https://www.straitstimes.com/business/invest/young-and-older-investors-pick-fixed-deposit-as-their-top-investment-choice-poll
2024-04-28
Tan Ooi Boon
Invest Editor
The Straits Times
We live in an age with an ever-expanding – and often bewildering – range of investment options, yet the top choice for many young and older folk now turns out to be the humble, dull but dependable fixed deposit.
The finding, which comes in the wake of rising interest rates in the last couple of years, is unusual because about 80 per cent of investors of all ages, including those in the 21 to 30 age group, have such accounts.
Many younger investors used to avoid parking any money in fixed deposits, let alone put the account as one of their preferred “investments”.
Although respondents also prefer government bonds and special savings accounts that offer higher rates on the first $100,000, the fixed deposit is likely to be the dominant product because everyone knows how it works and bank customers can also move their funds into such deposits online.
The ease of making online transactions also signals changes in share investing, noted the Fullerton Fund Management survey, which polled 500 investors who had $40,000 to over $500,000 to invest.
For instance, the numerous online trading platforms appear to have attracted many investors here to dabble in overseas stocks, especially popular technology stocks in the United States, such as Tesla, Nvidia and Apple.
Such stocks are known to be highly volatile in their price swings, and the survey highlights a worrying trend that 60 per cent of investors here do not have investment portfolios that are well diversified.
This means that some of them could be heavily invested in just one stock and thus face higher risk if the value of the stock plunges.
Property and CPF not enough?
It is clear from the poll that financial literacy is often a work in progress, with many people saying that they cannot rely on property and the CPF – two popular asset classes that many swear by – for retirement.
This feeling was particularly apparent among two age groups – those between 31 and 40, and the 51 to 60 group.
It is possible that investors in the younger group are all too aware of soaring condominium prices in the last few years, making it harder to buy or upgrade to a private property without wiping out most of their savings.
For the older group, it is common for many home owners to end up with smaller CPF balances if they use it to service their home loans.
These owners should know that the most important feature of CPF is not dependent on their fund balance alone but how much they are willing to save for CPF Life, when the national annuity scheme kicks in for those who reach 55.
Indeed, in February 2024 – a few months after this survey was done – CPF Life was given a major boost to allow members to have the option to save more so that they can receive up to $3,300 a month from age 65.
This can be achieved if people who turn 55 in 2025 or older make it their target to top up their Retirement Account in lump sums or in stages to hit the new enhanced retirement sum of $426,000.
As most participants in the Fullerton survey saw the importance of reaping continuous passive income in retirement, the idea of having about $3,000 a month is certainly worth planning for.
After all, in just 10 years, you would have received $360,000, and $720,000 in total by age 85.
Here are some planning tips for three asset classes highlighted in the survey.
MORE ON THIS TOPIC
How your expenses can hit your retirement plans
How to get monthly payouts of over $3.3k from newly enhanced CPF Life
Fixed deposits
Many high-salary earners are content to let their income accumulate in savings accounts without doing anything with it. But if they do not bother to keep excess cash in fixed deposits to earn higher interest, they are in effect missing out on the extra cash from the bank which can fund their holidays.
While a fixed deposit allows your savings to earn more without any risk, you should never view it as your main retirement plan unless you have plenty of cash to begin with.
For instance, even with a 3 per cent rate, you would need $1 million just to earn $30,000 annually, or about $2,500 a month.
Your “earnings” per month would drop considerably to $1,250 if your fixed deposit is $500,000, and $250 if it is $100,000.
Moreover, it is hard to make long-term plans because the interest rate is never stable and changes quite often in tandem with the global economy.
When the rates drop, those who rely on fixed deposits for their expenses will need to dig into the principal sum, which heightens the risk of not having enough money when they are older.
Equities and investment funds
“Don’t put all your eggs in one basket” is timeless advice for investors because many products that promise higher returns are inherently more risky. For instance, if you invest in the shares of only one company, you will sink or swim according to its fortunes.
Most financial planners would never advise their clients to do this simply because if they pick the wrong investment, they will be wiped out if that company’s shares are suspended indefinitely due to business failures.
Even if you invest in only reputable companies, you should be mindful of your goals.
While younger investors can afford to take a long-term strategy and weather the ups and downs of price swings, retired investors cannot.
Unless the stocks they pick pay decent dividends, holding shares alone will not pay your expenses unless you cash out.
Retired investors face more risk because if stock values are down and they need money to pay the bills, they may be forced to sell at a loss.
People who put money into investment funds face similar situations.
So before signing up for any, check if the fund pays returns regularly or if you will get cash only when you terminate your deal in full or partially.
Find out the procedures for termination and whether there is a minimum lock-in period. Ask also about the management costs because costly products will naturally mean your investment is only profitable if the returns are much higher.
Don’t be shy in asking even the most basic questions because there is no such thing as a dumb question when it concerns your money. It is better to be clear about everything before you part with your funds than be sorry when you are hit with losses later because you were ignorant of the risks.
MORE ON THIS TOPIC
Beware of false crypto rallies that are created to dupe investors
How to get monthly payouts of over $3.3k from newly enhanced CPF Life
Cryptocurrency
After investor confidence was pummelled repeatedly with news of fraud and market manipulation in the last two years, many people steered clear of such assets.
The Fullerton survey found that cryptocurrency ranked the lowest in terms of investment choices, after corporate bonds, mutual funds, unit trusts, shares, government bonds and fixed deposits on top.
After seeing batches of crypto investors being burned, many investors polled said they chose to “focus on achieving long-term financial security and prioritising steady gains over quick profits”.
This is a wise move because anyone planning for retirement can ill afford to put money in super risky products that can wipe the slate clean. If you can’t stomach any investment losses, stick to safe haven assets like fixed deposits and government bonds that will not cause you to lose any sleep.
No comments:
Post a Comment