STI: Safe options for your savings

Aug 1, 2004

Safe options for your savings
by Leong Chan Teik

I'M A 30-year-old woman. After working for eight years, I have $25,000 in savings, all sitting idly in fixed and savings deposits.

I know the importance and benefits of financial planning, and would very much like to invest my money, but do not know where to start or what to do.

How can I grow my savings fruitfully, given my small appetite for risk?

The e-mail message above arrived recently at The Sunday Times, and is similar to others we get from time to time from other readers.

These people come from a wide range of ages and backgrounds, but they share at least one common trait: They want to be safe rather than sorry with their money.

They don't want wild vacillations in their investments.

What they do want is a better return than the 0.1 per cent a year they get from their savings accounts, or the 0.5 per cent, on average, from fixed deposit accounts.

Financial experts point out that low-risk investments almost invariably yield relatively low returns.

And what if the investors are young folk in, say, their 30s? Financial planners universally insist that they should opt for a less conservative portfolio of investments.

Young folk have a long time-horizon to ride out fluctuations in riskier instruments.

Over time, they could find that equities, for example, give a handsome return.

In any case, a new investor may start off with conservative investments and move on to higher-risk ones when he feels ready for them.

At the moment, there are five types of broadly conservative investments with varying risk-reward ratios that financial experts hold up for consideration:

REITs

What they are: The acronym stands for real estate investment trusts.

Reits own commercial or industrial properties, and pay out the rental income they collect to investors on a regular basis - usually half-yearly.

Returns: At current prices, Reits such as Ascendas Reit and CapitaMall Trust will give you a return of around 5 per cent, tax-free.

'I have about a third of my investments in Reits. They are quite a no-brainer,' says Mr Michael Loo, an investor consultant who is also a certified financial analyst.

Reits have an inherent risk - their prices dip and rise in day-to-day trading.

How to invest:  Open a trading account with a brokerage, and buy Reit units on the stock market, just like shares.

INSURANCE

What: NTUC Income Capital Plus policy; UOB Guaranteed Rewards Plan
Returns: NTUC's policy guarantees a return of 3.37 per cent a year while the UOB policy gives you 3.6 per cent a year if you stay invested for 10 years. You get lower returns if you cash out prematurely.

If you buy these policies through your Special Retirement Scheme account, the purchase amount will be deducted from your taxable income for the year, which means you enjoy tax savings.

Aside from that, both plans come with insurance coverage for death as well as total and permanent disability.

How to invest: Call NTUC or UOB Life Assurance.

BONDS and STOCKS

What: NTUC Income recommends its Combined Fund, which is invested equally in stocks and bonds.

Fundsupermart, an online distributor of unit trusts, recommends a portfolio with an equal mix of the following:

Fidelity US High Yield Bond Fund;
Fidelity European High Yield Bond Fund;
N502100H; coupon 2.625% (SGS Bond);
NY03100A; coupon 4% (SGS Bond); and
Schroder Asian Growth Fund.

Returns:  Bonds are issued by governments or firms as a way to borrow money. Bondholders are paid a fixed interest, and get back their capital at a predetermined maturity date.

Bonds get a little risky if they are issued by companies or governments that do not have strong balance sheets or political stability, respectively. But such risky bonds promise to pay out more to investors, hence their name: high-yield bonds.

For its fund, NTUC says you should expect a return of between 5 and 6 per cent a year over 10 years.

That means every $10,000 invested could grow to between $17,100 and $17,900.

As for the Fundsupermart recommendation, you can expect to receive a tax-free dividend return of 3.5 per cent a year from the bond portion.

The Schroder fund gives you exposure to shares of Asian growth companies.

How to invest:  Open an account with Fundsupermart, or any bank distributor.

You can ask for advice on a different mix of bond-equity investments.

SGS BONDS

What: These are Singapore Government Securities (SGS) issued and guaranteed by the Singapore Government.

Returns: SGS bonds have tenures of up to 15 years.

 

They pay interest every six months, and you get back the face value of the bond when it matures. For example, if an SGS bond has a coupon rate of 3.8 per cent, then for every $1,000 in face value, the investor will get two tax-free payments of $19 every six months until the bond matures. When the bond matures, the investor will receive the original $1,000 back.

The yields for SGS bonds vary with the maturity date. For an SGS bond that matures in three years, the yield currently is about 1.5 per cent a year.

Clearly, this is not sexy, but it outperforms savings and fixed deposit rates.

Says Mr Lim Chung Chun, chairman of Fundsupermart.com: 'Singaporeans are generally under-invested in bonds. There is an estimated $150 billion in savings and fixed deposits in the banks in Singapore. A good part of that should really find its way into the bond market.'

How to invest: Open an SGS trading account with a bank or Fundsupermart.

UNIT TRUSTS

What: OCBC Bank recommends the OCBC Map and The Accumulator unit trusts, which are globally invested and well-diversified.

Returns: With diversification, you put your eggs in several baskets, so your overall investment enjoys some stability.

One way to diversify is to spread your investments over assets that move in opposite directions, such as equities and bonds, says Ms Anne Tay, vice-president of wealth management at OCBC Bank.

How to invest: Diversified unit trusts can be bought from almost any bank.The list of investments is by no means exhaustive. Seek comprehensive advice before investing.