Savings & Investments In Singapore

Savings and Investments Singapore AAM Advisory
The Difference Between Savings & Investments

Saving is setting money aside for expected future use that could be a short-term goal like planning a holiday or a long-term objective like retirement or paying for your child’s education. While saving is a good habit, simply leaving it with a bank may not earn you a healthy rate of return to afford the kind of lifestyle you desire.

While investing involves greater risk, it also offers greater growth for your money. A regular savings programme is a good way to start with personal investing. Before deciding on a direction to achieve your financial goals, understanding your time-frame would determine the right blend of assets to match your needs.

Investment Timeframes

  • short-term: 1 to 3 years
  • medium-term: 3 to 10 years
  • long-term: over 10 years
Risk & Return

Though reduced risk is generally deemed to be more appealing, it does not necessarily mean that having no risk is the most beneficial when it comes to investing. It has been found that low levels of risk are generally associated with low potential returns, whereas high levels of risk are associated with high potential returns.

This theory is known as the ‘Risk-Return Trade-off Principle’.

Higher levels of risk generally have higher potential returns, but it also includes a higher level of potential loss. Because of the risk-return trade-off, one would need to be aware of their risk tolerance level when deciding where to invest. The aim is to find an appropriate balance, one which generates return at a risk tolerance that does not stop you from sleeping at night.

This is a situation where portfolio diversification becomes useful. By diversifying the investment allocation between assets of high risk with assets of lower risk levels, the ratio between risk and return endured would become more tolerable.

In this environment of rising inflation and low bank interest rates, most people understand that leaving their hard earned funds in the bank is rarely the most sensible thing to do. A recent study from JP Morgan showed that money left in a bank could lose its value at an annual rate.

The annual real deposit rate within Singapore between 2008 to 2013 was -3.5% according to the JP Morgan market insight, which means that in 12 months the money in the bank would lose 3.5% of its value. Due perhaps to past experiences, poor advice or simply a lack of time to investigate options, many savers are under the impression that investing into the stock markets involves lots of risk, and is best left to the experts.

Also some worry that they will feel ‘disconnected’ from their money, as it will be invested into areas that they don’t understand. The good news is that both of these problems can be addressed by choosing the right financial planner. A well qualified and experienced financial planner will have the skills to explain all of your options and help recommend solutions that you feel confident and comfortable with.

The AAM Investment Committee works with you and your AAM financial planner in order to provide ongoing advice and information as the economic environment and your circumstances change. AAM Advisory is also committed to ensuring that you always feel connected to your money; through our feedback and service standards but also through making sure that all our financial planners have the knowledge and skills required to explain the rationale for all of our recommendations.

A regular savings plan over the long term is likely to return far more than your friendly local bank will do, although it has to be said that there is a slightly increased risk involved at the same time.

At the same time, because a regular investing plan involves the discipline of putting away a certain amount of money every month, it is an extremely good way of disciplining yourself into saving as much as you should to ensure that you meet your long-term objectives.

Make The Most Of Your Disposable Income With Regular Investing
Before deciding on the right plan of action for you in terms of establishing a regular investing routine, the first thing you must consider is the time frame associated with your plan, and how much money should you invest. As a general rule, these are the time frames that most professional financial advisers would use:

Investment Time-Frame

regular investing Short-term saving refers to any arrangement where you expect to take the proceeds in 1 to 3 years

regular investing A plan where the proceeds are expected in between 3 and 10 years is medium term

regular investing Anything above 10 years is considered to be long-term financial planning

Dollar Cost Averaging

One of the major advantages of regular monthly investment is dollar cost averaging. This refers to the fact that when investing in a particular fund, the average buying price of units is reduced because the price of units goes up and down.

When the price is low, you buy more units per dollar whereas you buy less units for your dollar when the price is high. The overall price that you pay for each unit is therefore averaged out, meaning that the ratio of the average cost measured against your final benefits is tilted in your favour.

Regular monthly saving plans take advantage of this aspect of investment. Sometimes you will buy units at a high price, sometimes at a low price and ultimately, the average cost that you pay evens itself out.

The Bottom Line To Regular Investing
However, before committing yourself to any particular regular investing arrangement, these are some of the factors that you must consider:

regular investing Portability

regular investing Currency

regular investing Tax Efficiency

regular investing Investment Time-frame

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