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What many of us may not appreciate, especially in the earlier years of our careers, is that we usually have a finite number of working years – and there will come a time when we choose to retire or are unable to work anymore.
This is why growing a nest egg during our working years is so important. This is what will give us passive income in our retirement.
The way that we grow our nest egg will also evolve over time – and more specifically, into four phases of our financial lives.
One of the key tenets of building a retirement nest egg successfully is to start early because it allows us to maintain financial security across all stages of life, potentially leveraging having higher risk tolerance in our younger years.
Capital Preservation: Providing Financial Confidence To Pursue Our Goals
Even in our younger years, having cash is crucial. We need to build an emergency savings fund worth 6 to 12 months of our expenses, which will help us overcome unexpected curveballs. This can be anything from a retrenchment to unforeseen medical conditions or just a breakdown in a home appliance that needs to be replaced immediately.
As we enter different life stages, the composition of our portfolio should not remain static either. Just as our investment portfolio grows, our personal goals and responsibilities will likely evolve.
We may want to protect the wealth we’ve accumulated by balancing risk with stability – typically by focusing on fixed income. This can help us limit the amount of potential losses we suffer in a market downturn to ensure our nest egg remains intact for our retirement years.
Knowing that we can fall back on this portfolio even in market downturns can give us the confidence to pursue other financial goals and aspirations.
The LionGlobal Short Duration Bond Fund is an example of a fund that can potentially help us preserve our capital. Its investment objective includes having an “actively managed portfolio of Singapore and international bonds”.
The LionGlobal Short Duration Bond Fund does this by gaining exposure to bonds issued by the Singapore Government, as well as high quality businesses.
Source: Lion Global Investors as at October 2024
Securities referenced are not intended as recommendations to buy or sell.
For reference, its top holding, the LionGlobal SGD Liquidity Fund, has an investment objective to “achieve an SGD return in line with prevailing deposit rates”, and primarily holds MAS Bills.
We can also make use of the Lion Global Fund Centre to review the 6 funds that are classified under its “Capital Preservation” Retirement Goal.
We can see in the screengrab below, the LionGlobal SGD Money Market Fund is another investment we can consider. This fund is even more conservative and seeks to deliver “a return which is comparable to that of SGD short-term deposits”.
Wealth Accumulation: Calculated Risks To Beat Inflation
Investing can help us beat a key enemy of our long-term financial security – inflation. Depending on our perspective, we may be fortunate to learn key financial lessons from the pandemic in 2020, while coming out of it relatively unharmed.
We witnessed a big spike in our cost of living. Singapore’s Consumer Price Index (CPI) has risen over 13.5% since 2019 with essential daily expenses like Food, Housing & Utilities, Healthcare, Transport, Education all becoming more expensive. (Source: Singapore department of statistics as at October 2024)
With time as our greatest ally at this stage of life, we can take advantage of our long investment horizon to build a growth-oriented portfolio.
Starting earlier gives us more years to compound our returns, and affords us the leeway to recover from short-term market downturns. We can take more risks with our investments – and allocate more of our money into equities, which historically delivers higher returns over other traditional asset classes in the long-term.
We can explore wealth accumulation opportunities with Lion Global Investors’ Fund Centre – listing 15 relevant funds. In the screengrab below, we can see some of them, including the Infinity U.S. 500 Stock Index Fund, which gives us exposure to the S&P 500 Index, and the Infinity Global Stock Index Fund, which gives us diversified exposure to the global economy.
We can explore its historical returns, asset allocation and country allocation to determine if they are investments we want to make.
Source: Lion Global Investors’ Fund Centre as at November 2024
Apart from globally diversified portfolios here, we can also seek regional exposure for wealth accumulation. For example, the LionGlobal Asia Pacific Fund aims for long-term capital appreciation by investing in equities in Asia Pacific ex-Japan.
As we can see in the screengrab below, it is diversified in both emerging and developed Asia Pacific markets, as well as in broad business sectors.
Source: Lion Global Investors as at November 2024
Income Generation: Prioritising Regular Payouts From the Investments
Whether we’re approaching retirement or still in our earlier years of working our way up the corporate ladder, receiving a regular flow of payouts can be freeing.
Those who are younger can use this “bonus” to fund an annual holiday or some other luxury they want to splurge on – while knowing that they’re still prudently socking away investments to grow this fund. For those who need to make regular payments, be it for their loved ones daily care or for their further studies, receiving regular payment may help to ease the financial burden.
With an investment into the Lion-OCBC Securities APAC Financials Dividend Plus ETF, we get a stable quarterly distribution4, while also enjoy potential capital appreciation in the Asia Pacific Financials sector.
Source: Lion Global Investors as at October 2024
A few years prior to retirement, perhaps around 50 to 55 years, we may have a more urgent need to lay the groundwork for stable and regular income to supplement our retirement. The real goal is to reduce risks – remember as we get closer to our retirement, we have an increasingly shorter runway to ride out market downturns.
Once we are above 55 or if we are conservative in our investments, we may want to consider pivoting into investments that reflect out risk appetite. For example, the LionGlobal All Seasons Fund has both a growth and a standard (i.e. more defensive) slant.
While they both have the same broad country allocations across Asia, the US and Europe, their asset allocation is skewed in favour of equities and fixed income respectively.
Left: LionGlobal All Seasons Fund (Growth); Right: LionGlobal All Seasons Fund (Standard)
Source: Lion Global Investors as at September 2024
This provides more stability in investment portfolio, especially in the face of market downturns.
Left: LionGlobal All Seasons Fund (Standard); Right: LionGlobal All Seasons Fund (Growth)
Source: Lion Global Investors as at September 2024
The two charts above depict the NAV movements for both the Standard and Growth versions of the LionGlobal All Seasons Fund.
The chart on the left, the LionGlobal All Seasons Fund (Standard), with greater allocation to fixed income, experienced a sharp drop in NAV during the COVID-19-induced market crash in early 2020. We can see that it dipped about 10% from a high of $1.10 to a low of $0.99 during the Feb to Mar 2020 period.
The LionGlobal All Seasons Fund (Growth), spiralled from a high of $1.12 to a low of $0.91 during the same time frame – translating to a dip of nearly 20%.
This just underscores the point that that our investment objective should be reflected in the actual investments we make. Typically, we can expect a growth fund to be slightly riskier, and the fund’s greater exposure to equities delivers this. At the same time, the less risky Standard portfolio depicted a smaller drop during the market downturn.
When the market turned positive in the following 2-year period, this plays out in the same way again. The Growth fund rebounded higher.
Once again, we can head to the Lion Global Fund Centre to research other Income Generation investments under its Retirement Goal.
For investors or those who have a higher risk appetite, the Growth fund may be a more relevant choice.
We can see that the combination of country allocations and skew towards equities has enabled the Growth fund to ride the recent upturn in financial markets, despite stagnating growth in the world’s second largest economy – China. Still, the fund balances its growth-slant with a sizeable 30% allocation to fixed income.
As we can see in the table below, the LionGlobal All Seasons Fund (Growth) has delivered 6.74% p.a. over the past 5 years.
Source: Lion Global Investors/Morningstar as at September 2024
NAV: Data do not include Initial Charge. NAV^: Data include Initial Charge (where applicable)
Past performance is not necessarily indicative of future performance. Return periods longer than 1 year are annualised.
Read Also: Investments You Can Make With Your CPF Special Account Funds After Its Closure At 55
Legacy Planning: To Live Our Best Retirement Life
We should not only make it a point to reassess our portfolio risk, especially as we age, but also consider how we want to distribute our assets should the unforeseen happen to us.
The obvious advantage is that we will reduce uncertainties and potential conflicts among our loved ones after we pass on. We could also have other non-financial goals, such as leaving something behind for a charitable cause we believe in.
Since we will also be the drawdown phase in our lives at this point, we will naturally need to rely on regular income from the nest egg we’ve built over the decades to supplement desired retirement lifestyle – a part of which will also be funded by our CPF LIFE monthly payouts.
At this point, if we find that there is still a shortfall in regular income to fund our desired retirement lifestyle, we have to option of selling the investment portfolio that we’ve built over the years.
For example, the LionGlobal All Seasons Fund (Standard) has a decumulation class – where investors choose to sell a fixed number of underlying assets on a regular basis. This can potentially help bridge the shortfall in our desired retirement income.
Planning for our retirement from the day we start working can be dauting, but, by aligning our investments as we cross into different life stages, we strengthen not only our financial well-being but also the financial futures of those we care about.
Disclaimer
1Returns are based on a single pricing basis. Dividends are reinvested net of all charges payable upon reinvestment and in respective share class currency terms.
2The company’s business sector must be classified as “Banking, Insurance, Investment Services, or Specialty Finance & Services”, as defined by FactSet’s Revere Business Industry Classification System (RBICS).
3Based on the underlying Index Securities of the iEdge APAC Financials Dividend Plus Index
4As set out in the prospectus, distribution payments shall, at the sole discretion of the Manager, be made out of either (a) distributable income; or (b) capital gains; or (c) capital of the Deposited Property or a combination of (a) and/or (b) and/or (c). Distributions are not guaranteed and may fluctuate. Past performance, yields, and payments are not necessarily indicative of future or likely performance, yields, and payments. Distribution payouts and its frequency might be changed at the Manager’s discretion and can be made out of distributable income, capital or both. Any payment of distributions by the fund may result in an immediate reduction of the net asset value per share/unit. The Fund seeks to invest all or substantially all of the Fund’s assets in Index Securities in substantially the same weightings as reflected in the Index. Please refer to the fund prospectus for more information on the ETF’s distribution policy. Please refer to Lion Global Investors’ website for more information on the income disclosures.
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation for the purchase or sale of any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or needs.
You should read the prospectus and Product Highlights Sheet of the LionGlobal Asia Pacific Fund/ETF (“fund”) or Lion-OCBC Securities APAC Financials Dividend Plus ETF (“ETF”) which are available and may be obtained from Lion Global Investors Limited (“LGI”) or any of its distributors and/or appointed Participating Dealers (“PDs”), for further details including the risk factors and consider if a fund/ETF is suitable for you and seek such advice from a financial adviser if necessary, before deciding whether to invest in the fund/ETF. Applications for units in our fund/ETFs must be made on forms accompanying the prospectus.
Investments in our fund/ETFs are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. The performance of a fund/ETF is not guaranteed and the value of units in a fund/ETF and the income accruing to the units, if any, may rise or fall. Past performance, payout yields and payments as well as any predictions, projections, or forecasts are not necessarily indicative of the future or likely performance, payout yields and payments of a fund/ETF. Any extraordinary performance may be due to exceptional circumstances which may not be sustainable. Dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to LGI’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the fund/ETF. Any references to specific securities are for illustration purposes and are not to be considered as recommendations to buy or sell the securities. It should not be assumed that investment in such specific securities will be profitable. There can be no assurance that any of the allocations or holdings presented will remain in the fund/ETF at the time this information is presented. Any information (which includes opinions, estimates, graphs, charts, formulae or devices) is subject to change or correction at any time without notice and is not to be relied on as advice. You are advised to conduct your own independent assessment and investigation of the relevance, accuracy, adequacy and reliability of any information or contained herein and seek professional advice on them. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information. The fund/ETF may, where permitted by the prospectus, invest in financial derivative instruments for hedging purposes or for the purpose of efficient portfolio management. The LionGlobal Asia Pacific Fund’s Net Asset Value may have higher volatility as a result of its narrower investment focus on a limited geographical market, when compared to fund/ETFs investing in global or wider regional markets. The Lion-OCBC Securities APAC Financials Dividend Plus ETF’s net asset value may have higher volatility as a result of its narrower investment focus on a limited geographical market, when compared to fund/ETFs investing in global markets.
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Disclaimer – OCBC Securities Private Limited
The distributions will be a minimum of 5% per annum of the issue price per unit during the ETF’s initial offer period for the first 2 years. Thereafter, there will be a targeted dividend yield of around 5% per annum of the Net Asset Value per unit, less expenses. Distributions may be paid from distributable income, capital gains and/or capital. These distributions are not guaranteed and are subject to the fund’s distribution policy. For full details, refer to the fund prospectus. Past performance, yields, and payments are not necessarily indicative of future or likely performance, yields, or payments.
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Disclaimer – Singapore Exchange Limited
The units of the Lion-OCBC Securities APAC Financials Dividend Plus ETF are not in any way sponsored, endorsed, sold or promoted by the Singapore Exchange Limited (“SGX”) and/or its affiliates and SGX and its affiliates make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the iEdge APAC Financials Dividend Plus Index and/or the figure at which the iEdge APAC Financials Dividend Plus Index stands at any particular time on any particular day or otherwise. The iEdge APAC Financials Dividend Plus Index is administrated, calculated and published by SGX. SGX shall not be liable (whether in negligence or otherwise) to any person for any error in the Lion-OCBC Securities APAC Financials Dividend Plus ETF and the iEdge APAC Financials Dividend Plus Index and shall not be under any obligation to advise any person of any error therein.
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