Invest Wisely In Singapore: Where Should Your Money Go?

Investing is a critical aspect of financial planning, offering the potential for wealth accumulation, protection against inflation, and passive income generation. With a wide array of investment options available in Singapore, it is essential to carefully assess your financial goals, risk tolerance, and investment style before diving into the world of investing. Here is a beginner's guide to investment options in Singapore to help you make informed decisions.

Retirement planning

Determine Your Retirement Goals:

The first step is to define your retirement goals and expectations. Do you envision a simple lifestyle or desire a more comfortable retirement? Will you have any dependents relying on you during retirement? These factors will influence how much you need to save.

Assess Your Current Situation:

Take stock of your current finances, including your income, expenses, and any existing savings or investments. This will help you identify how much you can allocate towards retirement savings and if there are any adjustments needed to reach your goals.

Understand the Retirement Landscape in Singapore:

The official retirement age in Singapore is 63, and it will gradually increase to 65 by 2030. However, you can continue working if you wish, as Singapore has a "re-employment age" of 68, which will increase to 70 by 2030. Additionally, the average life expectancy in Singapore is 83 years, so your retirement savings need to last you for approximately 18 to 22 years.

Calculate Your Monthly Retirement Needs:

According to studies, a single person aged 65 and above will need at least $1,379 per month for basic living expenses, while a couple will need around $2,351. This does not include any luxury expenses or potential healthcare costs. It's essential to consider your desired retirement lifestyle and factor in any dependents' expenses when calculating your monthly needs.

Utilise Retirement Schemes:

Singapore offers several retirement schemes to help you boost your savings. The Central Provident Fund (CPF) is a significant component of retirement planning. At 55, your savings will be transferred to a Retirement Account (RA), which will determine your monthly payouts from age 65. Additionally, consider the Supplementary Retirement Scheme (SRS), a voluntary scheme with tax benefits that allows you to invest in various financial products to supplement your CPF savings.

Explore Investment Options:

To make your savings work harder, consider investing in products that offer higher returns. Options include the CPF Investment Scheme (CPFIS), Singapore Savings Bonds (SSBs), Real Estate Investment Trusts (REITs), Exchange-Traded Funds (ETFs), and more. Each investment type carries different levels of risk and potential returns, so it's essential to understand your risk tolerance and financial goals before investing.

Start Early:

The power of compounding interest means that the earlier you start saving for retirement, the better. Even if you're in your 20s or 30s, don't delay retirement planning. Starting early gives your savings more time to grow and allows you to take advantage of the effects of compounding returns.

Insurance and Healthcare:

As you age, healthcare costs will become a more significant consideration. Ensure you have adequate health insurance coverage to protect yourself from unexpected medical expenses. Additionally, consider long-term care insurance and life insurance to provide financial security for yourself and your loved ones.

Passive investing

Passive income is income earned with minimal labour or automatically. It is a way to improve your financial wellness and generate extra cash flow, which can supplement your salary, tide you over between jobs, and help you save for retirement.

• Robo-advisors: Robo-advisors are a popular approach to passive investing as they require minimal human intervention. You deposit your money, set your investment goals, select your risk tolerance, and determine your investable savings, and the robo-advisor provides you with an optimal solution. StashAway's Income Portfolio, for example, invests in ETFs consisting of bonds, REITs, and dividend stocks.
• Exchange-traded funds (ETFs): ETFs or index funds track a particular market index such as the S&P 500 or the Dow Jones Industrial Average. They mirror the performance of the index and are a great way to passively invest in the stock market. ETFs tend to pay dividends regularly. Examples of ETFs in Singapore include the Nikko AM STI ETF and SPDR STI ETF, which track the performance of the top 30 companies in Singapore.
• Real Estate Investment Trusts (REITs): REITs are trust structures that hold various real estate investments and property assets. Investing in a REIT makes you a partial owner of the properties it manages, and they provide rental income without the need to own any property. REITs have to distribute at least 90% of their taxable income every year, making them an attractive source of passive income. Examples of Singapore REITs include CapitaLand Integrated Commercial Trust and Mapletree Logistic Trust.
• Unit trusts (UTs): UTs are professionally managed investment funds that pool funds from investors to invest in equities, fixed income, and/or other assets. They are managed by fund managers, so you don't have to worry about constantly checking on your investments. There are many UTs in the market that cater to investors who prefer receiving dividend income.
• Singapore Savings Bonds (SSBs): SSBs are government bonds launched in October 2015 and targeted at retail investors who want higher interest than bank deposits but are cautious about putting their savings at risk. They pay a step-up interest rate each year for up to 10 years and are considered evergreen, less volatile investments. While the returns are not as high as other types of investments, they are risk-free.
• Government bonds: Investing in government bonds can provide stability (i.e. regular payments over single big gains). Singapore Savings Bonds (SSBs) are one such example, offering returns ranging from 2% to 3% with little to no risk.
• Dividend-paying stock portfolios: Dividend stocks are shares that offer payouts – usually from a company's profits – to investors on a regular basis. You can gain exposure to dividend stocks by investing in blue-chip companies or through ETFs.
• Insurance savings products: Insurance savings products such as endowment and retirement income plans can provide guaranteed returns with some potential upside. While the returns are projected to be lower compared to equities, these products can provide stability of income.

When deciding on a passive investment strategy, it is important to consider your financial situation, risk tolerance, and investment goals. Additionally, look for investments that offer capital appreciation, the ability to overcome inflation risk, and diversified sources of income.

Real estate investment trusts (REITs)

• Diversification: REITs allow investors to spread their investments across different property sectors and geographic regions, reducing the risk associated with investing in a single market.
• Income Generation: REITs are required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends, making them attractive for those seeking regular income.
• Liquidity: Listed on the Singapore Exchange (SGX), REITs can be easily bought and sold like stocks, providing investors with liquidity and flexibility in managing their portfolios.
• Tax Advantages: REITs in Singapore offer tax benefits, such as tax exemption on dividends distributed to individual investors.
• Affordability: REITs make it possible for individual investors to own a portion of large commercial properties, such as office buildings or shopping malls, at a more affordable price.

When considering investing in REITs, it's important to assess the specific risks and rewards. While REITs offer the potential for regular income and capital growth, they are subject to market fluctuations, interest rate changes, and property-specific risks. It's essential to conduct thorough research or consult financial advisors to understand these risks and make informed investment decisions.

Robo-advisors

• StashAway: StashAway offers various investment portfolios, including Simple Guaranteed, Simple, Simple Plus, and General Investing. It provides projected or guaranteed annual returns ranging from 3.30% to 5.10% with annual management fees between 0.20% and 0.80%.
• Endowus: Endowus provides access to dimensional funds and competitive platform fees. It offers both robo-advisory services and the ability to invest in low-cost Amundi funds.
• Syfe: Syfe is a popular choice for investing in US-listed shares and ETFs. It provides managed portfolios and a brokerage service.
• OCBC RoboInvest: OCBC RoboInvest offers diversified portfolios based on risk levels and focused themes, such as income, equity, real estate, and precious metals.
• AutoWealth and SaxoWealthCare: These platforms offer more sophisticated products and may be suitable for experienced investors.

When choosing a robo-advisor, consider factors such as fees, security, customer support, and the range of investment options available. Additionally, evaluate whether the level of personalisation and portfolio management aligns with your financial goals and risk tolerance.

Exchange-traded funds (ETFs)

ETFs are investment products that track the performance of various assets, such as stocks, bonds, commodities, or a mix of different investments. They are traded on stock exchanges, just like stocks, and offer instant diversification without the need to purchase individual securities. ETFs can be passively managed, aiming to replicate the performance of a specific index, or actively managed by portfolio managers who allocate assets based on their decisions.

Benefits of ETFs:

• Diversification and Risk Management: ETFs provide instant diversification across investment portfolios, asset classes, sectors, and geographies. This helps spread risk and reduce the impact of underperforming assets on the overall portfolio. ETFs can include low-risk assets like government bonds and money market funds, mitigating the overall investment risk.
• Cost-Effectiveness: ETFs generally have lower expense ratios compared to actively managed funds, resulting in higher retained investment returns for investors. They also tend to have lower management fees than unit trusts.
• Liquidity and Flexibility: ETFs can be bought and sold throughout the trading day, providing investors with the flexibility to respond quickly to market opportunities or changes.
• Transparency and Simplicity: The holdings of ETFs are transparent, and their performance closely tracks the underlying index. This makes ETFs accessible to a wide range of investors, from beginners to seasoned participants.
• Global Access and International Diversification: Singapore's ETF market grants investors access to international markets, allowing them to diversify their investments globally without requiring direct international trading expertise.

Popular ETFs in Singapore:

• SPDR STI ETF (SGX: ES3): Tracks the performance of the Straits Times Index, representing the 30 largest companies on the SGX.
• SPDR Gold Shares ETF (SGX: O87): Allows investment in gold without physical ownership, tracking the price of gold.
• IShares USD Asia High Yield Bond Index ETF (SGX: O9P): Focuses on high-yield bonds from Asian governments and corporations, excluding Japan, offering potentially higher interest rates and income.
• Nikko AM STI ETF (SGX: G3B): Mirrors the performance of the Straits Times Index, with a focus on the largest and most liquid stocks on the Singapore Exchange.
• NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX:CFA): Tracks high-performing Asian REITs, excluding those in Japan, with a focus on Singapore REITs.
• Nikko AM SGD Investment Grade Corporate Bond ETF (SGX:MBH): Invests in investment-grade bonds from quasi-sovereign and corporate issuers, providing stable income with lower risk.
• ABF Singapore Bond Index Fund (SGX: A35): Invests in bonds issued by the Singapore government and government-linked entities.
• Lion Phillip S-REIT ETF (SGX: CLR): Focuses on high-yield Singapore REITs, allowing diversification across top-performing S-REITs.

Strategies for Investing in ETFs:

• Long-Term Investment: The ETF moving average strategy uses moving averages to generate buy or sell signals. Dollar-cost averaging involves investing a fixed amount in an ETF at regular intervals to mitigate market volatility. The core-satellite strategy involves diversifying the portfolio by allocating the majority to a core ETF for stability and a smaller portion to satellite ETFs for growth.
• Short-Term Trading: Market timing involves staying alert to shifting market sentiments influenced by economic data, policy changes, and global events. Technical analysis uses indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) to identify short-term trends. Event-driven trading focuses on company earnings reports, policy announcements, and other events impacting ETF prices.
• Diversification Strategies: Asset class diversification involves spreading risk across different portfolios, including equities, fixed income, commodities, and real estate. Geographic diversification reduces risk by investing in ETFs providing exposure to different parts of the world. Sector rotation involves allocating investments to sectors expected to perform well based on economic cycles or market trends.

Risks and Considerations:

When investing in ETFs, it's important to regularly review and adjust portfolios to adapt to changing market and economic conditions. The value of ETFs is closely tied to the performance of the assets or indices they track, making them susceptible to market fluctuations and volatility. Interest rate changes can significantly impact bond ETFs, and currency fluctuations can affect the performance of international ETFs when converted back to SGD. Regulatory changes and economic factors, such as inflation and growth rates, can also influence ETF performance.

Frequently asked questions