Where should you park your money
Taking the first step to make the choice to save is important. But it is only the stepping stone of many other crucial decisions that you have to make in order to accumulate more wealth.
Last year, a Citibank survey showed that Singaporeans were equally likely to park their extra cash in conservative products as in riskier ones. This came to show that people are stating to make conscious decision on the use of their money. However the answer to your investment depends on your investment disposition, for which one has to assess risk appetite, risk capacity and time horizon.
In recent Straits Times, newspaper reported that most Singaporeans are not ready to retire and there are ways that they are teaching the elderly on how to live longer comfortably. Well after reading these articles, it brought to my attention on the importance of parking your money in the right channel and how to grow your money in the right way.
Over here, i would like to share with you where would be best to part your money.
Conversative approach:
1) Deposit account: When i am refering to deposit account, it includes the typical saving account and fixed deposit that most banks offer.
In Singapore, most of us are getting quite low interest eg: 0.125% for normal bank account or ranging from 0.35 to 0.875% for fixed deposit. Even thought the interest is low but there are still people who likes this approach because they feel that it is better to earn less than to have the chance to lose up to 30% of their investments through uninformed decisions.
2) Government Bond: A bond is like a loan. In other word, it is a formal contract to repay borrowed money with interest at fixed interval. This form of investment is relatively safe as it promises regular payouts periodically even though the interest return is not high.
I would say that by investing in bonds are quite safe and it is better than normal bank deposits. However there are also junk bonds hence it would be a good idea to seek a professional advise before making the purchase.
Medium to High Risk approach:
1) Structured products: In a layman term, these products involve derivatives to capitalise on the performance of an underlying asset such as a stock to give out a certain expected yield over a certain period.
Eg: Equity-linked notes with returns that could depend on the performance of a single stock, a basket of stocks or stock indices. One of the concerns that i have for consumers is whether they know that if the product is capital guaranteed?
Over the past two years, we have seen many bank selling those structured products that had caused many others to lose their retirement funds. Eg: Mini bond.
2) Self-Investing: This is useful if you are really investment savvy. It includes stocks, unit trusts or bonds. If you can stomach even more risk, you can also invest in forex or properties. But all these comes with risk of losing more money hence it must be done carefully.
Please don’t think that by reading up a few books here and there makes you a savvy investors. Most successful investors i knew, have ‘paid’ their fair share of tution money to the stock market before they become the ‘ know-how’ investors. Therefore be smart and don’t act smart!
Investing is a life long skill that you will need if you like to retire comfortably.
3) Insurance and savings: Life insurance products are another means by which people can build up their retirement funds. Typical products include endowment policies and investment linked or traditional life plans.
For those who may not have the discipline to set aside cash in the first place, an endowment policy is a great way to kick start the habit. Typically, such policy requires you to set aside premium every month into a policy that will either make regular payouts or lump sum payout upon maturiy of the policy.
Depending on your investment appetite, endowment policy can be either investment link related or non-investment link related. Investment link regular premium offers higher potential returns and the flexibility to adjust their funds allocation along the way. However the flip side of such policies is that all the returns are non-guaranteed.
For those conversative consumers, a traditional endowment plan is the way to go. It helps to address those with specific purposes whether be it in planning for retirement or children’s education.
Having to understand the type of products available, it is important to note that given the variety of products out there, they have to select properly. If you are unsure about where to start, it is imperative to seek professional advice from a reliable financial adviser. It is equally important for you to be forthcoming with relevant information for the adviser to work with.
Everything that i shared about are my two cent’s worth of knowledge. Hope it benefits you =)
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