Investments in Singapore: Get Guaranteed Principal and Returns

The Global Competitiveness Report 2015-2016 published by the World Economic Forum had recognised Singapore as the second-most competitive economy, and the 2017 World Bank Ease of Doing Business Report had also given an identical rank to the country. Wondering how it is relevant to you? Let’s see.

With a gradual uptick in the investment climate and favourable tailwinds that helped the economy post a more than respectable 4.3% GDP number in the first quarter of 2018, this is one of the best times to invest in Singapore.

Although there are concerns that the GDP numbers may taper this year, pickup in trade activities noticed since late last year has the potential to power the country to a position of envy. This is quite similar to the year gone by when strong trade figures had helped it post a 3.6% GDP growth figure, beating market estimates comfortably.

What Are the Best Low-Risk Investment Schemes That You Can Consider?

  • Fixed deposits: Fixed deposits in Singapore can vary from a few months to a few years. Most banks offer two fixed deposit options – Singapore dollar and foreign currency. While the rate of return is fixed during the initial period, it can become variable, depending on the scheme, during the later parts.

    Usually, it is pegged to the lender’s board rates or an average of the board rate and the SOR/SIBOR rates. The rates may vary from 0 to 3% (usually somewhere in between) but it is a common practice by banks to offer a higher interest during promotional periods or when you join, for a limited time.

    Your investment is relatively safe although slight changes in the benchmark rates and the investment climate can bring in some volatility.

  • Savings plans: Savings plans are investment products that give you a fixed payout annually along with bonuses over the entire tenure. They can offer anywhere between 1% and 3% return annually.

    The best part is that the returns are usually guaranteed. However, since most of these plans also pay you bonuses, you may earn more than the guaranteed return.

    You may, however, have to keep your money parked into the scheme till maturity because premature withdrawal may attract penalties.

  • CPF investment schemes: Contributing money to CPF savings is mandatory for all employed Singaporeans. The money deposited is broken down into multiple components and invested in the Ordinary Account (OA), the Special Account (SA), the Medisave Account (MA), and on turning 55, the Retirement Account (RA).

    At present, you’ll get 3% p.a. on OA deposits, 5% p.a. on SA deposits, 5% p.a. on MA, and 5% p.a. on RA. Also, after setting aside S$20,000 in your OA and S$40,000 in your SA, you may also invest the remaining monies from OA and SA into investment schemes under the CPF Investment Scheme.

    CPF LIFE is also a good option if you want to shore up savings for your future. It offers a fixed payout once you reach the eligible age. The best part? Your employer will have to make mandatory contributions to your CPF Account, subject to CPF rules and conditions. The employer may also choose to make additional (voluntary) contributions and help you further build up your nest egg.

  • CPF top-up schemes: You may also voluntarily choose to top up your own CPF Account or that of a family member if you wish to. It can be done through a cash top-up or a CPF transfer. For members aged below 55, the top-up funds will be added to the Special Account, up to the current Full Retirement Sum (FRS), and for members aged 55 and above, the funds can be added to the Retirement Account, up to the Enhanced Retirement Sum.

    You can also claim tax benefits of up to S$7,000 a calendar year for topping up your own CPF Account and an additional S$7,000 a calendar year for topping up the CFP Account of close relatives.

    A CPF top-up is an ideal investment option because you get an assured higher monthly payout and/or a longer payout duration.

  • Singapore Government Treasury Bills (T-Bills): Singapore Government T-bills are debt instruments backed by AAA-rated government credit. Issuance of T-Bills are governed by the Local Treasury Bills Act and it offers risk-free returns over a short period of time, usually not exceeding 12 months.

    T-bills, unlike Singapore Securities, don’t offer coupon rates. Instead, the difference between the discounted purchase price and the designated face value, will be considered to be your earning. The minimum investment amount is S$1,000 and you can invest in multiples of S$1,000.

    The yield on treasury bills is often taken as the benchmark for private debt products and securities.

  • Singapore Government Bonds: These are debt instruments issued by the government with a longer time horizon, usually varying between 2 years and 30 years. The Government of Singapore doesn’t issue bonds to raise funds needed to finance its expenses. It mainly issues bonds to encourage investors such as yourself to enter the market and use the money for the development of the country’s capital and debt market.

    The higher rate of return also means that the risks involved are slightly higher. However, since the rate is still close to the risk-free rate, risks are significantly lower than aggressive debt instruments.

    Bonds, one of the largest investment classes available, are usually issued to borrow money. You’re usually paid your guaranteed principal and a coupon rate, on maturity. Since the securities issued by the Government of Singapore aren’t used for financing its expenses, there is very little chance of default by the government. These bonds, are therefore, rated AAA, the highest rating granted by S&P, one of the leading rating agencies in the world.

    The coupon rates are usually paid semi-annually. However, the par value will be paid only on maturity. The interest-income is tax-free in Singapore.

    These instruments are ideal for those who want to set up a capital outlay for their future without exposing their investments to undue risks and fluctuations. You can buy these bonds directly from MAS, at the time of issue, or through registered banks and brokers.

    Like T-bills, the minimum denomination of government-issued bonds are S$1,000 and you can buy these bonds in multiples of S$1,000 only.

  • Singapore Savings Bonds: These bonds are issued by the government, through MAS, to encourage savings. Since it offers a number of flexibilities and benefits, anyone, irrespective of their investment approach, can invest in these. You may use these bonds to diversify your basket as there is very little downside risk.

    If you’re thinking what makes these bonds great for retail investors, then let’s give you a few reasons upfront:

    • Being backed by the government, there is almost no risk.
    • You can exit at any time without the fear of any capital loss. No penalties will be levied.
    • You can stay invested for up to 10 years. The longer you stay, the higher will be your earnings, because you can benefit from step-up coupon rates. The rates of these bonds are linked to long-term Singapore Government Securities, which means, your compounded annualised return over the tenure must track the yield curve of a government bond over the corresponding period. If for some reason, the yield on a bond is low, the government may choose to step up the coupon rate instead of just matching the yield on the bond. This means, you’ll continue to earn at a stable rate throughout the tenure.
    • You won’t have to choose your preferred time horizon at the beginning. You can stay invested for as long as you wish (up to maturity). S$500 is enough to get you started.
  • Corporate bonds: These debt instruments may offer you higher rate of returns but are also more susceptible to market vagaries and volatilities. These are issued by private corporations, who borrow money, by issuing these bonds. Upon maturity, you get the face value of the bond along with coupon rates.

However, since corporations may not always have robust balance sheets, and these bonds are backed by the ability of the issuing company to make payments from operations in the future, the risks are considerably higher. Do a thorough assessment of the credit risk of the company since you’ll be impacted directly by changes to it.

What Are the Best Moderate-Risk Investment Products You Should Have Your Eyes on?

  • Structured deposits: This product combines the best of deposits and high returns. It’s different from fixed deposits because even though you may get a higher return, you’re also exposed to higher market risks.

    The return on your investment depends on an underlying asset, benchmark rate, shares, bonds, fixed-income products, or a combination of all these. Upon maturity, you’ll receive the principal and the returns you earned from the price movements of the underlying asset(s).

    If you withdraw money prematurely, you may not get back the full amount. Penalty charges may also be levied and losses may be substantial. However, banks may offer promotional rates of which you can take advantage.

  • Investment-linked insurance policies (ILP): These products have two components – investment and life cover. They are of two types – single premium and regular premium.

    For the first type, you pay a lump sum which is used to buy units in sub-funds of your choice. A portion of the investment return may then be used to pay for your insurance needs, when required. For the latter, you’ll have to pay premiums regularly. It allows you to adjust the degree of insurance cover according to your needs. However, the returns may not be completely stable and are often exposed to market risks.

Understanding your own risk appetite and approach to investing is important before you invest in an ILP. Most sub-funds have their unique strategy and objective. Ensuring that they meet your own expectations is important.

You Could Also Consider the Following High-Risk Investment Options

The following options have a higher risk but also provide much higher returns. Also, if you’re a passive investor who doesn’t want to get involved in trading yourself, letting a trained manager invest on your behalf and maintain a basket of “mixed fruits and vegetables, ready to be cooked and served”, is a much better ploy.

  • Unit Trusts or mutual funds: This is a trust or fund where money from multiple investors is pooled in and managed by a professional fund manager. Your money will be split and invested in a portfolio of assets that match the stated objectives and investment approach of the trust.

    The money from you can be invested in local assets, foreign assets or both, and are regulated as collective schemes. You would stand to gain from the capital growth of your asset and also from periodic incomes such as dividend pays.

    You should be aware of the risk involvements and variable returns. You would have no control on the investment decisions of the manager and fees charged by him will be deducted from your returns. You can redeem the units held by you on any date on or before maturity at the net asset value (NAV) rate, as determined by the market conditions and the performance of the fund.

    The value of a single unit is determined by the net market value of all the assets held by the trust divided by the total number of outstanding units.

  • ETFs: ETFs or exchange-traded funds are baskets or portfolios of different stocks, bonds, or commodities. An ETF usually tracks an index and the kind of assets in the basket depends on the index that is being tracked.

    ETFs usually give you a chance to own commodities such as gold or shares that would be difficult to buy as individual units due to excessive price. Most retail investors like you find ETFs convenient and appealing because even with a small purse, you can own a small share of valuable items.

    ETFs are traded like normal shares or commodities in bourses. They offer more liquidity to investors and usually charge lower fees than funds. If you want to own a range of commodities or shares, an ETF is your best bet.

  • REITs: After a slowdown in the real estate market for a couple of years, the market has once again started to gather momentum and steam as many believe that the market has found its bottom and will rise from here on in. Buying a residential or office space in Singapore is almost impossible for a retail investor as prices keep skyrocketing. A small piece of information will give you the right perspective.

According to a CBRE report, the total demand for houses in Singapore in 2017 was 25,010. This was way more than the average annual demand of 14,447 units seen between 2014 and 2016. Pickup in the investments have also injected the real estate market with enthusiasm and optimism. That is reflecting in the growing prices.

However, there is no need for you to feel dejected. If you want a piece of the pie, we recommend REITs or real estate investment trusts. You can choose the type of property – office, residential, hospitality, etc. and create your portfolio accordingly.

Your portfolio would be professionally managed by a manager, thereby reducing risks. The income is generally powered by rental incomes and sell of properties owned by these real estate trusts. You may be given dividends on an annual, semi-annual or quarterly basis. Apart from that, you can also enjoy capital gains if the value of the properties in your portfolio rise during your investment tenure.

These are mostly liquid funds and get traded like stocks in the relevant bourses. To get started, you’ll need a CDP account and a brokerage account.

Why Singapore Continues to Attract Foreign Investments and How It Can Impact Your Investment Decisions

Still feeling a little sceptical due to global volatilities and unstable oil prices? Let’s quote a U.S. Department of State Report for your understanding. The report has lauded the Singapore Government’s efforts to remove regulatory roadblocks and encourage a climate of free market economy, barring a few sectors such as media, telecom, financial services, and some other professional services.

The government proactively interacts with the local industries and incentivises meaningful collaborations and innovations. The latest push for digitisation across sectors is sure to make the markets more competitive and productive. As Singapore has a generally favourable outlook towards foreign investments, it remains one of the few bright spots in the region despite many international players pulling out funds from the region and investing in other regions around the world.

If you’re now convinced that Singapore’s macroeconomics will remain strong in the foreseeable future, the next logical question that would come to your mind is – what are the best investment options in the Singapore context?

But, before we train our eyes on this question, let’s take you through something a little more fundamental.

Why Should You Consider Investing?

Supplementing your main source of earning with additional income has become imperative in a climate of high inflation and low returns. As the value of your money continues to diminish with the passage of time, it becomes more and more necessary to earn more to consistently maintain a certain standard of living.

After deflationary trends were noticed for two consecutive financial years, triggering fears of a market collapse, the inflation rate has started to rise, rather quickly, and will continue to stay in the positive territory in the near future as per most estimates.

Apart from your need to beat inflation, the need to make your money toil hard is also something that you shouldn’t ignore. If you keep your money holed up in your bank account or inside a safe deposit box, you’ll fail to compound the value of your capital and lose out on the opportunity to expand your wealth.

Whether you continue to top up your CPF accounts for a more conservative return or continue to target double-digit returns from your stock holdings, you’re basically cashing in on the fundamental concept – money invested generates additional wealth!

With the right risk appetite and diversification, you can protect your investments and grow wealth at a comfortable pace. We’ll discuss this concept in details at a later part in the article.

Need one more reason? Here you go – the right investments can make you self-sustainable. This in no way is a recommendation for you to quit your job and depend solely on your investments, unless you plan to turn into a full-time investor/trader.

That’s because the initial returns could be insufficient to support your usual lifestyle or future investment plans.

Over time, however, you may see a substantial growth in wealth which could be used to support your child’s education, your passions, and your post-retirement life.

Let us now see the recent trends seen in the local market and the kind of returns that you can expect.

Are Your Investment Targets Aligned with the General Market Trends?

According to advanced estimates, the economy grew by 3.5% in 2017 against the 2% growth in 2016, which also marks the fastest growth since 2014. The country also registered a 5.5% growth in the third quarter of 2017, marking a 4-year high, although lost some steam in the final quarter.

Although it remains to be seen whether the growth outperforms the estimates consistently or not in 2018, most experts have concurred that the long-term prospects look bright.

Now, how can you benefit from this information? There are three things you really need to concern yourself with:

  • Where you invest
  • How long you stay invested in
  • How many different types of investment products have you included in your portfolio

So, in short, you can make the most of the opportunities in the market if you give yourself more time, include both low-return-but-stable and high-return-but-volatile products in your basket, and know how to perfectly time your entry into and exit from a scheme.

If you want close to risk-free return, you can invest in government bonds, treasury bills, and fixed deposits. The average return for 10-year Singapore Savings Bonds in December 2017 was 2.16%, which is still better than 5-year Singapore dollar fixed deposits, currently offering 1.2% a year.

If you, however, want anywhere between 5% and 6% return annually, you’ll also have to consider passive-aggressive investment options such as mutual funds, REITs, and ETFs, and aggressive options such as stocks.

A general thumb rule is that in order to beat inflation, your savings need to yield a return equal to the current inflation rate. By investing in Singapore, which has a relatively low inflation rate, you can easily earn a decent amount through investments if you stay invested for a few years, at least.

So, what are the best investment options? We have categorised products based on the risk profile of the product. Assess your own risk profile and decide on the quantum of allocation in a product accordingly.

Planning to Get More Hands-on? Here’s What You Can Do

If you’re confident that you can manage your own investments, you may directly enter the stock and commodity markets in Singapore. Start tracking the Singapore Exchange indices and use past returns as bases on which you can set your investment objectives.

Most brokers also offer you the option to set up a systematic investment plan. These are setups under which an amount will be invested in stocks of your choice on a regular basis, depending on the instalment you have chosen or the number of units you have decided to buy.

Be careful, though. The fluctuations in valuations are rampant. It is advisable that you consult a financial expert before making a call, especially if you’re new to the field.

Not Sure Where to Invest? Here Are a Few Pointers That Will Guide You

  • Decide on your objectives. Review your needs and expectations and then enter the market to choose the products that best align with your approach.
  • Create your own unique style. What may have worked for another investor may not be the best way forward for you. Take investment advice where possible but ultimately review a product or choice in accordance with your needs. This is when you should decide how long you want to stay invested, how much you want to invest, what are the investment classes you’re interested in, and what the split-wise allocations for every single product in your portfolio will be. Are you a passive or an active investor? Once you get the answer to this question, act accordingly.
  • Create a plan. When you’re starting out, it’s best to avoid high-risk products. Create timelines. After you have stayed invested in a particular class for some time, you may look to diversify. You may start with fixed deposits, structured deposits, bonds, ILPs, Unit trusts, ETFs, REITs, and stocks, in this logical sequence. You can definitely change the order or ignore a particular class completely if you think that’s best for you.
  • If you’re staying invested in a product for a long time, there is no need to review it every day. However, go back to your decision periodically to check whether your objectives are being met. If not, what are the adjustments you can make to fast-track the process? If you think that the product has served its purpose already and may not be of much help in the future, you may even exit.
  • Check the market conditions. Most investments, even the safest ones, get affected by changes in the regulatory environment or dynamic global phenomena. Track them closely and study their direct/indirect effects on your investment. Consult an expert whenever you don’t feel sure.

The incentives for staying invested for long, are high. You want to know why? It adds to your ability to live life on your own terms. Whether it’s an expensive foreign trip or your wedding, you can dip into your savings, generated from your investments, to take care of the expenses.

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