A place where you can securely reside with your loving family – that is what you call a home.
Since land is scarce in Singapore, properties had always been a go-to investment tool for many. The majority of these investors have strategies limited to purchasing, reselling, and renting flats or condominiums. But, in order for higher returns to generate, one must consider investing to a range of other properties such as using the Real Estate Investment Trust (REIT).
And for a beginner with merely S$10,000 on hand, is property a viable and smart investment tool?
PROS
1. GETTING MORE LEVERAGE
With the banks help, you can have the ability to leverage your capital, make a down payment, and increase your overall return. Simply, more leverage enables you to pay less money upfront (e.g., 30% down payment and 70% from the bank) while making more money in the process.
2. CAN BE A SHIELD AGAINST INFLATION
Inflation occurs when there is a spike in prices and fall in the purchasing value of the dollar. As the miscellaneous for the property increases, the rent, and its value also increases. This is why property investing can be a good shield against inflation.
Image Credits: .Martin. via Flickr
CONS
1. CAN BE TIME CONSUMING
Finding a property in a decent location, building a good relationship with the tenants, and maintaining the condition of the property can be time consuming. Time that may not be in the good side of most.
2. THE RISKS ARE HIGH
A two-bedroom HDB flat can cost about S$250,000. That is a huge sum of money you may be willing to risk if you are serious in property investing. The risks only increase when the investor does not understand how the property market works or when and where to invest. Hurrying up without analyzing the situation thoroughly can only bring about more damage (e.g., bankruptcy) than good.
ULTIMATELY
You can lower the risk of property investing by diligently researching and analyzing reports, tests, and the current situation. Furthermore, investing in below market value properties backed up with insurance can help manage the risk. You would not know all these things unless you are well informed!
A buyer with an in-depth financial knowledge is important to the success of a property investment. So, if you lack sufficient knowledge, seek advice from a financial consultant or other professional advisers. And, when you find the “right property”, ensure that you keep your expectations realistic and keep your finances in tact.
DISCLAIMER: THIS ARTICLE DOES NOT FORM PART OF ANY OFFER OR RECOMMENDATION, OR HAVE ANY REGARD TO THE INVESTMENT OBJECTIVES, FINANCIAL SITUATION, OR NEEDS OF ANY SPECIFIC PERSON. BEFORE COMMITTING TO AN INVESTMENT, PLEASE SEEK ADVICE FROM A FINANCIAL CONSULTANT OR OTHER PROFESSIONAL ADVISER.
Singapore may be the world’s most expensive city, but to lead a reasonably comfortable life may not be impossible. It takes significant forward planning and a strict adherence to one’s investment principles to achieve a desirable outcome. This article – the third in a five-part series that continues from “How to maximize your life with a $3,000 paycheck”- will thus explore the different ways to diversify and maximize your returns on a $1,500 monthly “investment budget”.
Image credit: blog.propertyguru.com.sg
Property
A home not only provides a physical shelter, but also instills a sense of belonging and emotional attachment in the members of a family. Therefore, this prized asset is arguably the main driving force that motivates people to work hard and tirelessly, which forms the bedrock of our prosperous society. At the same time, it makes sense to allocate a lion’s share of the investment budget equivalent to 40% or $600 to property. Given that 23% of the wages that are allocated to the Ordinary Account can be used for housing, which thankfully exceeds the regular 20% employee’s CPF contribution, no further action needs to be done to set aside any disposable income for the property budget. Since the CPF savings in the Ordinary Account yield a guaranteed annual interest rate of 2.5%, this should form the benchmark on which the returns of the alternative investment vehicles shown below are based.
Image credit: gelvininfotech.com
Stocks
Evaluating a stock is akin to evaluating your potential life partner. You need to understand it well before you are able to pass a well-informed judgment – to buy, sell or keep in view. And for most working adults, time constraint is a persistent bugbear. But keep your heads up. You just need to stay focused on certain options (both in the arenas of investment and love). Choose the industry that you are familiar and confident with – especially if you are working in that sector or make friends in the sectors that you are interested in – and share the exclusive knowledge and expertise with your selected group of friends to leverage on the pooled insights. Besides that, running checks on the consistencies of the historical dividend yields and the shareholding information of the top management executives of the publicly listed company is pivotal. These track records offer an ultimate backstop when things go awry by providing “consolatory recurring dividends” and a “management confidence boost” (assuming that these companies are content with the status quo). Allocate 35% or $525 monthly to your share investment budget. Engage in the due diligence process while gradually building your ammunition to purchase stocks that offer at least 2.5% dividend yield.
Image credit: pondicherryurbanbank.in
Fixed deposits
While most fixed deposit interest rates are considerably lower than 2.5% and grimly sufficient to beat inflation, it is nevertheless a secure source of income, especially during a recession where stock prices and incomes are falling. Moreover, it offers flexibility as you can decide on the tenure of your fixed deposits that ranges from 30 days to 10 years. Therefore, cap your downside risks by designating 15% or $225 to fixed deposits and be assured of the steady returns to this investment.
Image credit: forbes.com
Savings account
Saving up for a big ticket item like the upcoming iPhone? The remaining 10% or $150 should not be tied up in any illiquid investment vehicles. It is a good financial management practice to reserve a small portion of the investment budget every month for the pursuit of the latest trends or luxury indulgences instead of bursting your credit card limits on such occasional treats.
While these measures may not propel you to the top 10% of the Singapore’s population, they serve as a general guide to better manage your finances. As always, sheer hard work and discipline rule the day.
While i love the amazing skyline from Victoria Peak, what got me excited were not the insta-worthy photos i took or the dim sum i gobbled down at Lung King Heen.
It was the fact that i actually travel for free.
Free? Does it means that i won a free trip to Hong Kong or had my travel sponsored by a company?
Good guess, but nope!
Well, the trick here is about planning my own finances. I couldn’t have included Hong Kong into the list of places to visit without exceeding the budget i set aside for this year.
A few years ago when i was still a student, i didn’t care too much about my own finances since i was spending within my means. Like many others, I had my money stashed away in a POSB’s saving account. Who care about interest rates when we hardly have five figures in our possession? The returns were pittance that it hardly warrant any extra attention.
My attitude changed when i had friends who were boasting about how much money they were making. I told myself i wanted to be like them — to be rich, in the shortest amount of time.
It seems then that the only way is to investventure gamble into the stocks market. I had no idea where to start until one day i was approached by a financial adviser when i was exiting the MRT station. And being a ambitious and impulsive young adult, i was persuaded into buying a saving plan that invests into the market with some kind of insurance cover that comes with it.
It felt good even though i had no idea what i was buying into – the feel good factor that i am now investing like an adult.
I call in to check on the policy every month, but apparently i was told that it is still in the early stage and had little or no cash value.
After a few months i gave up because it hardly grows and sadly i was told that if i were to terminate the plan, i would end up with almost nothing.
The change
From then on, I told myself that no one else can manage my own finances except myself. I need to take the responsibility or i will be the one suffering down the road.
I spend months reading up on books, forums, MoneySense and any resources that i could laid hands on. I begin to understand the importance of budgeting, investing and how to manage my own finances.
I started by switching my funds to a higher interest-bearing account such as the OCBC 360 where customers could potentially earn up to 3.25% as at 1 May 2015.
It was also then that i realized that previously i was holding on to an investment-linked plan which comes with high fee and charges. It is not cost-effective to achieve my goals and i had to take the hard decision to surrender and make a loss.
A better way that i learnt is to buy term insurance and invest the difference. Term insurance is cheap and affordable although it does not have cash value. But the difference i could potentially save could be put into better investment vehicle such as the low cost fund that tracks the Straits Time Index (STI) which has a historical return of around 8 per cent in the long run.
I was introduced to the online platform DIYInsurance — a portal which allows me to compare the different term insurance plans out there. What appeals to me is that they rebate 30% of the commission back to the customer and at the same time still make an effort to go through the planning process, making sure that the person is on the right track.
They have a live chat system where i can ask any questions on how to use the online platform, as well as clarifying with the client services manager on the semantics of insurance definition. It was fuss free and it beats the inconvenience of holding on to the line when you call in to financial institutions for enquiries.
If you are wondering how much money i save using the DIY method, i have done up some numbers for comparison.
(Click to enlarge)
As you can see, i was previously paying $300 a month for a $200K cover on death and disability and a $50K rider on critical illnesses. If the funds grow at 4%, it will take me 20 years to break even and 35 years to make a small profit of $15K. (calculate the ROI)
If i were to employ the alternative strategy of buying term and investing the difference, i’d be merely paying $100 a month for a $500K cover on death, disability and $300K on critical illnesses. The other $100 will be channeled to a low cost fund, and assuming it grows at the same rate, my portfolio would be sitting at a value of $35K after 20 years or $88K after 35 years. (note that i’m contributing 2/3 of what i’d have otherwise contributed to the ILP and i have pegged its growth at 4% for comparison purposes)
As a result, i managed to put away $100 a month into my travel funds and this adds up to a significant amount of $1,200 a year. A sum that is sufficient for me to pay for the return air ticket to Hong Kong which including hotel and shopping expenses incurred during the trip. I am also getting $400 worth of commission rebates from DIYInsurance which i can either re-invest or spend it on my next trip. (I have re-invested it)
In conclusion
By taking charge of my own finances, i am now enjoying a higher returns of 2.25% (excluding the 1% bonus to insure or invest) from the money sitting in the bank as well as future incoming funds. I have also manage to cut down on unnecessary fee and charges slapped on expensive insurance products by switching to a more affordable term cover and investing in a low cost funds.
I have lost some money in the investment linked product but at the same time i have took home valuable knowledge and wisdom of managing my own finances, and as a result, created more wealth from it.
Well, perhaps a road trip to Australia next?
(Article contributed by Cheryl, a Marketing Executive working in Singapore.)
First, you must know the nature of fixed deposits (FD), its advantages, and disadvantages. A fixed deposit is a financial tool offered by the bank, which, provides clients (like YOU) with a higher rate of interest than a savings account.
In Singapore, a minimum deposit of S$1, 000 is required to open an account. The fixed deposit rate will only be given within a maturity term. The term ranging from 1 to 36 months depends upon your bank here. Once the money matures, you will get back your initial deposit with the interest.
FD’S ADVANTAGES
a. SAFETY
Fixed deposit is a more stable and safe route than other investments. Since not everyone is willing to risk it all with bonds and property investments, fixed deposits offer guaranteed money back.
b. WORKABILITY
Because the rates vary based on the time on hold, the amount you put in, and the bank you chose…there is a good chance to get the highest interest rate possible. All you have to do is to research and compare the workability or flexibility of the FDs available.
c. LIQUIDITY
Your money that resides in a fixed deposit account is a surefire liquid asset (i.e., can be converted to cash). So, after the money matures, you can withdraw cash for any purpose such as weddings or medical emergencies.
FD’S DISADVANTAGES
a. NO DIVERSIFICATION
If you invest all of your wealth to FDs then, you will not indulge on the benefits of diversification. Diversification is having investments in real estate, gold, and stock markets.
b. VULNERABILITY TO INFLATION
The returns of the FDs are lower if the inflation is very high. To put it in perspective, the interest rate may not change but you will still lose money if the Singapore dollar significantly drops.
To the most exciting part, we shall go…
LEADING FIXED DEPOSIT RATES IN SINGAPORE
Here are the banks that provides the best interest rates if your savings is S$10, 000 within an annum:
1. RHB Singapore Dollar Time Deposit
Interest Rate: 0.63%
Returns: S$63
2. CIMB Why Wait Fixed Deposit-i Account
Interest Rate: 0.50%
Returns: S$50
3. UOB Grand Senior Citizens Fixed Deposit
Interest Rate: 0.38%
Returns: S$38
4. Standard Chartered Singapore Dollar Time Deposits
Interest Rate: 0.35%
Returns: S$35
Here are the banks that provides the best interest rates if your savings is S$100, 000 within an annum:
1. CIMB SGD Fixed Deposit
Interest Rate: 1.30%
Returns: S$1,300
2. Maybank iSaVvy Time Deposit
Interest Rate: 0.85%
Returns: S$850
3. Maybank Singapore Dollar Time Deposit
Interest Rate: 0.70%
Returns: S$700
4. Bank of China SGD Time Deposit Account
Interest Rate: 0.60%
Returns: S$600
Image Credits: Will Clayton via Flickr
The data above goes to show that the strength of the fixed deposit rate truly varies upon the amount you saved and the bank you chose. Hence, it is important to educate yourself first before diving in. ☺
A potent reason why people prefer to keep their wealth in the bank is its security. Keeping your money at home may increase the risk of it getting stolen or damaged by unforeseen events such as fire. The banks are equipped with facilities to guard your money the best they can possibly can.
2. Accessibility
With the modern times, banking had become easier. More and more banks allow online banking and even Smartphone Apps to help its users to transfer money with the stroke of their fingertips. No need to endure a long queue! Furthermore, you can access your money anywhere as there are ATMs nationwide.
3. Saving and Investing
The money you park in the bank will have returns depending on the yearly interest provided by your bank. Also, you can take the opportunity to grow your savings even more by investing it in the stock market through the bank’s investment services.
TRUSTED BANKS IN SINGAPORE
Singapore is one of the strongest developed countries all over the world. This is why aside from local banks; renowned International banks have branches located here. With a myriad of choices which, shall you trust your money with?
To answer this question, Focus Singapore, a website that provides useful information on travel, business, and education, had ranked the “Top Banks In Singapore”. This ranking is solely based on the available data and research. On that note, here are 7 of Singapore’s premier banks:
1. Developmental Bank of Singapore (DBS)
2. Post Office Savings Bank (POSB)
3. United Overseas Bank (UOB)
4. OCBC Bank
5. Standard Chartered Bank
6. Citibank
7. HSBC
These commercial banks include the functions of universal banking such as allowing deposits, provision of cheques, and other businesses authorized by the Monetary Authority of Singapore. With these transactions, you may encounter abbreviations such as GST (Goods and Services Tax) that you may not be familiar with.
That said here are 10 COMMONLY-USED BANKING ABBREVIATIONS that you may see on your bank account statement:
1. ATM: Automated Teller Machine
2. BGC: Bank Giro Credit
3. INT: Interest
4. DIV: Dividend
5. CD: Cash Deposit
6. CW: Cash Withdrawal
7. S/O or SO: Standing Order Payment
8. IFT: Internet Banking Fund Transfer
9. IBP: Internet Banking Bills Payment
10. SC: Service Charge
Image Credits: 401(K) 2012 via Flickr
May these nuggets of knowledge help you in the future!
