If you’re kiasi but still want your money to grow, here are some relatively safe financial instruments to consider.
If you’re kiasi but still want your money to grow, here are some relatively safe financial instruments to consider.
EXCHANGE-TRADED FUNDS (ETFS)
An ETF tracks and generates returns that mimic the performance of a specific market index, such as the Straits Times Index (STI). The STI tracks 30 blue-chip companies, which means that when you buy into a fund, your money will be spread across these companies, diversifying your portfolio.
Possible returns: Over the long term (10 years, for instance), the STI has delivered returns as high as 8.43 per cent. ETFs are not without risk as they follow the performance of the market, but holding on to them for a longer period could help you ride out shortterm price fluctuations.
TIP: You can purchase STI ETFs for as little as $100 a month, via banks like POSB and OCBC. You can arrange with the bank to set aside an amount every month, say $200, to buy ETFs. This strategy, known as dollar cost averaging, lets you buy more units when prices are low, and fewer when prices are up, driving down the average cost of each unit over time. It lessens the risk of investing a large sum at the wrong time.
INSURANCE POLICIES
Consider an insurance policy that includes a savings component. An endowment insurance plan can come with a large payout after 10 or 15 years, while giving you health and life coverage.
Possible returns: Most policies aim to deliver returns of between 3 and 5 per cent a year.
TIP: Nag your financial advisers for freebies such as free travel insurance
NEW CORPORATE BONDS ON SGX
A corporate bond is a type of loan, made by the bond holder (you) to the bond issuer (a company that needs the money). No matter how the company performs, it is required to pay you what it owes. The risk is that the issuing company may close down. This May, the Monetary Authority of Singapore passed regulations that will make more corporate bonds available to the average Singaporean. At present, only 11 corporate bonds are available, with the minimum investment amount for some being as high as $200,000! The new regulations are expected to see the release of corporate bonds that can be bought for as little as $1,000.
Possible returns: Most retail investors will only have access to low-risk bonds, with a coupon rate of 3-5 per cent.
TIP: Bonds are often important to older investors, whose emphasis usually shifts from growing their money to protecting their wealth.
SINGAPORE SAVINGS BONDS
Introduced last year by the Government, these boast more flexibility than fixed deposits. Though the term is 10 years, you can redeem them at any time with no penalty, and get your money back within a month. You can also start investing in them with only $500 (bonds are bought in denominations of $500). Their value is fully backed by the Singapore Government.
Possible returns: Since the issue of the first tranche of bonds in October 2015, average returns a year have ranged from 1.94-2.78 per cent.
TIP: Because of the relatively low returns, don’t rely on them solely if you’re younger and looking to build a retirement fund. But they’re an option if you want to place your savings somewhere other than the bank, or if your priority is protecting the value of what you have.
