Best Investment in Singapore

7 Best Investment Options in Singapore to Get Smarter With Money in 2022

Singapore has a number of investment choices for you to decide on how to keep your money flowing. There are plenty of great investment options to choose from, but if you are not careful, you may end up regretting an investment that will drain all of your money. So, keep on reading for the smartest ways to cycle your cash and the best investment options in Singapore. 

But, before we start, please take note that none of this is financial advice. All the content you see here is for informational purposes only. There are plenty of benefits when you invest in any of the choices, but do understand that it is not always guaranteed to have a good return rate, so be prepared for any possible scenario if your investments fail. Know more on how to start investing in Singapore here.

 

Considerations Before Investing

  • If you’re looking for a low-risk investment, a fixed deposit or savings account may be a better option than investing in ETF, real estate or stocks.
  • Another important factor to consider is liquidity – how quickly you can access your money if you need it. In most cases, you’ll have less access to your funds if you invest in bonds than if you save or invest in a fixed deposit.
  • It’s important to think about your overall financial goals and make sure the investment aligns with them.
  • If you are trying to save for a specific goal, you should think about whether your savings can be locked away or if you will need access to them as soon as possible.

 

Best Investments in Singapore

1. CPF Investment Scheme

Also known as CPFIS, the Central Provident Fund Investment Scheme is a retirement option in Singapore. The Central Provident Fund Board (CPFB) manages the CPF where every employed person has to pay part of his salary (or wage) to this fund, and this will later be used to offset the expenses in your golden years. 

The CPF Investment Scheme (CPFIS) was introduced by the Singapore government to encourage people, particularly employed people, to save more for retirement. It is a voluntary scheme that members can opt into if they choose not to contribute to the Ordinary Account or Special Account.

Benefits

  • The good side with this fund is that it accumulates a lot of money and therefore, it can be a good place to invest. 
  • The Ordinary Account (OA) is one of the accounts that you will find in your CPF account. This is where most members keep their money before investing it in other schemes like the Special Investment Scheme (SIS).
  • If you are one of those, CPFIS is designed with your needs in mind. It gives you higher returns than what is given by the OA but it comes with an element of risk. The downside however, is that you don’t earn interest every year unlike the OA.
  • The returns on your CPFIS increase yearly by 5% and every year, the rate is set lower than the return given to the OA. 
  • This scheme does not require you to select individual funds, and it is designed for people who want a simple plan with a large sum of money.
  • You simply need to make your monthly contributions to the OA and for this 5% interest, you can focus on what you do best: working. 

Risks

  • As of December 2015, you are only required to make at least S$100 per month contribution. 
  • A company may require you to contribute S$300 in the initial stage if your OA has below S$5,000. This is to help you familiarize yourself with the scheme, and for your information, this is different from the S$100+50 deposit where they require a minimum initial deposit of S$250.

 

2. Singapore Savings Bonds

Singapore Savings Bonds, or SSBs, is a way for individuals to put their savings to good use. It should be noted that Singaporeans aged 16 and above can buy these bonds, which have a minimum denomination of $500. These bonds also have a time limit – you cannot purchase them after the age of 65.

Singapore Savings Bonds are managed by the Monetary Authority of Singapore (MAS), and each year they release a limited number of these bonds to the public. This year, it’s estimated that up to $888 million worth of SSBs will be released. Just last month, for example, they put out a total of $272 million.

SSBs inlcude two types – SingPass and non-SingPass. The difference is that SingPass users must use their SingPass password to activate the SSB, whereas non-Singpass customers will be required to provide additional information to verify ownership. This includes things like an Electronic Funds Transfer number (EFT) and bank account number.

Benefits

  • As mentioned earlier, the minimum denomination for SSBs is $500 – this means that if you were to purchase a single bond, you would need to pay $500 for it.
  • Today, the interest rate on SSBs is 1.88% up to 2.48%.
  • You can choose to purchase as many SSBs as you like – just take note of the yearly limit, which is $50,000. 
  • If you have more than $50,000 available, you can even purchase up to 50 SSBs at a time.

Risks

  • Just know that if you cash out after six months, for example, you won’t earn the 2.48% interest – just 1.88%.
  • SSBs have a limited lifespan of ten years. 
  • Know that there is always the potential for inflation to impact your purchasing power over time.

 

Investment

3. Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs), also known as Index funds, or tracker funds, are much like mutual funds, only they’re traded on the stock exchange. They’re passively managed, which means that there’s no active security selection or market timing involved; you’ll be investing in a huge basket of securities that are held in exactly the same proportion as the target index, and every security you invest in will track a specific Index.

Benefits

  • Higher liquidity, lower costs and minimal taxation. 
  • They’re a great way to diversify your portfolio with minimal capital input because you can get started with just S$1,000. 
  • Because of their low turnover rates, any taxes resulting from dividends or realized capital gains will usually be less than 1% per annum which is much lower than buying individual stocks or investing in actively managed funds where turnover rates can be very high. 
  • ETFs offer better transparency than mutual fund since you’re able to see where your money is invested, making it easier for you to monitor your risk profile without having to rely on a fund manager’s discretion.

Risks

  • When you buy a mutual fund, you’re taking on the risk of one manager rather than buying shares in every company in an index.
  • The ETF had some challenges going up against index funds because it was not as diversified as an index fund. 
  • An ETF could only hold shares of up to twenty companies.
  • The traditional ETF had a problem with diversification, but because it trades throughout the day, spreads are smaller and since they can be traded intra-day, this gives them more liquidity compared to mutual funds.

 

4. Supplementary Retirement Scheme

Supplementary Retirement Scheme acts as a supplemental income source for your main retirement savings – Central Provident Fund (CPF). To encourage its citizens to save more while retired, the government has set up different rules and regulations on how much individuals can withdraw from their own accounts. 

For instance, those who are at age 55 and above who have a total of $80,000 in their Supplementary Retirement Scheme accounts can withdraw up to $50,000 as cash lump sum.

Benefits

  • The amount of money that you can withdraw from your Supplementary Retirement Scheme account is set at 20% after reaching 55 years old . However, do note that this percentage increases every year according to the Consumer Price Index (CPI). 
  • It allows you to withdraw up to 20% of your savings before reaching 55 years old with no restrictions on how much you want to withdraw annually once you reach that age. 
  • In addition, unlike Central Provident Fund (CPF), 6% interest rate accumulates on your Supplementary Retirement Scheme account every year and it is not subjected to tax.
  • The withdrawal conditions are much more flexible than its counterpart Central Provident Fund (CPF), which allows you to access your savings at an earlier time.

Risks

  • There are no big risks found in SRS other than not being able to use the money before 55 years old. It’s the investment with the lowest risk that you can wait until you are old enough to retire. 
  • The other drawback of the SRS is the low percentage you gain per year compared to the CPFIS but that should not be a huge deal especially if you register earlier. 

 

5. Real Estate Investment Trusts

Real estate investment trusts are simply companies that own and rent out real estate. Many of these companies are publicly listed, which means you can invest directly in the company itself. It is a convenient way to have at least some exposure to the real estate market, without having to go through the hassle of buying actual properties.

A number of REITs offer higher yields than other typical investments – they also provide diversification against inflation risk as well as country risk (in Singapore). By owning such REITs, you would be sharing part of their rental income with them and thus collect your own dividends if you hold units in such REITs.

Benefits

  • REITs are often compared with fixed deposits (FD) because both of them offer fixed income – no or little fluctuations in price/value when traded in the market. 
  • REITs can be perfectly used as a substitute for FD if one plans to hold their investments for the long term.
  • first-time buyers can potentially use their CPF to purchase properties while at the same time, retirees might be able to stay in these properties rent-free if they own them.
  • Investing in REITs may give you some kind of exposure or part ownership of real estate without having to go through the hassle of buying actual private property, which is also an advantage especially since most Singaporeans do not live close to where they work (90% of Singapore working population lives more than 5 km away from the Central Business District). 
  • By investing in REITs, you can directly share part of rental income with them and thus collect dividends from them.
  • REITs are a good choice for those who want to diversify their investment portfolio by investing in real estate without having to buy a whole apartment or office building 
  • You can buy individual units of REITs and enjoy the distribution of rental income by owning part of these properties.
  • REITs allow you to diversify beyond HDB flats if one wants to invest in property.

Risks

  • There’s also inflation risk protection because price appreciation will help offset the effects of inflation while the interest rate is capped at 6% per annum – this means an investor would receive 6% yield per year even if there was no capital appreciation.
  • When economic conditions turn sour, property price declines sharply. So, we all know how important it is to diversify our portfolio across different asset classes because if one crashed. 
  • At the same time, you only have money invested in that sector, you might lose everything at once since there aren’t many people who can afford to lose everything. 

 

Stock Graph

6. Stocks

Stocks are considered the riskiest form of investment in this list but are also the most rewarding. Anyone with enough money for an initial deposit can enter stocks but you will need the proper brokerage and financial advisor before you begin buying shares. 

When a company wants to expand its operations or pay off some debt it will issue stock which represents an ownership percentage in the company. 

For example each share may represent 10% ownership of the company. A company may issue as many shares as it desires, even if they’re just one share valued at $100. You can buy or trade-in stocks four different ways: online via a brokerage firm, with a financial advisor, directly from the company itself and through your local bank branch.

Benefits

  • There is another thing to consider when choosing what type of stocks to purchase: growth versus value. 
  • A growth company tends to offer a higher risk because it shares its earnings with shareholders by paying high dividends. 
  • However, a growth company’s stock tends to increase in value faster than a “value” company so it is also considered less stable. 
  • On the other hand, a value company pays its investors lower dividends and has been found to maintain its share price better during tough economic times which makes their stock slightly more stable.
  • In other words, it is the most exciting form of investment that has a shorter time when it comes to reaping the rewards.

Risks

  • As previously stated, stocks are the second riskiest form of investment right next to cryptocurrency. This is because anything can happen to companies whether bluechip or starting. 
  • The economy determines the overall performance of each company and world events shape the price of these public corporations. 
  • If you do not have a solid broker and financial advisor, you may end up putting money on the wrong stocks. 
  • Before starting in the stock market, remember that you must be willing to lose money. After all, the volatility and fast pacing of the market will make you see your portfolio either bounce up in a matter of hours or crash in just a few minutes.

 

7. Robo-Advisors

Robo-advisors are online investment managers that use computer algorithms – rules for calculations and problem solving – to manage your money for you. Not everyone has the time or experience to pick their own investments. 

With robo-advisors, you can get basic investment advice based on your investing goals, risk tolerance and timeline without paying for a human financial advisor’s time.

Think of a robo-advisor as a financial assistant rather than a replacement for a real advisor. A human being will still be involved in the process, but they’re there to guide and assist. 

Benefits

  • Robo-advisors analyze your needs and goals to determine the appropriate portfolio for you. They diversify your investments across different segments such as large and small companies, emerging markets, and bonds.
  • Some robo-advisors will also recommend cash and alternative investments like gold or property (depending on what you prefer).
  • Robo-advisors typically charge low fees of up to 1 percent per year on assets that are invested, which is significantly less than what traditional financial advisors would charge when they manage your money.
  • You can also monitor and adjust your portfolio on a daily basis without paying more fees. If you don’t like the service, you can opt to discontinue it at any time.

Risks

  • Robo-advisors are not suitable for investors who invest in less stable assets such as physical property or currency. 
  • Robo-advisors are not big on ongoing advice and their algorithms don’t adapt if your circumstances change, for example, if you suddenly have a lot more money to invest or if you retire early. This may mean your portfolio is not suitable for you.
  • The initial investment period can also be long, ranging from 6 months to several years, depending on the robo-advisor you choose. 
  • If you withdraw money within a short period, it will affect your returns and may reduce how much money you end up with when your investing term finishes.
  • Robo-advisors are not regulated in Singapore. Most of them are based in Australia, Britain or the United States. If the investment platform fails to execute your order correctly or has insufficient funds to invest when you want to withdraw money, then it may be difficult to recover your losses.

 

Summary

Now that we talked about the options, it’s time to determine which is the best investment in SG. Overall, that is up to you and how much you are willing to risk. 

There are low risk choices like retirement bonds while others are more fast-paced like real estate and stocks. In the end, you must do further research into all these categories to determine which investment is the most optimal for your conditions.

  • CPFIS is a well-balanced investment that lets you earn passive income while working where your CPF increases over time.
  • ETFs work like “safe stocks” thanks to low expenses with high security with reasonable profitable percentages as long as you have a minimum of S$1000.
  • SRS is the safest form of investment since you put in money to your savings until you retire at the age of 55 years old.
  • REITs make a great investment option for both active workers and retirees since it involves properties around Singapore with the risk of inflation.
  • Stocks are the fastest-paced market on the list with high risks and high rewards which all depend on the companies you invest. 

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