Seeking Higher Growth in Fixed Deposits

Recently I checked out the highest fixed deposit rates across banks in Singapore, the highest so far that i have seen is Maybank’s iSavvy account which offers 1.68% pa.  However all this really does not fare well against the current rising inflation rates.

Fixed Deposits are generally “safe” refuges for today’s money. Traditionally the first option for people who have money in the tunes of 10k, 30k, 50k and above. It is relatively accessible & highly liquid.

With inflation currently at a record high of more than 5%, people are beginning to source out better alternatives to putting their money. Banks remain as the popular choice for the cash rich due to its accessibility and liquidity. Fixed Deposits stays on the top of people’s minds as the safest place to put money in. However the safest place now no longer offers the same refuge 20 years ago.

Money left in Fixed Deposits are depreciating whether you like it or not. Inflation is something out of our control, thus we can no longer say that Fixed Deposits are the best watch dogs to safeguard your money. So long for our money watch dog!

$50,000 now will only be worth 60% of its value 20 years down the road if inflation averages around
2~3%. With 1.68% interest, your money still gets depreciated by 0.32% to 1.32%. Is there any better alternative in this day and age???

Equities are the answer to this problem now. Why? Relatively low risk, better diversification as well as better growth, a decent investment should give between 10% to 17% growth yearly. A well planned equitiy portfolio guided by principles should give a respectable yield that hedges against inflation and still grow your money.

Why settle for a watch dog that doesn’t effectively guard your money when you can get a tree that feeds you?

Lets be creative with our money, using a mixture of instruments on the market we can create the tree that bears good fruit.

 

Inject the capital from your fixed deposit into a capital appreciating tool that gives you 4% pa.  By using the yearly dividend payout, invest into a regular investment linked policy for 20 years. At the end of 20 years, you will have more than double the money, along the way you can still have the flexibility of consuming the yearly dividends or reinvest into the investment linked policy. Surely this gives you a better alternative compare to fixed deposits. What is the risk? The risk is minimal, firstly, the capital appreciating tool retains its capital at the end of 20 years, and by using dollar cost averaging over 20 years, your investment is not affected by market fluctuations.

For more info on a capital appreciating vehicle go to http://ethan.insights.to/retirement and visit my other blog http://ethan.sincerely.to/you

Asset Rich and Cash Poor

I was once talking to my property agent and discussing property buying trends in Singapore and our topic of discussion slowly started to revolved around the issue of using CPF to finance homes in Singapore. Singapore has a unique situation whereby our CPF can be using in the Public Housing Scheme and Residential Properties Scheme. I would dare say without these schemes, there will be a lower property ownership compared to what we have now. However the current situation also gives us insight on how dependent we are on CPF to have a home. CPF has released a statistical newsletter stating the changing trends of home ownership. How it was growing and then how it was affected by national event such as SARS and economic downs.

What is certain is this; More and more people will use more of their CPF to finance a home. Public housing scheme has been utilized by more than 1.2 million Singaporeans. while private residences is tagged at at least 220,000.

From 2005 to 2006 alone, a net increase in 2 billion CPF withdrawn was used for housing purposes. This reflects strongly the the increased usage in CPF for housing. CPF board strongly advices Singaporeans to set aside sufficient CPF for our retirement nest.

A home loan issue is becoming increasing prevalent with already at least 25,000 Singaporeans at 55 financing their home loan not with CPF but with Cash. This figure is expected to increase and slowly and the retirement nest of Singaporeans are being eroded away by increasing home loans.

From now to 55. Statistics have shown that most Singaporeans do not have an issue paying their home loan using their CPF as long as they are working.

From 55 to 60, most Singaporeans may still be able to pay for their home loan using their CPF as long as they are working and contributing to their CPF.

From 60 to 65 is where a question arises. Most people are in retirement mode and even if they are working, CPF contribution rates would have significantly been reduced. Thus they have to use cash to pay for their home loan instead of CPF. The cash would have come from their hard earned retirement savings meant for their retirement. Or they would have to continue working and continue to pay for the home loan, otherwise seek further refinancing. So this is a serious problem when we use CPF to pay for our home loan.

Now, if given a choice when you are 60 facing such a home loan issue, which would you rather, Cash or CPF?

The good news is that a solution can be implemented today to avoid that situation in the future.  Every person’s situation is unique in some ways therefore to really know how to implement a solution correctly, it takes some effort to correctly establish the needs and address it appropriately.

Contact me at 9644 6924 to discuss how a solution implemented today can help you.