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If you’re a big fan of adventure trails and hikes, you’ll know that the well-beaten path can only take you so far. To get the full experience and go beyond the others, you need to have the right tools, the right physical preparation, and usually a more comprehensive mapping tool.
This is similar to just relying on your CPF (a simple, guaranteed way to go a fixed distance), versus complementing it with investments to go further. Here are some safe ways to finish a more challenging – and rewarding – hike or investment journey:
Why not just rely on CPF alone? There’s nothing wrong with doing that. This is like following the well-mapped path for hundreds or thousands of others on the same trail.
In terms of retirement goals, CPF provides a guaranteed interest rate of up to 2.5 per cent for your CPF Ordinary Account, and up to four percent on your CPF Special Account. These are sufficient for many Singaporeans to own their home, and have a decent pay out after retirement.
However, given that our CPF delivers guaranteed returns (whether the market is up or down), this can also give us more confidence to invest elsewhere. Think of CPF as the bedrock of our portfolio: a low-risk asset, that can be complemented by products with higher returns.
It’s like hiking a little further past the tourist stops, to get more spectacular views and rewards.
You should never start a hike before at least checking the route; and if you want to go further than the common tourist, you’ll need more advanced navigation tools.
This helps you to decide your overall pace (walk slower or faster depending on the elevation and distance), the best tools to bring, and safe places to stop or get off the trail (in case anything goes wrong).
In the world of investments, robo-advisors such as UOBAM Invest are an analogy to this. UOBAM Invest helps to plan the right mix of assets for your desired savings or retirement goals. It even helps you work out your daily budget and progress, so you can tell when you’re going “off the trail”, or are falling short of any milestones. It also features a glide path solution that gradually adjusts portfolio risk as you approach the end of your investment horizon which safely guides you to your destination.
Should you invest more into a good pair of shoes, or a better tent? Do you just need one trusty raincoat, or should you have a mix of all-weather outfits? These are all the questions you need to ask before a major hike, as there aren’t always chances to replace your gear along the trail.
As most experienced hikers can tell you, it’s not a good idea to focus on one thing to get you through a hike. Blowing your whole budget on the most elaborate tent, or two pairs of $400 boots, is likely to bring disappointing results.
You need to even out the budget, and purchase a diverse mix of equipment; this ensures you’re ready for most eventualities.
In investing, this is all about diversification. Buying Unit Trusts or Exchange Traded Funds (ETFs) allows you to invest in a basket of different assets, instead of focusing all your capital on one or two assets. This ensures that any unexpected downturns won’t impact your whole investment, as better performance in other stocks will make up for it.
If you want to take on more challenging hikes, having great first-aid tools is a must. It’s a literal life-saver in a worst-case scenario. Good hikers never assume medical equipment is nearby, they take steps to ensure that’s the case.
That’s also true for investors looking at the long term. Investors should be cautious when investing with their property savings or insurance: a medical emergency could force investors to liquidate assets to pay for it. This will put an end to the investment plan, and possibly incur losses.
Besides protection, however, some insurance plans can also act as investment. An example would be endowment plans, which provide a pay-out upon maturity, or upon death or permanent disability.
Other policies may include Investment Linked Policies (ILPs), in which units in funds are purchased with your premiums; this can result in certain non-guaranteed bonuses, and sometimes better pay-offs (although you should consult a qualified wealth manager on whether these products suit you).
As an aside, note that the Medisave funds in your CPF have limitations. For example, there is a limit of $150 per day for daily hospital charges. You also can’t use Medisave for certain tests and scans, as well as medical-related expenses such as ambulance fees. Many insurance policies, however, can cover costs beyond these.
We often have to change our pace on a hike: perhaps going a little faster at the start to cover more distance (while you’re fresh), and then switching to a more measured pace later. Likewise, you might have to change your stride during uphill stretches, versus steep declines.
Your CPF rates and returns also change slightly as you age; but apart from voluntary top-ups, these are mostly fixed by existing policies. You can, however, have your own investment portfolio that varies to match your personal needs.
For example, you could have a portfolio heavier on equities or higher-return unit trusts in your 20’s, when you should aim for longer term gains. However, you can switch to more conservative assets such as fixed deposits or bond funds as you get older.
This allows you to stretch your gains in your youth, when your investment horizon is still far – and then protect your accrued wealth with defensive investments near retirement (think of it as saving your stamina to ensure completion of the route).
For hikes that are going to last days or weeks, your portable shelter is important. You want this to be flexible enough that it’s easy to set up and move, but at the same time reliable under most conditions.
The better your shelter, the lower chances you’ll need to abandon your hike, or suffer in discomfort.
Singapore Savings Bonds (SSBs) work like this – if held to maturity of 10 years, you get returns that matches the average 10-year Singapore Government Securities (SGS) yield the month before your investment, which often is between 2-3%1.
But in the event of an emergency, you can retrieve your funds for a pro-rated return and these funds can be used to shelter you from the storm. Think of it as being able to whip out your shelter from the rain or other bad weather, at a moment’s notice.
At sunnier times, the interest repayments on the SSBs help to further your investment returns; making this light enough to aid on your overall trail.
We always know where the tourist stops are, and we know we can head to those areas and catch a ride back whenever we need to. Sometimes, this is exactly what gives us the confidence to push on for another two or three kilometres; we know help is near and has our back.
The same goes for having CPF. You already have a retirement nest egg growing at a fixed interest rate; and this is protected no matter what. With that in mind, you can approach other investments with greater confidence.
Aim to build a balanced, well diversified portfolio, of which CPF is part of the overall plan. You can plan such a retirement route with the help of UOBAM Invest.
1Monetary Authority of Singapore (mas.gov.sg)
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