What Can a Singaporean Investor or Saver do to Fight Inflation?

What Can a Singaporean Investor or Saver do to Fight Inflation?

Since the second quarter of 2008, the inflation rate in Singapore has been rising steadily. Since 2009, the annual inflation rate in Singapore has been an average of 3.25%. The question now becomes “What can you do to protect yourself in the case of inflation that threatens your business?”

The easiest way to fight inflation is to make more money and become rich or richer. But in a country, that is already battling inflation, it is much more difficult to join the rich and wealthy. So how do you protect yourself?

Ways to Protect Yourself against Inflation in Singapore

1. Invest in Equity Portfolios

One asset that usually safeguards your money during inflation long term is equity portfolios. It is, however, important for you to note that this applies mostly when the subject is capital appreciation rather than payment of dividends. Investing in a strong performing equity portfolio can help you fight against inflation and its adverse effects.

If you want to maximize your equity portfolio return, it is important that you manage it actively, and make a stock selection based on inflation views and how it affects companies.

2. Singapore Saving Bonds

The first portion of the Singapore Savings Bonds (SSB) was launched in October 2015 by the Singapore Government to citizens of Singapore looking for a more cost-efficient method of saving money.

As a savings bond, SSB offers several advantages over other saving products that are in the market. One of such advantages is that despite offering a similar. In some cases superior interest rate to term deposits in commercial banks, the SSB has no lock-in period on the funds. Investors just need to give a one month notice if they need to withdraw their funds for any reason.

10 year term

Each of the savings bonds has a 10-year term and generates interests every six months. Unlike conventional bonds and shares, the SSB cannot be traded. The interest is also exempted from tax.

Since the Government of Singapore backs the SSB, it makes the SSB one of the safest investment option out there. Also, depending on the current market interest rates, the price of regular bonds can change. If you invest in conventional bonds, and you sell them before they mature, you may receive more or less of what you invested. With SSB however, changes in interest rate will have no effect on the value of the bond. And you will always get your principal back.

SSB offers returns that depend on how long you hold them. Initially, the interest you receive will be little, but as time goes, the interest increases with time. So, the longer you hold your savings bonds, the higher your returns.

The interest rates of the Savings Bond issued are based on the mean Singapore Government Securities (SGS) yields the previous month before you applied and may be adjusted to maintain the constant increased feature if the market condition allows.  For example, let’s say you invest $1,000 in July. The interest rates will be base on the June SGS rates. In the first year, your interest will be $9 for a return of 0.9%. In the 2nd year, your return for a 2-year investment will be 1.2% giving you a $15 interest. After ten years, you’ll get an interest of $33. From the interest received, your effective yearly returns are 2.4%.

Seen above is a graphical representation of the example and how your interest increases over time.

3. Invest in Stock

Although stocks don’t offer a sure financial protection against inflation. They have been an excellent way to hedge against moderate to high inflation historically.

Research has shown that securing equities is a more efficient way of combating inflation. Equity tends to provide cash flow with the potential to rise over inflation as time goes.

Even if the market is constantly changing and leaves you feeling uneasy. It is still unwise to ignore stocks to evade inflation.  Equities also come with its set of risks, but they are still a recommend option to help protect you against inflation.

4. Turn your Direction to High-Yield Corporate Bonds

Several corporations abroad and in Singapore offer high-yield bonds regularly. These bonds provide regular payment coupons that surpass inflation. Of course, with any bond investment, you will need to factor in the movements of interest rates in the future and how they can impact the price of the underlying bond.

5. Consider Annuities

A lot of annuity options provide a steady income stream that is guaranteed to increase with time. However, you need to be ready to surrender the control of your investment plans and pay expenses that can cut into your future earnings.

Most insurance brokers or salespeople who carry annuities typically collect commission fees as high as 7%. However, some fee-based financial planners offer no-load annuity options that come with no commission cost.

One disadvantage of annuity is that the surrender charge you pay when you want to withdraw money during the first few years is high. It can be as high as 7% if you withdraw from your account after one year of purchase and declines by 1% every year till it reaches zero.

6. Treasury Inflation-protected Securities (TIPS)

TIPS are government-backed bonds that are designed specifically to protect individuals from inflation. The returns on TIPS are usually tied to the Consumer Price Index. For those that are living on a fixed income, it is advisable to have some TIPS in an account that is tax-deferred.

TIPS generate interest every six months and this interest is exempted from local and state tax but is subject to Federal tax. For example, buying $1,000 worth of TIPS when the inflation rate is about 3% will give you $1,300 by the end of the year. The best part about TIPS is that on maturing, you get back your original principal worth or an adjusted amount depending on which is greater.

A lot of economists believe that a good bet against inflation is purchasing Gold, but with the recent fluctuation in the price of Gold, it may not be a suitable option. Considering the money that is dump into the financial hub in Singapore, inflation will have adverse effects on your finances if you are not prepared. Therefore, it is important for you, as a saver and as an investor to find an investment plan that will protect you against inflation. Article Four

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