Being a financially savvy Singaporean can mean a lot of things to different people. But it all boils down…
In a recent Wealth Expectancy report by Standard Chartered, they found that aspiring rich Singaporeans (aka emerging affluent) prioritise savings over investment. This group of emerging affluent Singaporeans who earn between $5,000 and $10,500 use saving accounts as their primary financial tool for their financial goal. While cultivating the habit of saving is important, it is definitely not enough to fund the retirement lifestyle that you aspire to. Here’s why.
Let’s say you start to save $500 a month for the next 10 years. You diligently place it into your savings account. At the end of the 10 years, you would have saved $60,000 (Duh, 12 x $500 x 10 years = $60,000). That sounds like a lot of money, doesn’t it? Well, not quite because it could have been much more. Here’s a summary how much you would have saved in 10 years’ time if you had invested your savings instead of letting it sit idly in the bank.
| Financial Product | Investment Return (p.a.) | Total Savings | Difference vs Savings Account |
| Savings Account | 0% | $60,000 | – |
| Singapore Savings Bond, High Interest Savings Account | 2% | $66,360 | $6,360 (+10.6%) |
| CPF | 2.5% | $68,086 | $8,086 (+13.5%) |
| Endowment, Savings Plan | 4% | $73,625 | $13,625 (22.7%) |
| 6% | $81,940 | $21,940 (36.7%) | |
| Real Estate Investment Trust (REITs) | 6 – 8% | $81,940 – $91,473 | $31,473 (52.5%) |
| Managed Funds
(Havenport, Unit Trusts) |
8 – 13% | $91,473 – $122,019 | $31,473 – $62,019 (52.5% – 103.3%) |
Table 1 – Total savings in 10 years’ time depending on the financial product that you chose to save with
For instance, if you have been diligently saving in a high interest savings account or Singapore Savings Bond instead, you could have made an annual return of ~2% on your savings. That would have grown your savings to $66,360. However, the hard truth is that CPF’s 2.5% interest rate would have triumph your 2% return by 27.4% after the effects of compounding kicks in.
If you put your money in a good endowment plan that returns between 4-6%, you will find yourself saving much more. An endowment plan with 4% investment return will yield $73,625 in savings for you at the end of 10 years. If the market is doing well, your endowment plan could pay out more as non-guaranteed return. If your endowment plan returns 6%, itwill give you $81,940 of savings at the end of 10 years.
Think endowment plans suit your investment needs the most? Check out the top 3 endowment plans to help you save at a faster rate.
According to the report, affluent and high net worth individuals like to park their savings in real estate investment trusts (REITs). These are investment vehicles that own a portfolio of income generating real estates. The income collected as rent from the tenants of the real estate is distributed back to unitholders of REITs as dividends. On average, these REITs return 6 – 8% dividends per annum. On top of the dividends, there is also potential for capital gain.
If you have a greater appetite for risk and wants to aim for higher investment return, you can invest in managed accounts like unit trusts. Unit trusts pool investors’ money and invests in stocks based on the trust’s mandate.
Alternatively, you can also invest in managed portfolio of funds like Havenport. With a team of investment professionals, Havenport invests your money in a combination of income generating funds and global equity funds to achieve sustainable income distribution and moderate long term capital appreciation.
Everyone wants to be rich, but yet we are afraid of making the wrong investment and end up on the back foot. However, in being afraid of making the wrong investment, we end up making the biggest mistake of not investing at all. While there are risks associated with investing, not investing is an even bigger risk than making the wrong investment. Thus, the best advice that we can give to you is to start investing today if you want to move from emerging affluent to affluent or even high net worth one day.
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