These days, it’s hardly uncommon to witness double-digit movements in the financial markets within just a day or two. Despite the availability of these high-volatility instruments, Singapore investors shun them in preference for low-to-medium-risk investments.
That’s according to the Fullerton Fund Management survey, which polled 500 investors with at least 3 years of investing experience and investable assets of at least $40,000. Based on its findings, although the risk tolerance of Singapore investors is generally low, younger investors aged between 21 and 30 have the biggest risk appetite before it tapers as they age.
The survey also noted that nearly half of the respondents had an annual target return expectation of between 5% and 7% p.a., while only 8% of them targeted returns above 9% on their portfolio. Their modest return expectation not only aligns with their risk tolerance but also acts as a decent inflation hedge.
At the same time, Singapore investors also believe in doing more with their investments, as they view property ownership and CPF savings as insufficient to achieve their financial aspirations. While these two popular asset classes play a crucial role in forming the base of one’s retirement savings, individuals can layer them with other investments to enhance their overall returns and supplement their retirement needs.
Here are the top four asset classes preferred by low-risk Singapore investors that you can boost your savings with.
#1 Fixed Deposits
Many Singaporeans are likely to have at least one bank savings account for their transactional needs. However, keeping excess funds in the same account at a low interest rate of 0.05% p.a. could mean losing out on potentially higher returns compared to saving with fixed deposits.
In the current interest rate environment, fixed deposit rates could range between 2.6% and 3.5%. This translates to a potential 50–70X difference. For instance, with a $100,000 investment amount in a savings account, you’d earn $50 in returns compared to $3,000 with a fixed deposit rate of 3%.
Based on the survey, fixed deposits rank as the most preferred investment choice among Singapore investors in the 21–50 age group, which may have come as a surprise in the past. However, the current volatile nature of the financial markets and the high interest rate environment have made fixed deposits an ideal asset class for those seeking asset and inflation protection.
In addition to banks, you can also invest in fixed deposits via robo-advisory platforms like StashAway and Syfe. These platforms offer both the convenience of online applications and largely similar fixed deposit terms to banks.
Read Also: Guide To Using Robo Advisor Fixed Deposits
#2 Government Bonds
Another asset class that has gained popularity in the current high-interest rate environment is government bonds. Due to the Singapore government’s credit rating of “AAA,” which is the strongest credit rating accorded by international credit agencies, it is perceived to carry the same risk level as a fixed deposit.
Singapore investors can invest in government bonds through Singapore Government Securities (SGS), which have a long-term tenure of 2 to 30 years. Alternatively, they can also invest in short-term tenure bonds such as Treasury bills (T-bills), which have a maturity period of between 6 months and 1 year.
The Singapore Savings Bond (SSB) is another type of government bond that the retail public can purchase at regular intervals. Though SSBs are issued on a 10-year tenure, they can be redeemed at any time before maturity without any penalty.
According to the Fullerton Fund Management report, government bonds were the most preferred asset class for those aged 51 and above, and second ranked for those aged 21 to 50. Understandably, government bonds not only have low risk, but they also offer investors decent returns for inflation protection despite limited resources and expertise. However, with short-term bonds, investors face reinvestment risk, as subsequent rounds of bond purchases may yield low returns.
Read Also: Complete Guide To Understanding The Different Types Of Singapore Government Securities
#3 Corporate Bonds
For those seeking higher returns with a slightly higher risk tolerance, corporate bonds offer an alternative to government bonds. These are debt instruments issued by private entities that offer coupons (or interest payments) based on the issuer’s credit rating.
A strong credit rating of AAA signifies a lower risk of default, which correlates with a lower coupon rate, whereas a weak credit rating of BB+ or below indicates a higher risk of default, which is compensated with a higher coupon rate.
According to the survey, Singapore investors in the 31–60 age group indicated an inclination towards corporate bonds as one of their five preferred asset classes. These investors may have better financial resources to invest in this asset class, as corporate bonds are usually sold over-the-counter (OTC) for a minimum investment of $250,000. This might be hefty for younger investors. Furthermore, they may be more willing to accept a higher risk in exchange for higher returns, given that approximately half of the survey respondents targeted portfolio returns of up to 7%.
Read Also: Complete Guide To Investing In Corporate Bonds In Singapore
#4 Annuities
Similar to the above asset classes, annuities are in high demand by investors in a rising interest rate environment. They are meant to provide regular cash flow during one’s retirement years in exchange for a lump sum or periodic premium payments.
Even though the CPF LIFE (short for Lifelong Income for the Elderly) is considered to be the best annuity plan, some Singapore investors may feel the monthly cashflow of between $1,510 and $1,620 (assuming the full retirement sum (FRS) is achieved) is insufficient. They can choose to supplement it with private annuities to provide additional cashflow.
As such, it’s not surprising to observe annuities as one of the preferred asset classes for investors aged 41 and above. Aside from the guaranteed returns, they also align well with the overall low-risk profile of older Singaporean investors.
Alternatively, Singapore investors have the option to increase their Enhanced Retirement Savings (ERS) to 2xFRS when they turn 55 (in 2025), thereby receiving a higher monthly payout of approximately $3,300 at age 65.
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