Mother and son

Win inflation in 6 ways

Our grandparents used to hide their cash under their mattress, or in milo tins. We think we’re smarter by depositing it in our savings accounts. But did you know that THAT is the modern-day equivalent of the milo tin?

Money that is left in a savings account loses value over time. This is because of inflation. Right now, S$10 buy us 2 Cheeseburger Happy Meals. But in 20 years, that S$10 will only be enough for 1.5 Cheeseburger Happy Meals, if we do the sums with the current rate of inflation of 2% per year. (Try this with MAS’ calculator.)

While inflation cannot be avoided, we can try to beat it. One way is to invest in things that maximise your returns, while keeping a lid on risks.


Here are 6 things to look at.
But remember – always invest in a diverse range of products to reduce the volatility of your portfolio!

Stocks

There are two broad categories of stocks that cater to different goals and risk appetites:

  • Companies with higher potential returns which may involve higher risks; or
  • ‘Blue chip’ ones that have a more stable outlook but tend to have lower returns.

Whichever you decide on, investing in stocks requires you to pay attention to financial markets.

If you do not have the time for that sort of tracking, Exchange Traded Funds (ETFs) are an alternative that come with in-built diversification. ETFs are based on market indexes and are made to mimic the performance of a group of stocks.

Bonds

When you buy bonds, you are essentially lending money to a government or company for a set number of years, in exchange for regular interest payments.

There are two types of bonds: Government bonds and corporate bonds.

Government bonds with a top-grade rating (‘AAA’) such as the Singapore Savings Bonds (SSB) are considered safe options. They generate value through interest payments that over a long period of time. Some may even be a good source of rainy-day savings because they can be returned at any time (with just a S$2 transaction fee for SSBs).

Corporate bonds usually offer higher interest payments. However, they also carry a higher level of risk, and require more thorough background checks.

Gold ETFs

Gold has historically shown good returns, and is a method to hedge your investments in equities. However, since storage is an issue, consider investing in a gold ETF instead. These funds invest in gold bars and their price depends on the price of gold.

Reits

Real Estate Investment Trusts (REITs) allow you co-own major properties such as shopping centres, offices and hotels. There are also tax concessions in Singapore for REITs that distribute at least 90% of their income as dividends. However, this does not guarantee high payouts from REITs – your investment could still lose value if real estate prices fall, or if the REIT is poorly managed.

Unit Trusts

If you want to do less monitoring work but still invest in a diversified portfolio, leave it to the experts by investing in unit trusts.

Think of unit trusts like going to the buffet. The variety means that there is always something to suit your appetite for risks and rewards. The quality is ensured by professionals who do the detailed research, and adjust the selection of equities and bonds for you. Prices are also more affordable than if you were to purchase those same stocks a la carte.

Another perk: unit trusts can be purchased with cash, CPF or Supplementary Retirement Scheme funds.

Regular Savings Plan

Regular savings plans (RSPs) automatically save money for you every month. They are similar to a monthly savings plan, except that the money goes into stocks and unit trusts instead of a savings account. Just S$100 is needed each month to start an RSP.

RSP uses an investment method called ‘dollar-cost averaging’, in which your S$100 buys more units when prices are low, and fewer when prices are high. And this is done to better protect you from the volatility of stocks.


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