unpredictably, full of fluctuations.
There may be many unforeseen risks in life:
- Job suddenly disappears, income source interrupted
- Business suddenly collapses
- A disease wipes out savings
- Investment goes wrong and funds cannot be recovered
- No stable pension when close to retirement
At these moments, we will realize:
Some money, if not planned for in advance, is likely to be lost.
Is the high return in the stock market really that easy?
The stock market can indeed bring astonishing returns.
For example, many people will mention:
- How much wealth did those who invested in Tesla gain；
- How the wealth of those who invested in Nvidia doubled in a few years.
But the problem is: Can you find that stock at the very beginning?
Charlie Munger once said a very realistic statement: The probability of finding truly excellent investment
In the stock market, the probability of finding truly excellent investment opportunities among numerous companies is actually very low.
Even if you do find that stock, there are two even more difficult questions:
- Are you brave enough to buy it when it's not yet prominent
- When it experiences huge fluctuations, can you hold on to it all the time
Many people actually rush in only after the stock starts to rise. But when the general public sees the opportunity, the opportunity often begins to fade away gradually.
The 3% of insurance is actually "the safety net money"
Many people look down upon the 3% of insurance.
But insurance itself has never been about pursuing high returns. Its sole purpose is:
To provide a safety net.
When you encounter any risk, it is still there.But if the money remains in your own hands, can you really guarantee:
- Not losing due to a single investment mistake
- Not using it due to business difficulties
- Not spending it prematurely due to unexpected situations
Often, we overestimate our self-discipline.
The rational approach: Asset allocation
In fact, neither of the two examples mentioned above is incorrect.
- Long-term investment in the stock market can yield high returns
- Insurance offers lower returns but is safe and stable
The issue is not which one to choose, but how to combine them.
The truly mature financial thinking is asset allocation.
A very classic model of family asset allocation
Standard & Poor's
A study was conducted on 100,000 households worldwide with long-term stable growth of assets, and a classic model was summarized:
The Standard & Poor's Family Asset Quadrant Chart， It divides family assets into four parts:
The idea of dividing money into different purposes is closely related to the principle of asset allocation. Financial education platforms such as “Investopedia” explain that asset allocation helps investors balance risk and return over time.
The true meaning of financial management
In good times, we focus on growth.
In difficult times, we suddenly remember risk.
But the real purpose of financial planning is not simply to grow wealth faster.
It is to make sure that when life becomes uncertain, we still have something to rely on.
Markets will rise and fall. Opportunities will come and go.
But a well-prepared life gives you something far more valuable than high returns — peace of mind.
Because when you have reserves, you don’t panic when life takes an unexpected turn.
-------Extended Reading and Resource-------
If you want to understand the true logic behind money, I highly recommend reading
This book does not contain complicated investment techniques. Instead, it explains an important issue through many real-life stories.：Why do some people manage to make money but fail to keep it, while others are able to accumulate wealth over a long period of time?
The books and tools I mentioned are part of my curated toolkit. If you're interested, I've compiled them all on [My reading list ] & [My everyday toolkit] page for easy access.
In modern finance, diversification is also emphasized by Modern Portfolio Theory, developed by economist Harry Markowitz. The theory suggests that spreading assets across different categories can reduce risk.[https://www.investopedia.com/terms/m/modernportfoliotheory.asp]