Managing Inflation

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Written by: Shenghan (Financial Consultant,RNF: NS-300668994) , Ayushi and Melvin (Financial Consultant, RNF: MC-300664991 ) Mentor by: Holly Heng (Financial Consultant, RNF: HHQ300584957) How do I start? Important Terms: Sources: 1 2 3 Who…

Written by: Shenghan (Financial Consultant,RNF: NS-300668994) , Ayushi and Melvin (Financial Consultant, RNF: MC-300664991 )
Mentor by: Holly Heng (Financial Consultant, RNF: HHQ300584957)

How do I start?

Important Terms:

  • Return on Investment (ROI)1
    • Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. Is the investor looking to achieve capital growth, regular income or capital preservation? Determine your investment goals and consider how much you want to get back on your investment in a certain amount of time.
  • Risk2
    • Risk is defined as the chance that an outcome or investment’s actual gains will differ from an expected outcome. This can be due to market volatility and the ups and downs of business cycles. You should determine how much risk you are willing to take on.
  • Time Horizon3
    • A time horizon is your investing timeline, or how long you plan to hold an asset before selling it. You have to consider how easily you can convert your investment vehicles into ready cash if an emergency arises, this is liquidity. The amount of time you want to hold your investment is an important consideration.
Figure 1: This timeline does not represent the Company/public/usual understanding of time horizon and life events. It’s a sample of a time horizon created by the authors.


Who can invest?

People have different risk-return profiles due to different financial goals and obligations.

LevelsLevel 1Level 2Level 3Level4
Investment Returns ExpectationsMinimal investment income, adjusted for inflation, investment returns may be very lowInvestment income and capital gains will come with some short-term fluctuationsModerate investment returns over the medium term will come with relatively higher risksHigher investment returns over the long term will come with relatively higher risks
Volatility AcceptanceVery low volatilityLow volatilityMedium volatility in short termHigh volatility in short term to medium term
Capital Growth ExpectationPreserve capitalSmall capital growthModerate capital growthHigh capital gains

Here are some investment vehicles:

  1. Fixed-income securities: Fixed-income securities are usually a low-risk investment choice that provides a fixed ROI. For instance, Singapore Savings Bonds (SSBs) are issued by the Singapore government and have an average return of 2.71% over 10 years4.
  2. Unit Trusts: Unit trusts are a type of professionally managed investment fund that holds assets. Its profits can be given directly to investors instead of being reinvested in securities. Like other mutual funds, it pools together money from various investors to invest in assets like bonds and equities.
  3. REITs: REITs are companies that own or finance income-producing real estate across a range of property sectors and historically pays out high dividends. Because they have low correlation to other asset classes, REITs provide good portfolio diversification and risk management.
  4. Equities & ETFs: Stock prices are subject to the ups and downs of the business cycle and market performance. ETFs track the prices of an index, commodity, sector or other assets can be traded on a stock exchange, unlike mutual funds.
  5. Mutual Funds: A mutual fund is made up of a pool of money collected from many investors to invest in securities. Mutual funds are operated by fund managers, who allocate the fund’s assets and attempt to produce capital gains for the investors.
  6. Cryptocurrency: A relatively new class of asset that features a decentralized system running on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.
 Return of investmentRiskTime horizon
Fixed-income securitiesLowLowVaries but usually with fixed periods of term
Unit trustsVariesDepends on portfolioUsually, long term
Real estate investment trusts (REITs)HighHighLong term
Equities, Exchange traded funds (ETFs)HighHighVaries with the characteristics of funds
Mutual fundsVariesDepends on portfolioUsually, long term
CryptocurrencyHighHighVaries due to volatility

Insurance as investment vehicles:
Endowment policies
A combination of a savings plan and life insurance coverage Endowment policies serves as a wealth accumulation tool and provides insurance coverage that pays out a benefit upon death or maturity. It is primarily a long-term strategy to grow your savings for significant milestones such as your first house, your child’s education, and even retirement. One of the major benefits of an endowment plan is that it provides an option to invest money in a disciplined and well-organised way to fulfill financial requirements. However, it is important to note that a long-time horizon is needed to observe the returns paying off.

Investment-linked policies (ILPs)
A combination of life insurance and an investment component. Premiums are invested in an asset or assets of the consumer’s choice (subject to the outcome of Customer’s Knowledge Assessment). As this is a complex investment instrument, it is important that consumers are aware and understand the sub-funds before choosing to start investing in ILPs (do speak to any of our financial consultant for advice).