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The Most Popular Types of Investment in Singapore (And How to Get the Most Out of Them)


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We know by now that simply relying on our monthly salary isn’t going to put us on the fast track to retirement or keep up with inflation (last we checked, core inflation is 4.8%!).

Investing is more crucial than ever. When done astutely, it can help us grow our wealth, provide a steady stream of passive income, and guard against the risk of inflation.

But with the plethora of investment products and schemes out there, it can be hard to ensure that you’re making the right decision with your hard-earned money. That’s okay because sometimes, market trends can point us in the right direction.

Here are the most popular types of investments in Singapore, and the best way to optimise your gains with them.

Table of Contents

  • CPF Investment Scheme
  • Supplementary Retirement Scheme
  • Singapore Savings Bonds
  • Exchange-Traded Funds
  • Real Estate Investment Trusts
  • Robo-Advisors
  • Stocks
  • Conclusion

1. CPF Investment Scheme

Building Your Savings

As the name suggests, the CPFIS allows you to use your CPF monies to invest in various products, such as unit trusts, fixed deposits, insurance products, and even bonds and shares.

There are two schemes you can participate in, and they differ in terms of the types of products you can invest in and where you can draw your funds from.

The following table displays the key differences.

Account CPFIS-OA CPFIS-SA
Source of funds OA balance after the first S$20,000 SA balance after the first S$40,000
What you can invest in Singapore Government Bonds, ETFs, Unit trusts, ILPs, T-bills, Fund Management Accounts Singapore Government Bonds, Unit trusts, ILPs, T-bills
Restrictions
  • Must first set aside S$20,000
  • 35% of investible balance can be invested in shares, corporate bonds, and property funds
  • 10% of investible balance can be invested in gold and gold products
  • Must first set aside S$40,000
  • Not allowed to invest in shares, corporate bonds, property funds, gold and gold products

Regardless of what you choose to invest in using your CPF funds, if you’re not seeing returns significantly higher than the default interest rates of 2.5% (OA) and 5% (SA), you might be better off just leaving your CPF monies alone for steady, risk-free growth in your accounts.

Read our CPF and OA guides.

2. Supplementary Retirement Scheme

The Supplementary Retirement Scheme (SRS) is a voluntary contribution scheme that allows you to stash away more money for retirement than your standard CPF contributions.

You can deposit up to S$15,300 a year in your SRS account to earn some personal income tax relief. However, the SRS account currently only brings in a meagre interest rate of 0.05% p.a., so leaving your SRS funds idle will cause them to erode due to inflation.

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For instance, assuming that you’re earning a monthly salary of S$6,700. This entitles you to significant tax relief benefits. To illustrate the tax relief from contributing to your SRS account, we assume the following:
* CPF Tax Relief: S$14,400
* Earned Income Relief: S$1,000
* SRS Contribution: S$10,000

Without SRS With SRS
Annual Income S$80,400 S$80,400
Tax Relief S$15,400 S$15,400
SRS Contribution S$0 S$10,000
Chargeable Income S$65,000 S$55,000
Income Tax Payable S$2,300 S$1,600

*Do note that the figures are for illustration purposes only and other tax reliefs might apply depending on your lifestyle stage and age. To find out the amount of tax reliefs and income tax payable you are eligible for, please use the IRAS Tax Calculator instead.

Simply by contributing S$10,000 into your SRS account every year, you’ll enjoy a tax saving of S$700 every year.

Do take note, however, that the interest rate for the SRS account is 0.05%. To maximise the funds in your SRS account, you can use them to invest in a variety of products:

  • Bonds
  • Exchange-Traded Funds (ETFs)
  • Fixed Deposits
  • Real Estate Investment Trusts
  • Regular Shares Savings (RSS) Plan
  • Robo-Advisors
  • Singapore Government Securities (E.g. SSB, SGS Bonds, Treasury Bills)
  • Single-Premium Insurance Products
  • Unit Trusts
  • Index Funds
  • Blue-Chip Shares
  • SGD Fixed Deposits
  • Endowment Insurance Plans

3. Singapore Savings Bonds

Another popular investment product is the Singapore Savings Bonds (SSBs), typically favoured for their low but steady returns.

How do bonds work? A bond is issued by an entity (in this case, the Singapore government) to raise money from the public. The entity promises to pay back the face value of the bond on a fixed date and disburses interest payments at regular intervals.

How stable a bond thus depends on the reliability of the issuer. If the issuer is a sketchy company, you’ll probably not feel confident about lending them your money.

For SSBs, with the issuer being the Singapore government (as reliable as they come), they are widely considered to be a safe investment.

However, do note that bonds tend to have a relatively lower rate of returns due to their low-risk level. SSBs may yield a steady average annual return of 2.75% for a tenure of 10 years, but it’s not going to supercharge your wealth accumulation process.

With its slow and steady nature, this low-risk, low-returns investment vehicle can be used to store money that you are trying to safeguard against inflation. This makes it a good choice for those closer to retirement seeking to preserve their wealth.

Read More: Rising Interest Rates and Returns for Singapore Savings Bonds (SSB) – Should You Start Investing In It?

4. Exchange-Traded Funds

Exchange-Traded Funds (ETFs) allow investors to invest in a basket of assets without having to purchase individual stocks and shares. Professional trading houses compose these ‘baskets’ into funds and then offer shares of the funds to individual investors.

ETFs typically track the performance of an index, so in a way, they’re a “shortcut” to investing in a particular industry or market as you can save on the time and energy required to track a particular stock(s) in the market.

For instance, as the Straits Times Index (STI) tracks the performance of the top 30 listed companies in Singapore, investing in it allows you to invest in all of 30 companies without having to individually buy their stocks.

When you invest in an ETF, you essentially own shares of that fund. However, you do not own the underlying assets, such as the stocks, shares, commodities or derivatives.

ETFs can be composed across various industries and comprise various assets. Therefore, they offer a high degree of diversification that can help to reduce risks that may arise from over-exposure to a certain market.

Also, as an added bonus, ETFs typically charge lower fees than other investments such as unit trusts.

5. Real Estate Investment Trusts

Real Estate Investing

Want to be a part of Singapore’s booming property sector? Then you might want to explore Real Estate Investment Trusts (REITs).

REITs are professionally managed funds that pool together money from many individual investors. That money is then used to invest in real estate. Some REITs may focus on developing commercial properties like shopping malls or office spaces, while others may buy properties that they rent out to tenants for rental income.

REITs have become popular among investors as they are able to provide steady income. For instance, a popular shopping mall may appreciate value as it continues to attract and/or retain high-profit tenants.

Generally, REITs should take a spot in your investment portfolio if you are hoping to grow your wealth. However, if you’re looking toward wealth preservation, then it’s better to go for REITs that provide steady dividends.

Read More: Everything You Need to Know About Investing in REITs Safely & Efficiently

6. Robo-Advisors

A relatively new investment tool, robos help you invest under the guidance of algorithms instead of human professionals.

To compose your investment portfolio, robos typically draw from a range of ETFs that range across various asset classes. How do a bunch of bots formulate their investment strategy? Based on your financial goals.

You simply let the robo-advisor know what you wish to achieve and it will recommend and manage your investments accordingly.

Thus, robos are an easy way for those with little to no investment knowledge to start investing. They also have lower barriers to entry by way of low fees and an uncomplicated fee structure.

This tool is therefore best suited for beginner or hands-free investors who prefer to not have to track their investments too much. You can also automate your funds transfer from your bank account by setting up a recurring payment, and the robos will keep going with regular fund injections.

For individuals looking to start investing in robo-advisor services, you can read our specially-curated guides to robo-advisors in Singapore here.

7. Stocks

Stock value on screen

In a nutshell, stocks or shares represent a stake in a particular company. They are traded on the stock exchange, and investors earn money when they sell their stock at a higher price than when they bought it (i.e. capital gains).

Sounds simple enough, but the hard part is predicting when the stocks will go up, and how high they’ll go. Trying to track this roller-coaster trajectory of a day-traded stock can be incredibly wrecking.

Stocks are also typically traded in lots of 100, so investing in a high-performing stock such as Apple Inc (USD$163.43 per stock at the time of writing) can incur a high initial investment sum.

Although it can be difficult to pick winning stocks, investing in stocks that provide dividend returns can help form a stream of passive income.

Depending on your financial goals, you may have different strategies for investing in stocks. For example, investing in a fast-growing startup can provide short-term gains, while investing in time-proven stocks can counterbalance a portfolio that is heavy in commodities.

Read our basic guide to investing in stocks.

Conclusion

For individuals who are just starting out in their investing journey and need a safe place with a gentle learning curve to store their funds, the Singapore Savings Bonds might be a good option to get your feet wet.

You get to try your hand at investing in bonds, enjoy slow and steady wealth accumulation/preservation, as well as gain more experience and confidence in investing before moving on to other types of investments like ETFs, stocks and more.

The article originally appeared on ValueChampion.

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